Management’s Discussion and Analysis
The following Management’s Discussion and Analysis (“MD&A”) of the consolidated operating and financial performance of Claude Resources Inc. (“Claude” or the “Company”) for the three and six months ended June 30, 2013 with the corresponding period of 2012 is prepared as of August 1, 2013. This discussion is the responsibility of Management and has been prepared using International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board. This discussion should be read in conjunction with the Company’s June 30, 2013 condensed consolidated interim financial statements and notes thereto and the Company’s 2012 annual MD&A and 2012 audited consolidated financial statements and notes thereto. The Board of Directors has approved the disclosure presented herein. All amounts referred to in this discussion are expressed in Canadian dollars, except where otherwise indicated.
Overview
Claude Resources Inc., incorporated pursuant to the Canada Business Corporations Act, is a gold producer with shares listed on both the Toronto Stock Exchange (TSX-CRJ) and the NYSE MKT (NYSE MKT-CGR). The Company is also engaged in the exploration and development of gold mineral reserves and mineral resources. The Company’s entire asset base is located in Canada.
The Company’s revenue generating asset is the 100 percent owned Seabee Gold Operation, located in northern Saskatchewan, which includes 42,500 acres (17,200 hectares) and is comprised of five mineral leases and extensive surface infrastructure. Claude also owns 100 percent of the Amisk Gold Project in northeastern Saskatchewan. The Amisk Gold Project is located 20 kilometres southwest of Flin Flon, Manitoba and hosts the Amisk Gold Deposit and a large number of gold occurrences and prospects. At 99,800 acres (40,400 hectares), this gold and silver exploration property is one of the largest land positions in the Flin Flon mineral district. Claude also owns 100 percent of the Madsen Property located in the Red Lake gold camp of northwestern Ontario. The Madsen Project comprises over 10,000 acres (4,000 hectares) and boasts historical production in excess of 2.4 million ounces, making it the third largest gold producer in the Red Lake camp in Ontario, Canada. Infrastructure includes a fully functional 500 ton per day mill, a 4,125 foot deep shaft and permitted tailings facility. (1)
The Company’s Seabee, Amisk and Madsen properties contain large, long life mineral resources in the politically safe jurisdiction of Canada. All three properties, and their related deposits, contain over one million ounces of gold in the ground inventory and have significant leverage to the price of gold and provide valuable long-term opportunities for the Company and its shareholders. Management intends to maintain and advance these projects in a financially prudent manner, which will include the monitoring of the attractiveness of these projects and the evaluation of alternatives to improve their economics.
During the second quarter of 2013, the price of gold witnessed its biggest plunge since 1980 (dropping below U.S. $1,300 an ounce). As of the date of this MD&A, despite a modest recovery, gold prices are below the Company’s fiscal 2013 budget and will have a material impact on full year revenues and free cash flow. Management is continuing its goal to improve unit operating costs at the Seabee Gold Operation with the implementation of its cash flow optimization plan, designed to maximize cash flow, while further developing satellite deposits including the Company’s Santoy Gap deposit.
Production, Financial and Exploration Highlights
Seabee Gold Operation Production
| · | Production: 12,438 ounces produced during the second quarter (June 30, 2012: 12,166 ounces produced). Year to date, 20,520 ounces produced (YTD 2012: 21,740 ounces produced). For fiscal 2013, the Company continues to forecast that its 2013 production will fall within the previously stated guidance of 50,000 to 54,000 ounces. Claude expects significant reduction in total Company expenditures for fiscal 2013 which is largely attributable to the completion of major upgrades to the Seabee Operations (including equipment and facilities) in 2012, major projects such as the Seabee Mine Shaft Extension being completed, a reduced PP&E spend in 2013 ($12.4 million budgeted in 2013; $27.9 million in 2012) and continued focus on the Company’s cash flow optimization plan. |
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 2 |
Financial
| · | Revenue:For the three months ended June 30, 2013, sales of 11,532 ounces (Q2 2012 – 12,306 ounces) at an average price of $1,393 (U.S. $1,361) generated revenue of $16.1 million, a 20 percent decrease in revenue over the second quarter of 2012. Year to date, sales of 20,833 ounces (YTD 2012 – 21,853 ounces) at an average price of $1,505 (U.S. $1,516) generated revenue of $31.3 million, a 13 percent decrease over the second quarter year to date 2012. |
| · | Cash cost per ounce of gold(2): CDN $875 (U.S. $855) per ounce for the three months ended June 30, 2013 was a 19 percent improvement over the CDN $1,082 (U.S. $1,071) per ounce for the second quarter of 2012. Year to date, cash cost per ounce of gold was CDN $1,040 (U.S. $1,024) per ounce, a nine percent decrease from the cash cost per ounce of CDN $1,149 (U.S. $1,143) reported during the first half of 2012. The Company is continuing to pursue best practices with the intention of lowering these costs. |
| · | Net cash margin: For the three months ended June 30, 2013, net cash margin was CDN $518 per ounce (Q2 2012 - CDN $551 per ounce). Year to date, net cash margin was CDN $465 per ounce (YTD 2012 - $505 per ounce). |
| · | Net (loss) profit: For the three months ended June 30, 2013, net loss of $9.9 million, or $0.06 per share (June 30, 2012 – net profit of $0.7 million, or $0.00 per share). Year to date, net loss of $12.5 million, or $0.07 per share (YTD 2012 – net profit of $0.2 million, or $0.00 per share). |
| · | Impairment:For the three months ended June 30, 2013, an impairment charge of $10.8 million (June 30, 2012 – nil) at the Company’s Seabee Gold Operation which was largely driven by the decline in the gold price during the second quarter. |
| · | Adjusted Net (loss) profit(2): For the three months ended June 30, 2013, adjusted net loss of $2.3 million, or $0.01 per share (June 30, 2012 – adjusted net profit of $1.1 million, or $0.01 per share). Year to date, adjusted net loss of $5.6 million, or $0.03 per share (YTD 2012 – adjusted net loss of $0.2 million, or $0.00 per share) |
| · | Cash flow from operations before net changes in non-cash operating working capital(3): $3.7 million, or $0.02 per share (June 30, 2012 – $5.3 million, or $0.03 per share). Year to date, $5.0 million, or $0.03 per share (YTD 2012 – $7.8 million, or $0.05 per share). |
Exploration
Seabee Gold Operation:
| · | Drill results from the Santoy Mine Complex program included 18.80 grams of gold per tonne over 13.86 metres and 330.35 grams of gold per tonne over 1.55 metres, inclusive of a bonanza grade interval of 602.00 grams of gold per tonne over 0.84 metres. |
| · | Over 30,000 metres of underground drilling was completed during the first half of 2013. The Company’s focus was on Seabee Deep, L62 and the Santoy Mine Complex. |
| · | Exploration at the Seabee Gold Operation focused on surface drilling at the Santoy Mine Complex and testing near the Seabee Mine. |
| · | Advancement of the 2013 summer regional target program was ongoing. |
Mineral Reserves and Mineral Resources:
| · | At December 31, 2012, the Company effectively upgraded nearly half of the Santoy Gap inferred resource into the indicated category while continuing to grow the deposit. Furthermore, the infill drill program demonstrated that a high grade core exists with widths of up to 20 metres. The Santoy Gap deposit, part of the Santoy Mine Complex, represents a great opportunity for the Company due to its proximity to permitted mine infrastructure, low development cost and near-term production potential. |
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 3 |
| · | Proven and Probable Mineral Reserves at December 31, 2012 were 311,100 ounces of gold. Measured and Indicated (“M&I”) Mineral Resources at December 31, 2012 were 344,200 ounces of contained gold. |
Amisk Gold Project:
| · | During the first half of the year, exploration activities at the Amisk Gold Project were minimal with planned expenditures for fiscal 2013 being deferred due to the low gold price. |
| · | The Amisk Gold Project Preliminary Economic Assessment (“Amisk PEA”) was completed during the second quarter with release anticipated during the third quarter. |
Madsen:
| · | Phase I and II drill programs at Madsen were successful in confirming and extending the 8 Zone and Austin and McVeigh systems. In addition, the Company has demonstrated that Madsen is a high grade gold project that has strong vertical continuity, remaining open at depth and along strike to the northeast. Based on these results, the significant existing resource base and advanced infrastructure, the Company commenced an internal scoping level analysis at the Madsen Project. The analysis will provide key input into a decision to advance Madsen towards a Preliminary Economic Assessment (“Madsen PEA”) and pre-feasibility study (which may include further field and underground work), conceptually evaluating the value and development potential of the project. |
| · | In response to the completion of the Company’s underground drilling, completion of the internal scoping level study and the intention to reduce expenditures due to the low gold price, Management has terminated its underground dewatering program at Madsen and is currently evaluating a number of strategic opportunities for this asset. |
Outlook
In the future, Claude will continue to:
| i) | Pursue best practices in the areas of safety, health and the environment in all of our operations; |
| ii) | Reduce capital and operating expenditures and improve unit operating costs at the Seabee Gold Operation by continuing to focus on the Company’s cash flow optimization plan designed to maximize cash flow while developing lower cost and higher grade satellite deposits including the Santoy Gap deposit; |
| iii) | Sustain or increase reserves and resources at the Seabee Gold Operation through targeted exploration and development; and |
| iv) | Evaluate strategic opportunities for the Company's 100 percent owned Madsen Exploration Project. |
The Company has aggressively taken steps to reduce corporate expenditures starting in the second quarter of 2012. Since full year 2012, Claude has identified and implemented annualized savings approximating 20 percent and will continue to review and adjust expenditures for the balance of 2013.
Operating and Financial Outlook
The Company completed its shaft extension project at the Seabee Mine and was able to reach full production from the L62 deposit. During the remainder of 2013, the Company will see the completion of many milestones including:
| · | record mill and mine throughput; and |
| · | access to underground drill chambers to explore and infill drill the Santoy Gap deposit. |
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 4 |
For 2013, forecast gold production at the Seabee Gold Operation is expected to fall within the Company’s previously stated guidance of 50,000 to 54,000 ounces. Unit costs for 2013 are expected to improve from 2012’s unit cash costs of $997 CDN per ounce. Quarterly operating results are expected to fluctuate throughout 2013; as such, they will not necessarily be reflective of the full year average.
At current gold prices and forecast production, Management believes that operating cash flows will not be sufficient to fund the 2014 Winter Ice Road resupply requirements and further development opportunities at the Seabee Gold Operation. Accordingly, the Company is investigating various external financing options to ensure sufficient funding is in place.
Forecast and Capital Outlook
Capital expenditures at the Seabee Gold Operation in 2013 are expected to include continued investment and upgrades that are estimated to total approximately $31.9 million, funded from a combination of cash on hand, operating cash flow and debt. This 31 percent reduction from 2012 expenditures of $46.4 million is due to the completion of several major projects, including the shaft extension.
| Table 1: Estimate of 2013 Capital Expenditures (CDN$ million) |
| Capital | | | | |
| Development | | $ | 16.7 | |
| Sustaining | | | 9.0 | |
| Expansion | | | 6.2 | |
| | | $ | 31.9 | |
Development expenditures are expected to be roughly equal between Seabee and Santoy. Sustaining capital costs include expenditures on equipment replacement and tailings water treatment facilities. Expansion capital is expected to focus in the Santoy Gap area to support the Company’s Life of Mine Plan and to generate future returns for the Company as the Santoy Gap deposit represents one of the Company’s best opportunities to build shareholder value.
Exploration Outlook
Due to the success of its 2011 and 2012 exploration programs and in light of the current gold price environment, Claude has elected to reduce its exploration spending during 2013 to $1.6 million from the $2.7 million budgeted and the $14.2 million incurred in 2012.
At the Seabee Gold Operation, exploration expenditures will focus on low cost per ounce targets, proximal to infrastructure with the potential to materially impact near-term production, drive resource growth and to positively impact the Company’s Mineral Reserves and Mineral Resources. The Seabee Gold Operation, consisting of the producing Seabee Mine and Santoy Mine Complex, is Claude’s sole producing asset, has delivered consistent exploration results, remains underexplored and has a number of advanced resource-stage/near-infrastructure targets.
At the Amisk Gold Project, Claude will update its National Instrument 43-101 (“NI 43-101”) resource calculation in conjunction with the completion of the Amisk PEA which will be available for release in the third quarter.
At Madsen, costs forecasted for 2013 have been reduced to approximately $1.3 million and relate to the Company’s internal scoping analysis.
Mining Operations Results
Seabee Gold Operation
At the Seabee Gold Operation, Claude is focused on executing the expansion of its production profile and lowering unit costs over the next several years by maximizing gold output from the near surface Santoy 8 and Santoy Gap deposits as well as increasing margins at the Seabee Mine via the shaft extension project which will provide more efficient transportation of ore and waste from the Seabee Deep and L62 deposits.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 5 |
The Company is also continuing with its review of operating processes and procedures to identify and implement efficiencies designed to increase production and lower operating costs.
During the second quarter of 2013, the Company milled 79,077 tonnes at a grade of 5.13 grams of gold per tonne (Q2 2012 – 72,808 tonnes at a grade of 5.45 grams of gold per tonne) for total production of 12,438 ounces of gold (Q2 2012 – production of 12,166 ounces of gold). With mill recoveries unchanged period over period, the increase in ounces produced is attributable to an increase in tonnes milled offset by slightly lower grade period over period.
Year to date, the Company milled 140,954 tonnes at a grade of 4.77 grams of gold per tonne (YTD 2012 – 139,364 tonnes at a grade of 5.11 grams of gold per tonne). Year to date, produced ounces were 20,520 (YTD 2012 – 21,740 ounces); with mill recoveries unchanged period over period, the decrease in ounces is attributable to lower grade.
| Table 2: Seabee Gold Operation Quarterly Production and Cost Statistics |
| | | Three Months | | | Three Months | | | Six Months | | | Six Months | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Operating Data | | | | | | | | | | | | | | | | |
| Tonnes Milled | | | 79,077 | | | | 72,808 | | | | 140,954 | | | | 139,364 | |
| Head Grade (grams per tonne) | | | 5.13 | | | | 5.45 | | | | 4.77 | | | | 5.11 | |
| Recovery (%) | | | 95.3 | | | | 95.3 | | | | 94.9 | | | | 94.9 | |
| Gold Produced (ounces) | | | 12,438 | | | | 12,166 | | | | 20,520 | | | | 21,740 | |
| Gold Sold (ounces) | | | 11,532 | | | | 12,306 | | | | 20,833 | | | | 21,853 | |
| Financial Data | | | | | | | | | | | | | | | | |
| Revenues (CDN$ million) | | $ | 16.1 | | | $ | 20.1 | | | $ | 31.3 | | | $ | 36.1 | |
| Production Costs (CDN$ million) | | $ | 10.1 | | | $ | 13.3 | | | $ | 21.7 | | | $ | 25.1 | |
| Cash Operating Costs (CDN$/oz)(2) | | $ | 875 | | | $ | 1,082 | | | $ | 1,040 | | | $ | 1,149 | |
| Cash Operating Costs (U.S.$/oz)(2) | | $ | 855 | | | $ | 1,071 | | | $ | 1,024 | | | $ | 1,143 | |
Seabee Mine
During the second quarter of 2013, the Seabee Mine produced 7,155 ounces of gold (Q2 2012 – 6,819 ounces). This increase was attributable to a 10 percent increase in tonnes milled, which was positively impacted by the Shaft Extension Project, offset by a five percent decrease in grade.
Year to date, the Seabee Mine produced 11,442 ounces (YTD 2012 – 13,925 ounces). This decrease was attributable to a 14 percent decrease in grade and a five percent decrease in Mill throughput.
| Table 3: Seabee Mine Quarterly Production Statistics |
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Tonnes Milled | | | 39,484 | | | | 35,931 | | | | 72,554 | | | | 76,074 | |
| Tonnes per Day | | | 434 | | | | 395 | | | | 401 | | | | 418 | |
| Head Grade (grams per tonne) | | | 5.91 | | | | 6.19 | | | | 5.17 | | | | 5.99 | |
| Gold Produced (ounces) | | | 7,155 | | | | 6,819 | | | | 11,442 | | | | 13,925 | |
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 6 |
Santoy Mine Complex
During the second quarter of 2013, the Santoy Mine Complex produced 5,283 ounces of gold (Q2 2012 – 5,347 ounces). Period over period, these results were attributable to increased tonnes offset by an eight percent decrease in grade.
Year to date, the Santoy Mine Complex produced 9,078 ounces (YTD 2012 – 7,815 ounces). This increase was attributable to a seven percent increase in grade and an eight percent increase in Mill throughput.
| Table 4: Santoy Mine Complex Quarterly Production Statistics |
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Tonnes Milled | | | 39,593 | | | | 36,877 | | | | 68,400 | | | | 63,290 | |
| Tonnes per Day | | | 435 | | | | 405 | | | | 378 | | | | 348 | |
| Head Grade (grams per tonne) | | | 4.35 | | | | 4.73 | | | | 4.35 | | | | 4.06 | |
| Gold Produced (ounces) | | | 5,283 | | | | 5,347 | | | | 9,078 | | | | 7,815 | |
Capital Projects
Shaft Extension
The Company’s shaft extension project at the Seabee Mine deepened the shaft from 600 metres to 1,000 metres. After a 20 day shutdown, this project was completed early in the first quarter of 2013. The shaft extension project was undertaken to provide more efficient transportation of ore and waste from underground to surface. Upon completion of this project, the Company has experienced increased reliability and efficiency gains including reduced trucking distance, lower diesel consumption, decreased labour and equipment usage, and improved ventilation associated with the shaft extension.
Financial Results of Operations
Highlights
| Table 5: Highlights of Financial Results of Operations |
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Revenue | | $ | 16,070 | | | $ | 20,091 | | | $ | 31,348 | | | $ | 36,143 | |
| Divided by ounces sold | | | 11,532 | | | | 12,306 | | | | 20,833 | | | | 21,853 | |
| Average Realized Price per Ounce (CDN$) | | $ | 1,393 | | | $ | 1,633 | | | $ | 1,505 | | | $ | 1,654 | |
| | | | | | | | | | | | | | | | | |
| Production costs | | $ | 10,088 | | | $ | 13,319 | | | $ | 21,672 | | | $ | 25,115 | |
| Divided by ounces sold | | | 11,532 | | | | 12,306 | | | | 20,833 | | | | 21,853 | |
| Total cash costs per ounce (CDN$) | | $ | 875 | | | $ | 1,082 | | | $ | 1,040 | | | $ | 1,149 | |
| | | | | | | | | | | | | | | | | |
| Net Cash Margin per Ounce Sold (CDN$) | | $ | 518 | | | $ | 551 | | | $ | 465 | | | $ | 505 | |
| | | | | | | | | | | | | | | | | |
| Depreciation and depletion | | $ | 5,794 | | | $ | 3,892 | | | $ | 10,343 | | | $ | 7,152 | |
| Gross profit (loss) | | $ | 188 | | | $ | 2,880 | | | $ | (667 | ) | | $ | 3,876 | |
| Net (loss) profit * | | $ | (9,915 | ) | | $ | 679 | | | $ | (12,452 | ) | | $ | 188 | |
| Loss per share (basic and diluted) * | | $ | (0.06 | ) | | $ | 0.00 | | | $ | (0.07 | ) | | $ | 0.00 | |
*2013 results include the impact of a $10.8 million impairment charge.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 7 |
During the second quarter of 2013 and year to date, the decrease in ounces sold and in average realized price per ounce, offset by decreased production costs, has negatively impacted net cash margin per ounce sold period over period. The Company is continuing various initiatives intended to improve profitability of the Seabee Gold Operation through a combination of improved grade control, cost controls and developing the production profile at lower cost satellite ore bodies, including Santoy 8 and eventually the Santoy Gap deposit. Also, the Company anticipates that the continued contribution of the Santoy Mine Complex (including the Santoy 8 and Santoy Gap deposits), contribution of ore from the L62 Zone and completion of the shaft extension will be positive catalysts in improving production and lowering overall unit operating costs at the Seabee Gold Operation during the remainder of 2013.
Figure 1: Average Gold Price Realized (CDN$)
Per Ounce Sold | 
Figure 2: Cash Cost and Margin Realized (CDN$)
Per Ounce Sold |
Net Loss
For the three months ended June 30, 2013, the Company recorded a net loss of $9.9 million, or $0.06 per share, after a $10.8 million impairment charge which was offset by a $3.5 million deferred income tax recovery. This compares to net profit of $0.7 million, or $0.00 per share, after a deferred tax expense of $0.4 million for the three months ended June 30, 2012. Year to date, the Company recorded a net loss of $12.5 million, or $0.07 per share after a $10.8 million impairment charge which was offset by a $4.2 million deferred income tax recovery (YTD 2012 - net profit of $0.2 million, or $0.00 per share, after a deferred income tax expense of $0.5 million).
Revenue
Gold revenue from the Company’s Seabee Gold Operation for the three months ended June 30, 2013 decreased 20 percent to $16.1 million from $20.1 million reported for the second quarter of 2012. The decrease in gold revenue period over period was attributable to a 15 percent decline in Canadian dollar gold prices realized (Q2 2013 - $1,393 (U.S. $1,361); Q2 2012 - $1,633 (U.S. $1,616)) and six percent lower gold sales volume (Q2 2013 – 11,532 ounces; Q2 2012 – 12,306 ounces).
Year to date, gold revenue decreased 13 percent to $31.3 million from the $36.1 million reported in the first half of 2012. This decrease was attributable to a nine percent decrease in Canadian dollar gold prices realized (YTD 2013 - $1,505 (U.S. $1,481); YTD Q2 2012 - $1,654 (U.S. $1,645)) and a sales volume decrease of five percent (YTD 2013 –20,833 ounces; YTD 2012 – 21,853 ounces) period over period.
Production Costs
For the three months ended June 30, 2013, mine production costs of $10.1 million were 24 percent better than the comparable period of 2012. Year to date, mine production costs were $21.7 million (YTD 2012 - $25.1 million), an improvement of 14 percent.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 8 |
For the second quarter of 2013, total cash cost per ounce of gold(2) of CDN $875 (U.S. $855) per ounce were 19 percent better than the second quarter of 2012’s cash cost per ounce of CDN $1,082 (U.S. $1,071). Year to date, total cash cost per ounce of CDN $1,040 (U.S. $1,024) per ounce were nine percent lower than the cash cost per ounce of CDN $1,149 (U.S. $1,143) reported during the first half of 2012.
Period over period and year to date, these results are attributable to efficiencies associated with the shaft extension and reduced spending attributable to the Company’s cash flow optimization plan. The Company is continuing to pursue initiatives intended to lower these costs during the remainder of 2013 and beyond.
Depreciation and Depletion
For the three months ended June 30, 2013, depreciation and depletion was $5.8 million (Q2 2012 - $3.9 million), up 49 percent period over period. Year to date, depreciation and depletion was $10.3 million, a 43 percent increase over the $7.2 million reported for the first six months of 2012. For the quarter and year to date, these results are attributable to an increase in the Seabee Gold Operation’s asset base and a decrease in the Seabee Gold Operations reserves.
General and Administrative Expense
General and administrative expense for the first three months ended June 30, 2013 decreased to $1.4 million, down 22 percent from the $1.8 million reported for the second quarter of 2012. For the first half of 2013, general and administrative costs of $3.8 million were 16 percent lower than the $4.5 million reported for the comparable period of 2012. The variances noted below primarily relate to a decrease in stock-based compensation.
| Table 6: Corporate General and Administrative Expense |
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Direct administration | | $ | 1,347 | | | $ | 1,441 | | | $ | 2,908 | | | $ | 2,980 | |
| Stock-based compensation | | | 303 | | | | 449 | | | | 630 | | | | 1,295 | |
| Deferred share units | | | (221 | ) | | | (83 | ) | | | 289 | | | | 193 | |
| Total General and Administrative | | $ | 1,429 | | | $ | 1,807 | | | $ | 3,827 | | | $ | 4,468 | |
Finance Expense
Finance expense includes interest expense, accretion expense and derivative gains or losses (if any). For the three months ended June 30, 2013, finance expense was $1.0 million (Q2 2012 - $0.4 million). Year to date, finance expense was $1.3 million (YTD 2012 - $0.6 million). For the quarter ended June 30, 2013 and year to date, the variance noted is attributable to increased interest expense associated with the Company’s new $25.0 million debt facility, which closed at the beginning of the second quarter.
Finance and Other Income
Finance and other income consists of interest income, production royalties pursuant to the Red Mile transactions and other income. For the three months ended June 30, 2013, finance and other income was ($0.1) million (June 30, 2012 - $0.4 million). Year to date, finance and other income was $0.2 million (YTD 2012 - $1.1 million). These results are attributable to a decrease in interest and miscellaneous revenue, period over period.
Impairment Charge
The Company’s accounting policy requires assessment whether any indication of impairment exists at each of its mineral properties at the end of each reporting period.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 9 |
At June 30, 2013, due to the significant drop in gold price during the second quarter, it was determined that there were indicators of impairment and an estimate of the recoverable amount of the Company’s mineral properties was completed. This assessment is done at the Cash Generating Unit (“CGU”) level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. Fair Value Less Cost to Sell (“FVLCS”) of the Company’s CGU was determined by calculating the net present value of the future cash flows expected to be generated by the CGU. Determining the recoverable amount required the use of estimates and assumptions such as long-term commodity prices, discount rates, future capital requirements, exploration potential and operating performance. The estimates of future cash flows were derived from the Company’s most recent Life of Mine Plan (“LOMP”) utilizing an average estimated long-term gold price of CDN $1,450 per ounce to estimate future revenues. The future cash flows of the Company’s CGU were discounted using a real weighted average cost of capital (“WACC”) of 9.25 percent after taking into account the location, market risk and various other factors deemed applicable to the project.
Based on the Company’s estimate of FVLCS, an impairment loss was recognized because the carrying amount of the Company’s CGU exceeded its recoverable amount by $10.8 million; as such, the Company’s Mineral properties balance was reduced by the amount of the impairment with a corresponding charge recognized in profit (loss).
Deferred Income Tax (Recovery) Expense
For the three months ended June 30, 2013, the Company had a deferred tax recovery of $3.5 million (Q2 2012 - deferred income tax expense of $0.4 million). Year to date, the Company had a deferred tax recovery of $4.2 million (YTD 2012 - deferred income tax expense of $0.5 million). The variance, both for the quarter and YTD, is due to an increase in the loss before taxes primarily due to the impairment charge, as well as unrecognized deferred tax assets increasing the deferred income tax expense in the prior year and quarter.
Liquidity, Financial Resources and Capital Structure
The Company monitors its spending plans, repayment obligations and cash resources on a continuous basis with the objective of ensuring that there is sufficient capital within the Company to meet business requirements, after taking into account cash flows from operations and the Company’s holdings of cash and cash equivalents and short-term investments. The Company’s typical cash requirement over the first and second quarters of each year is significant because of the Seabee Gold Operation’s winter ice road resupply, which includes restocking diesel, propane and other large consumables as well as the continued investment in maintenance and growth capital relating to the mining fleet and mine infrastructure.
The Company had bank indebtedness of $9.8 million at June 30, 2013 (December 31, 2012 - bank indebtedness of $3.5 million).
At June 30, 2013, the Company had working capital of $4.1 million (December 31, 2012 - working capital deficiency of $4.1 million). Included in the working capital calculation at June 30, 2013 are demand loans totaling $4.2 million and a revolving loan totaling $5.0 million. Demand loans have been classified as current liabilities due to their demand feature.
| Table 7: Working Capital and Current Ratio |
| | | June 30 | | | December 31 | | | Percent | |
| | | 2013 | | | 2012 | | | Change | |
| | | | | | | | | | |
| Current assets | | $ | 36,200 | | | $ | 24,300 | | | | 49 | |
| Current liabilities | | $ | 32,070 | | | $ | 28,397 | | | | 13 | |
| Working capital (deficiency) | | $ | 4,130 | | | $ | (4,097 | ) | | | 201 | |
| Current ratio | | | 1.13 | | | | 0.86 | | | | 31 | |
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 10 |
The Company’s objective when managing capital is to safeguard its ability to continue as a going concern so that it can continue to provide adequate returns to shareholders and benefits to other stakeholders. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue new shares, sell assets or incur debt. The Company is not subject to externally imposed capital requirements.
The Company’s capital structure is comprised of a combination of short-term and long-term debt and shareholders’ equity.
The Capital structure of the Company is as follows:
| Table 8: Schedule of Capital Structure of the Company |
| Capital Structure | | | | | | | June 30 | | | December 31 | |
| | | Interest | | | Maturity | | 2013 | | | 2012 | |
| | | | | | | | | | | | |
| Demand loans | | | Prime + 1.50 | % | | Jan-Apr/2015 | | $ | 4,157 | | | $ | 5,337 | |
| Revolving loan | | | Prime + 1.75 | % | | Dec 2013 | | | 5,000 | | | | - | |
| Debenture | | | 12.00 | % | | May/2013 | | | - | | | | 9,665 | |
| Term loan | | | 10.00 | % | | April/2018 | | | 23,501 | | | | | |
| Total debt | | | | | | | | $ | 32,658 | | | $ | 15,002 | |
| | | | | | | | | | | | | | | |
| Shareholders’ equity | | | | | | | | | 182,132 | | | | 192,364 | |
| | | | | | | | | | | | | | | |
| Debt to equity | | | | | | | | | 17.9 | % | | | 7.8 | % |
Investing
Mineral property expenditures during the six months ended June 30, 2013 were $20.7 million, a $20.3 million decrease from the comparable period in 2012. Year to date, expenditures were comprised of Seabee Mine and shaft development of $12.9 million, exploration and Madsen dewatering costs (focusing primarily on the Santoy Gap deposit, with minimal expenditures on the Seabee Regional, Amisk and Madsen exploration projects) of $2.2 million and property, plant and equipment additions of $5.6 million. Property, plant and equipment additions include mining equipment, camp infrastructure and tailings management facility expansion. The Company utilized its cash flow from operations and debt to fund these additions.
Financing
Financing activities during the first half of 2013 included the issuance of 2,065,812 common shares (YTD 2012 – 338,676) pursuant to the Company’s Employee Share Purchase Plan; no common shares were issued pursuant to the Company’s Stock Option Plan during the first half of 2013 (YTD 2012 – 75,402).
During the first six months of 2013, the Company repaid $2.0 million of its demand loans and capital leases outstanding. The proceeds and repayments of demand loans and capital leases relate to production equipment at the Seabee Gold Operation.
In January 2013, the Company expanded its current debt facilities with its existing bank (“CWB”) to $25.0 million. Further, early in the second quarter of 2013, the Company executed an agreement with Crown Capital Partners Inc. (“CCP”) for an additional long-term debt facility of $25.0 million (please see financing section below). The new debt facilities enabled the successful retirement of the Company’s outstanding debentures (which matured in May 2013) and have assisted with expansion capital at the Seabee Gold Operation.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 11 |
CWB Financing Summary
The CWB facilities consist of leases, demand loans and of a line of credit. The debt expansion is structured as follows:
| Facility | | Previous Amount | | | Current Amount | |
| Line of Credit | | $ | 5,000,000 | | | $ | 10,000,000 | |
| Leases/Demand Loans | | $ | 7,000,000 | | | $ | 10,000,000 | |
| Revolving Loan | | | NIL | | | $ | 5,000,000 | |
Interest rates are both fixed and floating and carry a weighted average rate of approximately 4.5 percent.
CCP Financing Summary
The CCP offering, consists of a five (5) year $25.0 million debt facility which carries an interest rate of 10 percent of the outstanding principal, compounded and payable monthly. Principal payments, due to begin in 2014, are payable monthly. The facility also includes 5.75 million warrants at a strike price of $0.70 which are exercisable at any time from the closing of the transaction to 5 years following the closing of the transaction.
Sources / Uses
| Sources of Funds | | | | | Use of Funds* | | | |
| CCP Term Loan | | $ | 25,000,000 | | | Refinancing | | $ | 10,000,000 | |
| | | | | | | Working Capital | | $ | 15,000,000 | |
| Total Sources | | $ | 25,000,000 | | | Total Use | | $ | 25,000,000 | |
* Approximate balances
Principal Repayment Terms
| Period | | Monthly Amount | | | Annual Amount | |
| Months 1 – 12 | | | NIL | | | | NIL | |
| Months 13 – 59 | | $ | 300,000 | | | $ | 3,600,000 | |
| Due at Maturity | | | | | | $ | 10,900,000 | |
Prepayment Terms
| Months Following Closing | | Prepayment Fee | |
| Months 13 – 24 | | | 2 | % |
| Months 25 – 36 | | | 1 | % |
| Months 37 – 60 | | | 0 | % |
Accounting Impact
The Company’s Term Loan is recorded at amortized cost. The Company incurred $1.5 million of closing costs, including the value of the common share purchase warrants noted above, associated with the completion of this Term Loan. Pursuant to Company policy, these costs reduce the carrying value of the Term Loan and will be amortized using the effective interest rate method at an effect rate of approximately 12 percent over the five year period of the Term Loan.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 12 |
| | | JUN 30 | | | DEC 31 | |
| | | 2013 | | | 2012 | |
| | | | | | | |
| Term loan | | $ | 25,000 | | | $ | - | |
| Less: | | | | | | | - | |
| Closing costs | | | (624 | ) | | | - | |
| Warrant valuation | | | (955 | ) | | | | |
| Current portion | | | (600 | ) | | | - | |
| | | | 22,821 | | | | - | |
| Add: Amortization of closing costs | | | 80 | | | | - | |
| | | $ | 22,901 | | | $ | - | |
Financial and Other Instruments
In the normal course of its operations, the Company is exposed to gold price, foreign exchange, interest rate, liquidity, equity price and counterparty risks. The overall financial risk management program focuses on preservation of capital and protecting current and future Company assets and cash flows by reducing exposure to risks posed by the uncertainties and volatilities of financial markets.
The Company may use derivative financial instruments to hedge some of its exposure to fluctuations in gold prices and foreign exchange rates. The Company does not acquire, hold or issue derivatives for trading purposes. The Company’s management of financial risks is aimed at ensuring that net cash flows are sufficient to meet all its financial commitments as and when they fall due and to maintain the capacity to fund its forecast project development and exploration strategies.
The value of the Company’s mineral resources is related to the price of gold and the outlook for this mineral. Gold and precious metal prices historically have fluctuated widely and are affected by numerous factors outside of the Company’s control, including, but not limited to, industrial and retail demand, central bank lending, forward sales by producers and speculators, levels of worldwide production, short-term changes in supply and demand because of speculative hedging activities and certain other factors related specifically to gold. The profitability of the Company’s operations is highly correlated to the market price of gold. If the gold price declines below the cost of production at the Company’s operations, for a prolonged period of time, it may not be economically feasible to continue production.
The Company’s revenues from the production and sale of gold are denominated in U.S. dollars. However, the Company’s operating expenses are primarily incurred in Canadian dollars and its liabilities are primarily denominated in Canadian dollars. The results of the Company’s operations are subject to currency risks. The operating results and financial position of the Company are reported in Canadian dollars in the Company’s consolidated financial statements.
The Company did not have any derivative instruments outstanding at June 30, 2013 or June 30, 2012.
The Company’s liquidity position is managed to ensure sufficient liquid funds are available to meet its financial obligations in a timely manner. The Company manages liquidity risk by continuously monitoring forecast and actual cash flows and ensuring that the Company has the ability to access required funding.
The Company is exposed to equity securities price risk arising from investments classified on the balance sheet as available-for-sale. Investments in equity securities are approved by the Board on a case-by-case basis. All of the Company’s available-for-sale equity investments are in junior resource companies listed on the TSX Venture Exchange.
The Company is exposed to counterparty risk which is the risk that a counterparty will not complete its obligations under a financial instrument resulting in a financial loss for the Company. The Company does not generally obtain collateral or other security to support financial instruments subject to credit risk; however, the Company only deals with credit worthy counterparties. Accounts receivable comprise institutions purchasing gold under normal settlement terms of two working days. Counterparty risk under derivative financial instruments is to reputable institutions. All significant cash balances are on deposit with high-rated banking institutions. The carrying amount of financial assets recorded in the financial statements represents the Company’s maximum exposure to credit risk without taking account of the value of any collateral or other security obtained.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 13 |
Contractual Obligations
At June 30 2013, with the exception of the increase in the Company’s credit facilities at CWB during the first quarter of 2013 and of the Company’s long-term debt added during the second quarter of 2013, there were no significant changes to the Company’s contractual obligations from those reported in the Management’s Discussion and Analysis for the year ended December 31, 2012.
The Company continued updating its decommissioning and reclamation plans for the Madsen and Seabee properties during the first half of 2013. It is expected that additional security (approximately $6.5 million) will need to be provided to the applicable regulatory authorities. However, the timing of this security has not yet been determined.
Statements of Financial Position
| Table 9: Select Statements of Financial Position Data |
| | | June 30 | | | December 31 | | | Percent | |
| | | 2013 | | | 2012 | | | Change | |
| | | | | | | | | | |
| Total assets | | $ | 248,419 | | | $ | 234,517 | | | | 6 | % |
| Long-term financial liabilities | | $ | 34,217 | | | $ | 13,756 | | | | 149 | % |
The Company’s total assets were $248.4 million at June 30, 2013, compared to $234.5 million at December 31, 2012; Claude’s asset base primarily consists of non-current assets comprising mineral properties, reflecting the capital intensive nature of the exploration and mining business and the impact of the significant capital expenditures relating to its operations and exploration projects. The $13.9 million net increase resulted from increases of: $5.0 million in Short-term investments; $8.1 million in Inventories; a $10.1 million in Mineral properties (prior to a $10.8 million write-down) attributable to Seabee Mine development and shaft extension, exploration costs (focusing primarily on the Santoy Gap deposit with minimal expenditures on the Seabee Regional, Amisk and Madsen exploration projects) and additions to property, plant and equipment; and an increase of $3.1 million to the Company’s Deferred income tax asset. These increases were offset by decreases of: $1.0 million in Accounts receivable, attributable to the timing of gold sales and receipt of funds; $0.1 million to prepaid expenses and deposits; and $0.3 million to Investments.
Total liabilities were $66.3 million at June 30, 2013, up $24.1 million from December 31, 2012. This result was attributable to a $6.2 million increase in bank indebtedness and a $3.1 million increase in Accounts payable and accrued liabilities, attributable to the timing and payment of expenditures relating to consumables (associated with the annual winter road resupply) at the Seabee Gold Operation; a net increase of $26.5 million in the Company’s current and non-current Loans and borrowings attributable to certain debt obtained to fund the Company’s second quarter debenture redemption and expansion capital at the Seabee Gold Operation.These increases were offset by a decrease of $1.1 million in the Company’s Deferred income tax liability; a net decrease of $0.6 million in the Company's current and long-term Net royalty obligation; a decrease of $0.4 million in the Company’s decommissioning and reclamation accrual; and the retirement of the Company’s debenture during the second quarter for $9.7 million.
Shareholders’ equity decreased by $10.2 million to $182.1 million at June 30, 2013, from $192.4 million at December 31, 2012. This variance is attributable to an increase in Share capital of $1.7 million due to the issuance of common shares pursuant to the Company’s Employee Share Purchase Program; an increase of $0.6 million to Contributed surplus; and a $12.5 million increase to Accumulated deficit, a result of the net loss (inclusive of the $10.8 million write-down offset by a $3.5 million deferred income tax recovery) for the period.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 14 |
Comprehensive income consists of net profit (loss), together with certain other economic gains and losses that are collectively referred to as “other comprehensive income (loss)” or “OCI” and are excluded from the Income Statement. During the period ended June 30, 2013, other comprehensive income was impacted by the Company’s write-down of certain available-for-sale securities.
Key Sensitivities
Earnings from Claude’s gold operation are sensitive to fluctuations in both commodity and currency prices. The key factors and their approximate effect on earnings, earnings per share and cash flow, based on assumptions comparable to second quarter 2013 actuals, are as follows:
Gold
For a U.S. $10 movement in gold price per ounce, earnings and cash flow will have a corresponding movement of CDN $0.4 million, or $0.00 per share. For a $0.01 movement in the US$/CDN$ exchange rate, earnings and cash flow will have a corresponding movement of $0.6 million, or $0.00 per share.
Grade
For a 0.25 gram per tonne movement in grade, earnings and cash flow will have a corresponding movement of CDN $3.3 million, or $0.02 per share.
Selected Quarterly Financial Data
| | | June 30 | | | Mar 31 | | | Dec 31 | | | Sept 30 | | | June 30 | | | Mar 31 | | | Dec 31 | | | Sept 30 | |
| | | 2013 | | | 2013 | | | 2012 | | | 2012 | | | 2012 | | | 2012 | | | 2011 | | | 2011 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Tonnes milled | | | 79,077 | | | | 61,877 | | | | 69,698 | | | | 66,173 | | | | 72,808 | | | | 66,556 | | | | 74,456 | | | | 66,722 | |
| Grade processed (grams per tonne) | | | 5.13 | | | | 4.31 | | | | 5.94 | | | | 7.34 | | | | 5.45 | | | | 4.74 | | | | 4.97 | | | | 5.51 | |
| Ounces produced | | | 12,400 | | | | 8,100 | | | | 12,700 | | | | 15,100 | | | | 12,200 | | | | 9,600 | | | | 11,300 | | | | 11,300 | |
| Ounces sold | | | 11,500 | | | | 9,300 | | | | 12,700 | | | | 14,100 | | | | 12,300 | | | | 9,500 | | | | 11,900 | | | | 10,900 | |
| Gold sales ($ millions) | | | 16.1 | | | | 15.3 | | | | 21.2 | | | | 23.4 | | | | 20.1 | | | | 16.1 | | | | 19.9 | | | | 18.2 | |
| Net profit (loss) ($ millions) | | | (9.9 | ) | | | (2.5 | ) | | | 2.4 | | | | 3.0 | | | | 0.7 | | | | (0.5 | ) | | | (0.2 | ) | | | 2.6 | |
| Net profit (loss) per share(a) | | | (0.06 | ) | | | (0.01 | ) | | | 0.01 | | | | 0.02 | | | | 0.00 | | | | (0.00 | ) | | | 0.00 | | | | 0.02 | |
| Average realized gold price (CDN$ per ounce) | | | 1,393 | | | | 1,643 | | | | 1,668 | | | | 1,663 | | | | 1,633 | | | | 1,681 | | | | 1,678 | | | | 1,670 | |
| Average realized gold price (US$ per ounce) | | | 1,361 | | | | 1,629 | | | | 1,683 | | | | 1,671 | | | | 1,616 | | | | 1,679 | | | | 1,641 | | | | 1,704 | |
| Cash cost per ounce(b) (CDN$ per ounce) | | | 875 | | | | 1,245 | | | | 822 | | | | 920 | | | | 1,082 | | | | 1,236 | | | | 1,130 | | | | 871 | |
| Cash cost per ounce(b) (US$ per ounce) | | | 855 | | | | 1,235 | | | | 829 | | | | 924 | | | | 1,071 | | | | 1,234 | | | | 1,105 | | | | 888 | |
| Cash flow from operations before net changes in non-cash operating working capital ($ millions)(c) | | | 3.7 | | | | 1.4 | | | | 9.4 | | | | 8.6 | | | | 5.3 | | | | 2.6 | | | | 7.2 | | | | 5.7 | |
| Cash flow from operations per share | | | 0.02 | | | | 0.01 | | | | 0.05 | | | | 0.05 | | | | 0.03 | | | | 0.02 | | | | 0.04 | | | | 0.03 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding (basic) | | | 175,811 | | | | 174,801 | | | | 173,746 | | | | 173,746 | | | | 173,741 | | | | 170,481 | | | | 164,351 | | | | 163,911 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CDN$/US$ Exchange | | | 1.0235 | | | | 1.0086 | | | | 0.9914 | | | | 0.9949 | | | | 1.0101 | | | | 1.0012 | | | | 1.0230 | | | | 0.9804 | |
| (a) | Basic and diluted, calculated based on the number of shares issued and outstanding during the quarter. |
| (b) | Denotes a non-IFRS performance measure. For an explanation of non-IFRS performance measures, refer to the “Non-IFRS Performance Measures” section of this MD&A. |
| (c) | For an explanation of this performance measure, refer to the “Other Performance Measures” section of this MD&A. |
The financial results for the last eight quarters reflect the following general trends: consistent average realized gold price notwithstanding Q2 2013; lower grade attributable to more feedstock from the Santoy 8 deposit; and increasing cash cost per ounce notwithstanding Q2 2013.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 15 |
Accounting Estimates
Certain of the Company’s accounting policies require that Management make decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. For a discussion of those estimates, please refer to the Company’s Management’s Discussion and Analysis for the year ended December 31, 2012, available atwww.sedar.com.
New Accounting Pronouncements
Claude’s significant accounting policies are contained in Note 3 to the Company’s most recent annual consolidated financial statements for the year ended December 31, 2012, available atwww.sedar.com.
Future Accounting Pronouncements
Certain new accounting standards and interpretations have been published that are not mandatory for the June 30, 2013 reporting period:
| · | IFRS 9,Financial Instruments: effective for accounting periods commencing on or after January 1, 2015. The Company is currently evaluating the impact of IFRS 9 on its financial statements. |
Exploration Results
Due to the success of its 2011 and 2012 exploration programs and in light of the current gold price environment, Claude has elected to reduce its exploration spending during 2013 to $1.6 million, excluding Madsen dewatering charges, from the $2.7 million budgeted and the $14.2 million incurred in 2012.
Year to date in 2013, the Company’s exploration department focused on:
| · | execution of the winter drill program at the Seabee Mine and the Santoy Mine Complex (which was completed in mid-April) was able to demonstrate significant resource and grade upside at the Santoy Mine Complex; |
| · | continued development and compilation of near-mine targets at the Seabee Gold Operation during the 2013 summer exploration program; and |
| · | supporting the internal scoping analysis at Madsen. |
All exploration activities were carried out under the direction of Qualified Person, Brian Skanderbeg, P. Geo., Senior Vice President and Chief Operating Officer.
Seabee Gold Operation
The Seabee Gold Operation is located northeast of La Ronge, Saskatchewan and is host to the producing Seabee Mine and Santoy Mine Complex as well as the L62 Zone, Santoy Gap and Regional exploration targets.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 16 |
Figure 3: Seabee Property regional map showing significant gold deposits and occurrences.
At the Seabee Gold Operation, exploration expenditures during 2013 will focus on targets proximal to infrastructure with the potential to materially impact near-term production, drive resource growth and to positively impact the Company’s Mineral Reserves and Mineral Resources.
Santoy Region
The Santoy Region includes the Santoy 8 and Santoy Gap deposits, which are part of the Santoy Mine Complex. During the first half of 2013, exploration focused on evaluating the down-plunge extension of the Santoy Gap and Santoy 8A deposits, expanding recently discovered parallel zones near the Santoy Region and on initial drill testing of several near-Seabee targets. During the second half of 2013, exploration will focus on the development and advancement of a number of near-mine targets. Infill drilling at the Santoy Gap deposit will also be prioritized to convert additional ounces from the inferred to indicated category.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 17 |
Figure 4: Map of the Santoy Region
Gold mineralization at the Santoy Region is hosted in siliceous, shear structures with sulfide-chlorite-quartz veins and in silicified granitoid sills. The mineralized lenses dip moderately to steeply eastward and are amenable to bulk mining techniques. Gold mineralization of the Santoy 8 ore lens occurs over a strike length of 600 metres, a depth of 500 metres and remains open along strike and down plunge to the north. The Santoy 8E ore lens has been intercepted over a strike length of 200 metres, depth of 250 metres and remains open along strike and down plunge to the north. The true thickness of the Santoy 8 deposits varies from 1.5 metres to 15 metres.
The Santoy Gap deposit is located 400 to 900 metres north of underground infrastructure, immediately on strike and adjacent to the Santoy 8 deposit within the Santoy Mine Complex. Infill and exploration drilling continues to confirm and expand the Santoy Gap system.
Historical drilling completed in and around the Santoy Gap and along the Santoy Regional Shear Zone has extended the mineralized system, discovered a sub-parallel lens to the Santoy Gap approximately 150 metres to the east and affirmed the high prospectivity of the Santoy Regional Shear Zone, hosting multiple deposits over a three kilometre strike length. The Santoy Gap system remains open down plunge to the north, along strike to the south and at depth. These recent intercepts at depth may link with the existing Santoy 8 resource 300 metres to the south.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 18 |
During the first quarter of 2013, three of four surface holes at the Santoy Mine Complex were completed. Testing intercepted the Gap and or Santoy 8 structures. Down-plunge drilling tested the extension of Santoy 8 intercepted a vein system hosted in a thick package of highly altered shear zone. Recent drilling at Santoy Gap has extended the mineralized system down-plunge to 650 metres depth and at Santoy 8 has extended the system 400 metres below the base of the existing inferred resource. These step-out drill intercepts significantly expand the footprint of the Santoy Mine Complex and are of a materially higher grade than the current reserve and resource base.
| Table 10: Highlights from 2013 Santoy Mine Complex Drilling |
| Hole ID | | Easting | | | Northing | | From (m) | | | To (m) | | | Grade (g/t) | | | Width
(m) | | | Zone |
| JOY-13-690 | | | 599175 | | | 6171150 | | | 684.27 | | | | 685.82 | | | | 330.35 | | | | 1.55 | | | GAP |
| | | | | | | Incl | | | 684.98 | | | | 685.82 | | | | 602.00 | | | | 0.84 | | | GAP |
| JOY-13-692 | | | 599721 | | | 6170539 | | | 632.85 | | | | 646.71 | | | | 18.80 | | | | 13.86 | | | Santoy 8 |
| | | | | | | Incl | | | 632.85 | | | | 635.85 | | | | 73.49 | | | | 3.00 | | | Santoy 8 |
Note: Composites were calculated using a 3.0 g/t Au cut-off grade and may include internal dilution. True widths are interpreted to be 75 to 95 percent of drilled width. Assay results are uncut.
The 2013 surface drill program consisted of three step-out drill holes targeting the down-plunge extension of the Santoy Gap and Santoy 8 deposits. Of these, two drill holes returned high grade intercepts, interpreted to represent extensions of the mineralized system. Santoy Gap results are highlighted by drill hole JOY-13-690 that returned 330.35 grams of gold per tonne over 1.55 metres, inclusive of a bonanza grade interval of 602.00 grams of gold per tonne over 0.84 metres. This is the highest grade interval drilled to date at the Santoy Gap. Drill hole JOY-13-692 returned 18.80 grams of gold per tonne over 13.86 metres in the final hole of the program. The intercept is located 400 metres down plunge from existing Santoy 8 inferred resources and 200 metres along strike from the Santoy Gap inferred resources. Drill hole JOY-12-692 is of particular significance as it confirms continuity at depth between the Santoy Gap and Santoy 8 deposits.
With a relatively limited surface drill program, the Company was able to demonstrate significant resource and grade upside at the Santoy Mine Complex. Furthermore, these holes demonstrate the prospectivity of the Santoy system and they also highlight the potential for near term resource growth. With the advancement of the Company’s exploration ramp from Santoy 8 to Santoy Gap, Claude’s exploration group has initiated underground infill drilling to aid in the development of a detailed mine design for the Santoy Gap as it is moved towards production.
Based on the Santoy Gap inferred resource, positive exploration results and proximity to the existing Santoy 8 infrastructure, the Company has initiated an 850 metre long exploration drift to allow for infill drilling and upgrading of the inferred resource.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 19 |
Figure 5: Santoy Region Composite Longitudinal Section.
Seabee Regional
Exploration of the Seabee Regional area has included work in the Pine, Pigeon and Laonil Lake areas. Grass roots work has focused on examining these prospective regional structures.
Drilling near the Seabee Mine during the first quarter consisted of four drill holes totaling 2,000 metres; no surface drilling is budgeted for the remainder of the year. The program was designed to evaluate four distinct Seabee parallel structures and their intersection with a prospective regional corridor beneath Laonil Lake. Assays for these holes have been received and will be integrated into future exploration programs in the area.
Figure 6: Seabee Mine Composite Longitudinal Section (L62 Zone Discovery)
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 20 |
Amisk Gold Project
The potential of the Amisk Gold Project continues to be critically evaluated by the Company. The Amisk Gold Project is located in the Flin Flon-Snow Lake Greenstone Belt and is host to the Amisk Gold Deposit as well as a large number of gold occurrences and prospects.
With the completion of the Amisk PEA, no further expenditures are planned at Amisk during 2013. The 2012 regional exploration campaign at Amisk investigated a number of high-priority targets, some of which may warrant further testing. Consultants will be used to re-interpret historical geophysical data in order to rank and prioritize regional drill targets. Regional potential remains high and exploration maturity low. Field work and extensive compilation in 2012 have resulted in the emergence of an extensive list of exploration targets that are currently being prioritized for assessment in 2013. A preliminary version of the Amisk PEA was completed during Q2 2013; the Company is reviewing the results and findings outlined within the PEA.
At the Amisk Gold Project, Claude does not have plans for drilling in 2013; however, the Company has completed target development (with the goal of identifying targets with similarities to Amisk’s historical geology), ranking and ground-base reconnaissance in the area, including on the claims acquired during 2012 which host potential for Amisk-style gold-silver (“Au-Ag”) mineralization as well as conventional base-metal deposits typical of the Flin Flon belt.
Figure 7: Amisk Gold Project
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 21 |
Gold and silver mineralization at the Amisk Gold Project is associated with a sequence of quartz porphyritic, rhyolitic lapilli tuffs and flows hosting disseminations and stringers of pyrite, sphalerite, galena, tetrahedrite and chalcopyrite. Drilling has intercepted the mineralized system over a strike length of 1,200 metres, width of 400 metres and depths of in excess of 600 metres. The system remains open to the southwest, southeast, northwest and at depth.
Figure 8: Cross Section A-A’ of the Amisk Gold Property
Drilling from the Company’s 2011 and 2012 drill programs successfully confirmed continuity of gold mineralization within the northern and eastern portion of the deposit as well as demonstrated the potential for expansion to the east and southeast. Mineralization intercepted in the drilling is consistent with the current resource model and is associated with a sequence of quartz porphyritic, rhyolitic lapilli tuffs and basaltic tuffs and argillite hosting disseminations, stringers and semi-massive intervals of pyrite, sphalerite, galena, tetrahedrite, pyrrhotite and chalcopyrite. Drill hole AL-11-319 confirmed continuity of gold mineralization within the southeastern portion of the deposit as well as demonstrated the potential for expansion to the east and southeast.
Madsen Project
During 2013, following the four year advanced exploration program, Claude plans to advance the Madsen project to an internal scoping level study as well as evaluate further surface exploration targets. The evaluation will provide key input into a decision to advance a Madsen PEA, conceptually evaluating the value and development potential of all significant resource domains.
The Madsen Mine property currently hosts a NI 43-101 compliant Indicated Resource of 928,000 ounces at 8.93 grams per tonne and an Inferred Resource of 297,000 ounces at 11.74 grams per tonne. The property also hosts significant surface and underground infrastructure including a permitted tailings facility, 500 ton per day mill and a 1,250 metre deep shaft.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 22 |
In response to the completion of the Company’s underground drilling, advancement of the internal scoping level study and the intention to reduce capital expenditures, Management has terminated its underground dewatering program at Madsen. This decision will be re-evaluated depending on the results of the internal scoping study.
Figure 9: Madsen Longitudinal Section
Figure 10: Madsen Property Overview
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 23 |
8 Zone
During 2012, Phase II underground drilling continued from the 16th level which provides the ideal drill platform to explore both at depth as well as the strike potential of the 8 Zone Trend. A total of nine drill holes, targeting the down plunge continuity of the 8 Zone, were completed in 2012. Drill holes MUG-12-20, -26, -28 and -30 confirmed plunge continuity, returning visible-gold bearing intercepts of up to 26.50 grams per tonne over 2.00 metres. Drill hole MUG-12-25b intercepted a strong footwall zone returning 14.55 grams per tonne over 2.00 metres. These intercepts confirmed the 8 Zone system 250 metres down plunge from historic mining as well as indicate potential for high grade, sub-parallel lenses. The system continues to remain open down plunge and along strike to the east.
Drill holes targeting the western strike continuity of the 8 Zone include MUG-11-19, MUG-12-21, -22, -23 and -24 (Figure 9). Drill hole 21 intercepted silicified, biotite-altered basalt and returned gold assays of 9.53 grams per tonne over 2.00 metres, approximately 850 metres below surface. This intercept is in the hanging-wall of the 8 Zone system and interpreted to correlate with and be an extension of the Austin Tuff. Importantly, 2011 drilling in this area intercepted several high grade intervals within the McVeigh Tuff. The combination of well-mineralized Austin and McVeigh intercepts, 500 metres along strike and west from historic stopes, indicates the potential for a new shoot development.
Figure 11: 8 Zone Longitudinal Section
Drill holes targeting the strike continuity of the 8 Zone included MUG-11-10, 11, 13, 15, 17 and 19. Drill hole 13 and drill hole 17 intercepted silicified, biotite-altered basalt and returned 15.70 grams per tonne over 2.00 metres and 53.70 grams per tonne over 0.70 metres, approximately 950 metres below surface. These intercepts are in the hanging-wall of the 8 Zone system and interpreted to correlate with and be an extension of the McVeigh Tuff, located approximately 650 metres up-dip. The McVeigh Tuff hosts a current Indicated Resource of 115,000 ounces at 9.59 grams per tonne and has seen very limited drill testing below 350 metres. In addition to the McVeigh mineralization, the 8 Zone structure is developed in all holes completed along strike and is characterized by anomalous gold associated with biotite-altered, variably silicified basaltic and ultramafic lithologies.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 24 |
| Table 11: Summary of 2012 Phase II drill results from Madsen drilling |
| Hole-ID | | From | | | To | | | Width (m) | | Grade (g/t) | | | Zone |
| | | | | | | | | | | | | | |
| AD-11-01 | | | 2,376.0 | | | | 2,378.0 | | | 2.0 | | | 14.30 | | | Austin Tuff |
| AD-12-01b | | | 1,887.0 | | | | 1,889.0 | | | 2.0 | | | 3.43 | | | Austin Tuff |
| AD-12-02a | | | | | | | | | | | | | Anomalous | | | |
| MUG-11-18d | | | | | | | | | | | | | Anomalous | | | |
| MUG-12-18d | | | 821.0 | | | | 823.0 | | | 2.0 | | | 6.52 | | | 8 Zone – Main |
| MUG-11-19 | | | | | | | | | | | | | Anomalous | | | |
| MUG-12-20 | | | 795.0 | | | | 797.0 | | | 2.0 | | | 26.50 | | | 8 Zone - Main |
| and | | | 882.9 | | | | 884.2 | | | 1.3 | | | 8.12 | | | 8 Zone - FW |
| MUG-11-21 | | | 102.0 | | | | 104.0 | | | 2.0 | | | 9.53 | | | Austin Tuff |
| MUG-12-22 | | | | | | | | | | | | | Anomalous | | | |
| MUG-12-23 | | | | | | | | | | | | | Anomalous | | | |
| MUG-12-24 | | | 547.0 | | | | 549.0 | | | 2.0 | | | 4.55 | | | 8 Zone - Main |
| MUG-12-25b | | | 1,045.0 | | | | 1,047.0 | | | 2.0 | | | 14.55 | | | 8 Zone - FW |
| MUG-12-26 | | | 833.0 | | | | 834.5 | | | 1.5 | | | 12.00 | | | 8 Zone - Main |
| MUG-12-27 | | | | | | | | | | | | | NSI | | | |
| MUG-12-28 | | | 787.5 | | | | 789.0 | | | 1.5 | | | 4.75 | | | 8 Zone – HW |
| and | | | 834.0 | | | | 835.5 | | | 1.5 | | | 29.60 | | | 8 Zone - Main |
| MUG-12-29 | | | 361.0 | | | | 363.0 | | | 2.0 | | | 17.70 | | | McVeigh Tuff |
| MUG-12-30 | | | 951.0 | | | | 952.0 | | | 1.0 | | | 7.77 | | | 8 Zone - FW |
| * | Composites calculated using a 3 grams per tonne Au cut-off grade. Reported width is drilled length and interpreted to represent 65 - 85 percent of true width. NSI - No Significant Intercept. Anomalous - Assayed between 1 and 3 grams per tonne of gold. |
Results obtained from 2011 and 2012 drilling have been encouraging and continue to demonstrate that the 8 Zone is a high grade gold system that has strong vertical continuity and remains open at depth and along strike to the northeast. Furthermore, the discovery of economic grades and widths hosted within the depth continuity of the McVeigh Tuff opens up significant exploration potential.
Austin and McVeigh Tuffs
In addition to Phase II underground drilling, the Company completed three deep surface drill holes to evaluate the Austin Tuff at elevations of 1,200 to 2,000 metres below surface. Drill holes AD-11-01, AD-12-01b and -02a intercepted widespread alteration and mineralization, returning gold assays of up to 14.30 grams per tonne over 2.00 metres. These holes are the deepest completed to date on the property and confirm the development of the Austin Tuff 700 metres below historic mine stopes. The Austin Tuff continues to remain open down plunge and along strike to the east.
Quality Assurance and Quality Control Procedures
Rigorous quality assurance and quality control procedures have been implemented including the use of blanks, standards and duplicates. Geochemical analyses were submitted to ALS Chemex in Vancouver, British Columbia, TSL Laboratories in Saskatoon, Saskatchewan and or the Seabee minesite lab. ALS Chemex and TSL Laboratories are ISO approved. Core samples were analyzed by a 30 gram gold fire assay with an atomic absorption and gravimetric and or screen fire finish.
Mineral Reserves and Mineral Resources
The Mineral Reserves and Mineral Resources estimates are conducted under the direction of Qualified Persons Brian Skanderbeg, P.Geo., Senior Vice President and Chief Operating Officer and Peter Longo, P.Eng., Vice President, Operations.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 25 |
Seabee Gold Operation
At December 31, 2012, Proven and Probable Reserves in the Seabee Gold Operation were 1,575,200 tonnes, grading 6.14 grams per tonne or 311,100 ounces of gold. The Company’s Mineral Resources at its Seabee Gold Operation included Measured and Indicated Mineral Resources of 344,200 ounces and Inferred Mineral Resources totalling 603,400 ounces.
Results obtained from drilling completed during 2012 from the Santoy Gap deposit were incorporated into, and had a material impact on, the Seabee Operation’s updated December 31, 2012 NI 43-101 resource calculation (Please see Claude news release “Claude Resources Inc. Increases Resource Base and Grade at Santoy Gap” dated December 3, 2012).
| Table 12: Seabee Gold Operation Mineral Reserves and Mineral Resources |
| Proven and Probable Reserves |
| | | December 31, 2012 | | | December 31, 2011 | |
| Projects | | Tonnes | | | Grade (g/t) | | | Ozs | | | Tonnes | | | Grade (g/t) | | | Ozs | |
| Seabee | | | 947,100 | | | | 7.26 | | | | 221,100 | | | | 1,062,900 | | | | 6.58 | | | | 224,900 | |
| Santoy 8 | | | 628,100 | | | | 4.45 | | | | 89,900 | | | | 997,100 | | | | 4.08 | | | | 130,600 | |
| Totals | | | 1,575,200 | | | | 6.14 | | | | 311,100 | | | | 2,059,900 | | | | 5.37 | | | | 355,600 | |
| Measured and Indicated Mineral Resources |
| Projects | | | Tonnes | | | | Grade (g/t) | | | | Ozs | | | | Tonnes | | | | Grade (g/t) | | | | Ozs | |
| Seabee | | | 45,400 | | | | 4.86 | | | | 7,100 | | | | 127,400 | | | | 4.65 | | | | 19,000 | |
| Santoy 8 | | | 59,300 | | | | 3.28 | | | | 6,200 | | | | 12,600 | | | | 5.04 | | | | 2,000 | |
| Santoy Gap | | | 994,000 | | | | 8.80 | | | | 281,200 | | | | - | | | | - | | | | - | |
| Porky Main | | | 160,000 | | | | 7.50 | | | | 38,600 | | | | 160,000 | | | | 7.50 | | | | 38,600 | |
| Porky West | | | 111,000 | | | | 3.10 | | | | 11,000 | | | | 111,000 | | | | 3.10 | | | | 11,000 | |
| Totals | | | 1,369,600 | | | | 7.82 | | | | 344,200 | | | | 410,900 | | | | 5.35 | | | | 70,700 | |
| Inferred Mineral Resources |
| Projects | | | Tonnes | | | | Grade (g/t) | | | | Ozs | | | | Tonnes | | | | Grade (g/t) | | | | Ozs | |
| Seabee | | | 355,600 | | | | 8.55 | | | | 97,700 | | | | 813,900 | | | | 6.83 | | | | 178,800 | |
| Santoy 8 | | | 518,700 | | | | 5.91 | | | | 98,600 | | | | 850,000 | | | | 5.46 | | | | 149,300 | |
| Santoy Gap | | | 1,875,000 | | | | 5.92 | | | | 356,900 | | | | 2,321,000 | | | | 6.63 | | | | 495,000 | |
| Porky Main | | | 70,000 | | | | 10.43 | | | | 23,500 | | | | 70,000 | | | | 10.43 | | | | 23,500 | |
| Porky West | | | 138,300 | | | | 6.03 | | | | 26,800 | | | | 138,300 | | | | 6.03 | | | | 26,800 | |
| Totals | | | 2,957,600 | | | | 6.35 | | | | 603,400 | | | | 4,193,200 | | | | 6.48 | | | | 873,400 | |
For the above table of reserves, the following mining and economic factors have been applied:
| · | In 2012, Mineral Reserves and Mineral Resources estimates were conducted under the direction of Qualified Persons Brian Skanderbeg, P.Geo., Senior Vice President and Chief Operating Officer and Peter Longo, P.Eng., Vice President, Operations. |
| · | In 2011, mineral reserves and mineral resources were estimated by Claude personnel and audited by SRK. |
| · | Mineral Reserves and Mineral Resources estimates have been completed in accordance with CIM Standards and are reported in accordance with Canadian Securities Administrators’ NI 43-101. Mineral Resources are exclusive of Mineral Reserves. |
| · | Mineral Reserves and Mineral Resources are reported at a cut-off grade of 4.5 grams per tonne for the Seabee Mine and 3.0 grams per tonne for Santoy 8, Santoy Gap, Porky Main and Porky West. This is based on a gold price of CDN $1,500 per ounce. |
| · | A dilution factor averaging approximately 15 percent is applied. |
| · | Historic stope recovery averages 85 percent. |
| · | A specific gravity of 2.8 to 2.9 is utilized in tonnage estimates. |
| · | All figures are rounded to reflect the relative accuracy of the estimates. Totals may not represent the sum of the parts due to rounding. |
| · | Mineral resources are not mineral reserves and do not have demonstrated economic viability. |
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 26 |
Amisk Gold Project
At the Amisk Gold Project, Claude’s independent NI 43-101 compliant resource calculation outlines an Indicated Resource of 921,000 ounces of 0.95 grams of Au Eq per tonne and an Inferred Resource of 645,000 ounces at 0.70 grams of Au Eq per tonne.
| Table 13: Amisk Gold Project Consolidated Mineral Resource Statement* |
| | | Quantity | | | Grade (g/tonne) | | | Contained Ounces (000’s) | |
| Resource Class | | (000’s tonnes) | | | Au | | | Ag | | | Au Eq | | | Au | | | Ag | | | Au Eq | |
| | | | | | | | | | | | | | | | | | | | | | |
| Indicated | | | 30,150 | | | | 0.85 | | | | 6.17 | | | | 0.95 | | | | 827 | | | | 5,978 | | | | 921 | |
| Inferred | | | 28,653 | | | | 0.64 | | | | 4.01 | | | | 0.70 | | | | 589 | | | | 3,692 | | | | 645 | |
* Reported at a cut-off of 0.40 grams of gold equivalent (Au Eq) per tonne using a price of U.S. $1,100 per ounce of gold and U.S. $16 per ounce of silver inside a conceptual pit shell optimized using metallurgical and process recovery of 87 percent, overall ore mining and processing costs of U.S. $15 per tonne and overall pit slope of 50 degrees. All figures are rounded to reflect the relative accuracy of the estimates. Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability.
During the first half of 2013, an independent resource model was completed as part of the Amisk PEA which is anticipated to be released during the third quarter.
The mineral resources for the Amisk Gold Project are sensitive to the selection of cut-off grade. The table below presents the quantity and grade estimates at a range of cut-off grades inside the conceptual pit shell considered for reporting the Mineral Resource Statement. A cut-off value of 0.4 grams of gold equivalent per tonne was selected based on optimization results and benchmarking against similar deposits.
| Table 14: Global Block Model Quantity and Grade Estimates, Amisk Lake Gold Project at Various Cut-off Grades. | |
| Grade | | | Indicated | | | Inferred | |
Au Eq
(gpt) | | | Quantity
(tonnes) | | | Au Eq
(gpt) | | | Ounces
Au Eq | | | Quantity
(tonnes) | | | Au Eq
(gpt) | | | Ounces
Au Eq | |
| | 0.40 | | | | 30,150,090 | | | | 0.95 | | | | 920,881 | | | | 28,653,135 | | | | 0.70 | | | | 644,854 | |
| | 0.50 | | | | 23,533,117 | | | | 1.09 | | | | 824,702 | | | | 19,446,358 | | | | 0.82 | | | | 512,676 | |
| | 0.60 | | | | 18,322,858 | | | | 1.25 | | | | 736,367 | | | | 13,665,490 | | | | 0.94 | | | | 412,994 | |
| | 0.70 | | | | 14,359,129 | | | | 1.41 | | | | 650,936 | | | | 9,491,034 | | | | 1.07 | | | | 326,504 | |
| | 0.80 | | | | 11,418,785 | | | | 1.58 | | | | 580,054 | | | | 6,659,786 | | | | 1.20 | | | | 256,941 | |
| | 0.90 | | | | 9,206,976 | | | | 1.76 | | | | 520,980 | | | | 4,825,758 | | | | 1.34 | | | | 207,903 | |
| | 1.00 | | | | 7,606,617 | | | | 1.93 | | | | 471,998 | | | | 3,589,543 | | | | 1.48 | | | | 170,802 | |
| | 1.50 | | | | 3,472,946 | | | | 2.80 | | | | 312,642 | | | | 1,078,945 | | | | 2.16 | | | | 74,928 | |
Note: The reader is cautioned that the figures in this table should not be misconstrued with a Mineral Resource Statement. The figures are only presented to show the sensitivity of the block model estimates to the selection of cut-off grade.
For the Amisk Gold Project, an updated NI 43-101 resource statement, inclusive of all 2012 drilling, is will be completed in conjunction with the external Amisk PEA for the Amisk Gold Project.
Madsen Exploration Project
At the Madsen Exploration Project, Claude’s independent NI 43-101 compliant resource calculation outlines an Indicated Resource of 928,000 ounces of 8.93 grams per tonne and an Inferred Resource of 297,000 ounces at 11.74 grams per tonne.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 27 |
| Table 15: Consolidated Mineral Resource Statement(1) for the Madsen Mine, Ontario |
Resource
Class | | Zone | | | | Tonnes | | | Grade
(g/tonne) | | | Grade
(oz/ton) | | | Contained
Gold (oz) | |
| | | | | | | | | | | | | | | | | |
| Indicated | | Austin | | | | | 1,677,000 | | | | 7.92 | | | | 0.23 | | | | 427,000 | |
| | | South Austin | | | | | 850,000 | | | | 9.32 | | | | 0.27 | | | | 254,000 | |
| | | McVeigh | | | | | 374,000 | | | | 9.59 | | | | 0.28 | | | | 115,000 | |
| | | 8 Zone | | | | | 335,000 | | | | 12.21 | | | | 0.36 | | | | 132,000 | |
| | | | | Total | | | 3,236,000 | | | | 8.93 | | | | 0.26 | | | | 928,000 | |
| Inferred | | Austin | | | | | 108,000 | | | | 6.30 | | | | 0.18 | | | | 22,000 | |
| | | South Austin | | | | | 259,000 | | | | 8.45 | | | | 0.25 | | | | 70,000 | |
| | | McVeigh | | | | | 104,000 | | | | 6.11 | | | | 0.18 | | | | 20,000 | |
| | | 8 Zone | | | | | 317,000 | | | | 18.14 | | | | 0.53 | | | | 185,000 | |
| | | | | Total | | | 788,000 | | | | 11.74 | | | | 0.34 | | | | 297,000 | |
Note:mineral resources are not mineral reserves and do not have demonstrated economic viability. All figures have been rounded to reflect the relative accuracy of the estimates. Reported at a cut-off grade of 5.0 g/t gold based on U.S. $1,000 per troy ounce of gold and gold metallurgical recoveries of 94 percent.
The Company’s independent NI 43-101 Mineral Resource evaluation for the Madsen Mine was completed by SRK in December 2010. This Mineral Resource evaluation was based on historical exploration and mining data, Phase I underground drilling results up to September 27, 2009 and geological and resource modeling. The Mineral Resource evaluation was undertaken on the four separate zones, Austin, South Austin, McVeigh and 8 Zone that comprise the Madsen Gold Mine. The NI 43-101 Technical Report was filed on January 20, 2010.
The mineral resources of the Madsen Exploration Project are sensitive to the selection of cut-off grade. The global quantities and grade estimates at three gold cut-off grades are presented in Table 13. The reader is cautioned that the figures presented in this table should not be misconstrued with the mineral resource statement. The figures are only presented to show the sensitivity of the mineral resources to the selection of cut-off grade.
| Table 16: Global Block Model Quantities and Grade Estimates* at Various Cut-off Grades. |
| Class | | Zone | | Quantity
Tonnage (000’t) | | | Grade
Gold (gpt) | | | Contained Metal
Gold (000’oz) | |
| | | Cut-off (gpt Au) | | 3 | | | 4 | | | 5 | | | 3 | | | 4 | | | 5 | | | 3 | | | 4 | | | 5 | |
| Indicated | | Austin‡ | | 4,299 | | | 2,565 | | | 1,677 | | | 5.40 | | | 6.72 | | | 7.92 | | | 746 | | | 554 | | | 427 | |
| | | South Austin# | | | 1,553 | | | | 1,140 | | | | 850 | | | | 6.85 | | | | 8.08 | | | | 9.32 | | | | 342 | | | | 296 | | | | 254 | |
| | | McVeigh‡ | | | 637 | | | | 465 | | | | 374 | | | | 7.20 | | | | 8.57 | | | | 9.59 | | | | 148 | | | | 128 | | | | 115 | |
| | | Zone 8^ | | | 422 | | | | 370 | | | | 335 | | | | 10.49 | | | | 11.49 | | | | 12.21 | | | | 142 | | | | 136 | | | | 132 | |
| Inferred | | Austin‡ | | | 782 | | | | 288 | | | | 108 | | | | 4.04 | | | | 5.12 | | | | 6.30 | | | | 101 | | | | 47 | | | | 22 | |
| | | South Austin# | | | 630 | | | | 390 | | | | 259 | | | | 5.70 | | | | 7.09 | | | | 8.45 | | | | 116 | | | | 89 | | | | 70 | |
| | | McVeigh‡ | | | 155 | | | | 105 | | | | 104 | | | | 5.33 | | | | 6.09 | | | | 6.11 | | | | 27 | | | | 21 | | | | 20 | |
| | | Zone 8^ | | | 321 | | | | 320 | | | | 317 | | | | 17.93 | | | | 17.98 | | | | 18.14 | | | | 185 | | | | 185 | | | | 185 | |
* The reader is cautioned that the quantities and grade estimates in this table are not included in the resource statement for the MGP. The figures are presented to show the sensitivity of the block model estimates to the selection of cut-off grade.
‡ Reported considering a geotechnical buffer of 15 feet (4.6 metres).
# Reported considering a geotechnical buffer of 10 feet (3.0 metres).
^Reported with no geotechnical buffer.
Business Risks
Risks and uncertainties related to economic and industry factors are described in detail in the Company’s Annual Information Form, available atwww.sedar.com, and remain substantially unchanged.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 28 |
Outstanding Share Data
The authorized share capital of the Company consists of an unlimited number of common shares and two classes of unlimited preferred shares issuable in series. At June 30, 2013, there were 175,811,376 common shares outstanding. This compares to 173,745,564 common shares outstanding at December 31, 2012.
During the first quarter of 2013, the Company issued 2,065,812 common shares pursuant to the Company’s Employee Share Purchase Plan. At August 1, 2013, there were 175,811,376 common shares of the Company issued and outstanding.
Outstanding Stock Options and Warrants
At June 30, 2013, there were 7.9 million director, officer and key employee stock options outstanding with exercise prices ranging from $0.47 to $2.38 per share. This compares to 6.9 million director, officer and key employee stock options outstanding at December 31, 2012 with similar prices.
| Table 17: Schedule of Stock Options Outstanding and Weighted Average Exercise Price |
| | | June 30, 2013 | | | December 31, 2012 | |
| | | Number | | | Weighted
Average
Exercise Price | | | Number | | | Weighted
Average
Exercise Price | |
| | | | | | | | | | | | | |
| Beginning of period | | | 6,948,527 | | | | 1.43 | | | | 5,484,250 | | | $ | 1.57 | |
| Options granted | | | 1,647,268 | | | | 0.47 | | | | 1,896,290 | | | | 1.04 | |
| Options exercised | | | - | | | | - | | | | (75,402 | ) | | | 0.78 | |
| Options forfeited | | | (678,395 | ) | | | 1.34 | | | | (316,611 | ) | | | 1.82 | |
| Options expired | | | (5,000 | ) | | | 1.16 | | | | (40,000 | ) | | | 1.51 | |
| End of period | | | 7,912,400 | | | | 1.24 | | | | 6,948,527 | | | $ | 1.43 | |
For options outstanding at June 30, 2013, the range of exercise prices, the number vested, the weighted average exercise price and the weighted average remaining contractual life are as follows:
| Table 18: Schedule of Outstanding Stock Options by Price Range |
| | | Options Outstanding | | | Options Exercisable | |
Option Price Per
Share | | Quantity | | | Weighted
Average
Remaining
Life | | | Weighted
Average
Exercise
Price | | | Quantity | | | Weighted
Average
Remaining
Life | | | Weighted
Average
Exercise
Price | |
| $0.47 - $1.00 | | | 2,791,943 | | | | 6.30 | | | $ | 0.58 | | | | 913,178 | | | | 5.56 | | | $ | 0.74 | |
| $1.01 - $1.50 | | | 2,511,339 | | | | 5.32 | | | | 1.21 | | | | 2,294,423 | | | | 5.29 | | | | 1.20 | |
| $1.51 - $2.00 | | | 2,084,000 | | | | 6.76 | | | | 1.87 | | | | 1,492,000 | | | | 6.27 | | | | 1.84 | |
| $2.01 - $2.38 | | | 525,118 | | | | 7.28 | | | | 2.30 | | | | 382,421 | | | | 7.11 | | | | 2.28 | |
| | | | 7,912,400 | | | | 6.18 | | | $ | 1.24 | | | | 5,082,022 | | | | 5.76 | | | $ | 1.39 | |
At June 30, 2013, there were 5.8 million common share purchase warrants outstanding. Each common share purchase warrant entitles the holder to acquire one common share of the Company at prices determined at the time of issue. The exercise price and date of expiration of the warrants outstanding are as follows:
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 29 |
| Table 19: Schedule of Warrants Outstanding | |
| | | | | | Number | | | | | | | | | Number | |
| Exercise | | | | | Outstanding at | | | | | | | | | Outstanding at | |
| Price | | | Expiry Date | | December 31, 2012 | | | Granted | | | Expired | | | June 30, 2013 | |
| | | | | | | | | | | | | | | | |
| $ | 1.60 | | | May 22, 2013 | | | 1,693,200 | | | | - | | | | 1,693,200 | | | | - | |
| $ | 0.70 | | | April 5, 2018 | | | - | | | | 5,750,000 | | | | - | | | | 5,750,000 | |
| | | | | | | | 1,693,200 | | | | 5,750,000 | | | | 1,693,200 | | | | 5,750,000 | |
Common share purchase warrants granted during the second quarter of 2013 were granted in conjunction with the closing of the long-term debt arrangement with CCP. These common share purchase warrants can be exercisable by the holder, in whole or in part, at any time from closing until five years following closing. The warrant agreement with CCP contains provisions whereby the exercise price of the CCP warrants can change if the Company:
| (i) | issues Common Shares to all or substantially all the holders of the Common Shares as a stock dividend (other than as a dividend paid in the ordinary course); |
| (ii) | makes a distribution on its outstanding Common Shares payable in Common Shares or securities exchangeable for or convertible into Common Shares (other than as a dividend paid in the ordinary course); or |
| (iii) | subdivides or consolidates the Common Shares. |
Footnotes
| (1) | Historically, Madsen results have been reported in ounces per ton and feet (Imperial). |
| (2) | See description and reconciliation of non-IFRS measures in the “Non-IFRS Performance Measures and Reconciliations” section of this MD&A. |
| (3) | See description and reconciliation of this performance measure in the “Other Performance Measures and Reconciliations” section of this MD&A. |
Non-IFRS Performance Measures and Reconciliations
The Company utilizes non-IFRS financial measures as supplemental indicators of operating performance and financial position. These non-IFRS financial measures are used internally by the Company for comparing actual results from one period to another. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company’s performance and ability to generate cash flow. Accordingly, such information is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.
Adjusted Net Profit
Adjusted net profit is a measure that does not have a standardized meaning or a consistent basis of calculation under IFRS (non-IFRS measure). The Company uses adjusted net profit, which represents the Company’s net profit attributable to equity holders adjusted to better reflect the underlying financial performance for the reporting period. The adjusted net profit measure reflects adjustments for deferred income tax (recovery) expense and non-recurring items such as impairment charges and loss (gain) on investments. Management uses this measure, in addition to conventional measures prepared in accordance with IFRS, as a more meaningful way to compare the Company’s financial performance from period to period. Furthermore, Management believes that certain investors and other stakeholders use this information to evaluate the Company’s performance.
Adjusted net profit is non-standard supplemental information and should not be considered in isolation or as a substitute for financial information prepared according to accounting standards. Other companies may calculate this measure differently, so you may not be able to make a direct comparison to similar measures presented by other companies. Investors are cautioned that the above measures may not be comparable to similarly titled measures of other companies.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 30 |
The table below reconciles adjusted net (loss) profit with the Company’s net (loss) profit, as determined under IFRS.
| Table 20: Adjusted Net (loss) Profit |
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Net (loss) profit | | $ | (9,915 | ) | | $ | 679 | | | $ | (12,452 | ) | | $ | 188 | |
| Adjustments: | | | | | | | | | | | | | | | | |
| Deferred income tax (recovery) expense | | | (3,472 | ) | | | 421 | | | | (4,242 | ) | | | 454 | |
| Impairment charge | | | 10,847 | | | | - | | | | 10,847 | | | | - | |
| Loss (gain) on investments | | | 262 | | | | - | | | | 262 | | | | (794 | ) |
| Adjusted Net (loss) Profit | | $ | (2,278 | ) | | $ | 1,100 | | | $ | (5,585 | ) | | $ | (152 | ) |
| Weighted Average shares outstanding (basic) | | | 175,811 | | | | 173,741 | | | | 175,309 | | | | 172,111 | |
| Weighted Average shares outstanding (diluted) | | | 175,811 | | | | 173,800 | | | | 175,309 | | | | 172,606 | |
| Per share adjusted net (loss) profit (basic and diluted) | | $ | (0.01 | ) | | $ | 0.01 | | | $ | (0.03 | ) | | $ | (0.00 | ) |
Cash Cost Per Ounce
The Company reports its cash costs on a per-ounce basis, based on uniform standards developed by the Gold Institute, an independent researcher and evaluator of the gold market and gold industry. Management uses this measure to analyze the profitability, compared to average realized gold prices, of the Seabee Gold Operation. Investors are cautioned that the above measures may not be comparable to similarly titled measures of other companies, should these companies not follow Gold Institute standards.
| Table 21: Total Cash Cost per Gold Ounce Sold |
| | | Three months ended | | | Six months ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Production cost (CDN$) | | $ | 10,088 | | | $ | 13,319 | | | $ | 21,672 | | | $ | 25,115 | |
| Divided by ounces sold | | | 11,532 | | | | 12,306 | | | | 20,833 | | | | 21,853 | |
| Total cash cost per ounce (CDN$) | | $ | 875 | | | $ | 1,082 | | | $ | 1,040 | | | $ | 1,149 | |
| | | | | | | | | | | | | | | | | |
| CDN$ Exchange Rate | | | 1.0235 | | | | 1.0101 | | | | 1.0161 | | | | 1.0057 | |
| Total cash cost per ounce (US$) | | $ | 855 | | | $ | 1,071 | | | $ | 1,024 | | | $ | 1,143 | |
Net Cash Margin
The Company uses net cash margin, which represents realized price per ounce less net cash costs per ounce. This measure is used by Management to analyze profitability trends and to assess the cash-generating capability from the sale of gold on a consolidated basis in each reporting period, expressed on a unit basis. Management believes that this measurement illustrates the performance of the Company’s business on a consolidated basis and enables investors to better understand Claude’s performance in comparison to other gold producers who present results on a similar basis and is an important indicator of expected performance in future periods.
The Company’s net cash margin is intended to provide additional information, does not have any standardized meaning prescribed by IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate net cash margin differently. This non-IFRS measure is calculated from realized gold price per ounce and total cash costs per ounce, as determined in the net cash cost reconciliation. Net cash margin could also be derived from realized price per ounce and net cash costs per ounce.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 31 |
| Table 22: Net Cash Margin |
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Revenue | | $ | 16,070 | | | $ | 20,091 | | | $ | 31,348 | | | $ | 36,143 | |
| Divided by ounces sold | | | 11,532 | | | | 12,306 | | | | 20,833 | | | | 21,853 | |
| Average Realized Price per Ounce (CDN$) | | $ | 1,393 | | | $ | 1,633 | | | $ | 1,505 | | | $ | 1,654 | |
| | | | | | | | | | | | | | | | | |
| Production costs | | $ | 10,088 | | | $ | 13,319 | | | $ | 21,672 | | | $ | 25,115 | |
| Divided by ounces sold | | | 11,532 | | | | 12,306 | | | | 20,833 | | | | 21,853 | |
| Total cash costs per ounce (CDN$) | | $ | 875 | | | $ | 1,082 | | | $ | 1,040 | | | $ | 1,149 | |
| | | | | | | | | | | | | | | | | |
| Net Cash Margin per Ounce Sold (CDN$) | | $ | 518 | | | $ | 551 | | | $ | 465 | | | $ | 505 | |
Other Performance Measures and Reconciliations
Cash Flow from Operations before Net Changes in Non-Cash Operating Working Capital
The Company uses Cash Flow from Operations before Net Changes in Non-Cash Operating Working Capital as a supplemental measure of its financial performance. The Company uses this measure to analyze the cash generated by its operations. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Investors are cautioned that the above measures may not be comparable to similarly titled measures of other companies.
| Table 23: Calculation of Cash Flow from Operations before Net Changes in Non-Cash Operating Working Capital |
| | | Three months ended | | | Six months ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Net (loss) profit | | $ | (9,915 | ) | | $ | 679 | | | $ | (12,452 | ) | | $ | 188 | |
| Adjustments for non-cash items: | | | | | | | | | | | | | | | | |
| Depreciation and depletion | | | 5,794 | | | | 3,892 | | | | 10,343 | | | | 7,152 | |
| Finance expense | | | 151 | | | | 101 | | | | 245 | | | | 194 | |
| Finance and other income | | | (300 | ) | | | (291 | ) | | | (597 | ) | | | (651 | ) |
| Impairment charge | | | 10,847 | | | | - | | | | 10,847 | | | | - | |
| Loss (gain) on investments | | | 262 | | | | - | | | | 262 | | | | (794 | ) |
| Stock-based compensation | | | 303 | | | | 449 | | | | 630 | | | | 1,295 | |
| Deferred income tax (recovery) expense | | | (3,472 | ) | | | 421 | | | | (4,242 | ) | | | 454 | |
| | | $ | 3,670 | | | $ | 5,251 | | | $ | 5,036 | | | $ | 7,838 | |
| Weighted Average shares outstanding (basic) | | | 175,811 | | | | 173,741 | | | | 175,309 | | | | 172,111 | |
| Weighted Average shares outstanding (diluted) | | | 175,811 | | | | 173,800 | | | | 175,309 | | | | 172,606 | |
| Per share cash flows from operating activities (basic and diluted) | | $ | 0.02 | | | $ | 0.03 | | | $ | 0.03 | | | $ | 0.05 | |
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 32 |
Disclosure Controls and Internal Controls over Financial Reporting
Disclosure Controls and Procedures
As at June 30, 2013, we evaluated our disclosure controls and procedures as defined in the rules of the U.S. Securities and Exchange Commission (“SEC”) and the Canadian Securities Administrators. This evaluation was carried out under the supervision and participation of Management, including the President and Chief Executive Officer and the Chief Financial Officer. Based on that evaluation, the President and Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.
Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, no matter how well designed, has inherent limitations and can only provide reasonable assurance with respect to the preparation and fair presentation of published financial statements. Under the supervision and with the participation of the President and Chief Executive Officer and the Chief Financial Officer, management conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that internal control over financial reporting is effective as at June 30, 2013.
No significant changes were made in our internal controls over financial reporting during the period ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations of Controls and Procedures
The Company’s Management, including the President and Chief Executive Officer and Vice President and Chief Financial Officer, believes that any disclosure controls and procedures or internal control over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any control system also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.
Cautionary Note to U.S. Investors Concerning Resource Estimates
Resource Estimates
The resource estimates in this Management’s Discussion and Analysis were prepared in accordance with National Instrument 43-101, adopted by the Canadian Securities Administrators. The requirements of National Instrument 43-101 differ significantly from the requirements of the SEC. In this Management’s Discussion and Analysis, the Company uses certain terms such as “measured”, “indicated” and “inferred” resources. Although these terms are recognized and required in Canada, the SEC does not recognize them. The SEC permits U.S. mining companies, in their filings with the SEC, to disclose only those mineral deposits that constitute “reserves”. Under U.S. standards, mineralization may not be classified as a reserve unless the determination has been made that the mineralization could be economically and legally extracted at the time the determination is made. U.S. investors should not assume that all or any portion of a measured or indicated resource will ever be converted into “reserves”. Further, “inferred resources” have a great amount of uncertainty as to their existence and whether they can be mined economically or legally, and U.S. investors should not assume that “inferred resources” exist or can be legally or economically mined, or that they will ever be upgraded to a more certain category.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 33 |
Compliance with Canadian Securities Regulations
This quarterly report is intended to comply with the requirements of the Toronto Stock Exchange and applicable Canadian securities legislation, which differ in certain respects from the rules and regulations promulgated under the United States Securities Exchange Act of 1934, as amended (“Exchange Act”), as promulgated by the SEC.
U.S. investors are urged to consider the disclosure in our Annual Report on Form 40-F, File No. 001-31956, as filed with the SEC under the Exchange Act, which may be obtained from the Company (without cost) or from the SEC’s Web site:http://sec.gov/edgar.shtml.
Caution Regarding Forward-Looking Information
All statements, other than statements of historical fact, contained or incorporated by reference in this MD&A constitute “forward-looking information” within the meaning of applicable Canadian securities laws and “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 (referred to herein as “forward-looking statements”). Forward-looking statements include, but are not limited to, statements with respect to the future price of gold, the estimation of mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, costs and timing of the development of new deposits, success of exploration activities, permitting time lines, currency exchange rate fluctuations, requirements for additional capital, government regulation of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate” or “believes”, or the negative connotation thereof or variations of such words and phrases or state that certain actions, events or results, “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved” or the negative connotation thereof.
All forward-looking statements are based on various assumptions, including, without limitation, the expectations and beliefs of management, the assumed long-term price of gold, that the Company will receive required permits and access to surface rights, that the Company can access financing, appropriate equipment and sufficient labour, and that the political environment within Canada will continue to support the development of mining projects in Canada.
Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Claude to be materially different from those expressed or implied by such forward-looking statements, including but not limited to: actual results of current exploration activities; environmental risks; future prices of gold; possible variations in ore reserves, grade or recovery rates; mine development and operating risks; accidents, labour issues and other risks of the mining industry; delays in obtaining government approvals or financing or in the completion of development or construction activities; and other risks and uncertainties, including but not limited to those discussed in the section entitled “Business Risk” in this MD&A. These risks and uncertainties are not, and should not be construed as being, exhaustive.
Although Claude has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 34 |
Forward-looking statements in this MD&A are made as of the date of this MD&A, being August 1, 2013 and, accordingly, are subject to change after such date. Except as otherwise indicated by Claude, these statements do not reflect the potential impact of any non-recurring or other special items that may occur after the date hereof. Forward-looking statements are provided for the purpose of providing information about management’s current expectations and plans and allowing investors and others to get a better understanding of our operating environment.
Claude does not undertake to update any forward-looking statements that are incorporated by reference herein, except in accordance with applicable securities laws.
The forward-looking statements contained in this Management’s Discussion and Analysis are expressly qualified by these cautionary statements.
Additional Information
Additional information related to the Company, including its Annual Information Form (Form 40-F in the U.S.), is available on Canadian (www.sedar.com) and U.S. (www.sec.gov) securities regulatory authorities’ websites. Certain documents are also available on the Company’s website atwww.clauderesources.com.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 35 |
Conversion Multiples
For ease of reference, the following factors for converting metric measurements into imperial equivalents are provided:
| To Convert from Metric | | To Imperial | | Multiply Metric Units by | |
| Metres | | Feet (ft.) | | | 3.281 | |
| Kilometres (km) | | Miles | | | 0.621 | |
| Tonnes | | Tons (2,000 pounds) | | | 1.102 | |
| Grams | | Troy Ounces | | | 0.032 | |
| Hectares | | Acres | | | 2.471 | |
Glossary of Financial Terms
Current ratio = (current asset / current liabilities)
Debt to capital= (total debt – cash and cash equivalents) / (total debt – cash and cash equivalents + total shareholders’ equity)
Working capital = (current asset – current liabilities)
Glossary of Technical Terms
Alteration –any change in the mineral composition of a rock brought about by physical or chemical means.
Assaying- laboratory examination that determines the content or proportion of a specific metal (i.e.: silver) contained within a sample. Technique usually involves firing/smelting.
Au Eq (“gold equivalent”) –a measure of contained metal expressed in equivalent gold grade.
Biotite – a widely distributed and important rock-forming mineral of the mica group.
Brecciated – broken into sharp-angled fragments surrounded by finer-grained material.
Bulk Sample – a collection of representative mineralized material whose location, geologic character and metal assay content can be determined and then used for metallurgical or geotechnical testing purposes.
Chalcopyrite - a sulphide mineral of copper and iron.
Chlorite – a group of platy, monoclinic, usually greenish minerals.
Chloritic alteration – the replacement by, conversion into, or introduction of chlorite into a rock.
Core Samples- the cylindrical form of rock called “core” that is extracted from a diamond drill hole. Mineralized sections are separated and these samples are sent to a laboratory for analysis.
Cross-cut- a horizontal opening driven from a shaft or haulage drift at an oblique or right angle to the strike of a vein or other orebody.
Cut-off Grade - the lowest grade of mineralized material that qualifies as a reserve in a deposit (i.e.: contributing material of the lowest assay that is included in a reserve estimate).
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 36 |
Diamond Drilling – a type of rotary drilling in which diamond bits are used as the rock-cutting tool to produce a recoverable drill core sample of rock for observation and analysis.
Dip – the angle that a structural surface, a bedding or fault plane makes with the horizontal, measured perpendicular to the strike of the structure.
Drift - a horizontal underground opening that follows along the length of a vein or rock formation.
Duty to Consult - governments in Canada may have a duty to consult with and potentially accommodate Aboriginal groups prior to making decisions which may impact lands and resources subject to established or potential treaty or Aboriginal rights, title or other claims. These governments, in turn, may delegate procedural aspects of this duty to industry.
Exploration– work involved in searching for ore, from prospecting to diamond drilling or driving a drift.
Fault – a fracture or break in rock along which there has been movement.
Feasibility Study – a comprehensive technical and economic study of the selected development option for a mineral project that includes appropriately detailed assessments of realistically assumed mining, processing, metallurgical, economic, marketing, legal, environmental, social and governmental considerations together with any other relevant operational factors and detailed financial analysis, that are necessary to demonstrate at the time of reporting that extraction is reasonably justified (economically mineable). The results of the study may reasonably serve as the basis for a final decision by a proponent or financial institution to proceed with, or finance, the development of the project. The confidence level of the study will be higher than that of a Prefeasibility Study.
Fire Assay - the assaying of metallic minerals by use of a miniature smelting procedure with various agents.
Footwall - the rock on the underside of a vein or ore structure.
Fracture – a break or crack in rock.
Geophysical Survey - a scientific method of prospecting that measures the physical properties of rock formations. Common properties investigated include magnetism, specific gravity, electrical conductivity and radioactivity.
Grade – the metal content of rock with precious metals, grade can be expressed as troy ounces or grams per tonne of rock.
Granitoid – a light-coloured, plutonic rock with quartz between 20 and 60 percent.
Head Grade – the average grade of ore fed into a mill.
Hydrothermal– the products or the actions of heated waters in a rock mass such as a mineral deposit precipitating from a hot solution.
Igneous– a primary type of rock formed by the cooling of molten material.
Indicated Mineral Resource – is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 37 |
Inferred Mineral Resource – is that part of a Mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.
Lens - a body of ore that is thick in the middle and tapers towards the ends.
Lithostructural– an assemblage of rocks that is unified on the basis of structural and lithological features.
Mafic - igneous rocks composed mostly of dark, iron and magnesium-rich minerals.
Measured Mineral Resource -is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity.
Metallurgy– the study of the extractive processes which produce minerals from their host rocks.
Mill - a processing facility where ore is finely ground and thereafter undergoes physical or chemical treatment to extract the valuable metals.
Mineral– a naturally formed chemical element or compound having a definitive chemical composition and usually a characteristic crystal form.
Mineralization– a natural concentration in rocks or soil of one or more minerals.
Mineral Reserve – the economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Prefeasibility Study. This study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. A Mineral Reserve includes diluting materials and allowances for losses that may occur when material is mined.
Mineral Resource – a concentration or occurrence of natural, solid, inorganic, or fossilized organic material in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics, and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge.
National Instrument 43-101 or NI 43-101 – National Instrument 43-101 Standards of Disclosure for Mineral Projects of the Canadian Securities Administrators.
Ounces - troy ounces of a fineness of 999.9 parts per 1,000 parts.
Ore - rock, generally containing metallic or non-metallic minerals, which can be mined and processed at a profit.
Ore Body - a sufficiently large amount of ore that can be mined economically.
Plunge - the vertical angle a linear geological feature makes with the horizontal plane.
Porphyry - any igneous rock in which relatively large crystals are set in a fine-grained groundmass.
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 38 |
Prefeasibility Study – a comprehensive study of the viability of a mineral project that has advanced to a stage where the mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, has been established, and where an effective method of mineral processing has been determined. This study must include a financial analysis based on reasonable assumptions of technical engineering, operating, and economic factors, which are sufficient for a Qualified Person acting reasonably, to determine if all or part of the Mineral Resource may be classified as a Mineral Reserve.
Probable Mineral Reserve – the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource, demonstrated by at least a Prefeasibility Study. This study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified.
Proven Mineral Reserve – the economically mineable part of a Measured Mineral Resource demonstrated by at least a Prefeasibility Study. This study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction is justified.
Pulp - a mixture of ground ore and water.
Pyrite - an iron sulphide mineral (FeS2), the most common naturally occurring sulphide mineral.
Pyrrhotite - a bronze-colored, often magnetic iron sulphide mineral.
Qualified Person – an individual who is an engineer or geoscientist with at least five (5) years of experience in mineral exploration, mine development, mine operation, project assessment or any combination of these; has experience relevant to the subject matter of the mineral project and technical report; and is a member in good standing of a professional association.
Quartz – crystalline silica; often forming veins in fractures and faults within older rocks.
Raise -a vertical or inclined underground working that has been excavated from the bottom upward.
Ramp - an inclined underground opening.
Sericite – a fine-grained potassium mica found in various metamorphic rocks.
Shear Zone - a zone in which shearing has occurred on a large scale so that the rock is crushed and brecciated.
Showing - surface occurrence of mineral.
Sill - an intrusive sheet of igneous rock of roughly uniform thickness that has been forced between the bedding planes of existing rock; the initial horizontal drift along the strike of the ore vein.
Specific Gravity - the ratio between the weight of a unit volume of a substance and that of a unit volume of water.
Stope - an underground excavation from which ore has been extracted, either above or below a level. Access to stopes is usually by way of adjacent raises.
Stratigraphy – the sequence of bedded rocks in a particular area.
Tailings - Tailings consist of ground rock and process effluents that are generated in a mine processing plant or mill. Mechanical and chemical processes are used to extract gold from mine ore and produce a waste stream known as tailings. This process of product extraction is never 100 percent efficient, nor is it possible to reclaim all reusable and expended processing reagents and chemicals. The unrecoverable and uneconomic metals, minerals, chemicals, organics and process water are discharged, normally as slurry, to a final storage area commonly known as a Tailings Management Facility (TMF) or Tailings Storage Facility (TSF).
| Q2 2013 Management’s Discussion and Analysis | |
| (in thousands of CDN dollars, except as otherwise noted) | Page 39 |
Till - is unsorted glacial sediment. Its content may vary from clays to mixtures of clay, sand, gravel and boulders. This material is typically derived from the subglacial erosion and incorporated by the moving ice of the glaciers of previously available unconsolidated sediments.
Tonne – a metric ton or 2,204 pounds.
Trenching -the process of exploration by which till is removed from a trench cut from the earth’s surface.
Vein– a thin, sheet-like, cross-cutting body of hydrothermal mineralization, principally quartz.
Waste – barren rock in a mine, or mineralized material that is too low in grade to be mined and milled at a profit.
Working interestorWI - means the interest held by Claude in property. This interest normally bears its proportionate share of capital and operating costs as well as royalties or other production burdens. The working interest percentage is expressed before royalty interests.
