Exhibit 99.2
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 nine months ended September 30, 2014 with the corresponding period of 2013 is prepared as of October 30, 2014. 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 September 30, 2014 condensed consolidated interim financial statements and notes thereto and the Company’s 2013 annual MD&A and 2013 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 OTCQB (OTCQB - CLGRF). 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 six 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.
The Company’s Seabee and Amisk properties contain large, long life Mineral Resources in the politically safe jurisdiction of Canada. These properties, and their related deposits, each contain over one million ounces of gold in the ground inventory and have significant leverage to the price of gold and provide valuable opportunities for the Company and its shareholders. Management intends to monitor the attractiveness of these projects and evaluate alternatives to optimize value.
Production, Financial and Exploration Highlights
Seabee Gold Operation Production
| • | Production: Record production of 20,614 ounces produced during the third quarter of 2014 (surpassing the former quarterly production record of 18,742 ounces of gold produced during the second quarter of 2014) was nearly double period over period (Q3 2013 - 10,541 ounces produced). This increase was attributable to increased tonnes and grade period over period. Year to date, 50,700 ounces produced (YTD 2013: 31,061 ounces produced). For fiscal 2014, the Company’s forecast gold production at the Seabee Gold Operation is estimated to range from 61,000 to 64,000 ounces of gold (previously 50,000 to 54,000 ounces of gold). Over the last eight quarters, gold production at the Seabee Gold Operation was 107,100 ounces (including 63,400 ounces of gold production over the last four quarters). |
| • | Tonnes Milled: Mill throughput was 74,930 tonnes at 8.88 grams per tonne with a recovery of 96.4 percent during the third quarter of 2014 (Q3 2013 - 64,642 tonnes at 5.30 grams per tonne with a recovery of 95.8 percent). Year to date, mill throughput was 219,046 tonnes at 7.53 grams per tonne with a recovery of 95.6 percent (YTD 2013: 205,596 tonnes at 4.94 grams per tonne with a recovery of 95.2 percent). |
| • | Santoy Gap: Achieved initial development ore during the first half of 2014 with long-hole production (originally expected to begin in the fourth quarter of 2014) initiated ahead of schedule during the third quarter. The Santoy Gap deposit (part of the Santoy Mine Complex) represents an opportunity for the Company to grow production due to Santoy Gap’s proximity to permitted mine infrastructure, low development cost and near-term production potential. |
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 2 |
Santoy Gap
| • | Year to date, the Santoy Gap deposit has produced over 28,000 tonnes at approximately 8.60 grams of gold per tonne. Thus far, the average grade has been 34 percent higher than the Santoy Gap Mineral Reserve grade of 6.40 grams of gold per tonne. Year to date, the Santoy Gap has had a positive impact on production from the Santoy Mine Complex with overall grades improving to 6.75 grams of gold per tonne in the third quarter versus the 4.66 grams of gold per tonne during the first half of this year. |
| • | Production ramp up at the Santoy Gap is ahead of schedule and will become the main contributor of tonnes and ounces mined from the Santoy Mine Complex during the remainder of 2014. During the fourth quarter of 2014, production tonnage from Santoy Gap is expected to average 250 to 350 tonnes per day. The increase in tonnage and grade from Santoy Gap will drive unit cost improvements going forward. |
| • | During the third quarter, the Company engaged an engineering firm to update sections of the Santoy Gap mine plan with a focus on mine design, ventilation and future power requirements. Once completed, the Company will move forward with development to achieve a full production rate of 500 to 700 tonnes per day. Capital expenditures required to achieve the future production ramp up are expected to be minimal and the Company expects to fund its organic growth through internal cash flows. |
| • | The Company is conducting a 27,000 metre infill drilling program to better define and expand the current Mineral Reserves and Mineral Resources at the Santoy Gap and to optimize mine design. To date, the results have been very positive and include an intersection of 26.77 grams of gold per tonne over 8.7 metres true width (Please see Claude news release “Claude Resources Drills 26.77 G/T Gold over 8.7 M & Initiates Long-Hole Production at Santoy Gap” dated September 10, 2014). |
| • | The Santoy Gap deposit is unique within the Seabee Gold Operation in that it contains approximately 2,000 ounces per vertical metre, whereas the Company has historically mined approximately 1,000 ounces per vertical metre at the Seabee Mine. As such, it is expected that operations will be able to mine more ounces with less capital development and at lower costs. This not only provides the opportunity to increase production but also increase margins and cash flow. |
| • | Exploration results at the Santoy Mine Complex demonstrate that this system has the potential to be much larger than it is today. During the first quarter of 2013, two out of three drill holes returned significant assay results of 330.35 grams per tonne over 1.55 metres and 18.80 grams per tonne over 13.86 metres. These holes are located outside the Company’s current Mineral Resource and demonstrate that the system continues at depth and along strike of the ore body. Claude expects that the Santoy Gap deposit will play a significant role at the Seabee Gold Operation for many years to come. |
Seabee Mine Alimak Mining Method
| • | During 2014, the Company has been utilizing the Alimak mining method on the L62 deposit within the Seabee Mine. |
| • | The Alimak mining method is a proven method utilized at operations similar to the Seabee Gold Operation. One of the benefits of the Alimak mining method is that it requires significantly less development which then decreases overall costs and time to produce. As an example, the Company now has the ability to mine a 100 metre high stope in nine months utilizing the Alimak mining method versus 16 to 18 months needed for traditional Long Hole mining. The Alimak method has been a key driver in the Seabee Mine achieving year to date production of 480 tonnes per day at an average grade of 8.93 grams of gold per tonne. |
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 3 |
Financial
| • | Revenue:For the three months ended September 30, 2014, sales of 17,578 ounces (Q3 2013 - 10,781 ounces) at an average price of CDN $1,384 (U.S. $1,270) generated revenue of $24.3 million, compared to Q3 2013 revenue of $15.0 million at an average price of $1,389 (U.S. $1,338), reflecting a 63 percent increase in ounces sold and consistent average realized price period over period. Year to date, sales of 46,133 ounces (YTD 2013 - 31,614 ounces) at an average price of $1,402 (U.S. $1,281) generated revenue of $64.7 million, a 40 percent increase over the comparable period of 2013. |
| • | Net (loss) profit: Net profit of $6.9 million, or $0.04 per share (Q3 2013 - net loss of $33.9 million, or $0.19 per share, after an impairment charge of $45.2 million which was partially offset by a $12.5 million deferred income tax recovery). Year to date, net profit of $5.1 million, or $0.03 per share (YTD 2013 - net loss of $46.3 million, or $0.26 per share, after $56.0 million in impairment charges which were partially offset by a $16.8 million deferred income tax recovery). |
| • | Adjusted Net profit (loss)(1): After adjusting for deferred income tax (recovery) expense and non-recurring items such as impairment charges and gain (loss) on sale of assets and investments, the Company’s adjusted net profit was $5.8 million, or $0.03 per share (Q3 2013 - adjusted net loss of $1.2 million, or $0.01 per share). Year to date, adjusted net profit of $4.4 million, or $0.02 per share (YTD 2013 - adjusted net loss of $6.8 million, or $0.04 per share). |
| • | All in sustaining costs (1): $18.7 million, or CDN $1,063 (U.S. $976) per ounce (Q3 2013 - $17.0 million, or CDN $1,574 (U.S. $1,516) per ounce). Year to date, $58.4 million, or CDN $1,265 (U.S $1,156) per ounce (YTD 2013 - $61.9 million, or CDN $1,957 (U.S. $1,912) per ounce). |
| • | Cash cost per ounce of gold(1): CDN $735 (U.S. $675) per ounce for the three months ended September 30, 2014 was 20 percent lower than the CDN $919 (U.S. $885) per ounce for the third quarter of 2013. Year to date, cash cost per ounce of gold was CDN $801 (U.S. $732) per ounce, a 20 percent decrease from the cash cost per ounce of CDN $999 (U.S. $976) reported during the first nine months of 2013. |
| • | Cash flow from operations before net changes in non-cash operating working capital(2): $10.4 million, or $0.06 per share (Q3 2013 - $4.3 million, or $0.02 per share). Year to date, $22.0 million, or $0.12 per share (YTD 2013 - $9.3 million, or $0.05 per share). |
| • | Working capital:$27.8 million (December 31, 2013 - working capital deficiency of $11.9 million). |
| • | The Company received the final payment of $2.5 million cash during Q3 2014, pursuant to the Madsen Gold Project sale to Pure Gold Mining Inc.(“PGM”), formerly Laurentian Goldfields. |
| • | During the third quarter, the Company sold 5.7 million of its shares of PGM for gross proceeds of $2.5 million. At September 30, 2014, the Company still held 4.1 million shares of PGM. |
| • | Debt reduction totaled $9.7 million during the first nine months of 2014. |
| • | Cash and cash equivalents of $10.6 million at September 30, 2014. |
Exploration
Seabee Gold Operation:
| • | During the first nine months of 2014, exploration expenditures at the Seabee Gold Operation focused on review and compilation of existing data to support the development and evaluation of several near-mine targets. |
| • | Drilling at the Seabee Gold Operation is anticipated to be approximately 55,000 metres; 41,000 metres have been completed as at the end of September. Focus will continue to be 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. |
Mineral Reserves and Mineral Resources:
| • | The Seabee Gold Operation’s Proven and Probable Mineral Reserves at November 15, 2013 were 422,900 ounces of gold. Measured and Indicated (“M&I”) Mineral Resources at November 15, 2013 were 175,200 ounces of gold. Inferred Mineral Resources at November 15, 2013 were 582,900 ounces of gold. |
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 4 |
| • | The Santoy Gap deposit, part of the Santoy Mine Complex, represents an opportunity for the Company to grow production due to Santoy Gap’s proximity to permitted mine infrastructure, low development cost and near-term production potential. The Santoy Gap deposit hosts Proven and Probable Mineral Reserves of 266,100 ounces of gold at 5.68 grams per tonne, Measured and Indicated Mineral Resources of 83,900 ounces of gold at 8.44 grams per tonne and Inferred Mineral Resources of 270,800 ounces of gold at 6.96 grams per tonne. |
| • | An updated NI 43-101 Mineral Reserve and Mineral Resource compliant statement for the Seabee Gold Operation is anticipated to be completed during the first quarter of 2014. |
Amisk Gold Project:
| • | During 2014, no exploration expenditures are planned for the Amisk Gold Project. |
Outlook
Corporate Outlook
In the future, Claude will continue to:
| i) | Pursue best practices in the areas of safety, health and the environment in 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; and |
| iii) | Sustain or increase reserves and resources at the Seabee Gold Operation through targeted exploration and development. |
Operating and Financial Outlook
Gold production during 2014 at the Seabee Gold Operation is estimated to range from 61,000 to 64,000 ounces of gold (previously 50,000 to 54,000 ounces of gold). Unit cash costs for 2014 are expected to be approximately 20 percent lower than 2013’s unit cash costs of $983 CDN per ounce. Quarterly operating results are expected to fluctuate throughout 2014; 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, proceeds from the sale of Madsen and proceeds from the sale of NSR royalty on the Seabee Gold Operation will be sufficient to fund the 2015 Winter Ice Road resupply requirements and further development opportunities at the Seabee Gold Operation.
Forecast and Capital Outlook
During 2014, capital expenditures at the Seabee Gold Operation are expected to include continued investment and upgrades that are estimated to total approximately $21.3 million, funded from a combination of operating cash flow, the sale of the Madsen Gold Project and the sale of the NSR royalty on the Seabee Gold Operation. This 30 percent reduction from 2013 expenditures of $30.6 million is due to the completion of several major projects, including the shaft extension.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 5 |
| Table 1: Capital Expenditures (CDN$ million) |
| | | 2014 Estimate | | 2014 9 months Actual | | 2013 9 months Actual | | 2013 Full Year Actual |
| Capital | | | | | | | | |
| Development | $ | 16.3 | $ | 12.5 | $ | 17.5 | $ | 23.0 |
| Property, Plant and Equipment | | 5.0 | | 3.3 | | 6.5 | | 7.6 |
| Total | $ | 21.3 | $ | 15.8 | $ | 24.0 | $ | 30.6 |
Development expenditures are expected to be prioritized at Santoy Gap. Property, plant and equipment costs include expenditures on equipment replacement and tailings management facilities.
Exploration Outlook
Exploration spending during 2014 is forecast to be approximately $0.2 million (2013 - $1.6 million).
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. Drilling at Seabee is anticipated to consist of approximately 55,000 metres.
Strategic Review
The Company has engaged a strategic and financial advisor to explore alternatives with the objective to maximize value for all shareholders. Work on this initiative has been ongoing since March of 2014. In addition, the Company is continuing to investigate various external debt restructuring options.
Mining Operations Results
Seabee Gold Operation
At the Seabee Gold Operation, Claude is focused on improving profit margins and executing its mine plan. Profit margins will be increased by targeting higher grades and margin deposits (L62, Santoy Gap), with continued focus on cost control for materials and supplies as well as controlling labour costs.
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 third quarter of 2014, the Company milled 74,930 tonnes at a grade of 8.88 grams of gold per tonne (Q3 2013 - 64,642 tonnes at a grade of 5.30 grams of gold per tonne) for total production of 20,614 ounces of gold (Q3 2013 - production of 10,541 ounces of gold). The 96 percent increase in ounces produced was attributable to a 68 percent increase in grade and a 16 percent increase in tonnes milled period over period.
Year to date, the Company milled 219,046 tonnes at a grade of 7.53 grams of gold per tonne (YTD 2013 - 205,596 tonnes at a grade of 4.94 grams of gold per tonne). Year to date, produced ounces were 50,700 (YTD 2013 - 31,061 ounces); with mill recoveries relatively unchanged period over period, the increase in ounces produced is attributable to a 52 percent increase in grade and a seven percent increase in tonnes milled.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 6 |
| Table 2: Seabee Gold Operation Quarterly Production Statistics |
| | Three Months Ended | Nine Months Ended |
| | Sept 30 | Sept 30 | | Sept 30 | Sept 30 | |
| | 2014 | 2013 | Change | 2014 | 2013 | Change |
| | | | | | | |
| Operating Data | | | | | | |
| Tonnes Milled | 74,930 | 64,642 | 16% | 219,046 | 205,596 | 7% |
| Tonnes per Day | 814 | 703 | 16% | 802 | 753 | 7% |
| Head Grade (grams per tonne) | 8.88 | 5.30 | 68% | 7.53 | 4.94 | 52% |
| Recovery (%) | 96.4% | 95.8% | 1% | 95.6% | 95.2% | - |
| Gold Ounces | | | | | | |
| Produced | 20,614 | 10,541 | 96% | 50,700 | 31,061 | 63% |
| Poured | 20,948 | 10,778 | 94% | 49,495 | 31,708 | 56% |
| Sold | 17,578 | 10,781 | 63% | 46,133 | 31,614 | 46% |
Seabee Mine
During the third quarter of 2014, the Seabee Mine produced 13,657 ounces of gold (Q3 2013 - 6,594 ounces). This increase was attributable to a 25 percent increase in tonnes milled (due to the completion of the shaft extension during 2013 and the commencement of the Alimak mining method on the L62 deposit during 2014) and a 65 percent increase in grade attributable to differences in mine sequencing period over period. The key drivers of the increase in grade have been increased contribution from the L62 and scheduled grades reconciling above reserve grades.
Year to date, the Seabee Mine produced 35,942 ounces (YTD 2013 - 18,036 ounces). This increase was attributable to a 24 percent increase in tonnes milled and a 61 percent increase in grade.
| Table 3: Seabee Mine Quarterly Production Statistics |
| | Three Months Ended | Nine Months Ended |
| | Sept 30 | Sept 30 | | Sept 30 | Sept 30 | |
| | 2014 | 2013 | Change | 2014 | 2013 | Change |
| | | | | | | |
| Tonnes Milled | 41,709 | 33,456 | 25% | 131,041 | 106,010 | 24% |
| Tonnes per Day | 453 | 364 | 24% | 480 | 388 | 24% |
| Head Grade (grams per tonne) | 10.57 | 6.40 | 65% | 8.93 | 5.56 | 61% |
| Gold Produced (ounces) | 13,657 | 6,594 | 107% | 35,942 | 18,036 | 99% |
Santoy Mine Complex
During the third quarter of 2014, the Santoy Mine Complex produced 6,957 ounces of gold (Q3 2013 - 3,947 ounces) from the Santoy Gap and Santoy 8 deposits. Period over period, this result is attributable to a 64 percent increase in grade and a seven percent increase in tonnes (due to increased contribution from the Santoy Gap Deposit).
Year to date, the Santoy Mine Complex produced 14,758 ounces (YTD 2013 - 13,025 ounces). This increase was attributable to a 28 percent increase in grade offset by a 12 percent decrease in tonnes. During the third quarter, tonnage from the Santoy Gap deposit surpassed tonnage from Santoy 8.
| Table 4: Santoy Mine Complex Quarterly Production Statistics |
| | Three Months Ended | Nine Months Ended |
| | Sept 30 | Sept 30 | | Sept 30 | Sept 30 | |
| | 2014 | 2013 | Change | 2014 | 2013 | Change |
| | | | | | | |
| Tonnes Milled | 33,221 | 31,186 | 7% | 88,005 | 99,586 | (12%) |
| Tonnes per Day | 361 | 339 | 6% | 322 | 365 | (12%) |
| Head Grade (grams per tonne) | 6.75 | 4.11 | 64% | 5.45 | 4.27 | 28% |
| Gold Produced (ounces) | 6,957 | 3,947 | 76% | 14,758 | 13,025 | 13% |
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 7 |
Capital Projects
Tailings Facility
During 2014, the Company continued with upgrades to its tailings facilities to ensure adequate storage capacity and treatment of Mill effluent; work on this project is expected to carry over to 2015. When completed, this facility will be permitted up to 460 metre elevation which will support a minimum of four years of operations.
Santoy Gap
The Company has completed the ramp from Santoy 8 to the Santoy Gap deposit as well as three drill chambers for infill and definition drilling. During June 2014, the 290 metre vent raise broke through to surface. Work continued on the vent raise during the third quarter, including surface preparation for additional power and ventilation infrastructure. Completion of the vent relieves a shortage of power and ventilation at Santoy Gap and will help to expedite development. Mining crews have exposed the eastern portion of the ore body on the 24, 26, 28 and 30 levels as well as on the western portion of the 26 level. The 28 and 30 levels were the first to be developed and began long-hole production ahead of schedule during the third quarter.
Financial Results of Operations
Highlights
| Table 5: Highlights of Financial Results of Operations |
| | | Three Months Ended | | Nine Months Ended |
| | | Sept 30 | | Sept 30 | | Sept 30 | | Sept 30 |
| | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | |
| Revenue | $ | 24,323 | $ | 14,976 | $ | 64,665 | $ | 46,324 |
| Production costs | $ | 12,021 | $ | 9,909 | $ | 35,243 | $ | 31,581 |
| Impairment charges | $ | - | $ | 45,187 | $ | - | $ | 56,034 |
| Gross profit (loss) | $ | 6,796 | $ | (293) | $ | 10,887 | $ | (960) |
| Net profit (loss) | $ | 6,852 | $ | (33,871) | $ | 5,068 | $ | (46,323) |
| Earnings (loss) per share (basic and diluted) | $ | 0.04 | $ | (0.19) | $ | 0.03 | $ | (0.26) |
| | | | | | | | | |
| Average realized price per ounce (CDN$) | $ | 1,384 | $ | 1,389 | $ | 1,402 | $ | 1,465 |
| Average realized price per ounce (U.S.$) | $ | 1,270 | $ | 1,338 | $ | 1,281 | $ | 1,432 |
| All-In Sustaining Cost per ounce (CDN$)(1) | $ | 1,063 | $ | 1,574 | $ | 1,265 | $ | 1,957 |
| All-In Sustaining Costs (U.S.$/oz) (1) | $ | 976 | $ | 1,516 | $ | 1,156 | $ | 1,912 |
| Cash Cost per ounce (CDN$/oz) (1) | $ | 735 | $ | 919 | $ | 801 | $ | 999 |
| Cash Cost per ounce (U.S.$/oz) (1) | $ | 675 | $ | 885 | $ | 732 | $ | 976 |
The Company anticipates that the increasing contribution of the Santoy Gap deposit and continued contribution of ore from the L62 deposit will be positive catalysts in lowering overall unit operating costs at the Seabee Gold Operation during 2014 and beyond.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 8 |
Net Profit (Loss)
For the three months ended September 30, 2014, the Company recorded net profit of $6.9 million, or $0.04 per share. This compares to a net loss of $33.9 million, or $0.19 per share, after a $45.2 million impairment charge which was partially offset by a $12.5 million deferred income tax recovery, for the three months ended September 30, 2013.
Year to date, the Company recorded net profit of $5.1 million, or $0.03 per share (YTD 2013 - net loss of $46.3 million, or $0.26 per share, after $56.0 million of impairment charges which were partially offset by $16.8 million of deferred income tax recovery).
Revenue
Gold revenue from the Company’s Seabee Gold Operation for the three months ended September 30, 2014 increased 62 percent to $24.3 million from the $15.0 million reported for the comparable period of 2013. The increase in gold revenue period over period was attributable to higher gold sales volume (Q3 2014 - 17,578; Q3 2013 - 10,781 ounces) and consistent Canadian dollar gold prices realized (Q3 2014 $1,384 (U.S. $1,270); Q3 2013 - $1,389 (U.S. $1,338)).
Year to date, gold revenue increased 40 percent to $64.7 million from the $46.3 million reported in the first nine months of 2013. This increase was attributable to a sales volume increase of 46 percent (YTD 2014 - 46,133 ounces; YTD 2013 - 31,614 ounces) period over period offset by a four percent decrease in Canadian dollar gold prices realized (YTD 2014 - $1,402 (U.S. $1,281); YTD 2013 - $1,465 (U.S. $1,432)).
Production Costs
For the three months ended September 30, 2014, mine production costs of $12.0 million (Q3 2013 - $9.9 million) were 21 percent higher period over period. Year to date, mine production costs were $35.2 million (YTD 2013 - $31.6 million), an increase of 11 percent. All in sustaining costs(1) during the third quarter were $18.7 million, or CDN $1,063 (U.S. $976) per ounce (Q3 2013 - $17.0 million, or CDN $1,574 (U.S. $1,516) per ounce). Year to date, All in sustaining costs were $58.4 million, or CDN $1,265 (U.S $1,156) per ounce (YTD 2013 - $61.9 million, or CDN $1,957 (U.S. $1,912) per ounce). For the third quarter of 2014, total cash cost per ounce of gold(1) of CDN $735 (U.S. $675) per ounce decreased from CDN $919 (U.S. $885) during the third quarter of 2013. Year to date, total cash cost per ounce of CDN $801 (U.S. $732) per ounce was 20 percent lower than the cash cost per ounce of CDN $999 (U.S. $976) reported during the first nine months of 2013. These results are attributable to 63 percent and 46 percent more ounces sold (period over period and year to date, respectively), a reflection of higher grade and increased tonnes milled.
Production Royalty
During the first quarter of 2014, the Company completed a Net Smelter Return (“NSR”) royalty agreement with Orion Mine Finance Fund on the Seabee Gold Operation (Please see Claude news release “Claude Enters into Royalty Transaction with Orion Mine Finance” dated March 20, 2014). For the three months ended September 30, 2014, the three percent NSR royalty on production from the Seabee Gold Operation was $0.9 million (Q3 2013 - $nil). Year to date, the NSR royalty was $1.7 million (YTD 2013 - $nil).
Depreciation and Depletion
For the three months ended September 30, 2014, depreciation and depletion was $4.6 million (Q3 2013 - $5.4 million), down 15 percent period over period. These results are attributable to an increase in tonnes mined and milled and an increase in the Seabee Gold Operation’s asset base more than offset by an increase in the Seabee Gold Operation’s reserves. Year to date, depreciation and depletion was $16.8 million, a seven percent increase over the $15.7 million reported for the first nine months of 2013. This result is attributable to an increase in tonnes mined and milled and an increase in the Seabee Gold Operation’s asset base, somewhat offset by an increase in the Seabee Gold Operation’s reserves. Beginning in Q3 2014, the Company brought its Santoy Gap asset base and reserves into the calculation of depletion.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 9 |
General and Administrative Expense
General and administrative expense of $1.3 million for the three months ended September 30, 2014 was relatively unchanged from the comparable period of 2013. For the first nine months of 2014, general and administrative costs of $5.2 million were relatively unchanged from those reported for the comparable period of 2013.
| Table 6: Corporate General and Administrative Expense |
| | | Three Months Ended | | Nine Months Ended |
| | | Sept 30 | | Sept 30 | | Sept 30 | | Sept 30 |
| | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | |
| Direct administration | $ | 980 | $ | 958 | $ | 3,858 | $ | 3,867 |
| Stock-based compensation | | 153 | | 307 | | 438 | | 936 |
| Deferred share units | | 99 | | (16) | | 803 | | 273 |
| Restricted share units | | 26 | | - | | 102 | | - |
| Total General and Administrative | $ | 1,258 | $ | 1,249 | $ | 5,201 | $ | 5,076 |
Finance Expense
Finance expense includes interest expense, accretion expense and derivative losses. For the three months ended September 30, 2014, Finance expense was $0.8 million (Q3 2013 - $0.9 million). Year to date, finance expense was $4.0 million (YTD 2013 - $2.3 million). Year to date, the variance is attributable to derivative losses, increased interest expense associated with the Company’s term loan and expenses related to the Company’s private placement completed during the first quarter of 2014.
Finance and Other Income
Finance and other income consists of interest income, production royalties pursuant to the Red Mile transactions, derivative gains and other miscellaneous income. For the three months ended September 30, 2014, finance and other income was $1.1 million (Q3 2013 - $1.3 million). Year to date, Finance and other income was $2.7 million (YTD 2013 - $1.5 million), attributable to an increase in derivative gains and miscellaneous revenue.
Impairment Charge
For the period ended September 30, 2014 and year to date 2014, no impairment charges were recorded. For the three months ended September 30, 2013, an impairment charge of $45.2 million was recorded ($7.9 of which related to the Company’s Seabee Gold Operation and $37.3 million of which related to the Company’s Madsen Project, which was classified as held for sale during the third quarter of 2013 (and subsequently sold in the first quarter of 2014) and reflected the re-measurement (required by this classification) of this asset at the lower of its carrying amount and fair value less costs to sell). Year to date in 2013, impairment charges were $56.0 million ($18.7 million of these chargers were attributable to the Seabee Gold Operation with the remainder attributable to the Madsen Project).
Loss on Sale of Assets
Loss on sale of assets of $nil for the three months ended September 30, 2014 was unchanged from the comparable period of 2013. For the first nine months of 2014, Loss on sale of assets of $0.6 million relates to the sale of the Madsen Project completed in the first quarter of 2014.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 10 |
(Gain) Loss on investments
The Company has an equity portfolio of publicly listed companies that are classified as available-for-sale on the Statement of Financial Position. For the three months ended September 30, 2014, gain on investments was $1.0 million (Q3 2013 - $nil). Year to date, gain on investments was $1.3 million (YTD 2013 - $0.3 million loss). Period over period and year to date, the increase noted is attributable to the Company disposing of 5.7 million of the 9.8 million shares in Pure Gold Mining Inc. it received pursuant to the sale of the Madsen Gold Project.
Deferred Income Tax (Recovery) Expense
For the three months ended September 30, 2014, the Company had a deferred income tax recovery of $nil (Q3 2013 - deferred tax recovery of $12.5 million). Year to date, the Company had a deferred income tax recovery of $nil (YTD 2013 - $16.8 million). Management is not recognizing any deferred tax assets in excess of its deferred tax liabilities and does not expect to recognize any significant deferred tax assets or liabilities in the foreseeable future from its current operations.
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’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 7: Schedule of Capital Structure of the Company |
| | | | | September 30 | | December 31 |
| | | | | 2014 | | 2013 |
| | Interest | Maturity | | | | |
| Demand loans | | | $ | - | $ | 2,950 |
| Revolving loan | | | | - | | 5,000 |
| Finance lease liabilities | | | | - | | 291 |
| Term loan* | 10.00% | April/2018 | | 22,399 | | 23,628 |
| Total debt * | | | $ | 22,399 | $ | 31,869 |
| | | | | | | |
| Shareholders’ equity | | | | 130,018 | | 122,596 |
| | | | | | | |
| Debt * to equity | | | | 17% | | 26% |
*For accounting purposes, closing costs associated with the Company’s Term loan were netted against the principal balance owing, thereby reducing the carrying value of the Company’s debt on the Statement of Financial Position. The amount presented in the above table is the amortized cost of the balance owing. At September 30, 2014, the principal balance owing on the Company’s Term loan was $23.5 million. A reconciliation between the principal balance owing and the amortized cost (carrying amount) presented on the Company’s Statement of Financial Position is included in the “Other Financial Measures and Reconciliations” section of this MD&A.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 11 |
Cash, Cash Equivalents and Cash Flow
The Company had cash and cash equivalents of $10.6 million at September 30, 2014 (December 31, 2013 - bank indebtedness of $8.6 million). Short-term investments at September 30, 2014 decreased to $1.5 million (December 31, 2013 - $1.6 million), reflecting the sale of a portion of the Company’s shares in Pure Gold Mining Inc. (formerly Laurentian Goldfields Ltd.), which were received in the first quarter of 2014 pursuant to the closing of the Madsen sale.
Operating Activities
Operating cash flow is the Company’s primary source of liquidity. As required, the Company may enhance its liquidity and supplement operating cash flow through a combination of equity issuances, securing debt financing and sale of non-core assets. The principal use of operating cash flow is to fund the Company’s: operating and capital expenditures at the Seabee Gold Operation; general and administrative costs; and principal and interest payments.
During the first nine months of 2014, the Company’s cash flow from operations before net changes in non-cash operating working capital(2) was $22.0 million, or $0.12 per share (YTD 2013 - $9.3 million, or $0.05 per share).
During the first nine months of 2014, cash provided by operating activities was $18.6 million, a $12.3 million increase compared to the first nine months of 2013; this result is due largely to improved net earnings. Whether favorable or unfavorable, future changes in the Canadian dollar price of gold will continue to have a material impact on the cash flow and liquidity of the Company.
At September 30, 2014, the Company had working capital of $27.8 million (December 31, 2013 - working capital deficiency of $11.9 million).
| Table 8: Working Capital and Current Ratio |
| | | Sept 30 | | | December 31 | | |
| | | 2014 | | | 2013 | | Change |
| | | | | | | | |
| Current assets | | | | | | | |
| Cash and cash equivalents | $ | 10,586 | | $ | - | | - |
| Short-term investments | | 1,483 | | | 1,643 | | (10%) |
| Accounts receivable | | 1,111 | | | 2,873 | | (61%) |
| Inventories | | | | | | | |
| Gold bullion and in-circuit | | 5,465 | | | 2,522 | | 117% |
| Stockpiled ore | | 1,762 | | | 1,838 | | (4%) |
| Materials and supplies | | 19,803 | | | 16,205 | | 22% |
| Other current assets | | 121 | | | 390 | | (69%) |
| Assets held for sale | | - | | | 13,423 | | - |
| Total current assets | $ | 40,331 | | $ | 38,894 | | |
| | | | | | | | |
| Current liabilities | | | | | | | |
| Bank indebtedness | $ | - | | $ | 8,623 | | - |
| Accounts payable and accrued liabilities | | 7,872 | | | 6,997 | | 13% |
| Loans and borrowings | | | | | | | |
| Demand loans | | - | | | 2,950 | | - |
| Finance lease liabilities | | - | | | 291 | | - |
| Current portion of term loan * | | 3,600 | | | 23,628 | | (85%) |
| Revolving loan | | - | | | 5,000 | | - |
| Other current liabilities | | 1,105 | | | 1,001 | | 10% |
| Liabilities related to assets held for sale | | - | | | 2,316 | | - |
| Total current liabilities | $ | 12,577 | | $ | 50,806 | | |
| | | | | | | | |
| Working capital (deficiency) | $ | 27,754 | | $ | (11,912) | | |
| Current ratio | | 3.21 | | | 0.77 | | 317% |
* Amortized cost; principal outstanding on Term Loan is $23.5 million. A reconciliation between the principal balance owing and the amortized cost (carrying amount) presented on the Company’s Statement of Financial Position is included in the “Other Financial Measures and Reconciliations” section of this MD&A.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 12 |
Investing Activities
Cash provided by investing activities amounted to $9.7 million for the nine months ended September 30, 2014 (YTD 2013 - ($26.7) million). Investing activities included the proceeds from the sale of an NSR Royalty Agreement (Q1 2014), the sale of the Madsen Property (Q1 2014), the decrease in reclamation deposits (Q2 2014), the sale of a portion of the Company’s shares in publicly traded companies and the redemption of certain short-term investments (collectively providing $25.8 million). These were offset by Mineral property expenditures of $16.1 million during the first nine months of 2014, a $9.1 million decrease over the comparable period of 2013. Year to date, expenditures were comprised of development of $12.5 million, exploration costs (focusing primarily on the Seabee and Santoy Regional areas) of $0.3 million and property, plant and equipment additions of $3.3 million. Property, plant and equipment additions include mining equipment, camp infrastructure and tailings management facility expansion. The Company utilized its cash flow provided by investing activities (which included proceeds from the NSR Agreement and the sale of Madsen) to fund these additions.
Financing Activities
Financing activities during the first nine months of 2014 included proceeds of $0.7 million received from the issuance of common shares pursuant to the Company’s Employee Share Purchase Program (“ESPP”). This was offset by the repayment of the $5.0 million revolving loan, $1.5 million of Term loan principal repayments and $3.3 million of demand loans and capital leases repayments, resulting in a net financing cash outflow of $9.0 million. This compares to a net financing cash inflow of $17.4 million during the first nine months of 2013, which consisted of $0.7 million in funding received from the Company’s ESPP and demand loan proceeds of $5.0 million and net Term loan proceeds of $24.4 million; these proceeds were offset by debenture, demand loan and capital lease repayments totaling $12.7 million.
During the first nine months of 2014, a total of 7,799,148 common shares (2013 - 2,065,812) were issued pursuant to the Company’s ESPP. No common shares were issued pursuant to the Company’s Stock Option Plan during the first nine months of 2014 or 2013.
During 2014, in addition to interest payments, monthly principal payments of $0.3 million began in May 2014. Monthly principal payments will continue until the Term Loan matures in 2018. Year to date, a total of $1.5 million of Term Loan principal payments have been made (YTD 2013 - nil).
| Table 9: Terms of Term Loan Agreement |
| Period | Monthly Amount | Annual Amount |
| Months 1 - 12 | NIL | NIL |
| Months 13 - 59 | $300,000 | $3,600,000 |
| Due at Maturity (April 2018) | | $10,900,000 |
The 5,750,000 common share purchase warrants pursuant to the original Term Loan Agreement were cancelled during the first quarter of 2014 for consideration of $1.0 million; consideration was paid with 4,545,454 common shares of Claude.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 13 |
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.
To mitigate the effects of price fluctuations in revenue, the Company may enter into derivative instrument transactions, from time to time, in respect of the price of gold and foreign exchange rates. Such transactions can expose the Company to credit, liquidity and interest rate risk. At September 30, 2014, the Company had derivative instruments outstanding in the form of forward sales contracts relating to 2014 production totaling 12,500 ounces (Q3 2013 - 10,000 ounces). The market value gain inherent in these contracts at September 30, 2014 was $0.9 million (Q3 2013 - $0.5 million gain). The Company’s main exposure to interest rate risk arises from interest earning cash deposits.
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 market 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.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 14 |
Contractual Obligations
At September 30, 2014, other than the Company’s repayment of its demand loans outstanding during the third quarter, 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, 2013.
Statements of Financial Position
Highlights
| Table 10: Select Statements of Financial Position Data |
| | | Sept 30 | | Dec 31 | | Percent |
| | | 2014 | | 2013 | | Change |
| | | | | | | |
| Total assets | | $ | 168,964 | | | $ | 181,675 | | | | (7 | )% |
| Non-current liabilities * | | $ | 26,369 | | | $ | 8,273 | | | | 219 | % |
*At December 31, 2013, the Company’s Term loan was classified as a current liability due to non-compliance with a financial covenant. Non-current liabilities at September 30, 2014 reflect the reclassification of the Company’s Term Loan from current to long-term due to execution of a waiver agreement pursuant to the Term Loan during the first quarter of 2014.
Assets
The Company’s total assets were $169.0 million at September 30, 2014, compared to $181.7 million at December 31, 2013; 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 $12.7 million net decrease resulted from increases of: $10.6 million in cash and cash equivalents, largely relating to higher gold sales (attributable to improved production and grade at the Seabee Gold Operation); and $6.5 million in inventories, attributable to an increase in gold bullion and in-circuit inventory (relating to the timing of gold sales) and materials and supplies inventory. These increases were offset by decreases of: $1.8 million in Accounts receivable, largely attributable to the timing of gold sales; $13.4 million in Assets held for sale (relating to the classification of the Madsen Property as held for sale at December 31, 2013); $13.7 million in Mineral properties, largely attributable to the NSR royalty completed by the Company on the Seabee Gold Operation; and $0.4 million in Deposits for reclamation costs, representing the net amount between deposits returned pursuant to the Madsen sale and additional funds put on deposit relating to the Seabee Gold Operation.
Liabilities
Total Current and Non-current liabilities were $38.9 million at September 30, 2014, down $20.1 million from December 31, 2013. This result was attributable to decreases of:$8.6 million in Bank indebtedness,$9.5 million (net) of Loans and borrowings, attributable to repayment of the Company’s $5.0 million revolving loan, principal repayments of $1.5 million on the Company’s Term loan, $3.0 million of repayments on demand loans outstanding and $0.3 million of repayments on obligations under finance lease, attributable to improved production results and gold sales which enabled the Company to repay this facility; $2.3 million in Liabilities related to assets held for sale, attributable to the Madsen Property being classified as held for sale at December 31, 2013 and the sale itself being completed in the first quarter of 2014; and a net decrease of $0.8 million in the Company's current and long-term Net royalty obligation. These decreases were offset by a $0.9 million increase in Accounts payable and accrued liabilities, attributable to the timing and payment of expenditures relating to consumables at the Seabee Gold Operation;and a $0.2 million increase in the Company’s Decommissioning and reclamation provision.
Shareholders’ Equity
Shareholders’ equity increased by $7.4 million to $130.0 million at September 30, 2014, from $122.6 million at December 31, 2013. This variance is attributable to an increase in Share capital of $3.2 million due to the issuance of common shares pursuant to the Company’s ESPP and pursuant to a private placement completed during the first quarter of 2014; a decrease of $1.3 million to Contributed surplus; a $5.1 million decrease to Accumulated deficit, a result of the net profit for the first nine months of 2014; and a $0.4 million increase to Accumulated other comprehensive income.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 15 |
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.
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 year to date 2014 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 $0.7 million, or $0.00 per share. For a $0.01 movement in the U.S.$/CDN$ exchange rate, earnings and cash flow will have a corresponding movement of CDN $0.9 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 $3.1 million, or $0.02 per share.
Selected Quarterly Production and Financial Data
| | Sept 30 | Jun 30 | Mar 31 | Dec 31 | Sept 30 | Jun 30 | Mar 31 | Dec 31 |
| | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | 2012 |
| | | | | | | | | |
| Tonnes milled | 74,930 | 79,746 | 64,370 | 74,458 | 64,642 | 79,077 | 61,877 | 69,698 |
| Grade processed (grams per tonne) | 8.88 | 7.70 | 5.76 | 5.61 | 5.30 | 5.13 | 4.31 | 5.94 |
| Gold Ounces | | | | | | | | |
| Produced | 20,600 | 18,700 | 11,300 | 12,800 | 10,500 | 12,400 | 8,100 | 12,700 |
| Poured | 20,900 | 17,700 | 10,800 | 13,300 | 10,800 | 11,600 | 9,300 | 12,700 |
| Sold | 17,600 | 17,700 | 10,900 | 13,200 | 10,800 | 11,500 | 9,300 | 12,700 |
| Gold sales ($ millions) | 24.3 | 24.7 | 15.6 | 17.5 | 15.0 | 16.1 | 15.3 | 21.2 |
| Production costs ($ millions) | 12.0 | 12.6 | 10.6 | 12.2 | 9.9 | 10.1 | 11.6 | 10.5 |
| Capital expenditures ($ millions) | 4.4 | 3.8 | 7.9 | 6.7 | 5.8 | 7.3 | 13.4 | 10.3 |
| Net profit (loss) ($ millions) (a) | 6.9 | 3.3 | (5.1) | (27.1) | (33.9) | (9.9) | (2.5) | 2.4 |
| Net profit (loss) per share (a) | 0.04 | 0.02 | (0.03) | (0.15) | (0.19) | (0.06) | (0.01) | 0.01 |
| Average realized gold price (CDN$ per ounce) | 1,384 | 1,397 | 1,438 | 1,323 | 1,389 | 1,393 | 1,643 | 1,668 |
| Average realized gold price (U.S.$ per ounce) | 1,270 | 1,282 | 1,303 | 1,260 | 1,338 | 1,361 | 1,629 | 1,683 |
| All-in sustaining (b) (CDN$ per ounce) | 1,063 | 1,065 | 1,919 | 1,609 | 1,574 | 1,590 | 2,857 | 1,722 |
| All-in sustaining (b) (U.S.$ per ounce) | 976 | 977 | 1,738 | 1,533 | 1,516 | 1,554 | 2,833 | 1,737 |
| Cash cost per ounce (b) (CDN$ per ounce) | 735 | 753 | 978 | 944 | 919 | 875 | 1,245 | 822 |
| Cash cost per ounce (b) (U.S.$ per ounce) | 675 | 691 | 886 | 899 | 885 | 855 | 1,235 | 829 |
| Cash flow from operations before net changes in non-cash operating working capital ($ millions) (c) | 10.4 | 9.9 | 1.8 | 4.5 | 4.3 | 3.7 | 1.4 | 9.4 |
| Cash flow from operations before net changes in non-cash operating working capital (c) per share | 0.06 | 0.05 | 0.01 | 0.03 | 0.02 | 0.02 | 0.01 | 0.05 |
| | | | | | | | | |
| Weighted average shares outstanding (basic) | 188,156 | 188,156 | 182,029 | 175,811 | 175,811 | 175,811 | 174,801 | 173,746 |
| | | | | | | | | |
| CDN$/U.S.$ Exchange | 1.0892 | 1.0902 | 1.1038 | 1.0498 | 1.0383 | 1.0235 | 1.0086 | 0.9914 |
(a) | | Basic and diluted, calculated based on the number of shares issued and outstanding during the quarter. Q4 2013 reflects the impact of a $3.5 million impairment charge on the Seabee Gold Operation and a $4.3 million impairment charge on the Madsen Property. Q3 2013 reflects the impact of a $7.9 million impairment charge on the Seabee Gold Operation and a $37.3 million impairment charge on the Madsen Property. Q2 2013 results reflect the impact of a $10.8 million impairment charge on the Seabee Gold Operation. |
| (b) | | Denotes a non-IFRS measure. For an explanation and reconciliation of non-IFRS measures, refer to the “Non-IFRS Financial 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. |
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 16 |
Trends
| • | Consistent tonnage throughput ranging from 61,877 to 79,746 tonnes. |
| • | More than 107,000 ounces of gold production over the last eight quarters (including over 63,000 ounces of gold production over the last four quarters). |
| • | Decreasing capital expenditures. |
| • | Canadian average gold price realized has ranged from $1,323 to $1,668 per ounce over the last eight quarters with gold prices generally declining over the same period. |
| • | The weakening of the Canadian dollar versus the United States dollar. |
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 most recent annual Management’s Discussion and Analysis for the year ended December 31, 2013, available atwww.sedar.com.
Future Accounting Pronouncements
These are the changes that the Company reasonably expects will have an impact on its disclosures, financial position or performance when applied at a future date. The Company intends to adopt this standard, if applicable, when it becomes effective.
Financial Instruments
IFRS 9,Financial Instruments (“IFRS 9”), was issued by the IASB on November 12, 2009 and will replace IAS 39,Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2018 (tentative). The Company is currently evaluating the impact of IFRS 9 on its financial statements, if any.
Exploration Results
During 2014, exploration at the Seabee Gold Operation 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.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 17 |
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 consists of two producing mines, the Seabee Mine (which includes the L62 deposit) and the Santoy Mine Complex (which includes the Santoy 8 and Santoy Gap deposits). In addition, the Seabee Gold Operation is host to various regional exploration targets.
Figure 1: Seabee Property regional map showing significant gold deposits and occurrences.
Santoy Region
The Santoy Region includes the Santoy 8 and Santoy Gap deposits, which are part of the Santoy Mine Complex.
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. 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.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 18 |
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. Results from the underground drill program during 2014 have shown high grade and excellent widths that are hosted within three distinct vein systems (Santoy Gap 9A, 9B and 9C). Select highlight holes that have intercepted multiple vein systems are presented in the table below.
| Table 11: Highlights of Drill Holes Intercepting Multiple Vein Systems Within the Santoy Gap Deposit | |
| Hole ID | VEIN SYSTEM | |
| 9A | 9B | 9C | |
| GRADE g/t (cut) | TRUE WIDTH (m) | GRADE g/t (cut) | TRUE WIDTH (m) | GRADE g/t (cut) | TRUE WIDTH (m) | |
| |
| SUG-14-027 | 33.56 | 4.57 | 7.71 | 2.52 | 4.28 | 10.21 | |
| SUG-14-028 | 15.35 | 7.51 | 4.84 | 3.42 | 6.71 | 7.13 | |
| SUG-14-029 | 50.00 | 1.88 | 10.91 | 10.47 | 15.17 | 4.80 | |
| SUG-14-034 | 13.29 | 2.58 | 22.54 | 9.62 | 4.93 | 1.72 | |
| SUG-14-038 | 9.87 | 8.22 | 20.20 | 0.87 | 28.36 | 2.02 | |
| SUG-14-044 | 8.03 | 3.39 | - | - | 11.33 | 7.63 | |
| SUG-14-048 | 6.06 | 6.34 | 6.23 | 4.69 | 26.77 | 8.70 | |
| Note: Composites were calculated using a 3.5 g/t Au cut-off grade and a 50.0 g/t top-cut and may include internal dilution. | |
These results are significant because all three structures hosted within the Santoy Gap continue to demonstrate economic grades and widths. The Santoy Gap deposit contains more gold ounces per vertical metre than other ore bodies within the Seabee Gold Operation; as such, the Company has the opportunity to improve productivity and margins.
Results during 2013 were 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 deposit. 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-13-692 is of particular significance as it confirms continuity at depth between the Santoy Gap and Santoy 8 deposits.
| Table 12: 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 was able to demonstrate significant resource and grade upside at the Santoy Mine Complex, the prospectivity of the regional Santoy system and highlighted the potential for near term resource growth. With the completion of the Company’s exploration ramp from Santoy 8 to Santoy Gap, Claude’s exploration group initiated underground infill drilling to aid in the development of a detailed mine design for the Santoy Gap as its production profile is further advanced.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 19 |
Figure 2: Santoy Region Composite Longitudinal Section.
Seabee Region
Exploration of the Seabee Region is focused on a near mine environment and is prioritizing drill targets to be tested during 2015.
Figure 3: Seabee Mine Composite Longitudinal Section (L62 Zone Discovery)
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 20 |
Amisk Gold Project
No exploration expenditures are planned for the Amisk Gold Project during 2014. 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.
At the Amisk Gold Project, regional potential remains high and exploration maturity low. Field work and extensive compilation have resulted in the emergence of an extensive list of exploration targets that are currently being prioritized for future assessment. The Company has also completed target development (with the goal of identifying targets with similarities to Amisk’s historical geology), ranking and ground-base reconnaissance in areas 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 4: Amisk Gold Project
Drilling from the Company’s historical 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. 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.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 21 |
Figure 5: Cross Section A-A’ of the Amisk Gold Property
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 mine site 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 Company’s Mineral Resources were estimated by Claude personnel. Estimates of Mineral Resources as at November 15, 2013 were conducted under the direction of Qualified Person Brian Skanderbeg, P.Geo., Senior Vice President and Chief Operating Officer. SRK Consulting (Canada) Inc. prepared the estimates of the Company’s Mineral Reserves as at November 15, 2013 under the direction of Qualified Person Stephen Taylor, P.Eng. (SRK Consulting (Canada) Inc.). An updated Mineral Reserve and Mineral Resource statement for the Seabee Gold Operation is anticipated to be released during the first quarter of 2015.
Seabee Gold Operation
At November 15, 2013, Proven and Probable Reserves in the Seabee Gold Operation were 2,308,800 tonnes, grading 5.70 grams per tonne or 422,900 ounces of gold. The Company’s Mineral Resources at its Seabee Gold Operation included Measured and Indicated Mineral Resources of 175,200 ounces and Inferred Mineral Resources totalling 582,900 ounces.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 22 |
| Table 13: Seabee Gold Operation Mineral Reserves and Mineral Resources |
| Proven and Probable Reserves |
| Projects | November 15, 2013 | December 31, 2012 |
| Tonnes | Grade (g/t) | Ozs | Tonnes | Grade (g/t) | Ozs |
| Seabee | 490,000 | 6.67 | 105,000 | 947,100 | 7.26 | 221,100 |
| Santoy 8 | 362,100 | 4.45 | 51,800 | 628,100 | 4.45 | 89,900 |
| Santoy Gap | 1,456,700 | 5.68 | 266,100 | 1,210,000 | 6.24 | 243,000 |
| Totals | 2,308,800 | 5.70 | 422,900 | 2,785,200 | 6.19 | 554,100 |
| Measured and Indicated Mineral Resources |
| Projects | Tonnes | Grade (g/t) | Ozs | Tonnes | Grade (g/t) | Ozs |
| Seabee | 151,000 | 6.42 | 31,200 | 45,400 | 4.86 | 7,100 |
| Santoy 8 | 68,000 | 4.55 | 9,900 | 59,300 | 3.28 | 6,200 |
| Santoy Gap | 309,400 | 8.44 | 83,900 | 94,000 | 4.65 | 14,000 |
| Porky Main | 160,000 | 7.50 | 38,600 | 160,000 | 7.50 | 38,600 |
| Porky West | 100,700 | 3.57 | 11,600 | 111,000 | 3.10 | 11,000 |
| Totals | 789,100 | 6.91 | 175,200 | 469,600 | 5.10 | 77,000 |
| Inferred Mineral Resources |
| Projects | Tonnes | Grade (g/t) | Ozs | Tonnes | Grade (g/t) | Ozs |
| Seabee | 421,600 | 9.78 | 132,600 | 355,600 | 8.55 | 97,700 |
| Santoy 8 | 640,100 | 6.09 | 125,300 | 518,700 | 5.91 | 98,600 |
| Santoy Gap | 1,210,000 | 6.96 | 270,800 | 1,875,000 | 5.92 | 356,900 |
| Porky Main | 70,000 | 10.43 | 23,500 | 70,000 | 10.43 | 23,500 |
| Porky West | 174,800 | 5.48 | 30,800 | 138,300 | 6.03 | 26,800 |
| Totals | 2,516,500 | 7.21 | 582,900 | 2,957,600 | 6.35 | 603,400 |
Footnotes to the Mineral Resource Statement:
| 1. | At November 15, 2013, Mineral Resources were estimated by Claude personnel. SRK Consulting (Canada) Inc. prepared the Company’s Mineral Reserves as at November 15, 2013. The Mineral Resource evaluation work was completed by a team of geologists and engineers under the supervision of Brian Skanderbeg, P.Geo., Senior Vice President and Chief Operating Officer, a full time employee of Claude. Mr. Skanderbeg has sufficient experience, which is relevant to the style of mineralization and type of deposit under consideration and to the activities undertaken to qualify as a Qualified Person as defined by NI 43-101. Mineral Reserves were conducted under the direction of Qualified Person Stephen Taylor, P.Eng (SRK Consulting (Canada) Inc.). |
| 2. | 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., former Vice President, Operations. |
| 3. | The Mineral Resources and reserves reported herein have been estimated in conformity with generally accepted CIM “Estimation of Mineral Resource and Mineral Reserves Best Practices” guidelines and are reported in accordance with Canadian Securities Administrators’ National Instrument 43-101. |
| 4. | Mineral Reserves and Mineral Resources for the Seabee deposit are reported at a cut-off of 4.6 grams of gold per tonne. Santoy 8 and Santoy Gap Mineral Reserves and Mineral Resources are reported at a cut-off of 3.5 grams of gold per tonne. Porky Main and Porky West Mineral Resources are reported at a cut-off grade of 3.0 grams of gold per tonne. Assumptions include a price of CDN $1,350 per ounce of gold using metallurgical and process recovery of 95.2 percent and overall ore mining and processing costs derived from 2013 realized costs. |
| 5. | All figures are rounded to reflect the relative accuracy of the estimates. Summation of individual columns may not add-up due to rounding. |
| 6. | Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the Mineral Resource will be converted into Mineral Reserves. |
At the Seabee Gold Operation, year over year, there was a 24 percent decrease in Mineral Reserves (131,200 ounces) and a 128 percent increase in Measured and Indicated Mineral Resources (98,200 ounces). Year over year, changes in the Seabee Gold Operations Mineral Reserves and Mineral Resources were driven by:
| • | a decrease in gold price which increased cut-off grade; |
| • | reduced drilling meterage focused on grade definition; |
| • | higher dilution assumptions. |
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 23 |
The Mineral Reserves and Mineral Resources of the Santoy Gap deposit are growing in importance and represent an opportunity for the Company due to their proximity to permitted mine infrastructure, low development cost and near-term production potential. Furthermore, based on its high-grade nature and size, the Santoy Gap deposit demonstrates the potential that exists to grow production at the Seabee Gold Operation.
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 14: Amisk Gold Project Consolidated Mineral Resource Statement* |
| Resource Class | Quantity | Grade (g/tonne) | Contained Ounces (000’s) |
| (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.
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 15: 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. |
Business Risks
Risks and uncertainties related to economic and industry factors are described in detail in the Company’s Annual Information Form, available at www.sedar.com, and remain substantially unchanged.
Common 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 September 30, 2014, there were 188,155,978 common shares outstanding. This compares to 175,811,376 common shares outstanding at December 31, 2013.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 24 |
The Company did not issue any common shares during the third quarter of 2014. During the first quarter of 2014, the Company issued 7,799,148 common shares pursuant to the Company’s ESPP (Q1 2013 - 2,065,812 common shares). Also, during the first quarter of 2014, Claude completed a private placement (the "Private Placement") of common shares in the capital of the Company ("Common Shares"). The Private Placement consisted of the issuance of 4,545,454 Common Shares at a price of CDN $0.22 per Common Share to Crown Capital Partners Inc. (“CCP”). The Common Shares were issued to CCP as payment for a waiver being granted by CCP in connection with a Credit Agreement dated as of April 5, 2013 as a result of a covenant breach at December 31, 2013.
At October 30, 2014, there were 188,155,978 common shares of the Company issued and outstanding.
Stock Options, Warrants, Deferred Share Units and Restricted Share Units Outstanding
Stock Options
At September 30, 2014, there were 8.0 million director, officer and key employee stock options outstanding with exercise prices ranging from $0.17 to $2.38 per share. This compares to 7.9 million director, officer and key employee stock options outstanding at December 31, 2013 ranging from $0.14 to $2.38 per share.
| Table 16: Schedule of Stock Options Outstanding and Weighted Average Exercise Price |
| | | September 30, 2014 | | December 31, 2013 |
| | | Number | | Weighted Average Exercise Price | | Number | | Weighted Average Exercise Price |
| | | | | | | | | |
| | Beginning of period | 7,936,361 | | $1.19 | | 6,948,527 | | $1.43 |
| | Options granted | 811,576 | | 0.17 | | 1,937,268 | | 0.43 |
| | Options exercised | - | | - | | - | | - |
| | Options forfeited | (675,778) | | 1.00 | | (934,434) | | 1.35 |
| | Options expired | (60,000) | | 1.57 | | (15,000) | | 1.79 |
| | End of period | 8,012,159 | | $1.10 | | 7,936,361 | | $1.19 |
For options outstanding at September 30, 2014, the range of exercise prices, the number vested, the weighted average exercise price and the weighted average remaining contractual life are as follows:
| Table 17: Schedule of Stock Options Outstanding by Price Range |
| | Options Outstanding | Options Exercisable (Vested) |
| Option Price Per Share | Quantity | Weighted Average Remaining Life | Weighted Average Exercise Price | Quantity | Weighted Average Remaining Life | Weighted Average Exercise Price |
| $0.17 - $0.50 | 2,447,563 | 5.90 | $0.35 | 556,255 | 5.44 | $0.47 |
| $0.51 - $1.00 | 973,178 | 4.42 | 0.75 | 923,178 | 4.38 | 0.75 |
| $1.01 - $1.50 | 2,339,673 | 4.08 | 1.20 | 2,339,673 | 4.08 | 1.20 |
| $1.51 - $2.00 | 1,775,000 | 5.32 | 1.87 | 1,538,000 | 5.11 | 1.86 |
| $2.01 - $2.38 | 476,745 | 6.44 | 2.32 | 405,396 | 6.43 | 2.31 |
| | 8,012,159 | 5.09 | $1.10 | 5,762,502 | 4.70 | $1.31 |
The foregoing options have expiry dates ranging from January 5, 2015 to November 9, 2021.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 25 |
Warrants
At September 30, 2014, there were no common share purchase warrants outstanding. This compares to 5.8 million common share purchase warrants outstanding at December 31, 2013. During the first quarter of 2014, the Company entered into an Amending Agreement pursuant to its long-term debt arrangement with CCP whereby the 5,750,000 warrants held by CCP were cancelled in conjunction with the waiver of covenant breach for consideration of $1.0 million, which was paid in 4,545,454 common shares of Claude.
Deferred Share Units
The Company offers a Deferred Share Unit (“DSU”) plan to non-employee Directors. A DSU is a notional unit that reflects the market value of a single common share of Claude. A portion of each Director’s annual retainer is paid in DSUs. Each DSU fully vests upon award and are redeemable for cash upon a director leaving the Company’s Board of Directors. The redemption amount will be based upon the weighted average of the closing prices of the common shares of Claude on the TSX for the last 20 trading days prior to the redemption date multiplied by the number of DSUs held by the Director.
During the second quarter of 2014, the Company granted 3,043,481 DSUs to participating Directors. During the third quarter of 2014, a total of 1,320,582 DSUs were settled for proceeds of $0.3 million in conjunction with the retirement of two Company Directors. At September 30, 2014 and October 30, 2014, total DSUs held by participating Directors was 3,302,985 (December 31, 2013 - 1,580,086).
Restricted Share Units
In the first quarter of 2014, the Company established a Restricted Share Unit (“RSU”) plan whereby it may provide each plan participant an annual grant of RSUs in an amount determined by the Company’s Board of Directors. An RSU is a notional unit that reflects the market value of a single common share of Claude that entitles the participant to a cash payment for all fully vested units. RSUs vest annually over a three-year period. The final value of the redemption amount will be based upon the weighted average of the closing prices of the common shares of Claude on the TSX for the last 20 trading days prior to the redemption date multiplied by the number of RSUs held by participants.
For RSUs, the Company records compensation expense with an offsetting credit to accounts payable to reflect the estimated fair value of RSUs granted to participants. During the second quarter of 2014, a total of 1,058,696 RSUs were granted to participants in the Company’s RSU plan (YTD 2013 - nil). At September 30, 2014 and October 30, 2014 (the date of this Management’s Discussion and Analysis), total RSUs held by participants was 778,261 (December 31, 2013 - nil).
Footnotes
| (1) | See description and reconciliation of non-IFRS measures in the “Non-IFRS Financial Measures and Reconciliations” section of this MD&A. |
| (2) | See description and reconciliation of this performance measure in the “Other Performance Measures and Reconciliations” section of this MD&A. |
Non-IFRS Financial 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.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 26 |
Adjusted Net Profit (Loss)
Adjusted net profit (loss) is a measure that does not have a standardized meaning or a consistent basis of calculation under IFRS (non-IFRS measure). The Company uses this measure (which represents the Company’s net profit (loss) calculated under IFRS adjusted for deferred income tax (recovery) expense and non-recurring items such as impairment charges and gain (loss) on sale of assets and investments), 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 (loss) 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.
The table below reconciles adjusted net profit (loss) with the Company’s net profit (loss), as determined under IFRS.
| Table 18: Adjusted Net Profit (loss) |
| | | Three Months Ended | | Nine Months Ended |
| | | Sept 30 | | Sept 30 | | Sept 30 | | Sept 30 |
| | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | |
| Net profit (loss) | $ | 6,852 | $ | (33,871) | $ | 5,068 | $ | (46,323) |
| Adjustments: | | | | | | | | |
| Deferred income tax (recovery) | | - | | (12,531) | | - | | (16,773) |
| Impairment charge | | - | | 45,187 | | - | | 56,034 |
| Loss on sale of assets | | - | | - | | 642 | | - |
| Loss (gain) on investments | | (1,047) | | - | | (1,317) | | 262 |
| Adjusted Net profit (loss) | $ | 5,805 | $ | (1,215) | $ | 4,393 | $ | (6,800) |
| Weighted Average shares outstanding (basic) | | 188,156 | | 175,811 | | 186,136 | | 175,478 |
| Weighted Average shares outstanding (diluted) | | 188,459 | | 175,811 | | 186,313 | | 175,478 |
Per share adjusted net profit (loss) (basic and diluted) | $ | 0.03 | $ | (0.01) | $ | 0.02 | $ | (0.04) |
All-In Sustaining Cost Per Ounce
All-in sustaining costs and all-in sustaining cost per ounce are Non-GAAP measures. These measures are intended to assist readers in evaluating the total costs of producing gold from current operations. While there is no standardized meaning across the industry for this measure, the Company’s definition conforms to the definition of all-in sustaining costs as set out by the World Gold Council, which became effective January 1, 2014. The Company defines all-in sustaining costs as the sum of production costs, sustaining capital (capital required to maintain current operations at existing levels), corporate general and administrative expenses, in-mine exploration expenses and reclamation cost accretion related to current operations. All-in sustaining costs exclude growth capital, reclamation cost accretion not related to current operations, interest expense, debt repayment and taxes. The costs included in the calculation of all-in sustaining costs are divided by commercial gold ounces sold; U.S.$ all-in sustaining costs per ounce sold are translated using the average Bank of Canada CDN$/U.S.$ exchange rate.
All-in sustaining costs and all-in sustaining cost per ounce are reconciled to the amounts included in the Consolidated Statements of Comprehensive Income (Loss) as follows:
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 27 |
| Table 19: All-In Sustaining Cost per Ounce |
| | | | | Three months ended | | |
| | | | | Sept 30 | | Sept 30 | | |
| | | | | 2014 | | 2013 | | Change |
| | | | | | | | | |
| Production cost (CDN$) | | | $ | 12,021 | $ | 9,909 | | 21% |
| Production royalty | | | | 902 | | - | | - |
| Smelting, refining, freight | | | | 64 | | 45 | | 42% |
| By-product credits | | | | (14) | | (28) | | (50%) |
| General and administrative | | | | 1,258 | | 1,249 | | 1% |
| Accretion | | | | 35 | | 51 | | (31%) |
| Development | | | | 2,727 | | 4,402 | | (38%) |
| Property, plant and equipment | | | | 1,626 | | 1,088 | | 49% |
| Exploration | | | | 65 | | 249 | | (74%) |
| All-In Sustaining Costs | | | $ | 18,684 | $ | 16,965 | | 10% |
| Divided by ounces sold | | | | 17,578 | | 10,781 | | 63% |
| All-in sustaining cost per ounce (CDN$) | | | $ | 1,063 | $ | 1,574 | | (32%) |
| | | | | | | | | |
| CDN$ Exchange Rate | | | | 1.0892 | | 1.0383 | | |
| All-in sustaining cost per ounce (U.S.$) | | | $ | 976 | | 1,516 | | (36%) |
| Table 20: All-In Sustaining Cost per Ounce |
| | | | | Nine months ended | | |
| | | | | Sept 30 | | Sept 30 | | |
| | | | | 2014 | | 2013 | | Change |
| | | | | | | | | |
| Production cost (CDN$) | | | $ | 35,243 | $ | 31,581 | | 12% |
| Production royalty | | | | 1,694 | | - | | - |
| Smelting, refining, freight | | | | 172 | | 112 | | 54% |
| By-product credits | | | | (63) | | (12) | | 425% |
| General and administrative | | | | 5,201 | | 5,076 | | 2% |
| Accretion | | | | 114 | | 129 | | (12%) |
| Development | | | | 12,453 | | 17,510 | | (29%) |
| Property, plant and equipment | | | | 3,351 | | 6,498 | | (48%) |
| Exploration | | | | 201 | | 989 | | (80%) |
| All-In Sustaining Costs | | | $ | 58,366 | $ | 61,883 | | (6%) |
| Divided by ounces sold | | | | 46,133 | | 31,614 | | 46% |
| All-in sustaining cost per ounce (CDN$) | | | $ | 1,265 | $ | 1,957 | | (35)% |
| | | | | | | | | |
| CDN$ Exchange Rate | | | | 1.0943 | | 1.0236 | | |
| All-in sustaining cost per ounce (U.S.$) | | | $ | 1,156 | | 1,912 | | (40%) |
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 World Gold Council.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 28 |
| Table 21: Total Cash Cost per Gold Ounce Sold |
| | | | | Three Months Ended | | |
| | | | | Sept 30 | | Sept 30 | | |
| | | | | 2014 | | 2013 | | Change |
| | | | | | | | | |
| Production costs (CDN$) | | | $ | 12,021 | $ | 9,909 | | 21% |
| Divided by ounces sold | | | | 17,578 | | 10,781 | | 63% |
| Production cost per ounce (CDN$) | | | $ | 684 | $ | 919 | | (26)% |
| | | | | | | | | |
| NSR royalty | | | $ | 902 | $ | - | | - |
| Divided by ounces sold | | | | 17,578 | | 10,781 | | 63% |
| NSR royalty cost per ounce (CDN$) | | | $ | 51 | $ | - | | - |
| | | | | | | | | |
| Total cash cost per ounce (CDN$) | | | $ | 735 | $ | 919 | $ | (20)% |
| | | | | | | | | |
| CDN$ Exchange Rate | | | | 1.0892 | | 1.0383 | | |
| Total cash cost per ounce (U.S.$) | | | $ | 675 | $ | 885 | | (24)% |
| Table 22: Total Cash Cost per Gold Ounce Sold |
| | | | | Nine Months Ended | | |
| | | | | Sept 30 | | Sept 30 | | |
| | | | | 2014 | | 2013 | | Change |
| | | | | | | | | |
| Production costs (CDN$) | | | $ | 35,243 | $ | 31,581 | | 12% |
| Divided by ounces sold | | | | 46,133 | | 31,614 | | 46% |
| Production cost per ounce (CDN$) | | | $ | 764 | $ | 999 | | (24)% |
| | | | | | | | | |
| NSR royalty | | | $ | 1,694 | $ | - | | - |
| Divided by ounces sold | | | | 46,133 | | 31,614 | | 46% |
| NSR royalty cost per ounce (CDN$) | | | $ | 37 | $ | - | | - |
| | | | | | | | | |
| Total cash cost per ounce (CDN$) | | | $ | 801 | $ | 999 | $ | (20)% |
| | | | | | | | | |
| CDN$ Exchange Rate | | | | 1.0943 | | 1.0236 | | |
| Total cash cost per ounce (U.S.$) | | | $ | 732 | $ | 976 | | (25)% |
Other Financial 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.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 29 |
Table 23: Calculation of Cash Flow from Operations before Net Changes in Non-Cash Operating Working Capital |
| | | Three Months Ended | | | Nine Months Ended |
| | | Sept 30 | | | Sept 30 | | | Sept 30 | | | Sept 30 |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 |
| | | | | | | | | | | | |
| | Net profit (loss) | $ | 6,852 | | $ | (33,871) | | $ | 5,068 | | $ | (46,323) |
| | Adjustments for non-cash items: | | | | | | | | | | | |
| | Depreciation and depletion | | 4,604 | | | 5,360 | | | 16,841 | | | 15,703 |
| | Finance expense | | 126 | | | 136 | | | 1,176 | | | 381 |
| | Finance and other income | | (320) | | | (316) | | | (833) | | | (913) |
| | Impairment charges | | - | | | 45,187 | | | - | | | 56,034 |
| | Loss on sale of assets | | - | | | - | | | 642 | | | - |
| | Loss (gain) on investments | | (1,047) | | | - | | | (1,317) | | | 262 |
| | Stock-based compensation | | 153 | | | 307 | | | 438 | | | 937 |
| | Deferred income tax recovery | | - | | | (12,531) | | | - | | | (16,773) |
| | $ | 10,368 | | $ | 4,272 | | $ | 22,015 | | $ | 9,308 |
| Weighted Average shares outstanding (basic) | | 188,156 | | | 175,811 | | | 186,136 | | | 175,478 |
| Weighted Average shares outstanding (diluted) | | 188,459 | | | 175,811 | | | 186,313 | | | 175,478 |
| Per share cash flows from operating activities (basic and diluted) | $ | 0.06 | | $ | 0.02 | | $ | 0.12 | | $ | 0.05 |
| | | | | | | | | | | | | | |
Reconciliation Principal Balance Owing on Debt
Pursuant to Company policy, closing costs associated with the Company’s long-term debt are netted against the face value of the debt, thereby reducing the carrying value of the Term Loan on the Statement of Financial Position. These costs are amortized using the effective interest rate method over the life of the debt facility. A reconciliation of the amortized cost of the Company’s Term loan versus the principal balance owing is outlined below.
| Table 24: Principal Balance of Debt |
| | | | | | | Sept 30 | | Dec 31 |
| | | | | | | 2014 | | 2013 |
| | | | | | | | | |
| Term loan (amortized cost) | | | | | $ | 22,399 | $ | 23,628 |
| Add: | | | | | | | | |
| Remaining closing costs to be amortized | | | | | | 1,101 | | 1,372 |
| Debt (principal balance owing) | | $ | 23,500 | $ | 25,000 |
Disclosure Controls and Internal Controls over Financial Reporting
Disclosure Controls and Procedures
As at September 30, 2014, 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 with the participation of Management, including the Interim President and Chief Executive Officer and the Chief Financial Officer. Based on that evaluation, the Interim 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 ICFR. ICFR, 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 Interim 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 criteria set forth in the Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, the Interim President and Chief Executive Officer and the Chief Financial Officer concluded that internal control over financial reporting is effective as at September 30, 2014.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 30 |
Changes in Internal Control Over Financial Reporting
There have been no significant changes made in our internal controls over financial reporting during the period ended September 30, 2014 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 Interim 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.
Compliance with Canadian Securities Regulations
This annual 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 20-F, File No. 001-31956, 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.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 31 |
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.
Forward-looking statements in this MD&A are made as of the date of this MD&A, being October 30, 2014 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.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 32 |
Additional Information
Additional information related to the Company, including its Annual Information Form (Form 20-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 at www.clauderesources.com.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 33 |
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).
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 34 |
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.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 35 |
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.
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 36 |
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).
| Q3 2014 Management’s Discussion and Analysis (in thousands of CDN dollars, except as otherwise noted) | Page 37 |
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.
