Entrée is currently examining the alternative production scenarios and associated expansion options identified in 2014 OTTR. If the results of such examination lead Entrée to believe that there is a more likely development scenario for the Joint Venture Property than the Reserve Case, Entrée will issue a press release and file a new technical report as required under NI 43-101.
Entrée-OTLLC Joint Venture Future Work
Exploration and development of the Joint Venture Property is under the control of Rio Tinto on behalf of manager OTLLC. The future work recommendations in the 2014 OTTR, although focussed on the Oyu Tolgoi licence, will be of benefit to Entrée as they will include examination of the Joint Venture Property.
Power Supply Determination
Turquoise Hill announced on November 5, 2012, that OTLLC had signed a binding power purchase agreement with the Inner Mongolia Power Corporation to supply power to the Oyu Tolgoi mine. With the conclusion of the power agreement, OTLLC completed a seven-week commissioning of the ore-processing equipment. First concentrate production was completed on January 31, 2013. Commercial production commenced in September 2013.
The Investment Agreement recognized that the reliable supply of electrical power is critical to the mine. The agreement also confirmed that Turquoise Hill has the right to obtain electrical power from inside or outside Mongolia, including China, to meet its initial electrical power requirements for up to four years after OTLLC begins commercial production. The Investment Agreement established that: (a) Turquoise Hill has the right to build or sub-contract construction of a coal-fired power plant at an appropriate site in Mongolia’s South Gobi Region to supply Oyu Tolgoi; and (b) all of the mine’s power requirements would be sourced from within Mongolia no later than four years after the start of commercial production. On August 14, 2014, Turquoise Hill announced that OTLLC had signed a Power Sector Cooperation Agreement with the Government of Mongolia, which provides for an open, international tender process to identify and select an independent power provider to privately fund, construct, own and operate a power plant to supply electricity, with Oyu Tolgoi as the primary customer. Full evaluation of the independent power producer option was expected to take 9-12 months.
Due to low average annual precipitation in the project area, water management and conservation are given the highest priority in all aspects of project design.
The development of a borefield to access groundwater reserves within the Gunii Hooloi aquifer basin has been established as the most cost-effective option to meet the raw water demand for the project. Water from the borefield will be required for process water supply, dust suppression in the mining areas, and potable use. Another major component of the water management plan is the diversion of the Undai River to accommodate project facilities. Undai River water is not used by the mine, diversion is to totally preserve this water in the environment. The Undai River diversion was completed in August 2013.
OTLLC will benchmark its water conservation efforts against other mines by assessing factors such as quantified water consumption per tonne of concentrate produced. The current water budget is based on the use of 550 L/t, which compares favourably with other large operations in similar arid conditions. OTLLC is committed to water conservation.
It is also assumed that no water will become available through mine dewatering. Although the need for mine dewatering at a rate of up to 90 L/s is predicted, this will be at a key stage of the mine development, and the actual flow could be lower. The total site design water demand ranges from a low of 465 L/s in spring to a high of 1,205 L/s in winter.
Long-term sales contracts have been signed for 92% of the Oyu Tolgoi mine’s expected concentrate production in 2015 with the remaining volume committed to one customer. Discussions are ongoing to place volumes from 2015 onwards as some of the existing contracts start to expire from the end of 2015.
| | Socio-economic Aspects of Mine Closure Plan |
The preliminary mine closure and reclamation plan includes provisions to ensure that adverse socio-economic impacts of mine closure are minimized and positive impacts are maximized. To this end, OTLLC has planned that allowances will be incorporated into the annual mine operations budget starting 10 years before mine closure to address the costs of:
| | · | Lost employment by the mine workforce. |
| | · | Adverse effects on supply chain businesses and downstream businesses, affected communities, public services, and infrastructure. |
| | · | Promoting ongoing sustainability among affected stakeholders and communities. |
The details of additional socio-economic aspects of a conceptual mine closure plan have not yet been fully developed and are the subject of work to be done in the near future.
Shivee West
Entrée has a 100% interest in the western portion of the Shivee Tolgoi mining licence.
Shivee West – Exploration
In 2011, RC drilling was conducted over the Zone III near-surface epithermal gold target and expanded north, where a new gold zone ("Argo Zone") was discovered 250 metres beyond the previously known area of gold mineralization. The Argo Zone was partly defined by six RC holes (holes EGRC-11-110 to 115), two trenches and surface chip sampling. Hole EGRC-11-112 returned 14 metres of 1.82 g/t gold and hole EGRC-11-111 returned 3 metres of 2.21 g/t gold. Two separate high-grade surface chip samples averaged 42.4 g/t gold over four metres and 19.3 g/t gold over three metres. Shallow gold mineralization in both zones is hosted by quartz veined felsic volcanic rocks.
In 2012, Entrée completed geological mapping, excavator trenching and sampling in the Argo/Zone III and Khoyor Mod areas. In total, 22 trenches (1,723 metres) were excavated. The area of Argo gold mineralization was extended 140 metres further north from mineralization defined by 2011 RC drilling and the Argo Zone now measures approximately 400 metres long by up to 130 metres wide. One of the trench samples returned 81.4 g/t gold over three metres, confirming and expanding 2011 high-grade gold values.
Khoyor Mod is located approximately six kilometres south of Argo and comprises a 250 metre by 300 metre area of quartz stockwork within Devonian sediments. The stockwork is anomalous in gold (trace to 0.58 g/t) and copper (67-505 ppm) and is indicative of a porphyry target.
No exploration has been completed on Shivee West since 2012, and Entrée does not anticipate further significant exploration or development work until the current regulatory environment in Mongolia has been stabilized.
Shivee West – Sampling, Analysis and Security
Sampling programs on Shivee West have included soil, rock chip, drill core and RC samples. In 2011 and 2012 sampling was limited to RC and rock chip (trench) samples. All of the sampling was carried out by Entrée personnel or contractors.
All 2012 samples were submitted to Actlabs Asia LLC in Ulaanbaatar, Mongolia for gold analysis by fire assay/atomic absorption ("AA") methods on a 30-gram sample and for silver, copper, molybdenum, lead and zinc by 4-acid digestion/AA method.
No sample preparation is undertaken in the field. Samples of any type for analytical work are collected in uniquely numbered sample bags with corresponding sample tag inside and stored in a secure facility in the exploration camp until ready for shipment to the lab. Samples are placed in rice bags and shipped by ground transportation using a locked box, keys of which are kept in the exploration camp and at the destination laboratory. A chain-of-command document is used to verify receipt of the samples by the driver and by the analytical laboratory.
NON-MATERIAL PROPERTIES
Entrée has interests in other non-material properties in the United States, Australia and Peru as follows. For additional information regarding these non-material properties, including Entrée’s ownership interest and obligations, see the Company’s Management’s Discussion and Analysis for the financial year ended December 31, 2014, which is available on SEDAR at www.sedar.com.
| | · | Lordsburg Property, New Mexico. The Lordsburg claims cover 2,013 ha adjacent to the historic Lordsburg copper-gold-silver district in New Mexico. Drilling at Lordsburg has been successful in discovering a new porphyry copper-gold occurrence in an area previously known only for vein-style gold mineralization. No work was completed in 2014. Future drilling will be directed towards expanding the existing drill defined copper and gold zone. |
| | · | Blue Rose Joint Venture, Australia. The Blue Rose copper-iron-gold-molybdenum joint venture property covers exploration licence 5129 in the Olary Region of South Australia, 300 kilometres north-northeast of Adelaide. Magnetite iron formations occur in the southern portion of this 1,000 square kilometre tenement, and a zone of copper oxide mineralization and a gold target (Golden Sophia) are located in the north-central area of the tenement. Soil sampling by the joint venture over the Golden Sophia shallow gold target confirmed the previous Battle Mountain gold in soil anomaly and defined a new, linear gold anomaly located approximately 700 metres to the northeast. |
| | · | Lukkacha Property, Peru. The Lukkacha property is located in Tacna Province of southeastern Peru. The property consists of seven concessions totaling 4,400 ha which cover two large areas of surface alteration, iron oxides and quartz veining approximately 50 kilometres along the structural trend southeast from the giant Toquepala mining operation of Grupo Mexico. The property has never been drilled and represents a unique opportunity for early stage exploration within an under-explored major copper district. The property is situated within 50 kilometres of the international border with Chile, and initiation of further exploration (geophysics and drilling) is subject to Entrée obtaining a Supreme Decree allowing it to work on the property. |
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
We are an exploration stage resource company engaged in exploring mineral resource properties. We have interests in exploration and development properties in the United States, Mongolia, Australia and Peru. Our two principal advanced assets are our Ann Mason Project in Nevada and our interest in the Lookout Hill property in Mongolia.
The Ann Mason Project includes the Ann Mason and the Blue Hill deposits, which host Indicated (Ann Mason) and Inferred mineral resources. The Company reported the results of the Ann Mason deposit PEA on October 24, 2012.
The Lookout Hill property includes mineral resources at the Hugo North Extension deposit and Heruga deposits. The resources at Hugo North Extension include a Probable reserve, which is included in Lift 1 of the Oyu Tolgoi underground block cave mining operation. Lift 1 of the Hugo North Extension deposit is scheduled to generate first development production in 2020, although underground development at Oyu Tolgoi is currently halted. A second lift for the Oyu Tolgoi underground block cave operation, including additional resources from Hugo North Extension, has been proposed but has not yet been modeled within the existing mine plan.
Our financial statements for the years ended December 31, 2014, 2013, and 2012 have been prepared in accordance with U.S. GAAP. The consolidated financial statements have been prepared under the historical cost convention, as modified by financial assets and financial liabilities at fair value through profit or loss. The Company has consistently applied the same accounting policies throughout all periods presented, as if these policies had always been in effect.
Critical Accounting Policies and Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results could differ from these estimates.
The Company must make estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, the recoverability of deferred tax assets, and in the calculation of certain tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. Significant changes in these estimates may result in an increase or decrease to the tax provision in a subsequent period. Recovery of a portion of the deferred tax assets is impacted by Company plans with respect to holding or disposing of certain assets. Changes in economic conditions, exploration results, metal prices and other factors could result in changes to the estimates and judgements used in determining the income tax expense.
The Company capitalizes the cost of acquiring mineral property interests, including undeveloped mineral property interests, until the viability of the mineral interest is determined. Capitalized acquisition costs are expensed if it is determined that the mineral property has no future economic value. The Company must make estimates and judgments in determining if any capitalized amounts should be written down by assessing if future cash flows, including potential sales proceeds, related to the mineral property are estimated to be less than the property's total carrying value. The carrying value of each mineral property is reviewed periodically, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Reductions in the carrying value of a property would be recorded to the extent that the total carrying value of the mineral property exceeds its estimated fair value.
The Company follows accounting guidelines in determining the value of stock option compensation, as disclosed in Note 9 to the Annual Financial Statements for the year ended December 31, 2014. Unlike other numbers in the accounts, this is a calculated amount not based on historical cost, but on subjective assumptions introduced to an option pricing model, in particular: (1) an estimate for the average future hold period of issued stock options before exercise, expiry or cancellation; and (2) future volatility of the Company’s share price in the expected hold period (using historical volatility as a reference). Given that there is no market for the options and they are not transferable, the resulting value calculated is not necessarily the value the holder of the option could receive in an arm’s-length transaction.
The Company’s accounting policy is to expense exploration costs on a project by project basis consistent with U.S. GAAP. The policy is consistent with that of other exploration companies that have not established mineral reserves. When a mineral reserve has been objectively established further exploration costs would be deferred.
Changes in Accounting Policies
In June 2014, the FASB issued ASU No. 2014-10, "Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation". This ASU does the following, among other things: (1) eliminates the requirement to present inception-to-date information on the statements of income, cash flows, and shareholders' equity; (2) eliminates the need to label the financial statements as those of a development stage entity; (3) eliminates the need to disclose a description of the development stage activities in which the entity is engaged; and (4) amends FASB ASC 275, "Risks and Uncertainties", to clarify that information on risks and uncertainties for entities that have not commenced planned principal operations is required. The amendments in ASU No. 2014-10 related to the elimination of Topic 915 disclosures and the additional disclosure for Topic 275 are effective for public companies for annual and interim reporting periods beginning after December 15, 2014. Early adoption is permitted. The Company has evaluated this ASU and early adopted for the period beginning on April 1, 2014.
A detailed summary of all of the Company’s significant accounting policies, changes in accounting policies and the estimates derived therefrom is included in Note 2 to the Annual Financial Statements for the year ended December 31, 2014.
The following discussion is intended to supplement the audited consolidated financial statements of the Company for the years ended December 31, 2014, 2013 and 2012, and the related notes thereto, which have been prepared in accordance with U.S. GAAP. This discussion should be read in conjunction with the audited consolidated financial statements contained in this Annual Report on Form 20-F. This discussion contains "forward-looking statements" that are subject to risk factors set out under the heading "Item 3. Key Information – D. Risk Factors". See "Cautionary Note Regarding Forward-Looking Statements" above.
SELECTED ANNUAL FINANCIAL INFORMATION
| | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | Year Ended December 31, 2012 | |
| | | | | | | | | | |
| Total Revenues | | $ | - | | | $ | - | | | $ | - | |
| Net Loss | | | (8,669,188 | ) | | | (11,422,025 | ) | | | (15,196,129 | ) |
| Net loss per share, basic and diluted | | | (0.06 | ) | | | (0.08 | ) | | | (0.12 | ) |
| Working capital | | | 32,603,711 | | | | 46,394,496 | | | | 4,699,256 | |
| Total assets | | | 79,690,498 | | | | 97,395,105 | | | | 64,173,530 | |
| Total long term liabilities | | | 44,269,904 | | | | 50,956,860 | | | | 15,286,041 | |
(1) Working Capital is defined as Current Assets less Current Liabilities. | | | | | | | | | |
For the year ended December 31, 2014, net loss was $8,669,188 compared to $11,422,025 in the year ended December 31, 2013. During the year ended December 31, 2014, Entrée incurred lower operating expenditures primarily due to a combination of lower general and administration expense and higher foreign exchange gains. As at December 31, 2014, working capital was $32,603,711 compared to $46,394,496 as at December 31, 2013. The decrease in working capital is primarily the result of cash used in operations during the period. As at December 31, 2014, total assets were $79,690,498 compared to $97,395,105 as at December 31, 2013. The decrease in total assets over the prior year is primarily the net effect of a decrease in working capital described above. As at December 31, 2014, total long term liabilities were $44,269,904 compared to $50,956,860 as at December 31, 2013. The decrease in long term liabilities over the prior year is largely due to a decrease in deferred income tax liabilities and decreased deferred revenue resulting from unrealized foreign currency translation gains.
REVIEW OF OPERATIONS
Results of operations are summarized as follows:
| | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | |
| | | | | | | |
| Exploration | | $ | 9,018,994 | | | $ | 5,808,316 | |
| General and administrative | | | 3,936,413 | | | | 5,510,641 | |
| Consultancy and advisory fees | | | 830,623 | | | | 1,941,130 | |
| Impairment of mineral property interests | | | 552,095 | | | | 437,732 | |
| Interest expense | | | 264,869 | | | | 260,453 | |
| Stock-based compensation | | | 251,390 | | | | 1,422,297 | |
| Loss from equity investee | | | 107,907 | | | | 146,051 | |
| Depreciation | | | 65,517 | | | | 102,941 | |
| Fair value adjustment of asset backed | | | | | | | | |
| commercial paper | | | - | | | | (147,564 | ) |
| Gain on sale of mineral property interest | | | (28,096 | ) | | | (451,892 | ) |
| Current income tax expense (recovery) | | | (123,255 | ) | | | 319,112 | |
| Interest income | | | (295,023 | ) | | | (431,596 | ) |
| Foreign exchange gain | | | (1,978,854 | ) | | | (1,113,728 | ) |
| Deferred income tax recovery | | | (3,933,392 | ) | | | (2,381,868 | ) |
| Net loss | | $ | 8,669,188 | | | $ | 11,422,025 | |
Exploration expenditures are summarized as follows:
| | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | |
| | | | | | | |
| US | | $ | 7,066,997 | | | $ | 3,940,264 | |
| Mongolia | | | 1,672,341 | | | | 1,355,493 | |
| Other | | | 315,549 | | | | 807,235 | |
| Total costs | | | 9,054,887 | | | | 6,102,992 | |
| Less stock-based compensation | | | (35,893 | ) | | | (294,676 | ) |
| Total expenditures, cash | | $ | 9,018,994 | | | $ | 5,808,316 | |
UNITED STATES
Ann Mason Project, Nevada
The Ann Mason Project, located in the Yerington District of Nevada, is one of Entrée’s core advanced assets. With the completion of a positive PEA in 2012, Entrée began evaluating the most efficient and effective way of advancing the Ann Mason Project towards prefeasibility. A prefeasibility drill program was undertaken between August 2014 and late January 2015. Entrée commenced a prefeasibility metallurgy program in the first quarter of 2015 and plans to release an updated resource estimate for the Ann Mason deposit and an updated PEA in the second quarter of 2015. In addition, the Company is considering strategic partnerships, joint ventures and similar arrangements that would help facilitate the development of the project. To date, excluding any capitalized mineral property acquisition costs, Entrée has expended approximately $27.1 million on the Ann Mason Project.
From April to July 2013, Entrée completed 993 metres of RC pre-collar drilling and 2,159 metres of core drilling in five holes to test the Ann Mason and Blue Hill deposits and other nearby exploration targets. Holes varied in depth from 502 to 811 metres.
At the Ann Mason deposit, core drilling in 2013 was designed to test for extensions of mineralization within the current pit design, primarily along the northeast and northwest margins of the deposit. Three of the five core holes drilled at Ann Mason extended copper mineralization 190 metres to 250 metres northwest and northeast of the deposit. Near the east end of the deposit, hole EG-AM-13-035 intersected 220 metres (from 262 metres depth) averaging 0.30% copper, 0.07 g/t gold and 1.70 g/t silver. Included within the intersection is a higher-grade interval of 100 metres grading 0.43% copper, 0.11 g/t gold and 2.75 g/t silver. Drill holes EG-AM-13-033 and 034, on the northeast side of the deposit, returned 310 metres of 0.21% copper and 46.0 metres of 0.27% copper, respectively and extend copper mineralization up to 250 metres northeast of the current mineral resource. Ann Mason mineralization remains open in several directions and further drilling programs will be needed to test this potential.
Two shallow, widely-spaced RC holes (totaling 180 metres) were completed about 500 to 900 metres to the west of Ann Mason to test a new, near-surface oxide copper target. Holes EG-AM-13-038 and 039 encountered narrow intervals of 0.16% to 0.20% oxide copper within strong, quartz-sericite-pyrite alteration. Deeper sulphide potential below these holes remains untested.
2013 drilling at Blue Hill successfully located westward extensions of the current deposit; however, to the east, oxide and mixed mineralization is truncated by the low angle Blue Hill Fault. Although most recent drill holes mainly tested oxide mineralization, two diamond holes (EG-BH-11-019 and 021) were drilled east of the oxide copper zone to test deeper sulphide copper potential. Drilling of the underlying sulphide target remains very widely-spaced, but has identified a target area more than one kilometre in width, which remains open in most directions. Significant molybdenum mineralization was also intersected in two of the drill holes targeting the sulphide mineralization.
Hole EG-BH-11-031, located approximately one kilometre east of Blue Hill, intersected a near-surface zone of copper-oxide mineralization assaying an average of 0.28% copper over 13.8 metres from a depth of 22.2 metres.
Baseline environmental studies commenced in the second quarter of 2013, and included wildlife, biology, archaeology and cultural surveys and WOUS delineation. These studies were largely complete in early 2014 except for raptor field surveys, final report writing, and a follow-up WOUS submission to the US Corps of Engineers. An amendment to expand Entrée’s existing PlanOp and minor modification of its Permit, were accepted by the NDEP and the BLM in early 2014. An additional bond, in the amount of $31,276, was posted by Entrée in June 2014. Wildlife, vegetation and cultural field surveys and reports were complete by late 2014 and no significant obstacles to the development of Ann Mason were identified. The US Corps of Engineers has verbally approved the WOUS report finding of no wetlands subject to US Corps of Engineers jurisdiction within the Ann Mason Project area but are now waiting for United States Environmental Protection Agency approval.
On July 16, 2014, the Company announced the commencement of an approximately $5 million prefeasibility drill program, designed to upgrade the mineral resources contained in the PEA Phase 5 pit from Indicated and Inferred to a mix of Measured and Indicated categories. The infill drill program was completed in late January 2015 and comprised 40 holes and a total of approximately 19,265 metres combined RC pre-collars and core.
RC pre-collars were generally restricted to barren, overlying volcanics. Drilling changed to HQ diameter core which was continually sampled over two metre intervals once mineralized rocks of the Yerington batholith were encountered or hole conditions dictated the change to core. Depths of holes ranged from 275 metres to 885 metres, depending on position within the Phase 5 pit, and hole angles varied from -60 to -90 degrees.
Samples were submitted to ACME Labs in Reno and Elko for sample preparation and forwarded by ACME to their laboratory in Vancouver for analysis. Prepared standards, blanks and duplicates were inserted at the project site to monitor the quality control of the assay data. Entrée has a chain of custody program to ensure sample security during all stages of sample collection, cutting, shipping and storage.
On January 21, 2015, the Company reported assay results from the first 20 holes with the remaining 20 holes being reported on March 10, 2015. Highlights include:
| | · | EG-AM-14-041, located near the centre of the deposit, with 390 metres of 0.35% copper; |
| | · | EG-AM-14-043, located near the centre of the deposit, with 409 metres of 0.35% copper; |
| | · | EG-AM-14-046, the eastern-most drill hole, with 112.3 metres of 0.34% copper; |
| | · | EG-AM-14-050, with 176 metres of 0.35% copper; |
| | · | EG-AM-14-057, with 327.4 metres of 0.38% copper, including 0.42% copper and 0.12 g/t gold over 200 metres; |
| | · | EG-AM-14-059, with 466 metres of 0.31% copper; |
| | · | EG-AM-14-065 with 150 metres of 0.38% copper; |
| | · | EG-AM-14-067, with 377 metres of 0.32% copper; |
| | · | EG-AM-14-073, on the northeast rim of the deposit, with 102 metres of 0.36% copper; and |
| | · | EG-AM-14-076, immediately northwest of 043, with 190 metres of 0.34% copper and a separate interval of 180 metres of 0.38% copper. |
Of the 40 holes, 25 ended in mineralization (copper values greater than the 0.15% copper cut-off). Lower grade holes tend to be located toward the northern-most border of the Phase 5 pit, in areas where strong mineralization was not expected. Only one hole, EG-AM-14-049, drilled along the northernmost border of the Phase 5 pit, failed to return any significant results.
The area between the Ann Mason and Blue Hill deposits has seen only wide-spaced, mostly shallow drilling to date and remains a high priority target for future exploration for both additional sulphide and oxide mineralization. South of Ann Mason, soil surveying and mapping suggests potential for near surface oxide copper mineralization which could have a positive impact on the Ann Mason Project.
Several other high-priority targets on the Ann Mason Project property require further exploration. These include the Roulette, Blackjack IP and Blackjack Oxide targets and the Minnesota copper skarn target. In the Blackjack area, IP and surface copper oxide exploration targets have been identified for drill testing. The Minnesota skarn target requires further drilling to test deeper IP and magnetic anomalies. The Shamrock and Ann South targets comprise several small-scale historical mines and skarn-related copper showings in the southeast portion of the project.
For the year ended December 31, 2014, Ann Mason Project expenditures were $6,950,618 compared to $3,807,805 during the year ended December 31, 2013. The higher expenses in the year ended December 31, 2014 resulted primarily from an increase in drilling activities.
Lordsburg, New Mexico
On May 2, 2012, Entrée entered into an agreement (the "Purchase Agreement") to purchase a 100% interest in two porphyry copper targets in New Mexico – the Lordsburg property and the Oak Grove property. In September 2013 Entrée abandoned the Oak Grove property and recorded an impairment of mineral property interests of $437,732.
Pursuant to the Purchase Agreement, Entrée paid $100,000 and issued 500,000 common shares of the Company. The Lordsburg property is subject to a 2% NSR royalty, which may be bought down to 1% for $1 million if the buydown option is exercised on or before January 1, 2015. The buydown option may be extended to January 1, 2016 or January 1, 2017, in which case the buydown price will be $2 million and $200,000 will be payable for each 12 month extension. The buydown price and extension payments are payable in cash or a combination of cash and common shares at Entrée’s election.
The Lordsburg claims cover 2,013 ha adjacent to the historic Lordsburg copper-gold-silver district in New Mexico. Drilling at Lordsburg has been successful in discovering a porphyry copper-gold occurrence in an area previously known only for vein-style gold mineralization. Future drilling will be directed towards expanding the existing drill defined copper and gold zone. No exploration work was completed in 2013 or 2014.
The proposed Plan of Operations for Lordsburg has been approved by the BLM and an Application to Conduct Mineral Exploration has been approved by the New Mexico Division of Mining and Minerals. The Lordsburg Plan of Operations/Environmental Assessment and Application to Conduct Mineral Exploration provides for drilling on 65 additional sites and 28.2 acres of surface disturbance.
MONGOLIA
Lookout Hill – Joint Venture Property
In mid-December 2012 a drill hole was collared at the north end of Heruga on the Javhlant licence but directed northwest onto the Oyu Tolgoi licence. In early February 2013, the hole passed onto the Oyu Tolgoi licence at a depth of approximately 1,500 metres and still above the mineralized zone. The hole terminated February 26, 2013 at a depth of 2,067 metres within the Oyu Tolgoi licence. No exploration has been completed by OTLLC on the Joint Venture Property since February 2013 and no work is currently planned for 2015.
Since formation, and as of December 31, 2014, the Entrée-OTLLC Joint Venture had expended $26.9 million to advance the Joint Venture Property. Under the terms of the Entrée-OTLLC Joint Venture, OTLLC contributed on Entrée’s behalf the required cash participation amount of $6.4 million, equal to 20% of the $26.9 million incurred to date, plus interest at prime plus 2%.
Lookout Hill - Shivee West
Entrée has a 100% interest in the western portion of the Shivee Tolgoi mining licence.
No work has been completed on Shivee West in the year ended December 31, 2014. The Company does not anticipate significant exploration and development on Shivee West until the current regulatory environment in Mongolia has been stabilized.
For the year ended December 31, 2014, Shivee West expenses were $1,672,341 compared to $1,355,493 during the year ended December 31, 2013. The higher expenses in 2014 compared to 2013 resulted from higher legal fees and sales taxes, penalties and interest expenses, partially offset by lower personnel expenses and travel fees.
AUSTRALIA
Blue Rose Joint Venture
Entrée has a 55.32% interest in the Blue Rose copper-iron-gold-molybdenum joint venture property, with Giralia Resources Pty Ltd, now a subsidiary of Atlas Iron Limited (ASX:AGO) ("Atlas"), retaining a 44.68% interest. The property is located in the Olary Region of South Australia, 300 kilometres north-northeast of Adelaide. Magnetite iron formations occur in the southern portion of this 1,000 square kilometre tenement, and a zone of copper oxide mineralization and a gold target (Golden Sophia) are located in the north-central area of the tenement. The joint venture covers tenement EL5129, which was granted on July 19, 2012, for a 3-year term.
In September 2010, the joint venture entered into an agreement with Bonython Metals Group Pty Ltd ("BMG"), a private Australian resource company. BMG purchased 100% of the iron ore rights on the joint venture property in exchange for 6% of BMG’s future issued capital. On February 27, 2012, the Federal Court of Australia ordered that BMG be wound up; a liquidator has been appointed. In October 2013, pursuant to an agreement whereby a third party acquired the Blue Rose joint venture’s iron ore rights from BMG, Entrée received the first of two cash payments of A$475,478 plus GST. The third party is currently in breach of this agreement as a consequence of failing to make the second required payment.
Soil sampling was completed by the joint venture in August 2011 over the Golden Sophia shallow gold target. The survey confirmed the previous Battle Mountain gold in soil anomaly and defined a new, linear gold anomaly located approximately 700 metres to the northeast.
On October 23, 2013, the Blue Rose joint venture filed a Part 9B native title application under the South Australia Mining Act and the Wilyakali and Ngadjuri groups registered as native title claimants. Native title agreements must be concluded with claimants prior to any exploration on the joint venture license. Native title agreements have been signed with the Wilyakali and Ngadjuri groups.
During the year ended December 31, 2014, the Company recorded an impairment of mineral property interests of $552,095.
PERU
In September 2010, Entrée entered into a conditional agreement with a private Peruvian company whereby Entrée may acquire an initial 70% interest in the Lukkacha property located in Tacna Province of southeastern Peru. The property is situated within 50 kilometres of the international border with Chile, and initiation of work is subject to Entrée obtaining a Supreme Decree allowing it to work on the property. Subject to obtaining the Supreme Decree, Entrée may earn a 70% interest by making cash payments totaling $215,000 and expending a minimum of $1.5 million on exploration, to include a minimum 6,000 metres of diamond drilling, within 24 months. Once Entrée has earned a 70% interest, it may acquire a further 30% interest by paying the vendors $2 million within 24 months. The vendors would retain a 2% NSR royalty, half of which may be purchased at any time for $1 million.
The property consists of seven concessions totaling 4,400 ha which cover two large areas of surface alteration, iron oxides and quartz veining approximately 50 kilometres along the structural trend southeast from the giant Toquepala mining operation of Grupo Mexico. The property has never been drilled and represents a unique opportunity for early stage exploration within an under-explored major copper district. Further exploration (geophysics and drilling) is dependent on receipt of the Supreme Decree. As a first step in obtaining the Supreme Decree, a joint military inspection of the property took place on September 12, 2013. The military submitted a favorable written opinion to the General Secretary of the Ministry of Defense on September 15, 2013. During 2014, Entrée held several meetings with the local village to discuss completion and registration of a community economic and land use agreement.
For the year ended December 31, 2014, Lukkacha expenses were $78,925 compared to $134,454 during the year ended December 31, 2013.
GENERAL AND ADMINISTRATIVE
For the year ended December 31, 2014, general and administrative expense, excluding foreign exchange gains and losses and before stock-based compensation, was $3,936,413 compared to $5,510,641 during the year ended December 31, 2013 and compared to $4,295,800 during the year ended December 31, 2012. The decrease in 2014 was due primarily to decreases in personnel expenses, legal fees and travel expenses compared to 2013.
STOCK-BASED COMPENSATION
For the year ended December 31, 2014, stock-based compensation expense was $251,390 compared to $1,422,297 during the year ended December 31, 2013 and compared to $1,207,878 during the year ended December 31, 2012. During the year ended December 31, 2014, 2,815,000 options were granted with a fair value of $251,390, compared to 7,560,000 options that were granted with a fair value of $1,421,371 during the year ended December 31, 2013, and compared to 1,882,000 options that were granted with a fair value of $1,124,930 during the year ended December 31, 2012.
INTEREST INCOME AND EXPENSE
For the year ended December 31, 2014, interest expense was $264,869 compared to $260,453 during the year ended December 31, 2013 (December 31, 2012 - $229,359). Interest expense is due to accrued interest on the OTLLC loan payable. For the year ended December 31, 2014, interest income was $295,023 compared to $431,596 for the year ended December 31, 2013 (December 31, 2012 - $190,449). The Company earns interest income on its invested cash.
VALUATION OF LONG-TERM INVESTMENT
Equity Method Investment
Entrée accounts for its interest in a joint venture with OTLLC as a 20% equity investment. As at December 31, 2014, the Company’s investment in the Entrée-OTLLC Joint Venture was $93,914 (December 31, 2013 - $96,367). The Company’s share of the loss of the Entrée-OTLLC Joint Venture was $107,907 for the year ended December 31, 2014 (December 31, 2013 - $146,051; December 31, 2012 - $1,012,156) plus accrued interest expense of $264,869 for the year ended December 31, 2014 (December 31, 2013 - $260,453; December 31, 2012 - $229,359). The decrease in the loss from equity investee for the year ended December 31, 2014 compared to last year was due to decreased exploration expenses incurred by the Entrée-OTLLC Joint Venture in the period.
OUTLOOK
Entrée is primarily focused on exploring its principal properties in Nevada and Mongolia. In addition, Entrée is engaged in evaluating acquisition opportunities which are complementary to its existing projects, particularly large tonnage base and precious metal targets. These efforts have resulted in the consolidation of the Ann Mason Project in Nevada and the acquisition of the Lordsburg property in New Mexico. The commodities Entrée is most likely to pursue include copper, gold and molybdenum, which are often associated with large tonnage, porphyry related environments. Smaller, higher grade systems will be considered by Entrée if they demonstrate potential for near-term production and cash-flow.
Entrée has not generated any revenue from operations since its incorporation and Entrée anticipates that it will continue to incur operating expenses without revenues until the Joint Venture Property in Mongolia is brought into production or it builds and operates a mine on one or more of its other mineral properties. As at December 31, 2014, Entrée had working capital of approximately $32.6 million. Entrée’s average monthly operating expenses for the year ended December 31, 2014, were approximately $1,054,000, including exploration, general and administrative expenses and investor relations expenses.
SELECTED QUARTERLY DATA
| | | | | | | | | | | | | |
| | | Three Months Ended December 31, 2014 | | | Three Months Ended September 30, 2014 | | | Three Months Ended June 30, 2014 | | | Three Months Ended March 31, 2014 | |
| | | | | | | | | | | | | |
| Exploration | | $ | 4,465,219 | | | $ | 2,268,197 | | | $ | 757,325 | | | $ | 1,564,146 | |
| General and administrative | | | 1,183,067 | | | | 844,646 | | | | 980,107 | | | | 1,144,090 | |
| Consultancy and advisory fees | | | 133,687 | | | | 177,194 | | | | 234,070 | | | | 285,672 | |
| Impairment of mineral property interests | | | - | | | | 552,095 | | | | - | | | | - | |
| Depreciation | | | 14,405 | | | | 16,277 | | | | 17,160 | | | | 17,675 | |
| Gain on sale of mineral property interest | | | - | | | | - | | | | (28,096 | ) | | | - | |
| Foreign exchange loss (gain) | | | (662,619 | ) | | | (1,126,822 | ) | | | 882,044 | | | | (1,071,457 | ) |
| Loss from operations | | | (5,133,759 | ) | | | (2,731,587 | ) | | | (2,842,610 | ) | | | (1,940,126 | ) |
| Interest income | | | 35,559 | | | | 79,174 | | | | 97,064 | | | | 83,226 | |
| Interest expense | | | (67,749 | ) | | | (66,735 | ) | | | (65,524 | ) | | | (64,861 | ) |
| Loss from equity investee | | | (28,974 | ) | | | (29,369 | ) | | | (28,772 | ) | | | (20,792 | ) |
| Current income tax recovery (expense) | | | (10,124 | ) | | | - | | | | 246,609 | | | | (113,230 | ) |
| Deferred income tax recovery (expense) | | | 2,141,233 | | | | 1,348,919 | | | | (332,558 | ) | | | 775,798 | |
| Net loss | | $ | (3,063,814 | ) | | $ | (1,399,598 | ) | | $ | (2,925,791 | ) | | $ | (1,279,985 | ) |
| | | | | | | | | | | | | | | | | |
| Loss per share, basic and diluted | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | (0.02 | ) | | $ | (0.01 | ) |
| | | | | | | | | | | | | |
| | | Three Months Ended December 31, 2013 | | | Three Months Ended September 30, 2013 | | | Three Months Ended June 30, 2013 | | | Three Months Ended March 31, 2013 | |
| | | | | | | | | | | | | |
| Exploration | | $ | 1,426,239 | | | $ | 1,168,327 | | | $ | 1,904,636 | | | $ | 1,603,790 | |
| General and administrative | | | 1,626,040 | | | | 1,047,875 | | | | 1,190,851 | | | | 2,773,496 | |
| Consultancy and advisory fees | | | 309,462 | | | | 320,567 | | | | 324,175 | | | | 986,926 | |
| Impairment of mineral property interests | | | - | | | | - | | | | 437,732 | | | | - | |
| Depreciation | | | 22,570 | | | | 24,831 | | | | 26,704 | | | | 28,836 | |
| Gain on sale of mineral property interest | | | (451,892 | ) | | | - | | | | - | | | | - | |
| Foreign exchange loss (gain) | | | (765,656 | ) | | | 662,337 | | | | (892,725 | ) | | | (117,684 | ) |
| Loss from operations | | | (2,166,763 | ) | | | (3,223,937 | ) | | | (2,991,373 | ) | | | (5,275,364 | ) |
| Interest income | | | 126,664 | | | | 140,418 | | | | 100,948 | | | | 63,566 | |
| Interest expense | | | (66,331 | ) | | | (65,313 | ) | | | (64,553 | ) | | | (64,256 | ) |
| Gain (loss) from equity investee | | | (29,756 | ) | | | (23,049 | ) | | | 19,683 | | | | (112,929 | ) |
| Fair value adjustment of asset backed | | | | | | | | | | | | | | | | |
| commercial papers | | | - | | | | - | | | | 147,564 | | | | - | |
| Current income tax expense | | | (319,112 | ) | | | - | | | | - | | | | - | |
| Deferred income tax recovery | | | 1,331,336 | | | | 241,279 | | | | 512,114 | | | | 297,139 | |
| Net loss | | $ | (1,123,962 | ) | | $ | (2,930,602 | ) | | $ | (2,275,617 | ) | | $ | (5,091,844 | ) |
| | | | | | | | | | | | | | | | | |
| Loss per share, basic and diluted | | $ | (0.01 | ) | | $ | (0.02 | ) | | $ | (0.02 | ) | | $ | (0.04 | ) |
Exploration costs were higher in the year ended December 31, 2014 compared to the year ended December 31, 2013, primarily due to an increase in drilling activity on the Ann Mason Project and higher sales taxes, partially offset by lower personnel and stock-based compensation expenses during the year ended December 31, 2014. General and administrative costs, excluding stock-based compensation changes, were approximately 29% lower in the year ended December 31, 2014 compared to the year ended December 31, 2013. This decrease is primarily attributable to decreased personnel expenses and legal fees. During the three months ended September 30, 2014, the Company recorded an impairment of mineral property interests of $552,095 on the Blue Rose joint venture property. During the three months ended June 30, 2014, Entrée sold its interest in the Mystique property for proceeds of $28,096, net of taxes. During the three months ended December 31, 2013, Entrée received a cash payment of $451,892 pertaining to an agreement whereby a third party acquired the Blue Rose joint venture iron ore rights. During the three months ended March 31, 2013, the Company incurred consultancy and advisory fees of $936,926 related to the Sandstorm financing package. Loss from equity investee was lower in the year ended December 31, 2014 compared to the year ended December 31, 2013 due to decreased expenditures on the Joint Venture Property. During the year ended December 31, 2014, Entrée recorded deferred income tax recovery of $3,933,392 compared to deferred income tax recovery of $2,381,868 during the year ended December 31, 2013.
| B. | Liquidity and Capital Resources |
To date, Entrée has not generated revenues from its operations, has been dependent on equity and production-based financings for additional funding and is considered to be in the exploration stage. Working capital on hand at December 31, 2014 was $32,603,711. Cash was $33,517,096 at December 31, 2014. On February 15, 2013, the Company closed the approximately $55 million financing package with Sandstorm which will be used to advance the Ann Mason Project, support operations in Mongolia and for general working capital requirements. In the event of a partial expropriation of Entrée’s economic interest, contractually or otherwise, in the Joint Venture Property, which is not reversed during the abeyance period provided for in the Funding Agreement, the Company will be required to return a pro rata portion of the Deposit (the amount of the repayment not to exceed the amount of the Unearned Balance).
Under the terms of the Entrée-OTLLC Joint Venture, Entrée elected to have OTLLC debt finance Entrée’s share of costs on the Joint Venture Property, with interest accruing at OTLLC’s actual cost of capital or prime plus 2%, whichever is less, at the date of the advance. As at December 31, 2014, the total amount that OTLLC has contributed to costs on the Company’s behalf, including interest, is $6.4 million.
Operating activities
Cash used in operations was $12,617,637 for the year ended December 31, 2014 compared to the cash provided by operations of $27,979,150 for the year ended December 31, 2013. This decrease is primarily due to cash proceeds of $40 million received from the Funding Agreement with Sandstorm during the year ended December 31, 2013.
Financing activities
Cash provided by financing activities during the year ended December 31, 2014 and 2013 and common shares issued for cash were as follows:
| | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| | | | | | | | | | | | | |
| Private placement | | | - | | | $ | - | | | | 17,857,142 | | | $ | 9,722,897 | |
| Share issuance costs | | | - | | | | - | | | | - | | | | (86,636 | ) |
| | | | - | | | $ | - | | | | 17,857,142 | | | $ | 9,636,261 | |
The 2013 private placement was part of the Sandstorm financing package.
Investing activities
During the year ended December 31, 2014, Entrée made payments of $100,000 related to mineral property acquisitions (December 31, 2013 – $50,000). During the year ended December 31, 2014, Entrée received cash proceeds of $83,428 on the release of reclamation deposits (December 31, 2013 – $115,180) and made payments of $66,179 related to reclamation deposits (December 31, 2013 – $Nil). During the year ended December 31, 2014, Entrée expended $13,074 on equipment, primarily for exploration activities (December 31, 2013 – $7,623). During the year ended December 31, 2014, Entrée sold its interest in the Mystique property for proceeds of $28,096, net of taxes. During the year ended December 31, 2013, Entrée received cash proceeds of $5 million from Sandstorm in return for a 0.4% NSR royalty on the Ann Mason and Blue Hill deposits.
Outstanding share data
As at December 31, 2014 and March 30, 2015, there were 146,984,385 common shares outstanding. In addition, as at December 31, 2014, there were 13,779,000 stock options outstanding with exercise prices ranging from C$0.21 to C$3.47 per share. As at March 30, 2015, there were 13,699,000 stock options outstanding with exercise prices ranging from C$0.21 to C$3.47 per share. There were no warrants outstanding at December 31, 2014 or at March 30, 2015.
Capital Resources
Entrée had no commitments for capital assets at December 31, 2014.
At December 31, 2014, Entrée had working capital of $32,603,711 compared to $46,394,496 as at December 31, 2013.
| C. | Research and Development, Patents and Licenses, etc. |
None.
While the Company does not have any producing mines it is directly affected by trends in the metal industry. At the present time global metal prices are extremely volatile. Base metal prices and gold prices, driven by rising global demand, climbed dramatically and approached near historic highs over the past several years. These prices have declined significantly since these recent highs.
Overall market prices for securities in the mineral resource sector and factors affecting such prices, including base metal prices, political trends in the countries in which such companies operate, and general economic conditions, may have an effect on the terms on which financing is available to the Company, if available at all.
Except as disclosed, the Company does not know of any trends, demand, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, its liquidity either materially increasing or decreasing at present or in the foreseeable future. Material increases or decreases in liquidity are substantially determined by the success or failure of the Company’s exploration programs.
The Company’s financial assets and liabilities generally consist of cash and cash equivalents, receivables, deposits, accounts payable and accrued liabilities and loans payable, some of which are denominated in foreign currencies including United States dollars, Mongolian Tugriks and Australian dollars. The Company is at risk to financial gain or loss as a result of foreign exchange movements against the Canadian dollar. The Company does not currently have major commitments to acquire assets in foreign currencies, but historically it has incurred the majority of its exploration costs in foreign currencies.
| E. | Off-balance Sheet Arrangements |
The Company has no off-balance sheet arrangements except for the contractual obligation noted below.
| F. | Tabular Disclosure of Contractual Obligations |
The following table lists, as at December 31, 2014, the Company’s contractual obligations. Entrée is committed to make lease payments totalling $563,021 over its three year office lease in Vancouver, Canada and two office, three warehouse and four accommodation leases in the United States.
| | Less than 1 year | 1-3 Years | 3-5 years | More than 5 years | Total |
| Office lease | $283,325 | $279,696 | $Nil | $Nil | $563,021 |
| Total | $283,325 | $279,696 | $Nil | $Nil | $563,021 |
The Company seeks safe harbor for our forward-looking statements contained in Items 5.E and F. See the heading "Cautionary Note Regarding Forward-Looking Statements" above.
Item 6. Directors, Senior Management and Employees
| A. | Directors and Senior Management |
The following is a list of the Company’s directors and executive officers as at December 31, 2014. The directors were elected by the Company’s shareholders on June 26, 2014 and are elected for a term of one year, which term expires at the election of the directors at the next annual meeting of shareholders.
The Board adopted a majority voting policy in May 2013. If the number of shares "withheld" from voting for the election of a nominee is greater than the number of shares voted "for" his or her election, the director must submit his or her resignation to the Chairman of the Board promptly after the shareholders’ meeting. The Corporate Governance and Nominating Committee of the Board (the "CGNC") will consider the resignation and will recommend to the Board whether or not to accept it. After considering the recommendations of the CGNC, the Board will make its decision as to whether to accept or reject the resignation in question and the Company will announce the Board’s decision, including any reasons for the Board not accepting a resignation, within 90 days following the shareholders’ meeting. The policy does not apply if there is a contested director election or where the election involves a proxy battle.
The Company’s Board consisted of seven directors as at December 31, 2014. The following is a brief account of the education and business experience of each director and executive officer, indicating each person’s principal occupation during the last five years.
Gregory Crowe, President, Chief Executive Officer and Director
Mr. Crowe has been a director and President of the Company since July 3, 2002 and has been Chief Executive Officer of the Company since July 16, 2003.
Mr. Crowe was self-employed from 1997 to 2002, providing exploration and management services for junior resource companies.
Mr. Crowe is a professional geologist with more than 30 years of exploration, business and entrepreneurial experience throughout North America, Latin America, Africa and Southeast Asia. Prior to joining the Company, Mr. Crowe was a senior executive with Acrex Ventures Ltd., a junior resource company active in Ontario, and co-founder and President of Azimuth Geological Inc., a private consulting company specializing in exploration and management services for junior and major mining companies such as Rio Algom Ltd., the Prime Group and Westmin Resources Limited. Mr. Crowe also worked for Yuma Copper Corp. from 1994 to 1997, where he was instrumental in transforming Yuma Copper Corp. from a junior exploration company into a copper producer with two mines in Chile.
Mr. Crowe obtained a Bachelor of Geology degree from Carlton University and a Master of Geology degree from the University of Calgary. He is a member of the Association of Professional Engineers and Geoscientists of British Columbia, and the Prospectors and Developers Association of Canada.
The Rt. Honourable Lord Howard of Lympne, Chairman and Director
The Rt. Honourable Lord Howard of Lympne ("Michael Howard" or "Lord Howard") has been a director of the Company since May 16, 2007, served as the Company’s non-executive Deputy Chairman between May 16, 2007 and June 27, 2013 and was appointed non-executive Chairman on June 27, 2013.
He is the former leader of the Conservative Party in Britain, a distinguished lawyer, and served as a Member of Parliament in Britain for 27 years. He filled many government posts, including Home Secretary, Secretary of State for Employment and Secretary of State for the Environment, as well as Shadow Foreign Secretary and Shadow Chancellor. After his retirement from the House of Commons at the 2010 General Election, Lord Howard was created a Life Peer. He was created a Companion of Honour in the Queen’s Birthday Honours List, 2011.
James Harris, Director
Mr. Harris has been a director of the Company since January 29, 2003, served as the Company’s non-executive Chairman between March 15, 2006 and June 27, 2013 and served as the Company’s non-executive Deputy Chairman between June 27, 2013 and February 28, 2015.
Mr. Harris was formerly a corporate, securities and business lawyer with over 30 years’ experience in British Columbia and internationally. He has extensive experience with the acquisition and disposition of assets, corporate structuring and restructuring, regulatory requirements and corporate filings, and corporate governance. Mr. Harris was also a Founding Member of the Legal Advisory Committee of the former Vancouver Stock Exchange. Mr. Harris has completed the Directors’ Education Program of the Institute of Corporate Directors and is an Institute accredited Director. Mr. Harris has also completed a graduate course in business at the London School of Economics.
Mark Bailey, Director
Mr. Bailey has been a director of the Company since June 28, 2002.
Mr. Bailey is a mining executive and registered professional geologist with more than 35 years of industry experience. Between 1995 and 2012, he was the President and Chief Executive Officer of Minefinders Corporation Ltd. ("Minefinders"), a precious metals mining company that operated the multi-million ounce Dolores gold and silver mine in Mexico before being acquired by Pan American Silver Corp. Before joining Minefinders, Mr. Bailey held senior positions with Equinox Resources Inc. and Exxon Minerals. Since 1984, Mr. Bailey has worked as a consulting geologist with Mark H. Bailey & Associates LLC.
Lindsay Bottomer, Director
Mr. Bottomer has been a director of the Company since June 28, 2002. He served as an executive officer of the Company between October 16, 2005 and December 31, 2013, most recently as Vice President, Business Development.
Mr. Bottomer is a professional geologist with over 40 years’ experience in global mineral exploration and development with major and junior mining companies, the last 25 years based in Vancouver, BC. He was President and Chief Executive Officer of Silver Quest Resources Ltd. from 2001 to 2005, and a founding director of Richfield Ventures Corp. until its takeover by New Gold Inc. in June 2011 for approximately $480 million. Mr. Bottomer has also served as Director of Canadian Exploration with Echo Bay Mines Ltd., and Vice-President of New Projects with Prime Equities International.
Mr. Bottomer obtained a Bachelor of Science (Honours) degree in geology from the University of Queensland and a Master of Applied Science degree from McGill University. Mr. Bottomer is a member of the Association of Professional Engineers and Geoscientists of British Columbia and a Fellow of the Australasian Institute of Mining and Metallurgy. He is also Past President of the British Columbia and Yukon Chamber of Mines and served for six years from 2002 to 2008 as an elected councillor on the Association of Professional Engineers and Geoscientists of British Columbia.
Alan Edwards, Director
Mr. Edwards has been a director of the Company since March 8, 2011.
Mr. Edwards has more than 30 years of diverse mining industry experience. He is a graduate of the University of Arizona, where he obtained a Bachelor of Science Degree in Mining Engineering and an MBA (Finance). Mr. Edwards is currently the President of AE Consulting, a Colorado based company. Mr. Edwards is the non-executive Chairman of the Board of AuRico Gold Inc. and AQM Copper Inc., and is a director of Scorpio Mining Corporation. He served as the Chief Executive Officer of Oracle Mining Corporation, a Vancouver based company, from 2012 to 2013. He served as President and Chief Executive Officer of Copper One Inc. from 2009 to 2011, as President and Chief Executive Officer of Frontera Copper Corporation from 2007 to 2009, and as Executive Vice President and Chief Operating Officer of Apex Silver Mines Corporation from 2004 to 2007, where he directed the engineering, construction and development of the San Cristobal project in Bolivia. Mr. Edwards has also worked for Kinross Gold Corporation, P.T. Freeport Indonesia, Cyprus Amax Minerals Company and Phelps Dodge Mining Company, where he started his career.
Gorden Glenn, Director
Mr. Glenn has been a director of the Company since June 18, 2012.
Mr. Glenn has over 20 years of mining, exploration and investment banking experience. He has been the Chief Executive Officer and President of Minnova Corp. since July 2012 and also serves as Minnova’s Chairman. Between December 2011 and April 2012 he served as Chief Executive Officer and a director of AMR Mineral Metal Inc. Between August 2010 and December 2011, Mr. Glenn was the Managing Director of Mining Investment Banking for Desjardins Securities. Prior to that, Mr. Glenn was the Vice President & Director of Mining Investment Banking at TD Securities. Holding a BScH in Geological Sciences from Queen’s University in Kingston, Ontario, he started his career as a project geologist with Inmet Mining and Kennecott Canada Inc. before switching to the capital markets where he worked as a mining analyst prior to joining TD Securities in 2005.
Bruce Colwill, Chief Financial Officer
Mr. Colwill was appointed to the position of Chief Financial Officer on February 1, 2011.
Mr. Colwill has over 20 years of experience with public and private companies, in a variety of sectors including oil and gas, biotech, financial services and manufacturing. Most recently, Mr. Colwill served as Chief Financial Officer of Transeuro Energy Corp., a public oil and gas company and acted as a financial consultant to private and public companies. Between 2001 and 2009, Mr. Colwill served as Chief Financial Officer of Neuromed Pharmaceuticals Ltd. Mr. Colwill began his career with KPMG, first in Canada and then in Poland. Mr. Colwill is a Chartered Accountant and a member of the Canadian Institute of Chartered Accountants and the Institute of Chartered Accountants of British Columbia. Mr. Colwill holds a BBA from Simon Fraser University.
Mona Forster, Executive Vice President
Ms. Forster joined the Company as Business Manager in October 2003 and was appointed to the position of Executive Vice President in November 2010.
Ms. Forster has over 25 years of experience in administration and management, primarily in the mining industry. She has worked at a remote fly-in fly-out operating gold mine and within exploration and environmental consulting firms. She was an elected director of the Association for Mineral Exploration British Columbia (AME BC) for seven years, including a term as Chair of the Board of Directors. Ms. Forster remains active on several committees related to AME BC. She was a founding member of the BC HR Taskforce: Exploration, Mining, Stone, Sand & Gravel, a government-industry task force struck in 2007 to address the need for skilled and qualified workers within the mining industry in BC. She is currently Vice-Chair of the Centre of Training Excellence in Mining and an avid supporter of Resource Works. Ms. Forster holds an MBA from Simon Fraser University and is a member of AME BC, Prospectors and Developers Association of Canada, Canadian Investor Relations Institute and Canadian Society of Corporate Secretaries.
Susan McLeod, Vice President, Legal Affairs and Corporate Secretary
Ms. McLeod joined the Company as Vice President, Legal Affairs on September 22, 2010 and was appointed Corporate Secretary on November 22, 2010.
Prior to joining Entrée, Ms. McLeod was in private practise in Vancouver, Canada since 1997, most recently with Fasken Martineau DuMoulin LLP (from 2008 to 2010) and P. MacNeill Law Corporation (from 2003 to 2008). She has worked as outside counsel to public companies engaged in international mineral exploration and mining. She has advised clients with respect to corporate finance activities, mergers and acquisitions, corporate governance and continuous disclosure matters, and mining-related commercial agreements. Ms. McLeod holds a B.Sc. and an LLB from the University of British Columbia, and is a member of the Law Society of British Columbia.
Robert Cinits, Vice President, Corporate Development
Mr. Cinits has been the Company’s Vice President, Corporate Development since January 1, 2014. Prior to that, he was the Company’s Vice President, Technical Services from June 27, 2013 to December 31, 2013, and the Company’s Director of Technical Services from July, 2011 to June 26, 2013.
Mr. Cinits has extensive experience in project management and development and geological consulting. Prior to joining the Company, Mr. Cinits was the Chief Operating Officer for MinCore Inc., a private, Toronto-based exploration company with projects in Sinaloa, Mexico, from 2007 to 2011. From 2003 through 2006, Mr. Cinits worked for AMEC as the Manager of Geology and Mining for the Lima Peru office. He was involved in numerous feasibility and prefeasibility studies, as well as PEAs, resource estimates and mine and project audits/reviews throughout South America and other locations worldwide. Mr. Cinits has also worked for several consulting groups and junior mining companies since 1985. Mr. Cinits holds a Bachelor of Science degree in Geology from the University of Toronto and is a member of the Association of Professional Engineers and Geoscientists of British Columbia and the Society of Economic Geologists.
Robert Cann, Vice President, Exploration
Mr. Cann was appointed to the position of Vice President, Exploration on August 11, 2005.
Since joining Entrée in 2002, Mr. Cann has been in charge of the start-up and management of all of the Company’s support operations and exploration projects. Mr. Cann has more than 30 years of international exploration experience including extensive experience in international project management and development, geological consulting and office management. Prior to joining the Company, Mr. Cann was Exploration Manager for Spokane/Sand River Resources in Chihuahua, Mexico, from 1999 to 2000. From 1995 through 1999, Mr. Cann worked as an independent consulting geologist for various companies contemplating property acquisitions in Honduras, Mexico, Peru, Bolivia and Nevada. Mr. Cann holds a Master of Science degree in Economic Geology from the University of British Columbia and is a member of the Association of Professional Engineers and Geoscientists of British Columbia, the Canadian Institute of Mining and Metallurgy (CIMM) and the Society of Economic Geologists.
Family Relationships
There are no family relationships between any directors or executive officers of the Company.
Arrangements
There are no known arrangements or understandings with any major shareholders, customers, suppliers or others, pursuant to which any of the Company’s officers or directors was selected as an officer or director of the Company.
Conflicts of Interest
There are no existing or potential conflicts of interest among the Company, its directors, officers or promoters as a result of their outside business interests with the exception that certain of the Company’s directors, officers and promoters serve as directors, officers and promoters of other companies, and, therefore, it is possible that a conflict may arise between their duties as a director, officer or promoter of the Company and their duties as a director or officer of such other companies.
The directors and officers of the Company are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and the Company will rely upon such laws in respect of any directors’ and officers’ conflicts of interest or in respect of any breaches of duty by any of its directors or officers. All such conflicts will be disclosed by such directors or officers in accordance with the BCBCA, and they will govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law.
The majority of the Company’s directors are also directors, officers or shareholders of other companies that are engaged in the business of acquiring, developing and exploiting natural resource properties including properties in countries where the Company is conducting its operations. Such associations may give rise to conflicts of interest from time to time. Such a conflict poses the risk that the Company may enter into a transaction on terms which place the Company in a worse position than if no conflict existed. The directors of the Company are required by law to act honestly and in good faith with a view to the best interest of the Company and to disclose any interest which they may have in any project or opportunity of the Company. However, each director has a similar obligation to other companies for which such director serves as an officer or director. The Company has no specific internal policy governing conflicts of interest.
For the purposes of this Annual Report, "executive officer" of the Company means an individual who at any time during the year was the Chair, or a Vice-Chair or President of the Company; any Vice President in charge of a principal business unit, division or function including sales, finance or production; and any individual who performed a policy-making function in respect of the Company.
Set out below are particulars of compensation paid to the following persons (the "Named Executive Officers" or "NEOs"):
| 1. | a chief executive officer ("CEO"); |
| 2. | a chief financial officer ("CFO"); |
| 3. | each of the three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year whose total compensation was, individually, more than C$150,000 for that financial year; and |
| 4. | any individual who would be a NEO under paragraph (3) but for the fact that the individual was neither an executive officer of the Company, nor acting in a similar capacity, at the end of that financial year. |
As at December 31, 2014, the end of the most recently completed financial year of the Company, the Company had five NEOs.
Compensation Discussion and Analysis
The Compensation Committee of the Board typically meets in the fall of each year to discuss and determine the recommendations that it will make to the Board regarding management compensation. The general objectives of the Company’s compensation strategy are to (a) compensate management in a manner that encourages and rewards a high level of performance and outstanding results with a view to increasing long-term shareholder value; (b) align management’s interests with the long-term interests of shareholders; (c) provide a compensation package that is commensurate with other comparable mineral exploration companies to enable the Company to attract and retain talent; and (d) ensure that the total compensation package is designed in a manner that takes into account the constraints that the Company is under by virtue of the fact that it is a junior mineral exploration company without a history of earnings, current market and industry circumstances and the Company’s ability to raise capital.
In the course of its annual management compensation evaluation, the Compensation Committee considers, among such other factors as it may deem relevant, management’s recommendations with respect to compensation, the extent to which corporate goals have been achieved, the Company’s overall performance, shareholder returns, the value of similar incentive awards to executive officers at comparable companies and the awards given to management in prior years. General corporate goals for 2014 set by management and approved by the Board included resolving outstanding issues related to the Company’s project in Mongolia; increasing corporate development activities through evaluation of merger and acquisition opportunities as well as potential strategic investors for the Ann Mason Project; negotiating strategic acquisitions of additional ground in order to consolidate the Company’s Ann Mason Project in Nevada; and undertaking corporate restructuring in an effort to simplify and reduce costs of maintaining company infrastructure. Specific corporate targets were not defined.
The Compensation Committee generally considers three elements of compensation – a base salary for the next financial year, a discretionary cash bonus to reward superior performance and a grant of long-term incentive stock options. Base salary comprises the portion of executive compensation that is fixed, whereas discretionary cash bonuses and option based compensation represent compensation that is "at risk" depending on whether the executive officer is able to meet or exceed his or her applicable performance expectations, and overall performance of the Company. No specific formula has been developed to assign a specific weighting to each of these components. Rather, the Compensation Committee focuses on ensuring that the total compensation package for each NEO meets the general objectives of the Company’s compensation strategy.
Base salary is used to provide the NEOs a set amount of money during the year with the expectation that each NEO will perform his or her responsibilities to the best of his or her ability and in the best interests of the Company. Generally, the Compensation Committee makes recommendations regarding each NEO’s base salary for the upcoming year after taking multiple factors into account, including the overall performance of the Company, general market performance and economic outlook, the performance of the NEO, the NEO’s experience level and particular responsibilities and a review of base salaries paid to executive officers of comparable companies.
The granting of incentive stock options provides a link between management compensation and the Company’s share price. It also rewards management for achieving results that improve Company performance and thereby increase shareholder value. Stock options are generally awarded to executive officers at the commencement of employment and periodically thereafter. In making a determination as to whether a grant of long-term incentive stock options is appropriate, and if so, the number of options that should be granted, the Compensation Committee will consider: the value in securities of the Company that the Compensation Committee intends to award as compensation; current and expected future performance of the NEO; the potential dilution to shareholders and the cost to the Company; previous grants made to the NEO; option grants made to executive officers of comparable companies; and the limits imposed by the terms of the Company’s Stock Option Plan (the "Plan") and the TSX. The Company considers the granting of incentive stock options to be a particularly important element of compensation as it allows the Company to encourage and reward each NEO’s efforts to increase value for shareholders without requiring the Company to use cash from its treasury. The terms and conditions of the Company’s stock option grants, including vesting provisions and exercise prices, are determined by the Board at the time of grant, subject to the limits imposed by the terms of the Plan.
Finally, the Compensation Committee will consider whether it is appropriate and in the best interests of the Company to award a discretionary cash bonus to the NEOs and if so, in what amount. A cash bonus may be awarded to reward extraordinary performance that has led to, among other achievements, strategic property acquisitions or divestitures, achieving corporate development or property exploration milestones, and capital raising efforts. Demonstrations of extraordinary personal commitment to the Company’s interests, the community and the industry may also be rewarded through a cash bonus.
The mineral exploration and development business is extremely competitive, and the Company is dependent on individuals with specialized skills and knowledge related to the exploration for and development of mineral prospects, regulatory matters, corporate finance and management. Therefore, it is important that the Company provide competitive compensation to attract and retain such talent.
Since 2011, general economic malaise and market decline have been ongoing, with few signs of recovery, and junior exploration companies continue to have difficulty raising capital on favorable terms. The Company’s share price has continued to decline, potentially primarily the result of political uncertainty in Mongolia, continued concerns with economic stability in the Eurozone, and economic uncertainty in China. Accordingly, in order to preserve capital, NEO salaries have generally been held to 2011 levels and discretionary bonuses have not been awarded, despite the fact that certain corporate objectives have been achieved, and many peer companies have increased salaries for, and awarded bonuses to, executive officers.
An exception to this was the award of discretionary bonuses to management in February 2013. Following the February 2013 closing of the approximately $55 million financing package with Sandstorm, management proposed to the Compensation Committee that discretionary cash bonuses be awarded to management to reward them for corporate goals achieved between January 2011 and March 2013, including: raising approximately $55 million through the Sandstorm transaction, which provided the Company with strategic flexibility for existing and future business operations; the preparation of a PEA for the Ann Mason deposit, which demonstrates the viability of the deposit for advancement to pre-feasibility; preparing the first resource estimate for the Blue Hill deposit; acquiring additional key ground in order to consolidate the Company’s Ann Mason Project in Nevada; outlining a new gold target on the Company’s Shivee West property in Mongolia; and raising approximately C$16 million through a marketed short form prospectus offering in late 2011. The Compensation Committee evaluated the performance of the NEOs taking into account all of the factors described above. At the conclusion of its management compensation evaluation, the Compensation Committee recommended that discretionary bonuses be awarded to the NEOs (which recommendation was approved by the Board).
Management has also annually proposed, and the Compensation Committee has recommended, option grants for directors, officers, employees and consultants of the Company, as a means of rewarding performance without depleting the Company’s treasury.
In August 2013, the Compensation Committee retained LaneCaputo Compensation Inc. ("LaneCaputo") to prepare an Executive Compensation Review to assist the Compensation Committee in the review of compensation arrangements for the Company’s senior management team and independent directors and to recommend required changes (if any) to pay elements and strategy to align the Company with current market practices. LaneCaputo benchmarked the compensation arrangements of the Company’s executives and directors against a peer group of mining companies with similar operations. The criteria that were used by LaneCaputo to develop the peer group included relevant peer companies at similar stages of development, operating in the same regional geography, and companies from approximately half of the Company’s market capitalization to roughly double the Company’s market capitalization. Access to capital tends to determine the pay mix to a certain extent, therefore matching the development stages of peer companies is important. The magnitude of executive compensation is also correlated to the size of an organization the executives oversee, therefore organizations with significant enough resources to warrant a prefeasibility study were included. In addition, geographical similarity allows for a more accurate benchmarking of comparable skillsets used to manage domestic versus international operations. The Company has operations in both arenas therefore companies with similar challenges were also included. The following companies were in the peer group developed by LaneCaputo:
| Almaden Minerals Ltd. | Midas Gold Corp. |
| Asanko Gold Inc. | NovaCopper Inc. |
| Augusta Resource Corp. | Oracle Mining Corp. |
| Chesapeake Gold Corp. | Paramount Gold & Silver Corp. |
| Copper Fox Metals Inc. | Pilot Gold Inc. |
| Eco Oro Minerals Corp. | Quaterra Resources Inc. |
| Exeter Resource Corp. | Redhawk Resources Inc. |
| Lumina Copper Corp. | Sabina Gold & Silver Corp. |
| MAG Silver Corp. | Wildcat Silver Corp. |
The Compensation Committee met in December 2013 to consider the findings and recommendations of LaneCaputo. In particular, LaneCaputo did not recommend increasing base salaries for any of the NEOs for 2014. LaneCaputo did however recommend that a bonus pool be established, from which discretionary cash bonuses tied to the achievement of goals for 2014 could be awarded to management. The Board accepted the Compensation Committee’s recommendation to establish a pool of C$500,000, which can be increased at the Board’s discretion in the event of exceptional work by management. The pool does not represent a guaranteed bonus for management. The extent to which management has achieved goals for the year will be evaluated by the Compensation Committee and the Board, and the actual amount that will be paid out, if any, will be recommended by the Compensation Committee and approved by the Board in its discretion based upon that evaluation.
In late 2014, the Compensation Committee received a proposal from management with respect to NEO compensation for 2015. Management provided updated data from the peer group that LaneCaputo developed (excluding Lumina Copper Corp. and Oracle Mining Corp.) as well as Nevada Copper Corp., NGEx Resources Inc. and SilverCrest Mines Inc. Management’s compensation proposal took note of the continuing halt to development at the Oyu Tolgoi underground mine in Mongolia, the continuing need to preserve capital and thus limit development of Ann Mason, and the Company’s ongoing efforts to identify a beneficial merger and acquisition opportunity. Management’s compensation proposal also took note of the complexity of the issues that management is dealing with, the key milestones and corporate objectives that had been met during 2014, and the fact that NEO salaries have been kept to 2011 levels while some peer companies continue to provide salary increases to their executive officers.
The Compensation Committee evaluated the performance of the NEOs, taking into account the factors described above. The Compensation Committee accepted management’s proposal, and recommended to the Board that the NEOs receive salary increases in the order of 3% effective January 1, 2015, but that no discretionary bonuses be awarded from the bonus pool. At the Board meeting held to consider, and ultimately approve, the Compensation Committee’s recommendations, Mr. Crowe voluntarily declined his salary increase.
The Board can exercise discretion to award compensation absent attainment of corporate goals or to reduce or increase the size of any award. The Board did not exercise this discretion in 2014 with respect to any NEO.
In the course of conducting its annual review of compensation, the Compensation Committee considers the implications and risks associated with the Company’s executive compensation policies, philosophy and practices. As discussed above, the Compensation Committee follows an overall compensation model which ensures that an adequate portion of overall compensation for the NEOs is "at risk" and only realized through the performance of the Company over both the short-term and long-term. The Compensation Committee reviews the model to ensure that there are sufficient features to mitigate the incentive for excessive risk taking. Some of the key risk mitigating features include:
| | · | balanced design, between fixed and variable pay and between short-term and long-term incentives; |
| | · | consistent program design among all executive officers and within the Company as a whole; and |
| | · | a greater reward opportunity derived from long-term incentives compared to short-term incentives, creating a greater focus on sustained performance over time. |
The Compensation Committee also had regard to the fact that the CEO retains significant personal shareholdings in the Company and therefore has a direct personal interest in the maximization of shareholder value.
The Company does not permit its executive officers or directors to hedge any of the equity compensation granted to them.
Compensation Governance
The Compensation Committee is composed of Mark Bailey (chair), Gord Glenn, James Harris and Alan Edwards, all of whom are independent directors, applying the definition set out in section 1.4 of National Instrument 52-110 – Audit Committees ("NI 52-110") and under Section 803A of the NYSE MKT Company Guide. Each member of the Compensation Committee has served on various other public company boards, which gives them sufficient direct experience in executive compensation to assist them in making decisions about the suitability of the Company’s compensation practices and policies. For a description of each committee member’s experience, see "Item 6. Directors, Senior Management and Employees A. Directors and Senior Management" above.
The Board has adopted a Compensation Committee Charter, which governs the organization of the Compensation Committee and sets out the duties and responsibilities of the chair and the Compensation Committee as a whole.
The primary objective of the Compensation Committee is to discharge the responsibilities of the Board relating to compensation and benefits of the executive officers and directors of the Company. The Committee shall consist of three or more directors appointed by the Board, each of whom must be independent. The Committee shall meet as many times as it deems necessary, but not less frequently than one time per year. The CEO may not be present during the Compensation Committee’s voting or deliberations.
Responsibilities of the Compensation Committee include:
| | · | Reviewing and approving on an annual basis corporate goals and objectives relevant to CEO compensation, evaluating the CEO’s performance in light of those goals and objectives and setting the CEO’s compensation level based on this evaluation. In determining the long-term incentive component of CEO compensation, the Compensation Committee will consider, among such other factors as it may deem relevant, the Company’s performance, shareholder returns, the value of similar incentive awards to chief executive officers at comparable companies and the awards given to the CEO in past years; |
| | · | Reviewing and approving on an annual basis the adequacy and form of compensation and benefits of all other executive officers and directors, and making recommendations to the Board in that regard; |
| | · | Making recommendations to the Board with respect to the Plan and any other incentive compensation plans and equity-based plans; |
| | · | Determining the recipients of, and the nature and size of share compensation awards and bonuses granted from time to time, in compliance with applicable securities law, stock exchanges and other regulatory requirements; and |
| | · | Approving inducement grants, which include grants of options or stock to new employees in connection with a merger or acquisition, as well as any tax-qualified, non-discriminatory employee benefit plans or non-parallel non-qualified plans, to new employees. |
The Compensation Committee is acutely aware of the dual responsibility that non-executive directors have for overseeing the Company’s corporate governance and long-term sustainability, as well as its compensation plans. In the course of determining compensation for non-executive directors, the Compensation Committee tries to ensure that non-executive director interests are closely aligned with those of shareholders, and that best practices for corporate governance are observed in the course of structuring non-executive director pay. In particular, the Compensation Committee is committed to structuring director pay in a manner that enables directors to maintain their independence. One of the ways that the Compensation Committee attempts to achieve this is by imposing reasonable limits on independent director participation in the Plan.
The Compensation Committee has the authority to retain outside advisors, including the sole authority to retain or terminate consultants to assist the Compensation Committee in the evaluation of compensation of senior management and directors. In August 2013, the Compensation Committee retained LaneCaputo to prepare an Executive Compensation Review to assist the Compensation Committee in the review of compensation arrangements for the Company’s senior management team and independent directors and to recommend required changes (if any) to pay elements and strategy to align the Company with current market practices. The following table shows the aggregate fees billed to the Company by LaneCaputo in the Company’s two most recently completed financial years.
| | 2014 (C$) | 2013 (C$) |
Executive Compensation-Related Fees(1) | $Nil | $32,000 |
All other fees(2) | $Nil | $0 |
| Total: | | $32,000 |
| (1) | Aggregate fees billed by LaneCaputo for services related to determining compensation for the Company's directors and executive officers. |
| (2) | Aggregate fees billed by LaneCaputo for all other services. |
No other compensation consultant or advisor has been retained by the Company in either of the Company’s two most recently completed financial years.
Summary Compensation Table
The following table is a summary of compensation paid or granted to the NEOs for the last three financial years ending December 31, 2014, 2013 and 2012.
| Name and Principal Position | Year | Salary (US$)(5) | Share-based awards (US$) | Option-based awards (1) (US$)(5) | Non-equity incentive plan compensation (US$)(2) (5) | Pension value (US$)(2) | All other compensation (US$)(4) (5) | Total compensation (US$)(5) |
| | | | | | Annual incentive plans | Long-term incentive plans | | | |
Gregory Crowe, President and CEO(3) | 2014 | $280,148 | Nil | $27,986 | Nil | Nil | Nil | Nil | $308,134 |
| 2013 | $305,566 | Nil | $154,763 | $141,030 | Nil | Nil | $22,330 | $623,689 |
| 2012 | $326,666 | Nil | $103,729 | Nil | Nil | Nil | Nil | $430,395 |
Bruce Colwill, CFO | 2014 | $211,189 | Nil | $23,321 | Nil | Nil | Nil | Nil | $234,510 |
| 2013 | $230,350 | Nil | $114,094 | $112,824 | Nil | Nil | Nil | $457,268 |
| 2012 | $246,256 | Nil | $86,441 | Nil | Nil | Nil | Nil | $332,697 |
| Mona Forster, Executive Vice President | 2014 | $210,111 | Nil | $20,989 | Nil | Nil | Nil | Nil | $231,100 |
| 2013 | $229,175 | Nil | $100,538 | $112,824 | Nil | Nil | Nil | $442,537 |
| 2012 | $245,000 | Nil | $86,441 | Nil | Nil | Nil | Nil | $331,441 |
| Robert Cann, Vice President, Exploration | 2014 | $210,111 | Nil | $20,989 | Nil | Nil | Nil | Nil | $231,100 |
| 2013 | $229,175 | Nil | $95,095 | $94,020 | Nil | Nil | Nil | $418,290 |
| 2012 | $245,000 | Nil | $86,441 | Nil | Nil | Nil | Nil | $331,441 |
Susan McLeod, Vice President, Legal Affairs & Corporate Secretary | 2014 | $211,189 | Nil | $20,989 | Nil | Nil | Nil | Nil | $232,178 |
| 2013 | $230,350 | Nil | $105,980 | $112,824 | Nil | Nil | Nil | $449,154 |
| 2012 | $246,256 | Nil | $86,441 | Nil | Nil | Nil | Nil | $332,697 |
| (1) | The Company uses the Black-Scholes option-pricing model for determining fair value of stock options issued at the grant date. The Company selected the Black-Scholes option-pricing model because it is widely used in estimating option based compensation values by Canadian and U.S. public companies. The practice of the Company is to grant all option based awards in Canadian currency, and then convert the grant date fair value amount to United States currency for reporting the value of the grants in the Company’s financials. The conversion rate for each grant is the average of the rates quoted by the Bank of Canada as its noon spot rate of the last day of the three months in the quarter in which the grant is made. The conversion rates for the purpose of the grants in this table are presented below and are based on the applicable conversion rate on the date of grant, each as supplied by the Bank of Canada. |
| (2) | The Company does not have a formal annual incentive program, however, bonuses are granted as determined by the Compensation Committee and approved by the Board on an individual basis. The Company does not presently have a pension incentive plan for any of its executive officers, including its NEOs. |
| (3) | Mr. Crowe is also a director of the Company. Mr. Crowe does not receive compensation from the Company for acting as a director, and no portion of the total compensation disclosed above was received by Mr. Crowe as compensation for acting as a director. |
| (4) | Other Compensation includes amounts paid out for vacation time earned, but not taken. |
| (5) | All compensation is negotiated and settled in Canadian dollars. The exchange rate used to convert 2014 compensation to US$ is 1.1601 (2013 – 1.0636; 2012 – 0.9949). |
The following table provides the exchange rates used to convert the value of the option based awards from Canadian dollars to United States dollars as reported above.
| Name | Date of Grant | Expiry Date | Exercise Price (C$) | Options Granted | Exchange Rates to US$ |
| Gregory G. Crowe | 23-Dec-14 | 22-Dec-19 | $0.21 | 300,000 | C$1.16/US$1 |
| 19-Dec-13 | 19-Dec-18 | $0.30 | 350,000 | C$1.07/US$1 |
| 15-Mar-13 | 15-Mar-18 | $0.56 | 450,000 | C$1.02/US$1 |
| 06-Jan-12 | 06-Jan-17 | $1.25 | 150,000 | C$0.99/US$1 |
| Bruce Colwill | 23-Dec-14 | 22-Dec-19 | $0.21 | 250,000 | C$1.16/US$1 |
| 19-Dec-13 | 19-Dec-18 | $0.30 | 200,000 | C$1.07/US$1 |
| 15-Mar-13 | 15-Mar-18 | $0.56 | 375,000 | C$1.02/US$1 |
| 06-Jan-12 | 06-Jan-17 | $1.25 | 125,000 | C$0.99/US$1 |
| Mona Forster | 23-Dec-14 | 22-Dec-19 | $0.21 | 225,000 | C$1.16/US$1 |
| 19-Dec-13 | 19-Dec-18 | $0.30 | 150,000 | C$1.07/US$1 |
| 15-Mar-13 | 15-Mar-18 | $0.56 | 350,000 | C$1.02/US$1 |
| 06-Jan-12 | 06-Jan-17 | $1.25 | 125,000 | C$0.99/US$1 |
| Robert Cann | 23-Dec-14 | 22-Dec-19 | $0.21 | 225,000 | C$1.16/US$1 |
| 19-Dec-13 | 19-Dec-18 | $0.30 | 150,000 | C$1.07/US$1 |
| 15-Mar-13 | 15-Mar-18 | $0.56 | 325,000 | C$1.02/US$1 |
| 06-Jan-12 | 06-Jan-17 | $1.25 | 125,000 | C$0.99/US$1 |
| Susan McLeod | 23-Dec-14 | 22-Dec-19 | $0.21 | 225,000 | C$1.16/US$1 |
| 19-Dec-13 | 19-Dec-18 | $0.30 | 150,000 | C$1.07/US$1 |
| 15-Mar-13 | 15-Mar-18 | $0.56 | 375,000 | C$1.02/US$1 |
| 06-Jan-12 | 06-Jan-17 | $1.25 | 125,000 | C$0.99/US$1 |
The Company employs Mr. Gregory Crowe as President and CEO under an employment agreement dated November 1, 2003, as amended. The agreement was for an initial term of two years, and is subject to automatic renewal for additional one year periods, unless notice is provided by the Company six months in advance of the end of the term. Mr. Crowe is required to provide the Company with one month’s prior written notice in the event he wishes to resign. The Company may terminate Mr. Crowe’s employment at any time without cause by providing him with a lump sum payment equal to 24 months’ salary and statutory entitlements and by causing any stock options awarded to Mr. Crowe, which have not yet vested, to vest immediately. Mr. Crowe will be entitled to the same lump sum amount in the event he elects to terminate his employment within 90 days following a change of control or as a result of conditions that amount to constructive dismissal. See "Termination and Change of Control Benefits" below.
The Company employs Mr. Bruce Colwill as its CFO under an employment agreement dated December 20, 2010, as amended. Mr. Colwill is required to provide the Company with one month’s prior notice in the event he wishes to resign. The Company may terminate his employment without cause by providing him with a lump sum amount equal to 18 months’ salary and the aggregate amount of all other remuneration, bonuses and benefits that he would otherwise have received over the ensuing 18-month period (collectively, the "Severance Amount"). Mr. Colwill is also entitled to the Severance Amount in the event he resigns for good reason within the one year period following a change of control. See "Termination and Change of Control Benefits" below.
The Company employs Ms. Mona Forster as Executive Vice President and Mr. Robert Cann as Vice President, Exploration under employment agreements dated November 1, 2007, as amended. The terms of employment for Ms. Forster and Mr. Cann are the same as those described for Mr. Colwill above. See "Termination and Change of Control Benefits" below.
The Company employs Ms. Susan McLeod as Vice President, Legal Affairs and Corporate Secretary under an employment agreement dated September 21, 2010, as amended. Ms. McLeod is required to provide the Company with one month’s prior notice in the event she wishes to resign. The Company may terminate her employment without cause by providing her with the 18-month Severance Amount. Ms. McLeod will be entitled to the Severance Amount in the event she elects to terminate her employment within 90 days following a change of control or as a result of conditions that amount to constructive dismissal. See "Termination and Change of Control Benefits" below.
Incentive Plan Awards
The following table is a summary of all option-based awards and share-based awards to the NEOs that were outstanding at the end of the most recently completed financial year.
| | Option-based Awards | Share-based Awards |
| Name | Number of Securities underlying unexercised options (#) | Option exercise price (C$) | Option expiration date | Value of unexercised in-the-money options (C$) | Number of shares or units of shares that have not vested (#) | Market or payout value of share-based awards that have not vested (#) |
| Gregory Crowe | 150,000 | $2.86 | November 22, 2015 | $0 | Nil | Nil |
| 150,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil |
| 450,000 | $0.56 | March 15, 2018 | $0 | Nil | Nil |
| 350,000 | $0.30 | December 19, 2018 | $0 | Nil | Nil |
| 300,000 | $0.21 | December 22, 2019 | $0 | Nil | Nil |
| Bruce Colwill | 200,000 | $3.47 | January 4, 2016 | $0 | Nil | Nil |
| 100,000 | $2.23 | July 15, 2016 | $0 | Nil | Nil |
| 125,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil |
| 375,000 | $0.56 | March 15, 2018 | $0 | Nil | Nil |
| 200,000 | $0.30 | December 19, 2018 | $0 | Nil | Nil |
| 250,000 | $0.21 | December 22, 2019 | $0 | Nil | Nil |
| Mona Forster | 110,000 | $2.86 | November 22, 2015 | $0 | Nil | Nil |
| 125,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil |
| 350,000 | $0.56 | March 15, 2018 | $0 | Nil | Nil |
| 150,000 | $0.30 | December 19, 2018 | $0 | Nil | Nil |
| 225,000 | $0.21 | December 22, 2019 | $0 | Nil | Nil |
| Robert Cann | 110,000 | $2.86 | November 22, 2015 | $0 | Nil | Nil |
| 125,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil |
| 325,000 | $0.56 | March 15, 2018 | $0 | Nil | Nil |
| 150,000 | $0.30 | December 19, 2018 | $0 | Nil | Nil |
| 225,000 | $0.21 | December 22, 2019 | $0 | Nil | Nil |
| Susan McLeod | 300,000 | $2.34 | September 22, 2015 | $0 | Nil | Nil |
| 125,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil |
| 375,000 | $0.56 | March 15, 2018 | $0 | Nil | Nil |
| 150,000 | $0.30 | December 19, 2018 | $0 | Nil | Nil |
| 225,000 | $0.21 | December 22, 2019 | $0 | Nil | Nil |
The following table is a summary of all value vested or earned during the most recently completed financial year for the NEOs.
| Name | Option-based awards – Value vested during the year (US$)(1) | Share-based awards – Value vested during the year (US$) | Non-equity incentive plan compensation – Value earned during the year (US$) |
| Gregory G. Crowe | $0(2) | Nil | Nil |
| Bruce Colwill | $0(3) | Nil | Nil |
| Mona Forster | $0(4) | Nil | Nil |
| Robert Cann | $0(4) | Nil | Nil |
| Susan McLeod | $0(4) | Nil | Nil |
| | | | |
| (1) | Value vested during the year is calculated by subtracting the exercise price of the option (being no less than the market price of the Company’s common shares on the date of grant) from the market price of the Company’s common shares on the date the option vested (being the closing price of the Company’s shares on the TSX on the last trading day prior to the vesting date). |
| (2) | 300,000 options were awarded on December 23, 2014 at an exercise price of C$0.21. $0 vested because all of the stock options vested in full on the award date. |
| (3) | 250,000 options were awarded on December 23, 2014 at an exercise price of C$0.21. $0 vested because all of the stock options vested in full on the award date. |
| (4) | 225,000 options were awarded on December 23, 2014 at an exercise price of C$0.21. $0 vested because all of the stock options vested in full on the award date. |
There were no options exercised by the NEOs during the most recently completed financial year.
Termination and Change of Control Benefits
Gregory Crowe
Under the terms of the employment agreement with Mr. Crowe, the Company may terminate Mr. Crowe’s employment immediately at any time prior to the expiry of the term without cause, by providing him with a lump sum payment equal to 24 months’ salary and statutory entitlements (the "Severance Payment"). Mr. Crowe is also entitled to the Severance Payment should the agreement be terminated by Mr. Crowe for Good Reason (defined below) or by Mr. Crowe within 90 days of a Change of Control (defined below) (in each of the three cases, a "Severance Payment Triggering Event").
"Change of Control" is defined as:
| | (i) | the acquisition by any "offeror" as defined in Part XX of the Securities Act (Ontario) of beneficial ownership of more than 20% of the outstanding voting securities of the Company, by means of a takeover bid or otherwise; |
| | (ii) | any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company would be converted into cash, securities or other property, other than a merger of the Company in which shareholders immediately prior to the merger have the same proportionate ownership of stock of the surviving corporation immediately after the merger; |
| | (iii) | any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; |
| | (iv) | the approval by the shareholders of the Company of any plan of liquidation or dissolution of the Company; or |
| | (v) | the Incumbent Directors cease to constitute a majority of the Board. |
"Good Reason" means any circumstance in which Mr. Crowe is induced by actions of the Company to terminate his employment other than on a purely voluntary basis, and without limiting the generality of the foregoing shall include:
| | (i) | a reduction or diminution in the level of responsibility, title or office of Mr. Crowe; |
| | (ii) | a reduction in the compensation level of Mr. Crowe, taken as a whole; |
| | (iii) | forced relocation to another geographic location; or |
| | (iv) | the failure of the Company or any successor corporation to maintain substantially similar employment terms with Mr. Crowe after a Change of Control as were in existence prior to the Change of Control. |
"Incumbent Director" means any member of the Board (other than Mr. Crowe) who was a member of the Board prior to the occurrence of the transaction, transactions or elections giving rise to a Change of Control and any successor to an Incumbent Director who was recommended or elected or appointed to succeed an Incumbent Director by the affirmative vote of a majority of the Incumbent Directors then on the Board.
If a Change of Control had occurred on December 31, 2014, Mr. Crowe would not have had an immediate benefit. If a Severance Payment Triggering Event were also to have taken place, Mr. Crowe would have been entitled to an immediate payment of approximately $596,710.
Mr. Crowe would continue to be bound by confidentiality provisions (indefinitely) and non-competition and non-solicitation provisions for a period of one year following the termination of employment.
Bruce Colwill, Mona Forster, Robert Cann, Susan McLeod
Under the terms of each of the employment agreements with Bruce Colwill, Mona Forster, Robert Cann and Susan McLeod, the Company may terminate the NEO’s employment at any time without cause by providing the NEO with a lump sum payment equal to 18 month’s salary and the aggregate amount of all other remuneration, bonuses and benefits (including the present cash value of any non-cash remuneration, bonuses or benefits) that the NEO would otherwise have received over the ensuing 18 month period (the "Severance Payment"). Each NEO, other than Ms. McLeod, is also entitled to the Severance Payment should he or she elect to resign with Good Reason (defined below) within one year of a Change of Control (defined below) (the delivery of notice of termination of employment without cause or resignation with Good Reason being, in each case, a "Severance Payment Triggering Event"). Ms. McLeod will also become entitled to the Severance Payment in the event she terminates her employment for Good Reason or she terminates her employment within 90 days of any Change of Control (in Ms. McLeod’s case, the delivery of notice of termination of employment without cause or the expiry of one month’s prior written notice of termination of employment for Good Reason or within 90 days of any Change of Control is a "Severance Payment Triggering Event").
"Change of Control" is defined as:
| | (i) | the sale, transfer or disposition of the Company’s assets in complete liquidation or dissolution of the Company; |
| | (ii) | the Company amalgamates, merges or enters into a plan of arrangement with another company at arm’s length to the Company and its affiliates (the "Group"), other than an amalgamation, merger or plan of arrangement that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or resulting entity) more than 50% of the combined voting power of the surviving or resulting entity outstanding immediately after such amalgamation, merger or plan of arrangement; or |
| | (iii) | any person or combination of persons at arm’s length to the Group acquires or becomes the beneficial owner of, directly or indirectly, more than 20% of the voting securities of the Company, whether through the acquisition of previously issued and outstanding voting securities, or of voting securities that have not been previously issued, or any combination thereof, or any other transaction having a similar effect, and such person or combination of persons exercise(s) the voting power attached to such securities in a manner that causes the Incumbent Directors to cease to constitute a majority of the Board. |
"Good Reason" is defined as the occurrence of any of the following without the NEO’s written consent:
| | (i) | a material change (other than a change that is clearly consistent with a promotion) in the NEO’s position or duties, responsibilities, reporting relationship, title or office; |
| | (ii) | a reduction of the NEO’s salary, benefits or any other form of remuneration or any change in the basis upon which such salary, benefits or other form of remuneration payable by the Company is determined; |
| | (iii) | forced relocation to another geographic area; |
| | (iv) | any material breach by the Company of a material provision of the employment agreement; or |
| | (v) | the failure by the Company to obtain an effective assumption of its obligations hereunder by any successor to the Company, including a successor to a material portion of its business. |
"Incumbent Director" means any member of the Board who was a member of the Board prior to the occurrence of the transaction, transactions or elections giving rise to a Change of Control and any successor to an Incumbent Director who was recommended or elected or appointed to succeed an Incumbent Director by the affirmative vote of a majority of the Incumbent Directors then on the Board.
If a Change of Control had occurred on December 31, 2014, none of the foregoing NEOs would have had an immediate benefit. If a Severance Payment Triggering Event had taken place:
| | · | Mr. Colwill would have been entitled to a payment of approximately $357,661 within 10 days of the Severance Payment Triggering Event; |
| | · | Ms. Forster would have been entitled to a payment of approximately $348,093 within 10 days of the Severance Payment Triggering Event; |
| | · | Mr. Cann would have been entitled to a payment of approximately $359,067 within 10 days of the Severance Payment Triggering Event; and |
| | · | Ms. McLeod would have been entitled to a payment of approximately $348,228 immediately upon the Severance Payment Triggering Event, or in the case of delivery of notice of termination of employment without cause, within 10 days of the Severance Payment Triggering Event. |
Each of the NEOs would continue to be bound by confidentiality provisions (indefinitely) and non-competition and non-solicitation provisions for a period of one year following the termination of employment.
Director Compensation
Directors’ Fees
Annual directors' fees are paid to non-executive directors to compensate them for the time and commitment required to act as directors of the Company, serve on standing committees of the Board, serve on special committees of the Board (if so requested by the Board) and act as Chairman of the Board, Deputy Chairman of the Board or chair of certain standing committees.
In August 2013, the Compensation Committee retained LaneCaputo to prepare an Executive Compensation Review to assist the Compensation Committee in the review of compensation arrangements for the Company’s senior management team and independent directors and to recommend required changes (if any) to pay elements and strategy to align the Company with current market practices. LaneCaputo recommended that effective January 1, 2014, the annual base retainer payable to non-executive directors to compensate them for acting as directors of the Company be increased from C$17,250 to C$25,000. This recommendation was adopted by the Compensation Committee and the Board. In 2014, James Harris was paid an additional cash retainer of C$19,750 as compensation for acting as the Deputy Chairman of the Board and C$5,250 for acting as the chair of the CGNC. Gorden Glenn received an additional C$12,500 for acting as the chair of the Audit Committee. Alan Edwards received an additional C$5,250 for acting as the chair of the Technical Committee. Lord Howard was paid a total of C$111,4942 in 2014, which includes the C$25,000 base retainer and additional compensation for acting as the Chairman of the Board. Mr. Bottomer, who was the Company’s Vice President, Business Development until December 31, 2013, was not paid any fees to compensate him for acting as a director in 2014.
In late 2014, the Compensation Committee recommended to the Board that effective January 1, 2015, Mark Bailey receive an additional cash retainer of C$5,250 for acting as the chair of the Compensation Committee. Mr. Harris also voluntarily offered to reduce his additional cash retainer for acting as the Deputy Chairman of the Board by C$5,000 to C$14,750, and Lindsay Bottomer was granted the annual base retainer of C$25,000 to compensate him for acting as a director of the Company. In February 2015, Lord Howard voluntarily offered to reduce his total annual compensation from £60,000 to £40,000 and James Harris, while retaining his role as an independent director, stepped down from his position as Deputy Chairman of the Board, both with effect from March 1, 2015.
2 Lord Howard’s compensation is negotiated and settled in British pounds sterling. The exchange rate used to convert 2014 compensation to C$ is 1.8582.
Incentive Stock Options
The granting of incentive stock options provides a link between non-executive director compensation and the Company’s share price. It also rewards non-executive directors for achieving results that improve Company performance and thereby increase shareholder value. Incentive stock options are an important component of non-executive director compensation for the Company and other members of its peer group, which aren’t large enough to justify the adoption of more costly deferred share plans or restricted share plans, and which don’t have any revenue making it difficult to pay larger cash retainers.
Stock options are generally awarded to non-executive directors when they join the Board and periodically thereafter. In making a determination as to whether a grant of long-term incentive stock options is appropriate, and if so, the number of options that should be granted, the Compensation Committee will consider: the value in securities of the Company that the Compensation Committee intends to award as compensation; current and expected future performance of the director; the potential dilution to shareholders and the cost to the Company; previous grants made to the director; option grants made to non-executive directors of comparable companies; and the limits imposed by the terms of the Plan and the TSX.
In December 2014, the Compensation Committee recommended that the Board award incentive stock options to each of the non-executive directors in recognition of the role that the non-executive directors played in providing strategic input and corporate oversight as well as assisting management to meet certain objectives in 2014. The Board approved the Compensation Committee’s recommendations, and in December 2014 awarded to each of the non-executive directors options to purchase 100,000 common shares at an exercise price of C$0.21 for five years. The terms and conditions of the grants, including vesting provisions and exercise prices, were determined by the Board at the time of grant, in accordance with the terms and conditions of the Plan.
The following table is a summary of all compensation provided to the directors of the Company (other than directors who are also NEOs) for the most recently completed financial year.
Name(1) | Fees earned (US$) | Share-based awards (US$) | Option-based awards (US$)(2) | Non-equity incentive plan compensation (US$) | Pension value (US$) | All other compensation (US$) | Total (US$) |
| Mark Bailey | $21,550 | Nil | $9,329 | Nil | Nil | $0 | $30,879 |
| James Harris | $43,100 | Nil | $9,329 | Nil | Nil | $0 | $52,429 |
| Michael Howard | $96,107 | Nil | $9,329 | Nil | Nil | $0 | $105,436 |
| Alan Edwards | $26,075 | Nil | $9,329 | Nil | Nil | $0 | $35,404 |
Lindsay Bottomer(3) | $0 | Nil | $9,329 | Nil | Nil | $230,145 | $239,474 |
| Gorden Glenn | $32,325 | Nil | $9,329 | Nil | Nil | $0 | $41,654 |
| | | | | | | | |
| (1) | In addition to being a director of the Company, Gregory Crowe is also an NEO. For disclosure regarding Mr. Crowe’s compensation, please refer to the Summary Compensation Table above. |
| (2) | The Company uses the Black-Scholes option-pricing model for determining fair value of stock options issued at the grant date. The Company selected the Black-Scholes option-pricing model because it is widely used in estimating option based compensation values by Canadian and U.S. public companies. The practice of the Company is to grant all option based awards in Canadian currency, and then convert the grant date fair value amount to U.S. currency for reporting the value of the grants in the Company’s financials. The conversion rate for each grant is the average of the rates quoted by the Bank of Canada as its noon spot rate of the last day of the three months in the quarter in which the grant is made. The conversion rates for the purpose of the grants in this table are presented below and are based on the applicable conversion rate on the date of grant, each as supplied by the Bank of Canada. |
| (3) | In addition to being a director of the Company, Lindsay Bottomer was employed until December 31, 2013 as the Company’s Vice President, Business Development. Mr. Bottomer did not receive fees from the Company in 2014 for acting as a director. He received option-based awards of $9,329. Mr. Bottomer’s severance payment ($209,562) and vacation pay ($20,583) resulting from his retirement on December 31, 2013 are reported as Other Compensation. |
The following table is a summary of all option-based awards to the directors of the Company (other than directors who are also NEOs) that were outstanding at the end of the most recently completed financial year. There were no share-based awards outstanding at the end of the most recently completed financial year.
| | Option-based Awards | Share-based Awards |
Name(1) | Number of Securities underlying unexercised options (#) | Option exercise price (C$) | Option expiration date | Value of unexercised in-the-money options (C$) | Number of shares or units of shares that have not vested (#) | Market or payout value of share-based awards that have not vested (#) |
| Mark Bailey | 125,000 | $2.86 | November 22, 2015 | $0 | Nil | Nil |
| | 100,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil |
| | 230,000 | $0.56 | March 15, 2018 | $0 | Nil | Nil |
| | 75,000 | $0.30 | December 19, 2018 | $0 | Nil | Nil |
| | 100,000 | $0.21 | December 22, 2019 | $0 | Nil | Nil |
| James Harris | 135,000 | $2.86 | November 22, 2015 | $0 | Nil | Nil |
| | 100,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil |
| | 255,000 | $0.56 | March 15, 2018 | $0 | Nil | Nil |
| | 75,000 | $0.30 | December 19, 2018 | $0 | Nil | Nil |
| | 100,000 | $0.21 | December 22, 2019 | $0 | Nil | Nil |
| Michael Howard | 125,000 | $2.86 | November 22, 2015 | $0 | Nil | Nil |
| | 100,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil |
| | 255,000 | $0.56 | March 15, 2018 | $0 | Nil | Nil |
| | 150,000 | $0.34 | June 27, 2018 | $0 | Nil | Nil |
| | 100,000 | $0.30 | December 19, 2018 | $0 | Nil | Nil |
| | 100,000 | $0.21 | December 22, 2019 | $0 | Nil | Nil |
| Alan Edwards | 100,000 | $2.94 | March 8, 2016 | $0 | Nil | Nil |
| | 100,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil |
| | 230,000 | $0.56 | March 15, 2018 | $0 | Nil | Nil |
| 75,000 | $0.30 | December 19, 2018 | $0 | Nil | Nil |
| 100,000 | $0.21 | December 22, 2019 | $0 | Nil | Nil |
Lindsay Bottomer(2) | 135,000 | $2.86 | November 22, 2015 | $0 | Nil | Nil |
| | 125,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil |
| | 275,000 | $0.56 | March 15, 2018 | $0 | Nil | Nil |
| | 75,000 | $0.30 | December 19, 2018 | $0 | Nil | Nil |
| | 100,000 | $0.21 | December 22, 2019 | $0 | Nil | Nil |
| Gorden Glenn | 100,000 | $0.73 | June 18, 2017 | $0 | Nil | Nil |
| | 230,000 | $0.56 | March 15, 2018 | $0 | Nil | Nil |
| | 100,000 | $0.30 | December 19, 2018 | $0 | Nil | Nil |
| | 100,000 | $0.21 | December 22, 2019 | $0 | Nil | Nil |
| (1) | In addition to being a director of the Company, Gregory Crowe is an NEO. For disclosure regarding Mr. Crowe’s option-based awards, please refer to the incentive plan awards section above. |
| (2) | In addition to being a director of the Company, Lindsay Bottomer was employed as the Company’s Vice President, Business Development until December 31, 2013. Prior to January 1, 2014, Mr. Bottomer’s option-based awards were not received from the Company for acting as a director. |
The following table is a summary of all value vested or earned during the most recently completed financial year for the directors of the Company (other than directors who are also NEOs).
Name(1) | Option-based awards – Value vested during the year (US$)(2) | Share-based awards – Value vested during the year (US$) | Non-equity incentive plan compensation – Value earned during the year (US$) |
| Mark Bailey | $0(3) | Nil | Nil |
| James Harris | $0(3) | Nil | Nil |
| Michael Howard | $0(3) | Nil | Nil |
| Alan Edwards | $0(3) | Nil | Nil |
| Lindsay Bottomer | $0(3) | Nil | Nil |
| Gorden Glenn | $0(3) | Nil | Nil |
| (1) | In addition to being a director of the Company, Gregory Crowe is an NEO. For disclosure regarding Mr. Crowe’s compensation, please refer to the summary compensation table above. |
| (2) | Value vested during the year is calculated by subtracting the exercise price of the option (being no less than the market price of the Company’s common shares on the date of grant) from the market price of the Company’s common shares on the date the option vested (being the closing price of the Company’s shares on the TSX on the last trading day prior to the vesting date). |
| (3) | 100,000 options were awarded on December 23, 2014 at an exercise price of C$0.21. $0 vested because all of the stock options vested in full on the award date. |
No options were exercised by directors during the most recently completed financial year.
Management Contracts
Management functions of the Company are substantially performed by directors or executive officers of the Company and not, to any substantial degree, by any other person with whom the Company has contracted.
Interest of Informed Persons in Material Transactions
Since the commencement of the Company’s most recently completed financial year, no informed person of the Company, proposed director of the Company, or any associate or affiliate of any informed person or proposed director, had any material interest, direct or indirect, in any transaction or any proposed transaction which has materially affected or would materially affect the Company or any of its subsidiaries.
C. Board Practices
The Board is currently comprised of seven directors. The size and experience of the Board is important for providing the Company with effective governance in the mining industry. The Board’s mandate and responsibilities can be effectively and efficiently administered at its current size. The Board has functioned, and is of the view that it can continue to function, independently of management as required. Directors are elected for a term of one year at the annual general meeting. The current directors were elected by the Company’s shareholders at the Annual General Meeting held on June 26, 2014.
The Board adopted a majority voting policy in May 2013. If the number of shares "withheld" from voting for the election of a nominee is greater than the number of shares voted "for" his or her election, the director must submit his or her resignation to the Chairman of the Board promptly after the shareholders’ meeting. The CGNC will consider the resignation and will recommend to the Board whether or not to accept it. After considering the recommendations of the CGNC, the Board will make its decision as to whether to accept or reject the resignation in question and the Company will announce the Board’s decision, including any reasons for the Board not accepting a resignation, within 90 days following the shareholders’ meeting. The policy does not apply if there is a contested director election or where the election involves a proxy battle.
The Board has considered the relationship of each director to the Company and currently considers five of the seven directors to be independent directors because they are independent of management and free from any interest and any business or other relationship which could reasonably be expected to interfere with the director’s ability to act with a view to the best interest of the Company, other than interests and relationships arising solely from shareholdings. Lindsay Bottomer and Gregory Crowe are not independent by virtue of the fact that they are, or have within the last three years been, executive officers of the Company.
Procedures are in place to allow the Board to function independently. At the present time, the Board has experienced directors that have made a significant contribution to the Company’s success, and are satisfied that it is not constrained in its access to information, in its deliberations or in its ability to satisfy the mandate established by law to supervise the business and affairs of the Company. Committees meet independent of management and other directors.
Disclosure of Corporate Governance Practices
National Instrument 58-101 - Disclosure of Corporate Governance Practices ("NI 58-101") requires each reporting issuer to disclose its corporate governance practices on an annual basis. The Company’s approach to corporate governance is set forth below.
Board of Directors
Section 1.4 of NI 52-110 and NYSE MKT Company Guide Section 803A set out the standard for director independence. Under Section 1.4 of NI 52-110 and NYSE MKT Company Guide Section 803A, a director is independent if he has no direct or indirect material relationship with the Company. A material relationship is a relationship which could, in the view of the Board, be reasonably expected to interfere with the exercise of a director’s independent judgment. Section 1.4 of NI 52-110 and NYSE MKT Company Guide Section 803A also set out certain situations where a director will automatically be considered to have a material relationship with the Company.
As at December 31, 2014, the Board was comprised of seven directors. Applying the definition set out in section 1.4 of NI 52-110 and NYSE MKT Company Guide Section 803A, a majority (five of the seven members) of the Board are independent. The members who are independent are Mark Bailey, James Harris, Lord Howard, Alan Edwards and Gorden Glenn. Gregory Crowe and Lindsay Bottomer are not independent by virtue of the fact that Mr. Crowe is an executive officer of the Company and Mr. Bottomer was an executive officer of the Company until December 31, 2013.
To the extent that the Board considers it to be necessary or advisable, a Board meeting will include an in camera session, at which non-independent directors and members of management are not in attendance. Since the beginning of the Company’s most recently completed financial year, there have been two in camera sessions.
Lord Howard, an independent director, serves as non-executive Chairman of the Board, and is responsible for ensuring that the Board discharges its responsibilities in an effective manner and that the Board understands the boundaries between Board and management responsibilities. The Board has developed a written position description for the Chairman in order to delineate the Chairman’s role and responsibilities. The Chairman of the Board is primarily responsible for leading the Board in the performance of its duties and ensuring the Board’s agenda will enable it to successfully carry out its duties. As Chairman, Lord Howard also serves as an "ex officio" member of each Board committee. More specifically, the Chairman of the Board is responsible for:
| | (a) | monitoring and reporting to the Board regarding the effectiveness of the Board, as well as individual members, in discharging its and their responsibilities; |
| | (b) | in consultation with the President and CEO and, where appropriate, with other Board members, determining Board and shareholder calendars and agendas; |
| | (c) | leading the Board's periodic assessment of the job done by the CEO and his management team; |
| | (d) | taking the lead in the Company’s adherence to the highest standards of corporate governance; |
| | (e) | facilitating an open flow of information between management and the Board; and |
| | (f) | presiding at meetings of the Board and the shareholders. |
Position Description for CEO
The Board has adopted a written position description for the CEO, which sets out his specific duties and responsibilities. Generally, the CEO, who must be appointed by the Board and is directly accountable to the Board, is responsible for management of the day to day operation of the business of the Company and has primary accountability for the profitability and growth of the Company.
Employment Contract with Gregory Crowe
The Company employs Mr. Gregory Crowe as President and CEO under an employment agreement dated November 1, 2003, as amended. The agreement was for an initial term of two years, and is subject to automatic renewal for additional one year periods, unless notice is provided by the Company six months in advance of the end of the term. Mr. Crowe is required to provide the Company with one month’s prior written notice in the event he wishes to resign. The Company may terminate Mr. Crowe’s employment at any time without cause by providing him with a lump sum payment equal to 24 months’ salary and statutory entitlements and by causing any stock options awarded to Mr. Crowe, which have not yet vested, to vest immediately. Mr. Crowe will be entitled to the same lump sum amount in the event he elects to terminate his employment within 90 days following a change of control or as a result of conditions that amount to constructive dismissal. See "Termination and Change of Control Benefits" above.
Otherwise, the Company does not have any service contracts with any directors.
Orientation and Continuing Education
Board turnover is relatively rare. As a result, the Board provides ad hoc orientation for new directors.
The CGNC is responsible for encouraging and facilitating continuing education programs for all directors. The CGNC will also ensure that each director understands the role of the Board, its committees and its directors, and the basic procedures and operations of the Board. Board members are also given access to management and other employees and advisors, who can answer any questions that may arise.
Ethical Business Conduct
The Board has adopted a written Code of Business Conduct and Ethics (the "Code") for its directors, officers, employees and consultants, a copy of which may be obtained on SEDAR at www.sedar.com.
The CGNC is responsible for assisting the Board in dealing with conflict of interest issues as contemplated by the Code, reviewing and updating the Code periodically, ensuring that management has established a system to enforce the Code and reviewing management’s monitoring of the Company’s compliance with the Code.
Under the Code, members of the Board are required to disclose any conflict of interest or potential conflict of interest to the entire Board as well as any committee on which they serve. Directors are to excuse themselves from participation in any decision of the Board or a committee thereof in any matter in which there is a conflict of interest or potential conflict of interest. However, if the Board determines that a potential conflict of interest cannot be cured, the individual will be asked to resign from their position with the Company.
Directors are also required to comply with the relevant provisions of the BCBCA regarding conflicts of interest.
The Board is also committed to best practices in making timely and accurate disclosure of all material information and providing fair and equal access to material information. The Board has adopted a written Corporate Disclosure and Trading Policy to ensure that the Company and its directors, officers, employees and consultants satisfy the legal and ethical obligations related to the proper and effective disclosure of corporate information and the trading of securities with that information.
Standing Committees
The Board has four standing committees, namely the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee and the Technical Committee. Their mandates and memberships are outlined below.
Audit Committee
The Audit Committee meets with the CEO and CFO of the Company and the independent auditors to review and inquire into matters affecting financial reporting, the system of internal accounting and financial controls and procedures and the audit procedures and audit plans. The Audit Committee also recommends to the Board the auditors to be appointed, subject to shareholder approval. In addition, the Audit Committee reviews and recommends to the Board for approval the annual financial statements, the annual report and certain other documents required by regulatory authorities. The Audit Committee is composed of Gorden Glenn (chairman), Mark Bailey and James Harris, all of whom are independent (as defined in NI 52-110 and NYSE MKT Company Guide Section 803(B)(2)(a)(i)) and financially literate (as defined in NI 52-110 and NYSE MKT Company Guide Section 803(B)(2)(a)(iii)). The Board has also assessed the qualifications of Mr. Glenn, and has determined that Mr. Glenn is independent, financially literate and qualifies as a financial expert (as defined in Item 407(d)(5) of Regulation S-K under the U.S. Exchange Act).
The Board has adopted a written position description for the chair of the Audit Committee. The chair is generally responsible for overseeing the Audit Committee in its responsibilities as outlined in the Audit Committee Charter. The chair’s duties and responsibilities include presiding at each meeting of the Audit Committee, referring specific matters to the Board in the case of a deadlock on any matter or vote, receiving and responding to all requests for information from the Company or the independent auditors, leading the Audit Committee in discharging its tasks and reporting to the Board on the activities of the Audit Committee.
The Company’s Annual Information Form for its financial year ended December 31, 2014 dated March 30, 2015 (the "AIF"), and submitted on Form 6-K to the United States Securities and Exchange Commission on EDGAR, contains additional disclosure regarding the Audit Committee. Please refer to the section of the AIF entitled "Standing Committees of the Board" for further information.
Compensation Committee
The primary objective of the Compensation Committee is to discharge the responsibilities of the Board relating to compensation and benefits of the executive officers and directors of the Company.
The Board has adopted a written position description for the chair of the Compensation Committee. The chair is generally responsible for overseeing the Compensation Committee in its responsibilities. The chair’s duties and responsibilities include presiding at each meeting of the Compensation Committee, leading the Compensation Committee in discharging its tasks and reporting to the Board on the activities of the Compensation Committee.
The Compensation Committee is comprised of four directors, each of whom, in the judgement of the Board, meets the independence requirements of applicable securities legislation and policies for compensation committee members. The members of the Compensation Committee are: Mark Bailey (chairman), Alan Edwards, Gorden Glenn and James Harris.
Corporate Governance and Nominating Committee
The members of the CGNC are: James Harris (chairman), Alan Edwards and Gorden Glenn.
The primary objective of the CGNC is to assist the Board in fulfilling its oversight responsibilities by: (a) developing and recommending to the Board corporate governance guidelines for the Company and making recommendations to the Board with respect to corporate governance guidelines; (b) reviewing the performance of the Board, Board members, Board committees and management; and (c) identifying individuals qualified to become Board and Board committee members and recommending such nominees to the Board for election or appointment. Pursuant to the written CGNC Charter, all members must have a working familiarity with corporate governance practices. The CGNC may form and delegate authority to subcommittees when appropriate, and must meet not less frequently than one time per year.
The Board has adopted a written position description for the chair of the CGNC. The chair is generally responsible for overseeing the CGNC in its responsibilities. The chair’s duties and responsibilities include ensuring the independence of the Board in the discharge of its responsibilities, presiding at each meeting of the CGNC, leading it in discharging its tasks and reporting to the Board on its activities.
Nomination of Directors
The CGNC examines the size and composition of the Board and recommends adjustments from time to time to ensure that the Board is of a size and composition that facilitates effective decision making. It also identifies and assesses the necessary and desirable competencies and characteristics for Board membership and regularly assesses the extent to which those competencies and characteristics are represented on the Board. The CGNC identifies individuals qualified to become members of the Board, actively seeks out such individuals when there is a vacancy or when so directed by the Board, and makes recommendations to the Board for the appointment or election of director nominees and for membership on other committees of the Board.
Assessments
The CGNC regularly reviews the time required from non-executive directors to perform their functions and assesses whether they are satisfying those time requirements. It receives comments from all directors as to the Board’s performance, is responsible for overseeing the execution of a process assessing the effectiveness of the Board and the Board committees as a whole, with particular reference to the Mandate of the Board and appropriate committee charters, where applicable. It is required to report annually to the Board on such assessments.
Technical Committee
The members of the Technical Committee consist of Alan Edwards (chairman), Mark Bailey, Gorden Glenn, Lindsay Bottomer and Gregory Crowe. Mr. Edwards is a mining engineer, and Mssrs. Bailey, Glenn, Bottomer and Crowe are geologists. Neither Mr. Crowe, the President and Chief Executive of the Company, nor Mr. Bottomer is an independent director. The mandate of the Technical Committee is to exercise all the powers of the Board (except those powers specifically reserved by law to the Board itself) during intervals between meetings of the Board pertaining to the Company’s mining properties, programs, budgets, and other related activities and the administration thereof.
The primary objective of the Technical Committee is to review and make recommendations to the Board regarding the approval of budgets, exploration programs and other activities related to the Company’s mining properties. The Board has adopted a Technical Committee Charter, which provides that the Technical Committee must have at least three members, at least one of whom is independent, and all of whom are engineers or geoscientists, or otherwise have sufficient expertise to comprehend and evaluate technical issues associated with the Company’s mining properties. The Technical Committee must meet at least two times per year.
The Board has adopted a written position description for the chair of the Technical Committee, who should be independent. The chair is generally responsible for overseeing the Technical Committee in its responsibilities. The chair’s duties and responsibilities include presiding at each meeting of the Technical Committee, leading the Technical Committee in discharging its tasks and reporting to the Board on the activities of the Technical Committee.
At December 31, 2014, we had 35 full time and six temporary employees working for us in Canada, Mongolia and the United States (35 full time and one temporary as at March 30, 2015). Thirteen employees are based in Vancouver, nine employees are based in Ulaanbaatar, Mongolia, and four employees are based at our field camp in the southern Gobi desert.
In the United States, Entrée had nine full time employees and six temporary employees at December 31, 2014 (nine full time and one temporary as at March 30, 2015). The field operations are headed by an Exploration Manager who is supported by three full time geologists, three full time core technicians, and two full time administrative staff. None of our employees belong to a union or are subject to a collective agreement. We consider our employee relations to be good.
The table below sets out the municipality of residence and securities held by directors and executive officers as at December 31, 2014.
| Name and municipality of residence | No. of Common Shares beneficially owned, directly or indirectly, or controlled(1). | | No. of securities held on a fully-diluted basis |
Gregory Crowe Bowen Island, British Columbia, Canada | 1,425,820 | | Shares: 1,425,820 Warrants: 0 Stock options: 1,400,000 Total: 2,825,820 |
Mark Bailey Bellingham, Washington U.S.A. | 392,922 | | Shares: 392,922 Warrants: 0 Stock options: 630,000 Total: 1,022,922 |
Lindsay Bottomer North Vancouver, British Columbia Canada | 599,985 | | Shares: 599,985 Warrants: 0 Stock options: 710,000 Total: 1,309,985 |
James Harris Vancouver, British Columbia Canada | 443,062 | | Shares: 443,062 Warrants: 0 Stock options:665,000 Total: 1,108,062 |
Rt. Honourable Lord Howard of Lympne London, UK | 128,800 | | Shares: 128,800 Warrants: 0 Stock options:830,000 Total: 958,800 |
Alan Edwards Tucson, Arizona U.S.A | 108,000 | | Shares: 108,000 Warrants 0 Stock options 605,000 Total: 713,000 |
Gorden Glenn Toronto, Ontario Canada | 0 | | Shares: 0 Warrants 0 Stock options 530,000 Total: 530,000 |
Bruce Colwill Vancouver, British Columbia Canada | 25,700 | | Shares: 25,700 Warrants 0 Stock options1,250,000 Total: 1,275,700 |
Mona Forster Vancouver, British Columbia Canada | 216,374 | | Shares: 216,374 Warrants: 0 Stock options:960,000 Total: 1,176,374 |
Robert Cann Nanaimo, British Columbia Canada | 126,225 | | Shares: 126,225 Warrants: 0 Stock options:935,000 Total: 1,061,225 |
Robert Cinits Port Moody, British Columbia Canada | 0 | | Shares: 0 Warrants: 0 Stock Options:950,000 Total: 950,000 |
Susan McLeod West Vancouver, British Columbia Canada | 9,500 | | Shares: 9,500 Warrants: 0 Stock options:1,175,000 Total: 1,184,500 |
| (1) | Meaning an officer of the issuer, or a director or senior officer that has direct or indirect beneficial ownership of, control or direction over, or a combination of direct or indirect beneficial ownership of and control or direction over securities of the issuer carrying more than 10% of the voting rights attached to all the issuer’s outstanding securities. |
To the best of the Company’s knowledge as at December 31, 2014, directors and executive officers, as a group, beneficially owned, or controlled or directed, directly or indirectly, 3,476,388 common shares (not including common shares issuable upon exercise of stock options) representing 2.37% of the then outstanding common shares.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets out information as of the end of the Company’s most recently completed financial year with respect to compensation plans under which equity securities of the Company are authorized for issuance.
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (C$) (b) | Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in column (a)) (c) (1) |
| Equity compensation plans approved by securityholders | 13,779,000 | $0.85 | 919,439 |
| Equity compensation plans not approved by securityholders | Nil | N/A | Nil |
| Total | 13,779,000 | $0.85 | 919,439 |
| (1) | The maximum aggregate number of common shares issuable pursuant to options granted under the Plan and outstanding from time to time may not exceed that number which represents 10% of the issued and outstanding common shares from time to time. The Company shall, at all times while the Plan is in effect, reserve a sufficient number of common shares to satisfy the requirements of the Plan. The Plan also provides that exercised options will automatically be available for subsequent grants and for the reservation and issuance of additional common shares pursuant to such options. Accordingly, the Plan constitutes both a "rolling" plan and an "evergreen" plan, and its renewal must be approved by the Company’s shareholders every three years in accordance with the policies of the TSX. The Plan was last approved on June 26, 2014. |
Item 7. Major Shareholders and Related Party Transactions
As far as it is known to the Company, other than identified below, it is not directly or indirectly owned or controlled by any other corporation or by the Canadian Government, or any foreign government, or by any other natural or legal person.
To the knowledge of the Company’s directors and senior officers, the following table sets forth certain information as at March 30, 2015, concerning the ownership of the Company’s common shares as to each person known by the directors and senior officers, based solely upon public records and filings, to be the direct or indirect owner of more than five percent (5%) of the Company’s common shares, who owned more than five percent of the outstanding shares of each class of the Company’s voting securities.
| Shareholder Name | Number of Shares | Percentage of Issued Shares |
| Rio Tinto International Holdings Limited | 30,366,129(1) | 20.7% |
| Sandstorm Gold Ltd. | 17,857,142 | 12.2% |
| Caisse de depot et placement du Quebec | 12,531,400 | 8.5% |
| (1) | Rio Tinto International Holdings Limited holds 16,566,796 common shares directly. It also has a beneficial interest in 13,799,333 common shares held by Turquoise Hill Resources Ltd. |
Changes in ownership by major shareholders
To the best of the Company’s knowledge there have been no changes in the ownership of the Company’s shares other than disclosed herein.
Voting Rights
The Company’s major shareholders do not have different voting rights.
Shares Held in the United States
As of March 30, 2015, there were approximately 22 registered holders of the Company’s shares in the United States, with combined holdings of 22,013,038 common shares.
Change of Control
As of the date of this Annual Report, there were no arrangements known to the Company which may, at a subsequent date, result in a change of control of the Company.
Control by Others
To the best of the Company’s knowledge, the Company is not directly or indirectly owned or controlled by another corporation, any foreign government, or any other natural or legal person, severally or jointly.
| B. | Related Party Transactions |
During the three-year period ended December 31, 2014:
The Company did not enter into any transactions with related parties during the year ended December 31, 2014.
During the year ended December 31, 2013, the Company paid consulting fees of $1,167 (December 31, 2012 - $Nil) to an immediate family member of the Company’s Vice President, Corporate Development. The transaction was in the normal course of operations and was measured at the exchange amount, which represented the amount of consideration established and agreed to by the related party. All services under the agreement have been provided.
The Company did not enter into any transactions with related parties during the year ended December 31, 2012.
| C. | Interests of Experts and Counsel |
Not Applicable.
Item 8. Financial Information
| A. | Consolidated Statements and Other Financial Information |
The following financial statements of the Company are attached to this Annual Report:
| | · | Independent Registered Public Accounting Firm’s Report on Consolidated Financial Statements; |
| | · | Consolidated Balance Sheets as of December 31, 2014 and 2013; |
| | · | Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2014, 2013, 2012; |
| | · | Consolidated Statement of Stockholders’ Equity, including Balances as of December 31, 2011, December 31, 2012, December 31, 2013 and December 31, 2014; |
| | · | Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012; and |
| | · | Notes to Consolidated Financial Statements for the years ended December 31, 2014, 2013 and 2012. |
Legal Proceedings
None.
Dividend Policy
The Company has not declared any dividends on its common shares since the inception of our Company on July 19, 1995. There is no restriction in the Company’s Articles that will limit its ability to pay dividends on its common shares. However, the Company does not anticipate declaring and paying dividends to its shareholders in the near future.
None.
Item 9. The Offer and Listing
The Company’s common shares were traded on the TSX Venture Exchange until April 24, 2006. On April 24, 2006 the Company began trading on the TSX. The Company’s symbol is "ETG" and its CUSIP number is 29383-100. The Company’s common shares are also traded on the NYSE MKT under the symbol "EGI" and on the Frankfurt Stock Exchange under the symbol "EKA" (WKN:121411).
The following table sets forth the high and low prices expressed in Canadian dollars on the TSX and in United States dollars on NYSE MKT in the United States for the Company’s common shares for the past five years, for each quarter for the last two fiscal years, and for the last six months.
| | TSX | NYSE MKT |
| (Canadian Dollars) | (United States Dollars) |
| | | | | |
| Last Five Fiscal Years | High | Low | High | Low |
| 2014 | 0.52 | 0.18 | 0.47 | 0.16 |
| 2013 | 0.62 | 0.25 | 0.62 | 0.22 |
| 2012 | 1.41 | 0.39 | 1.41 | 0.40 |
| 2011 | 3.40 | 1.05 | 3.52 | 1.00 |
| 2010 | 3.59 | 1.84 | 3.49 | 1.58 |
| 2014 | High | Low | High | Low |
| Fourth Quarter ended December 31, 2014 | 0.31 | 0.18 | 0.26 | 0.16 |
| Third Quarter ended September 31, 2014 | 0.35 | 0.27 | 0.34 | 0.25 |
| Second Quarter ended June 30, 2014 | 0.43 | 0.31 | 0.39 | 0.28 |
| First Quarter ended March 31, 2014 | 0.52 | 0.32 | 0.47 | 0.30 |
| | | | | |
| | | | | |
| 2013 | High | Low | High | Low |
| Fourth Quarter ended December 31, 2013 | 0.52 | 0.29 | 0.51 | 0.27 |
| Third Quarter ended September 31, 2013 | 0.38 | 0.25 | 0.37 | 0.24 |
| Second Quarter ended June 30, 2013 | 0.40 | 0.25 | 0.43 | 0.22 |
| First Quarter ended March 31, 2013 | 0.62 | 0.35 | 0.62 | 0.34 |
| | | | | |
| | | | | |
| | | | | |
| Last Six Months | High | Low | High | Low |
| Feb-15 | 0.24 | 0.19 | 0.19 | 0.16 |
| Jan-15 | 0.26 | 0.20 | 0.21 | 0.16 |
| Dec-14 | 0.27 | 0.18 | 0.23 | 0.16 |
| Nov-14 | 0.27 | 0.21 | 0.24 | 0.16 |
| Oct-14 | 0.31 | 0.22 | 0.26 | 0.20 |
| Sep-14 | 0.33 | 0.27 | 0.30 | 0.25 |
The closing price of the Company’s common shares as reported by the TSX on December 31, 2014 was C$0.205. The closing price of the Company’s common shares as reported by the NYSE MKT on December 31, 2014 was $0.1715.
The Company’s common shares are issued in registered form. Computershare Investor Services Inc. is the registrar and transfer agent for the Company’s common shares.
On December 31, 2014, the shareholders' list for the Company’s common shares showed 1,201 registered shareholders and 146,984,385 common shares outstanding.
The Company has no outstanding securities not listed on a marketplace other than incentive stock options. Since the beginning of the most recently completed financial year, stock options to purchase an aggregate 2,815,000 common shares were granted. The following table outlines the details of each grant:
| Number of Options | Exercise Price (CDN$) | Grant Date |
| 2,815,000 | $0.21 | December 23, 2014 |
Not Applicable.
The Company’s common shares were traded on the TSX Venture Exchange until April 24, 2006. On April 24, 2006, the Company began trading on the TSX. The Company’s symbol is "ETG" and its CUSIP number is 29383-100. The Company’s common shares are also traded on the NYSE MKT under the symbol "EGI" and on the Frankfurt Stock Exchange under the symbol "EKA" (WKN:121411).
Not Applicable.
Not Applicable.
Not Applicable.
Item 10. Additional Information
Not Applicable.
| B. | Memorandum and Articles of Association |
The Company is continued under the laws of British Columbia and is governed by the BCBCA.
The Notice of Articles and Articles of the Company (together, the "Articles") do not address the Company’s objects and purposes and there are no restrictions on the business the Company may carry on in the Articles.
The Company is authorized to issue an unlimited number of common shares without par value. Each common share is entitled to one vote. All common shares of the Company rank equally as to dividends, voting power and participation in assets. No common shares have been issued subject to call or assessment. There are no pre-emptive or conversion rights and no provision for exchange, exercise, redemption and retraction, purchase for cancellation, surrender or sinking or purchase funds. Provisions as to modification, amendments or variation of such rights or such provisions are contained in the BCBCA and the Company’s Articles.
A director or senior officer who has, directly or indirectly, a material interest in an existing or proposed material contract or transaction of the Company may not vote in respect of any such proposed material contract or transaction.
The directors may from time to time in their discretion authorize and cause the Company to:
| | (a) | borrow money in such amount, in such manner, on such security, from such sources and upon such terms and conditions as they think fit; |
| | (b) | guarantee the repayment of money borrowed by any person or the performance of any obligation of any person; |
| | (c) | issue bonds, debentures, notes and other debt obligations either outright or as continuing security for any indebtedness or liability, direct or indirect, or obligation of the Company or of any other person; and |
| | (d) | mortgage, charge (whether by way of a specific or floating charge), grant a security interest in or give other security on the undertaking or on the whole or any part of the property and assets of the Company, both present and future. |
There are no age considerations pertaining to the retirement or non-retirement of directors.
A director is not required to hold a share in the capital of the Company as qualification for his office but shall be qualified as required by the BCBCA, to become or act as a director.
A director may hold any office or appointment with the Company (except as auditor of the Company) in conjunction with his office of director for such period and on such terms (as to remuneration or otherwise) as the Board may determine. The Company must reimburse each director for the reasonable expenses that he may incur in and about the business of the Company. If a director performs any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director or shall otherwise be specially occupied in or about the Company’s business, he may be paid remuneration to be fixed by the Board, or, at the option of such director, by ordinary resolution, and such remuneration may be either in addition to or in substitution for any other remuneration that he may be entitled to receive.
Subject to the provisions of the BCBCA, the Company may indemnify any person. The Company must, subject to the provisions of the BCBCA, indemnify a director, officer or alternate director or a former director, officer or alternate director of the Company or a person who, at the request of the Company, is or was a director, alternate director or officer of another corporation, at a time when the corporation is or was an affiliate of the Company or a person who, at the request of the Company, is or was, or holds or held a position equivalent to that of, a director, alternate director or officer of a partnership, trust, joint venture or other unincorporated entity (in each case, an "eligible party"), and the heirs and personal representatives of any such eligible party, against all judgments, penalties or fines awarded or imposed in, or an amount paid in settlement of, a legal proceeding or investigative action (whether current, threatened, pending or completed) in which such eligible party or any of the heirs and personal representatives of such eligible party, by reason of such eligible party being or having been a director, alternate director or officer or holding or having held a position equivalent to that of a director, alternate director or officer, is or may be joined as a party or is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to the proceeding.
All of the authorized common shares of the Company are of the same class and, once issued, rank equally as to dividends, voting powers, and participation in assets. Holders of common shares are entitled to one vote for each share held of record on all matters to be acted upon by the shareholders. Holders of common shares are entitled to receive such dividends as may be declared from time to time by the Board, in its discretion, out of funds legally available therefore.
Upon liquidation, dissolution or winding up of the Company, holders of common shares are entitled to receive pro rata the assets of the Company, if any, remaining after payments of all debts and liabilities. No shares have been issued subject to call or assessment. There are no pre-emptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, or sinking or purchase funds.
Provisions as to the modification, amendment or variation of such shareholder rights or provisions are contained in the BCBCA and the Articles. Unless the BCBCA or the Company's Articles otherwise provide, any action to be taken by a resolution of the shareholders may be taken by an ordinary resolution or by a vote of a majority or more of the shares represented at the shareholders' meeting.
The BCBCA contains provisions which require a "special resolution" for effecting certain corporate actions. Such a "special resolution" requires a two-thirds vote of shareholders rather than a simple majority for passage. The principle corporate actions that require a "special resolution" include:
| | a. | transferring the Company's jurisdiction from British Columbia to another jurisdiction; |
| | b. | giving financial assistance under certain circumstances; |
| | c. | certain conflicts of interest by directors; |
| | d. | disposing of all or substantially all of the Company's undertakings; |
| | e. | certain alterations of share capital; |
| | f. | altering any restrictions on the Company's business; and |
| | g. | certain reorganizations of the Company. |
There are no restrictions on the repurchase or redemption of common shares of the Company while there is any arrearage in the payment of dividends or sinking fund installments.
There is no liability to further capital calls by the Company.
There are no provisions discriminating against any existing or prospective holder of securities as a result of such shareholder owning a substantial number of shares.
No right or special right attached to issued shares may be prejudiced or interfered with unless the shareholders holding shares of the class or series of shares to which the right or special right is attached consent by a separate special resolution of those shareholders.
There are no limitations on the rights to own securities.
There is no provision of the Company’s Articles that would have an effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company (or any of its subsidiaries).
Shareholder ownership must be disclosed to Canadian securities administrators and the TSX by any shareholder who owns more than 10% of the Company’s outstanding common shares.
The Company has the following material contracts:
| | 1. | Equity Participation and Funding Agreement dated February 14, 2013 between Entrée Gold Inc. and Sandstorm Gold Ltd. See "Item 4. Information on the Company – B. Business Overview – Agreements with Sandstorm – Equity Participation and Funding Agreement" above. |
| | 2. | Joint Venture Agreement deemed effective June 30, 2008 between Entrée Gold Inc. and Ivanhoe Mines Mongolia Inc. XXK (now OTLLC). Pursuant to the Earn-In Agreement, a joint venture was deemed to be formed on June 30, 2008 and the parties were required to enter into a joint venture agreement in the form attached to the Earn-In Agreement as Appendix A (the "Joint Venture Agreement"). The Joint Venture Agreement contains provisions governing the parties’ activities on the Joint Venture Property, including exploration, acquisition of additional real property and other interests, evaluation of, and if justified, engaging in development and other operations, engaging in marketing products, and completing and satisfying all environmental compliance and other continuing obligations affecting the Joint Venture Property. |
| | 3. | Equity Participation and Earn-in Agreement dated October 15, 2004, between Entrée Gold Inc. and Ivanhoe Mines Ltd. (now Turquoise Hill), as amended on November 9, 2004 and subsequently assigned to Ivanhoe Mines Mongolia Inc. XXK (OTLLC) on March 1, 2005. Under the Earn-In Agreement, OTLLC earned a 70% interest in mineralization above a depth of 560 metres on the Joint Venture Property, and an 80% interest in mineralization below that depth, by spending an aggregate $35 million on exploration. OTLLC completed its earn-in on June 30, 2008, at which time a joint venture was deemed to be formed and the parties were required to enter into the Joint Venture Agreement. The Joint Venture Agreement was intended to replace the Earn-In Agreement, with the Earn-In Agreement terminating, except for certain provisions that expressly survive the termination. Those parts include provisions related to the Joint Venture Agreement, title, tenure and related matters and arbitration. |
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of the Company’s securities, except as discussed below under "Item 10. Additional Information – E. Taxation".
There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of "control" of the Company by a "non-Canadian". The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares of the Company. "Non-Canadian" generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.
Canadian Federal Income Tax Consequences
The following summarizes the principal Canadian federal income tax consequences applicable to the holding and disposition of common shares in the capital of the Company by a United States resident, and who holds common shares solely as capital property, referred to in this summary as a "U.S. Holder". This summary is based on the current provisions of the Income Tax Act (Canada) (the "Tax Act"), the regulations thereunder, all amendments thereto publicly proposed by the government of Canada, the published administrative practices of Revenue Canada, Customs, Excise and Taxation, and the current provisions of the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the "Canada-U.S. Tax Convention"). Except as otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign (including without limitation, any United States) tax law or treaty. It has been assumed that all currently proposed amendments will be enacted substantially as proposed and that there is no other relevant change in any governing law or practice, although no assurance can be given in these respects.
Each U.S. Holder is advised to obtain tax and legal advice applicable to such U.S. Holder’s particular circumstances.
Every U.S. Holder is liable to pay a Canadian withholding tax on every dividend that is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holder’s common shares. The statutory rate of withholding tax is 25% of the gross amount of the dividend paid. The Canada-U.S. Tax Convention reduces the statutory rate with respect to dividends paid to a U.S. Holder, if that U.S. Holder is eligible for benefits under the Canada-U.S. Tax Convention. Where applicable, the general rate of withholding tax under the Canada-U.S. Tax Convention is 15% of the gross amount of the dividend, but if the U.S. Holder is a company that owns at least 10% of the voting stock of the Company and beneficially owns the dividend, the rate of withholding tax is 5% for dividends paid or credited to such corporate U.S. Holder. The Company is required to withhold the applicable tax from the dividend payable to the U.S. Holder, and to remit the tax to the Receiver General of Canada for the account of the U. S. Holder.
A non-resident Holder generally will not be subject to tax under the Tax Act in respect of a capital gain realized on the disposition or deemed disposition of a common share unless the common share constitutes "taxable Canadian property" of the U.S. Holder for purposes of the Tax Act and the gain is not exempt from tax pursuant to the terms of the Canada-U.S. Tax Convention.
Provided that the common shares are listed on a "designated stock exchange" for purposes of the Tax Act (which currently includes the TSX) at the time of disposition, the common shares generally will not constitute "taxable Canadian property" of a U.S. Holder, unless at any time during the 60 month period immediately preceding the disposition: (i) the U.S. Holder, persons with whom the U.S. Holder did not deal at "arm’s length" for the purposes of the Tax Act, or the U.S. Holder together with all such persons, owned 25% or more of the issued shares of any class of the Company and; (ii) more than 50% of the fair market value of the common shares was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, "Canadian resource properties" (as defined in the Tax Act), "timber resource properties" (as defined in the Tax Act), or options in respect of, or interests in, or for civil law rights in, such property whether or not such property exists.
Certain withholding and reporting obligations will also generally apply in connection with the disposition of common shares by a U.S. Holder that constitutes, or are deemed to constitute, "taxable Canadian property" (and are not "treaty-protected property" as defined in the Tax Act).
U.S. Holders who may hold common shares as "taxable Canadian property" should consult their own tax advisors.
Certain United States Federal Income Tax Consequences
The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of common shares of the Company.
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of common shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of common shares. Except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.
No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the "IRS") has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Canada-U.S. Tax Convention, and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.
U.S. Holders
For purposes of this summary, the term "U.S. Holder" means a beneficial owner of common shares that is for U.S. federal income tax purposes:
| | · | an individual who is a citizen or resident of the U.S.; |
| | · | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S., any state thereof or the District of Columbia; |
| | · | an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
| | · | a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. |
Non-U.S. Holders
For purposes of this summary, a "non-U.S. Holder" is a beneficial owner of common shares that is not a U.S. Holder or is a partnership. This summary does not address the U.S. federal income tax consequences to non-U.S. Holders arising from and relating to the acquisition, ownership, and disposition of common shares. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences (including the potential application of and operation of any income tax treaties) relating to the acquisition, ownership, and disposition of common shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) have a "functional currency" other than the U.S. dollar; (e) own common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) acquired common shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) that hold common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); or (h) own or have owned (directly, indirectly, or by attribution) 10% or more of the total combined voting power of the outstanding shares of the Company. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Tax Act; (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold common shares in connection with carrying on a business in Canada; (d) persons whose common shares constitute "taxable Canadian property" under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.
If an entity or arrangement that is classified as a partnership (or "pass-through" entity) for U.S. federal income tax purposes holds common shares, the U.S. federal income tax consequences to such partnership and the partners of such partnership generally will depend on the activities of the partnership and the status of such partners (or owners). This summary does not address the tax consequences to any such partnership or partner. Partners of entities or arrangements that are classified as partnerships for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of common shares.
Passive Foreign Investment Company Rules
If the Company were to constitute a "passive foreign investment company" under the meaning of Section 1297 of the Code, or a "PFIC", as defined below, for any year during a U.S. Holder’s holding period, then certain different and potentially adverse rules will affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of common shares. In addition, in any year in which the Company is classified as a PFIC, such holder will be required to file an annual report with the IRS containing such information as Treasury Regulations or other IRS guidance may require. A failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621.
PFIC Status of the Company
The Company generally will be a PFIC if, for a tax year, (a) 75% or more of the gross income of the Company is passive income (the "income test"), or (b) 50% or more of the value of the Company’s assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the "asset test"). "Gross income" generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and "passive income" generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.
Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all (85% or more) of a foreign corporation’s commodities are stock in trade of such foreign corporation or other property of a kind which would properly be included in inventory of such foreign corporation, or property held by such foreign corporation primarily for sale to customers in the ordinary course of business and certain other requirements are satisfied.
For purposes of the PFIC income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and asset test described above, and assuming certain other requirements are met, "passive income" does not include certain interest, dividends, rents, or royalties that are received or accrued by the Company from certain "related persons" (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.
In addition, under certain attribution rules, if the Company is a PFIC, U.S. Holders will be deemed to own their proportionate share of the stock of any subsidiary of the Company that is also a PFIC, or a "Subsidiary PFIC", and will be subject to U.S. federal income tax on their proportionate share of, (a) a distribution on the stock of a Subsidiary PFIC, and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC.
The Company believes that it was classified as a PFIC during the tax year ended December 31, 2014, and may be a PFIC in future tax years. No opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC has been obtained or is currently planned to be requested. The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any determination made by the Company (or a Subsidiary PFIC) concerning its PFIC status. Each U.S. Holder should consult its own tax advisor regarding the PFIC status of the Company and any Subsidiary PFIC.
Default PFIC Rules Under Section 1291 of the Code
If the Company is a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of common shares will depend on whether such U.S. Holder makes an election to treat the Company and each Subsidiary PFIC, if any, as a "qualified electing fund" or "QEF" under Section 1295 of the Code, or a "QEF Election", or a mark-to-market election under Section 1296 of the Code, or a "Mark-to-Market Election". A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a "Non-Electing U.S. Holder".
A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code with respect to, (a) any gain recognized on the sale or other taxable disposition of common shares, and (b) any excess distribution received on our common shares. A distribution generally will be an "excess distribution" to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S. Holder’s holding period for our common shares, if shorter).
Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of common shares (including an indirect disposition of the stock of any Subsidiary PFIC), and any "excess distribution" received on common shares, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the respective common shares. The amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income. The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as "personal interest", which is not deductible.
If the Company is a PFIC for any tax year during which a Non-Electing U.S. Holder holds common shares, the Company will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether the Company ceases to be a PFIC in one or more subsequent tax years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above), but not loss, as if such common shares were sold on the last day of the last tax year for which the Company was a PFIC.
QEF Election
A U.S. Holder that makes a timely and effective QEF Election for the first tax year in which its holding period of its common shares begins generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to its common shares. A U.S. Holder that makes a timely and effective QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of, (a) the net capital gain of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of the Company, which will be taxed as ordinary income to such U.S. Holder. Generally, "net capital gain" is the excess of (i) net long-term capital gain over (ii net short-term capital loss, and "ordinary earnings" are the excess of (i) "earnings and profits" over (ii) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company. However, for any tax year in which the Company is a PFIC and has no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as "personal interest", which is not deductible.
A U.S. Holder that makes a timely and effective QEF Election with respect to the Company generally, (a) may receive a tax-free distribution from the Company to the extent that such distribution represents "earnings and profits" of the Company that were previously included in income by the U.S. Holder because of such QEF Election, and (b) will adjust such U.S. Holder’s tax basis in our common shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of common shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as "timely" if such QEF Election is made for the first year in the U.S. Holder’s holding period for our common shares in which the Company was a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year. If a U.S. Holder does not make a timely and effective QEF Election for the first year in the U.S. Holder’s holding period for our common shares, the U.S. Holder may still be able to make a timely and effective QEF Election in a subsequent year if such U.S. Holder also makes a "purging" election to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such common shares were sold for their fair market value on the day the QEF Election is effective.
A QEF Election will apply to the tax year for which such QEF Election is timely made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, the Company ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which the Company is not a PFIC. Accordingly, if the Company becomes a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which the Company qualifies as a PFIC.
U.S. Holders should be aware that there can be no assurance that the Company will satisfy record keeping requirements that apply to a QEF, or that the Company will supply U.S. Holders with information that such U.S. Holders require to report under the QEF rules, in event that the Company is a PFIC and a U.S. Holder wishes to make a QEF Election. Thus, U.S. Holders may not be able to make a QEF Election with respect to their common shares. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a QEF Election.
A U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed U.S. federal income tax return. However, if the Company does not provide the required information with regard to the Company or any of its Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such entity and will continue to be subject to the rules of Section 1291 of the Code discussed above that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess distributions.
Mark-to-Market Election
A U.S. Holder may make a Mark-to-Market Election only if the common shares are marketable stock. Our common shares generally will be "marketable stock" if our common shares are regularly traded on, (a) a national securities exchange that is registered with the SEC, (b) the national market system established pursuant to section 11A of the U.S. Exchange Act, or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that, (i) such foreign exchange has trading volume, listing, financial disclosure, and meets other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced, and (ii) the rules of such foreign exchange ensure active trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such stock generally will be "regularly traded" for any calendar year during which such stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter.
A U.S. Holder that makes a Mark-to-Market Election with respect to its common shares generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to such common shares. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax year of such U.S. Holder’s holding period for our common shares or such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, our common shares.
A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which the Company is a PFIC, an amount equal to the excess, if any, of (i) the fair market value of our common shares, as of the close of such tax year over (ii) such U.S. Holder’s tax basis in such common shares. A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (i) such U.S. Holder’s adjusted tax basis in our common shares, over (ii) the fair market value of such common shares (but only to the extent of the net amount of previously included income as a result of the Mark-to-Market Election for prior tax years).
A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder’s tax basis in our common shares to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition of common shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (i) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over (ii) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax years).
A U.S. Holder makes a Mark-to-Market Election by attaching a completed IRS Form 8621 to a timely filed U.S. federal income tax return. A Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless our common shares cease to be "marketable stock" or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a Mark-to-Market Election.
Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to our common shares, no such election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning, because such stock is not marketable. Hence, the Mark-to-Market Election will not be effective to eliminate the application of the default rules of Section 1291 of the Code described above with respect to deemed dispositions of Subsidiary PFIC stock or distributions from a Subsidiary PFIC.
Other PFIC Rules
Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of common shares that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which common shares are transferred.
Certain additional adverse rules will apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example under Section 1298(b)(6) of the Code, a U.S. Holder that uses common shares as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such common shares.
Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with their own tax advisor regarding the availability of the foreign tax credit with respect to distributions by a PFIC.
The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares.
Ownership and Disposition of common shares
The following discussion is subject to the rules described above under the heading "Passive Foreign Investment Company Rules".
Distributions on common shares
Subject to the PFIC rules discussed above, a U.S. Holder that receives a distribution, including a constructive distribution, with respect to our common shares will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current or accumulated "earnings and profits" of the Company, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the Company is a PFIC. To the extent that a distribution exceeds the current and accumulated "earnings and profits" of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder's tax basis in our common shares and thereafter as gain from the sale or exchange of such common shares. See "Sale or Other Taxable Disposition of common shares" below. However, the Company may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by the Company with respect to our common shares will constitute ordinary dividend income. Dividends received on common shares generally will not be eligible for the "dividends received deduction". Subject to applicable limitations and provided the Company is eligible for the benefits of the Canada-U.S. Tax Convention, dividends paid by the Company to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that the Company not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.
Sale or Other Taxable Disposition of common shares
Subject to the PFIC rules discussed above, upon the sale or other taxable disposition of common shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the amount of cash plus the fair market value of any property received and such U.S. Holder's tax basis in such common shares sold or otherwise disposed of. Subject to the PFIC rules discussed above, gain or loss recognized on such sale or other disposition generally will be long-term capital gain or loss if, at the time of the sale or other disposition, our common shares have been held for more than one year.
Preferential tax rates apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.
Additional Considerations
Additional Tax on Passive Income
Certain U.S. Holders that are individuals, estates or trusts (other than trusts that are exempt from tax) will be subject to a 3.8% tax on all or a portion of their "net investment income", which includes dividends on the common shares and net gains from the disposition of the common shares. Further, excess distributions treated as dividends, gains treated as excess distributions under the PFIC rules discussed above, and mark-to-market inclusions and deductions are all included in the calculation of net investment income.
Treasury Regulations provide, subject to the election described in the following paragraph, that solely for purposes of this additional tax, that distributions of previously taxed income will be treated as dividends and included in net investment income subject to the additional 3.8% tax. Additionally, to determine the amount of any capital gain from the sale or other taxable disposition of common shares that will be subject to the additional tax on net investment income, a U.S. Holder who has made a QEF Election will be required to recalculate its basis in the common shares excluding QEF basis adjustments.
Alternatively, a U.S. Holder may make an election which will be effective with respect to all interests in a PFIC for which a QEF Election has been made and which is held in that year or acquired in future years. Under this election, a U.S. Holder pays the additional 3.8% tax on QEF income inclusions and on gains calculated after giving effect to related tax basis adjustments. U.S. Holders that are individuals, estates or trusts should consult their own tax advisors regarding the applicability of this tax to any of their income or gains in respect of the common shares.
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of common shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on our common shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s "foreign source" taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either "foreign source" or "U.S. source". Generally, dividends paid by a foreign corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. However, the amount of a distribution with respect to our common shares that is treated as a "dividend" may be lower for U.S. federal income tax purposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.
Backup Withholding and Information Reporting
Under U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their common shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.
Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, common shares will generally be subject to information reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder, (a) fails to furnish such U.S.�� Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.
The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax, and under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules.
| F. | Dividends and Paying Agents |
Not Applicable.
Not Applicable.
We are subject to the informational requirements of the U.S. Exchange Act and file reports and other information with the SEC. You may read and copy any of our reports and other information at, and obtain copies upon payment of prescribed fees from, the Public Reference Room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. In addition, the SEC maintains a Website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We are required to file reports and other information with the securities commissions in Canada. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the provincial securities commissions. These filings are also electronically available from the Canadian System for Electronic Document Analysis and Retrieval ("SEDAR") (www.sedar.com), the Canadian equivalent of the SEC's electronic document gathering and retrieval system.
We "incorporate by reference" information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this Form 20-F and more recent information automatically updates and supersedes more dated information contained or incorporated by reference in this Form 20-F.
As a foreign private issuer, we are exempt from the rules under the U.S. Exchange Act prescribing the furnishing and content of proxy statements to shareholders.
We will provide without charge to each person, including any beneficial owner, to whom a copy of this Annual Report has been delivered, on the written or oral request of such person, a copy of any or all documents referred to above which have been or may be incorporated by reference in this Annual Report (not including exhibits to such incorporated information that are not specifically incorporated by reference into such information). Requests for such copies should be directed to us at the following address: Suite 1201 - 1166 Alberni Street, Vancouver, British Columbia, Canada V6E 3Z3. The Company is required to file financial statements and other information with the Securities Commission in each of the Provinces of Canada, except Quebec, electronically through SEDAR which can be viewed at www.sedar.com.
Not Applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, and accounts receivable. The Company deposits the majority of its cash and cash equivalents with high credit quality financial institutions in Canada, Australia and the United States and holds limited balances in banks in Mongolia, Peru, China and Barbados as required to meet current expenditures. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Company’s maximum exposure to credit risk.
The carrying amount of accounts receivable, accounts payable and accrued liabilities and due to and from related parties approximates fair value due to the short term of these financial instruments.
The Company operates in a number of countries, including Canada, the United States, Mongolia and Australia, and it is therefore exposed to foreign exchange risk arising from transactions denominated in a foreign currency.
The Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are held in several currencies (mainly Canadian Dollars, U.S. Dollars and Australian Dollars). Such foreign currency balances are subject to fluctuation against the Canadian Dollar and the U.S. Dollar, being the Company’s reporting currency.
The Company was exposed to foreign exchange gains and losses on the following balances, as at December 31, 2014 and 2013:
2014 | |
| (in thousands) | |
| | | US Dollars | | | Australian Dollars | | | Peruvian Nuevo Sol | | | Chinese Yuan | | | Mongolian Tugriks | |
| Cash and cash equivalents | | | 31,052 | | | | 1,084 | | | | (97 | ) | | | 28 | | | | 87,976 | |
| Other | | | 312 | | | | 13 | | | | - | | | | - | | | | 43,624 | |
| Accounts payable and accrued liabilities | | | (1,556 | ) | | | (95 | ) | | | - | | | | - | | | | (122 | ) |
| Net balance | | | 29,808 | | | | 1,002 | | | | (97 | ) | | | 28 | | | | 131,478 | |
| Equivalent in Canadian Dollars | | | 34,580 | | | | 950 | | | | (38 | ) | | | 5 | | | | 81 | |
| Rate to convert to C$ | | | 1.1601 | | | | 0.9479 | | | | 0.3898 | | | | 0.1869 | | | | 0.0006144 | |
2013 | |
| (in thousands) | |
| | | US Dollars | | | Australian Dollars | | | Peruvian Nuevo Sol | | | Chinese Yuan | | | Mongolian Tugriks | |
| Cash and cash equivalents | | | 39,551 | | | | 1,306 | | | | - | | | | 28 | | | | 60,280 | |
| Other | | | 184 | | | | 12 | | | | - | | | | - | | | | 223,087 | |
| Accounts payable and accrued liabilities | | | (260 | ) | | | (47 | ) | | | (16 | ) | | | - | | | | (11,189 | ) |
| Net balance | | | 39,475 | | | | 1,271 | | | | (16 | ) | | | 28 | | | | 272,178 | |
| Equivalent in Canadian Dollars | | | 41,986 | | | | 1,207 | | | | (6 | ) | | | 5 | | | | 175 | |
| Rate to convert to C$ | | | 1.0636 | | | | 0.9496 | | | | 0.3803 | | | | 0.1757 | | | | 0.0006415 | |
Based on the above net exposures as at December 31, 2014, and assuming that all other variables remain constant, a 10% depreciation or appreciation of the U.S. dollar against the Canadian dollar would result in an increase/decrease of $2,980,794 (2013 - $3,947,492) in the Company’s net loss.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s interest rate risk mainly arises from the interest rate impact on the cash and cash equivalents. Cash and cash equivalents earn interest based on current market interest rates, which at December 31, 2014 ranged between 0.04% and 1.75%.
Based on the amount of cash and cash equivalents invested at December 31, 2014, and assuming that all other variables remain constant, a 10% change in the applicable interest rate would result in an increase/decrease of $14,470 in the interest earned by the Company per annum.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages its liquidity risk by forecasting cash flows required by operations and anticipated investing and financing activities. The Company had cash at December 31, 2014 in the amount of $34 million in order to meet short-term business requirements. At December 31, 2014, the Company had current liabilities of $2 million which are due on demand or within 30 days.
Item 12. Description of Securities Other than Equity Securities
A. – C.
Not Applicable.
D. American Depository Receipts
The Company does not have securities registered as American Depository Receipts.
PART II.
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
A.-D.
None.
E. Use of Proceeds
Not Applicable.
Item 15. Controls and Procedures
| A. | Disclosure Controls and Procedures |
An evaluation was performed under the supervision and with the participation of the Company’s Audit Committee and management, including the Company’s CEO and the Company’s CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15(b) and 15d-15(b) of the U.S. Exchange Act as of December 31, 2014. Based on their evaluation, the Company’s CEO and CFO have concluded that the disclosure controls and procedures were effective to give reasonable assurance that the information required to be disclosed by the Company in reports that it files or submits under the U.S. Exchange Act is, (a) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (b) accumulated and communicated to management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
| B. | Management’s Annual Report on Internal Control Over Financial Reporting |
The Company’s management, including the Company’s CEO and CFO, is responsible for establishing and maintaining adequate internal control over the Company’s internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the U.S. Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP. The Company’s internal control over financial reporting includes policies and procedures that: pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions and disposition of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with U.S. GAAP and that receipts and expenditures are being made only in accordance with authorization of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.
Because of their inherent limitations, internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management (with the participation of the CEO and the CFO) conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. This evaluation was based on the criteria set forth in the original 1992 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management has concluded that the Company’s internal control over financial reporting was effective as at December 31, 2014, and management’s assessment did not identify any material weaknesses.
| C. | Attestation Report of the Registered Public Accounting Firm |
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which permits the company to provide only management’s report in this Annual Report. The Dodd-Frank Act permits a "non-accelerated filer" to provide only management’s report on internal control over financial reporting in an Annual Report and omit an attestation report of the issuer’s registered public accounting firm regarding management’s report on internal control over financial reporting.
| D. | Changes in Internal Control Over Financial Reporting |
Based upon their evaluation of our controls, our CEO and CFO have concluded that there were no significant changes in our internal control over financial reporting or in other factors during our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
The Company’s Board has determined that Gorden Glenn qualifies as a financial expert (as defined in Item 407(d)(5) of Regulation S-K under the U.S. Exchange Act), is financially sophisticated (as determined in accordance with Section 803B(2)(iii) of the NYSE MKT Company Guide), and is independent (as determined under U.S. Exchange Act Rule 10A-3 and section 803A of the NYSE MKT Company Guide).
Item 16B. Code of Ethics
The Company is committed to the highest standards of legal and ethical business conduct. The Company has the Code, which applies to all of its directors, officers and employees, including the CEO and CFO. This Code summarizes the legal, ethical and regulatory standards that the Company must follow and serves as a reminder to the directors, officers and employees of the seriousness of that commitment. Compliance with this Code and high standards of business conduct is mandatory for every director, officer and employee of the Company. The Code meets the requirements for a "code of ethics" within the meaning of that term in Form 20-F.
A copy of the Code in full text is available on the Company’s website at www.entreegold.com and in print to any shareholder who requests it. All required substantive amendments to the code, and all waivers of the code with respect to any of the officers covered by it, will be posted on the Company’s website at www.entreegold.com within five business days of the amendment or waiver, and provided in print to any shareholder who requests them.
During the fiscal year ended December 31, 2014, the Company did not substantively amend, waive or implicitly waive any provision of the Code with respect to any of the directors, officers or employees subject to it.
Item 16C. Principal Accountant Fees and Services
The following table shows the aggregate fees billed to the Company by Davidson & Company LLP and its affiliates, Chartered Accountants, the Company’s independent registered public auditing firm, in each of the last two years.
| | 2014 (US$) | 2013 (US$) |
Audit Fees(1) | $51,720 | $79,917 |
Audit Related Fees(2) | $19,393 | $20,860 |
Tax Fees(3) | $Nil | $Nil |
| All other fees | $Nil | $Nil |
| Total: | $71,113 | $100,777 |
| (1) | Audits of the Company’s consolidated financial statements, meetings with the Audit Committee and management with respect to annual filings, consulting and accounting standards and transactions, issuance of consent in connection with Canadian and United States securities filings. |
| (2) | Audit-related fees paid for assurance and related services by the auditors that were reasonably related to the performance of the audit or the review of the Company’s quarterly financial statements that are not included in Audit Fees. |
| (3) | Tax compliance, taxation advice and tax planning for international operations. |
Pre-Approval of Audit and Non-Audit Services Provided by Independent Auditors
The Audit Committee pre-approves all audit services to be provided to the Company by its independent auditors. Non-audit services that are prohibited to be provided to the Company by its independent auditors may not be pre-approved. In addition, prior to the granting of any pre-approval, the Audit Committee must be satisfied that the performance of the services in question will not compromise the independence of the independent auditors. There were no non-audit services performed by the Company’s auditor for the fiscal year ended December 31, 2014.
Item 16D. Exemptions from the Listing Standards for Audit Committees
None.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F. Changes in Registrant’s Certifying Accountant
None.
Item 16G. Corporate Governance
The Company’s common shares are listed on the NYSE MKT. Section 110 of the NYSE MKT Company Guide permits the NYSE MKT to consider the laws, customs and practices of foreign issuers in relaxing certain NYSE MKT listing criteria, and to grant exemptions from NYSE MKT listing criteria based on these considerations.
In addition, the Company may from time-to-time seek relief from NYSE MKT corporate governance requirements on specific transactions under Section 110 of the NYSE MKT Company Guide by providing written certification from independent local counsel that the non-complying practice is not prohibited by our home country law, in which case, the Company shall make the disclosure of such transactions available on its website at www.entreegold.com and/or in its Annual Report. Information contained on the Company’s website is not part of this Annual Report.
A description of the significant ways in which the Company’s governance practices differ from those followed by domestic companies pursuant to NYSE MKT standards is as follows:
Shareholder Meeting Quorum Requirement: The NYSE MKT minimum quorum requirement for a shareholder meeting is one-third of the outstanding shares of common stock. In addition, a company listed on the NYSE MKT is required to state its quorum requirement in its bylaws. The Company’s quorum requirement is set forth in its Articles. A quorum for a meeting of shareholders of the Company is two persons who are, or who represent by proxy, shareholders who, in the aggregate, hold at least 5% of the shares entitled to be voted at the meeting.
Proxy Delivery Requirement: The NYSE MKT requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings, and requires that these proxies shall be solicited pursuant to a proxy statement that conforms to SEC proxy rules. The Company is a "foreign private issuer" as defined in Rule 3b-4 under the U.S. Exchange Act, and the equity securities of the Company are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the U.S. Exchange Act. The Company solicits proxies in accordance with applicable rules and regulations in Canada.
Shareholder Approval of Certain Transactions: The NYSE MKT Company Guide requires shareholder approval in connection with the establishment of an equity compensation arrangement pursuant to which options or stock may be acquired by officers, directors, employees, or consultants of a company. The Company will follow the shareholder approval requirements of the TSX in connection with the establishment of equity compensation arrangements pursuant to which its officers, directors, employees, or consultants may acquire options or common shares.
Compensation Committee Requirements: The NYSE MKT Company Guide requires that additional independence criteria be applied to each member of the Compensation Committee. The NYSE MKT Company Guide also mandates that the Compensation Committee must have the authority to hire compensation consultants, independent legal counsel and other compensation advisors and exercise the sole responsibility to oversee the work of any compensation advisors retained to advise the Compensation Committee. In addition, before engaging a compensation advisor, the Compensation Committee must consider at least six factors that could potentially impact compensation advisor independence. The Company follows CSA and TSX requirements for Compensation Committee charters, independence and authority. The Compensation Committee’s Charter includes a requirement that each member of the Compensation Committee be independent and that the Compensation Committee have the authority to retain outside advisors and determine the extent of funding necessary for payment of consultants.
The foregoing are consistent with the laws, customs and practices in Canada.
Item 16H. Mine Safety Disclosure.
Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities with respect to mining operations and properties in the United States that are subject to regulation by the Federal Mine Safety and Health Administration ("MSHA") under the Federal Mine Safety and Health Act of 1977 (the "Mine Act"). During the year ended December 31, 2014, the Company had no mines in the United States that were subject to regulation by the MSHA under the Mine Act.
PART III.
Item 17. Financial Statements
See "Item 18 – Financial Statements".
Item 18. Financial Statements
The Company’s financial statements are stated in U.S. Dollars and are prepared in accordance with U.S. GAAP.
The following financial statements pertaining to the Company are filed as part of this Annual Report:
| | · | Independent Registered Public Accounting Firm’s Report on Consolidated Financial Statements; |
| | · | Consolidated Balance Sheets as of December 31, 2014 and 2013; |
| | · | Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2014, 2013 and 2012; |
| | · | Consolidated Statement of Stockholders’ Equity, including Balances as of December 31, 2011, December 31, 2012, December 31, 2013 and December 31, 2014; |
| | · | Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012; and |
| | · | Notes to Consolidated Financial Statements for the years ended December 31, 2014, 2013 and 2012. |
