Exhibit 99.2
LAKE SHORE GOLD CORP.
Condensed Consolidated Interim Financial Statements
(September 30, 2014 and 2013)
(unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of Canadian dollars, unaudited )
As at | | Note | | September 30, 2014 | | December 31, 2013 | |
| | | | | | | |
Assets | | | | | | | |
Current assets | | | | | | | |
Cash and cash equivalents | | | | $ | 62,190 | | $ | 33,120 | |
Receivables and prepaids | | | | 2,993 | | 3,589 | |
Inventories and stockpiled ore | | 6 | | 23,164 | | 20,378 | |
| | | | 88,347 | | 57,087 | |
Non-current assets | | | | | | | |
Available for sale financial assets | | | | 1,820 | | 416 | |
Investments in associates | | 7 | | 897 | | 1,749 | |
Restricted cash | | | | 7,343 | | 7,095 | |
Mining interests | | 8 | | 526,852 | | 531,585 | |
| | | | $ | 625,259 | | $ | 597,932 | |
| | | | | | | |
Liabilities | | | | | | | |
Current liabilities | | | | | | | |
Accounts payable and accrued liabilities | | | | $ | 23,330 | | $ | 21,619 | |
Current portion of finance lease obligations | | | | 7,500 | | 3,446 | |
Current portion of long term debt | | 9 | | 13,460 | | 13,339 | |
Deferred premium on flow-through shares | | 10(a) | | 783 | | — | |
| | | | 45,073 | | 38,404 | |
Non-current liabilities | | | | | | | |
Finance lease obligations | | | | 8,018 | | 6,150 | |
Long term debt | | 9 | | 101,820 | | 116,686 | |
Share-based liabilities | | | | 2,533 | | 754 | |
Environmental rehabilitation provision | | | | 5,374 | | 4,770 | |
| | | | 117,745 | | 128,360 | |
| | | | | | | |
Equity | | 10 | | | | | |
Share capital | | | | 1,022,041 | | 1,017,262 | |
Equity portion of convertible debentures | | | | 14,753 | | 14,753 | |
Reserves | | | | 32,166 | | 31,388 | |
Deficit | | | | (606,519 | ) | (632,235 | ) |
| | | | 462,441 | | 431,168 | |
| | | | $ | 625,259 | | $ | 597,932 | |
Commitments and contractual obligations note 10(a)
See accompanying notes to the condensed consolidated interim financial statements
Approved by the Board | | |
| | |
[signed Alan Moon] | | [signed Arnold Klassen] |
| | |
Alan Moon | | Arnold Klassen |
Director, Chair of the Board of Directors | | Director, Chair of the Audit Committee |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands of Canadian dollars, except per share amounts, unaudited)
| | | | Three months ended
September 30, | | Nine months ended
September 30, | |
| | Note | | 2014 | | 2013 | | 2014 | | 2013 | |
| | | | | | | | | | | |
Revenue | | | | $ | 63,514 | | $ | 44,301 | | $ | 200,064 | | $ | 126,833 | |
Production costs | | 3 | | (29,554 | ) | (23,428 | ) | (91,625 | ) | (75,539 | ) |
Depletion and depreciation | | | | (17,816 | ) | (13,319 | ) | (55,614 | ) | (38,083 | ) |
Earnings from mine operations | | | | 16,144 | | 7,554 | | 52,825 | | 13,211 | |
| | | | | | | | | | | |
Expenses | | | | | | | | | | | |
General and administrative | | | | (3,281 | ) | (2,823 | ) | (10,967 | ) | (8,711 | ) |
Exploration and evalution | | | | (404 | ) | (239 | ) | (851 | ) | (1,013 | ) |
Share of loss of investments in associates | | 7 | | (172 | ) | (411 | ) | (554 | ) | (962 | ) |
Write down of investments in associates | | 7 | | — | | (619 | ) | — | | (3,572 | ) |
Earnings (loss) from operations and associates | | | | 12,287 | | 3,462 | | 40,453 | | (1,047 | ) |
Other income (loss), net | | 4 | | 126 | | (1,685 | ) | (409 | ) | 6,963 | |
| | | | | | | | | | | |
Finance items | | 5 | | | | | | | | | |
Finance income | | | | 168 | | 194 | | 369 | | 652 | |
Finance expense | | | | (4,692 | ) | (3,689 | ) | (14,697 | ) | (10,042 | ) |
Earnings (loss) from continuing operations | | | | 7,889 | | (1,718 | ) | 25,716 | | (3,474 | ) |
Loss from discontinued operations | | 7(i) | | — | | — | | — | | (4,302 | ) |
Net earnings (loss) | | | | $ | 7,889 | | $ | (1,718 | ) | $ | 25,716 | | $ | (7,776 | ) |
| | | | | | | | | | | |
Other comprehensive income (loss) | | | | | | | | | | | |
Items that may be reclassified subsequently to profit or loss | | | | | | | | | | | |
Other comprehensive loss from continuing operations, net of tax | | | | | | | | | | | |
Unrealized gain on available for sale investments | | | | 206 | | 519 | | 68 | | 2,068 | |
Other comprehensive income from discontinued operations | | | | | | | | | | | |
Exchange differences on translation of foreign operations | | 7(i) | | — | | — | | — | | 3,967 | |
Comprehensive income (loss) from continuing operations | | | | $ | 8,095 | | $ | (1,199 | ) | $ | 25,784 | | $ | (1,406 | ) |
Comprehensive loss from discontinued operations | | | | — | | — | | — | | (335 | ) |
Total comprehensive income (loss) | | | | $ | 8,095 | | $ | (1,199 | ) | $ | 25,784 | | $ | (1,741 | ) |
| | | | | | | | | | | |
Basic and diluted income (loss) per share | | 10(c) | | | | | | | | | |
Income (loss) per share from continuing operations | | | | $ | 0.02 | | $ | 0.00 | | $ | 0.06 | | $ | (0.01 | ) |
Income (loss) per share | | | | $ | 0.02 | | $ | 0.00 | | $ | 0.06 | | $ | (0.02 | ) |
| | | | | | | | | | | |
Weighted average number of common shares outstanding (in 000’s) note 10(c) | | | | | | | | | | | |
Basic | | | | 422,342 | | 416,620 | | 419,367 | | 416,507 | |
Diluted | | | | 428,673 | | 416,620 | | 423,919 | | 416,507 | |
See accompanying notes to the condensed consolidated interim financial statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars, unaudited)
| | | | Three months ended September 30, | | Nine months ended September 30, | |
| | Note | | 2014 | | 2013 | | 2014 | | 2013 | |
| | | | | | | | | | | |
Operating Activities | | | | | | | | | | | |
| | | | | | | | | | | |
Net earnings (loss) form continuing operations | | | | $ | 7,889 | | $ | (1,718 | ) | $ | 25,716 | | $ | (3,474 | ) |
Add (Deduct): | | | | | | | | | | | |
Depletion and depreciation | | | | 17,816 | | 13,345 | | 55,614 | | 38,176 | |
Share-based payments expense note 10(b(ii)) | | | | 874 | | 412 | | 2,676 | | 1,647 | |
Share of loss of investments in associates | | | | 172 | | 411 | | 554 | | 962 | |
Write down of investments in associates | | | | — | | 619 | | — | | 3,572 | |
Other loss (income), net | | | | (126 | ) | 1,685 | | 409 | | (6,963 | ) |
Finance income | | | | (168 | ) | (194 | ) | (369 | ) | (652 | ) |
Interest received | | | | 199 | | 64 | | 362 | | 152 | |
Finance expense | | | | 4,692 | | 3,689 | | 14,697 | | 10,042 | |
Interest paid | | | | (3,743 | ) | (4,141 | ) | (8,368 | ) | (9,259 | ) |
Change in non-cash operating working capital | | 11 | | 763 | | (1,637 | ) | (1,169 | ) | 2,187 | |
Net cash flow provided by operating activities | | | | 28,368 | | 12,535 | | 90,122 | | 36,390 | |
Net cash flow used in discontinued operating activities | | | | — | | — | | — | | — | |
| | | | | | | | | | | |
Investing Activities | | | | | | | | | | | |
Additions to mining interests, including movements in working capital | | | | (13,963 | ) | (17,362 | ) | (40,748 | ) | (87,686 | ) |
Restricted cash | | | | — | | — | | (248 | ) | — | |
Proceeds from sale of mining interests | | | | — | | — | | — | | 200 | |
Net cash flow used in investing activities | | | | (13,963 | ) | (17,362 | ) | (40,996 | ) | (87,486 | ) |
| | | | | | | | | | | |
Financing Activities | | | | | | | | | | | |
| | | | | | | | | | | |
Long term debt payments | | 9(a) | | (3,948 | ) | (3,999 | ) | (21,988 | ) | (12,670 | ) |
Payment of finance lease obligations | | | | (1,612 | ) | (995 | ) | (3,530 | ) | (5,271 | ) |
Common shares issued for cash (net of share issue costs) | | 10(a) | | — | | — | | 4,961 | | — | |
Exercise of stock options | | | | 286 | | — | | 481 | | 23 | |
Proceeds from long term debt, net of transaction costs | | | | — | | — | | — | | 34,927 | |
| | | | | | | | | | | |
Net cash (used in) provided by financing activities | | | | (5,274 | ) | (4,994 | ) | (20,076 | ) | 17,009 | |
| | | | | | | | | | | |
Impact of foreign exchange on cash balances | | | | 26 | | (50 | ) | 20 | | 118 | |
| | | | | | | | | | | |
Increase (decrease) in cash and cash equivalents during the period | | | | $ | 9,157 | | $ | (9,871 | ) | $ | 29,070 | | $ | (33,969 | ) |
Cash and cash equivalents at beginning of period | | | | 53,033 | | 24,617 | | 33,120 | | 48,715 | |
Cash and cash equivalents at end of period | | | | $ | 62,190 | | $ | 14,746 | | $ | 62,190 | | $ | 14,746 | |
Supplemental cash flow information note 11
See accompanying notes to the condensed consolidated interim financial statements
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands of Canadian dollars, except for share information, unaudited)
| | | | Share capital | | Equity | | Reserves | | | | | |
| | Note | | Shares (‘000s) | | Amount | | portion of
convertible
debentures | | Warrants | | Share-based
payments | | Investment
revaluation
reserve | | Deficit | | Equity | |
At January 1, 2014 | | | | 416,620 | | $ | 1,017,262 | | $ | 14,753 | | $ | 2,469 | | $ | 28,682 | | $ | 237 | | $ | (632,235 | ) | $ | 431,168 | |
Shares issued as part of various agreements | | 8 | | 50 | | 45 | | — | | — | | — | | — | | — | | 45 | |
Flow through shares issued | | 10(a) | | 5,300 | | 4,077 | | — | | — | | — | | — | | — | | 4,077 | |
Share based payments | | 10(b(ii)) | | — | | — | | — | | — | | 887 | | — | | — | | 887 | |
Stock-options exercised (including transfer from reserves of $177) | | | | 553 | | 657 | | — | | — | | (177 | ) | — | | — | | 480 | |
Net income and comprehensive income | | | | — | | — | | — | | — | | — | | — | | 25,716 | | 25,716 | |
Other comprehensive loss, net of tax | | | | — | | — | | — | | — | | — | | 68 | | — | | 68 | |
Total comprehensive income | | | | | | | | | | | | | | 68 | | 25,716 | | 25,784 | |
At September 30, 2014 | | | | 422,523 | | $ | 1,022,041 | | $ | 14,753 | | $ | 2,469 | | $ | 29,392 | | $ | 305 | | $ | (606,519 | ) | $ | 462,441 | |
| | | | Share capital | | | | Reserves | | | | | |
| | Note | | Shares
(‘000s) | | Amount | | Equity portion of
convertible
debentures | | Warrants | | Share-based
payments | | Currency
translation
adjustment | | Investment
revaluation
reserve | | Deficit | | Equity | |
At January 1, 2013 | | | | 415,654 | | $ | 1,016,524 | | $ | 14,753 | | $ | 2,469 | | $ | 26,259 | | $ | (3,967 | ) | $ | (1,549 | ) | $ | (398,766 | ) | $ | 655,723 | |
Shares issued as part of various agreements (net of share issue costs of $30) | | | | 936 | | 702 | | — | | — | | — | | — | | — | | — | | 702 | |
Share based payments | | 10(b(ii)) | | — | | — | | — | | — | | 1,652 | | — | | — | | — | | 1,652 | |
Stock-options exercised (including transfer from reserves of $13) | | | | 30 | | 36 | | — | | — | | (13 | ) | — | | — | | — | | 23 | |
Net loss | | | | — | | — | | — | | — | | — | | — | | — | | $ | (7,776 | ) | (7,776 | ) |
Other comprehensive income, net of tax | | | | — | | — | | — | | — | | — | | 3,967 | | 2,068 | | — | | 6,035 | |
Total comprehensive loss | | | | | | | | | | | | | | 3,967 | | 2,068 | | (7,776 | ) | (1,741 | ) |
At September 30, 2013 | | | | 416,620 | | $ | 1,017,262 | | $ | 14,753 | | $ | 2,469 | | $ | 27,898 | | $ | — | | $ | 519 | | $ | (406,542 | ) | $ | 656,359 | |
Share based payments | | | | — | | — | | — | | — | | 784 | | — | | — | | — | | 784 | |
Net loss | | | | — | | — | | — | | — | | — | | — | | — | | $ | (225,693 | ) | (225,693 | ) |
Other comprehensive income, net of tax | | | | — | | — | | — | | — | | — | | — | | (282 | ) | — | | (282 | ) |
Total comprehensive loss | | | | | | | | | | | | 784 | | — | | (282 | ) | (225,693 | ) | (225,191 | ) |
At December 31, 2013 | | | | 416,620 | | $ | 1,017,262 | | $ | 14,753 | | $ | 2,469 | | $ | 28,682 | | $ | — | | $ | 237 | | $ | (632,235 | ) | $ | 431,168 | |
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Lake Shore Gold Corp. (“Lake Shore Gold” or the “Company”) is a publicly listed company, incorporated in Canada; the Company’s shares are traded on the Toronto Stock Exchange and on the NYSE MKT stock exchange. The head office, principal address and record office are located at 181 University Avenue, Suite 2000, Toronto, Ontario, Canada, M5H 3M7. The Company is primarily engaged in the operation, exploration and development of three gold complexes located in the Timmins Gold Camp in Timmins, Ontario; the Company also has certain exploration properties in Quebec. The Company is in commercial production at its Timmins West Mine and Bell Creek Mine.
2. BASIS OF PREPARATION
The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”), and follow the same accounting policies and methods of application as the annual consolidated financial statements of the Company for the year ended December 31, 2013, except as noted below under changes in accounting policies. These condensed consolidated interim financial statements do not contain all disclosures required by IFRS and accordingly should be read in conjunction with the 2013 annual consolidated financial statements and the notes thereto. The condensed consolidated interim financial statements were approved by the Board of Directors of the Company on October 29, 2014.
These condensed consolidated interim financial statements have been prepared under the historical cost convention, except for certain financial instruments, as set out in the accounting policies in note 3 of the 2013 annual consolidated financial statements.
The preparation of financial statements in accordance with IAS 34 requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the condensed consolidated interim financial statements, are disclosed in note 4 of the 2013 annual consolidated financial statements.
CHANGES IN ACCOUNTING POLICIES
The Company has adopted the following new standards, along with any consequential amendments, effective January 1, 2014. These changes were made in accordance with the applicable transitional provisions.
IAS 32, Financial instruments: presentation
IAS 32, Financial instruments: presentation (“IAS 32”) was amended by the IASB in December 2011. The amendment clarifies that an entity has a legally enforceable right to offset financial assets and financial liabilities if that right is not contingent on a future event and it is enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties. The amendment to IAS 32 is effective for annual periods beginning on or after January 1, 2014. The amendment to the standard did not have any impact on the Company’s condensed consolidated interim financial statements.
1
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
IAS 36, Impairment of assets
IAS 36, Impairment of assets (“IAS 36”) was amended by the IASB in May 2013. The amendments require the disclosure of the recoverable amount of impaired assets when an impairment loss has been recognized or reversed during the period and additional disclosures about the measurement of the recoverable amount of impaired assets when the recoverable amount is based on fair value less costs of disposal, including the discount rate when a present value technique is used to measure the recoverable amount. The amendments to IAS 36 are effective for annual periods beginning on or after January 1, 2014. The amendments to the standard did not have any impact on the Company’s condensed consolidated interim financial statements.
IAS 39, Financial instruments: recognition and measurement
IAS 39, Financial instruments: recognition and measurement (“IAS 39”) was amended by the IASB in June 2013. The amendments clarify that novation of a hedging derivative to a clearing counterparty as a consequence of laws or regulations or the introduction of laws or regulations does not terminate hedge accounting. The amendments to IAS 39 are effective for annual periods beginning on or after January 1, 2014. The amendments to the standard did not have any impact on the Company’s condensed consolidated interim financial statements.
IFRIC 21, Levies
IFRIC 21, Levies (“IFRIC 21”) was issued in May 2013 and is an interpretation of IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The interpretation clarifies the obligating event that gives rise to a liability to pay a levy. IFRIC 21 was effective for periods beginning on or after January 1, 2014. IFRIC 21 did not have a significant impact on the Company’s condensed consolidated interim financial statements.
ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE
Amendments to IFRS 2, Share-based Payments
In the second quarter of 2014, the IASB issued Amendments to IFRS 2, Share-based Payments. The amendments change the definitions of “vesting condition” and “market condition” in the Standard, and add definitions for “performance condition” and “service condition”. They also clarify that any failure to complete a specified service period, even due to the termination of an employee’s employment or a voluntary departure, would result in a failure to satisfy a service condition. This would result in the reversal, in the current period, of compensation expense previously recorded reflecting the fact that the employee failed to complete a specified service condition. These amendments are effective for transactions with a grant date on or after July 1, 2014. These amendments had no impact on the Company’s condensed consolidated financial statements.
Amendments to IFRS 3, Business Combinations (contingent consideration)
In the second quarter of 2014, the IASB issued Amendments to IFRS 3, Business Combinations. The amendments clarify the guidance in respect of the initial classification requirements and subsequent measurement of contingent consideration. This will result in the need to measure the contingent consideration at fair value at each reporting date, irrespective of whether it is a financial instrument or a non-financial asset or liability. Changes in fair value will need to be recognized in profit and loss. These amendments are effective for transactions with acquisition dates on or after July 1, 2014. These amendments had no impact on the Company’s condensed consolidated financial statements.
2
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
IFRS 15, Revenue from Contracts and Customers
IFRS 15, Revenue from Contracts and Customers (“IFRS 15”) was issued by the IASB on May 28, 2014, and will replace IAS 18, Revenue, IAS 11, Construction Contracts, and related interpretations on revenue. IFRS 15 sets out the requirements for recognizing revenue that apply to all contracts with customers, except for contracts that are within the scope of the Standards on leases, insurance contracts and financial instruments. IFRS 15 uses a control based approach to recognize revenue which is a change from the risk and reward approach under the current standard. Companies can elect to use either a full or modified retrospective approach when adopting this standard and it is effective for annual periods beginning on or after January 1, 2017. The Company is currently evaluating the impact of IFRS 15 on its consolidated financial statements.
IFRS 9, Financial Instruments
IFRS 9, Financial Instruments (“IFRS 9”) was issued by the IASB on July 24, 2014, and will replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Two measurement categories continue to exist to account for financial liabilities in IFRS 9; fair value through profit or loss (“FVTPL”) and amortized cost. Financial liabilities held-for-trading are measured at FVTPL, and all other financial liabilities are measured at amortized cost unless the fair value option is applied. The treatment of embedded derivatives under the new standard is consistent with IAS 39 and is applied to financial liabilities and non-derivative host contracts not within the scope of this standard. The effective date for this standard is for annual periods beginning on or after January 1, 2018. The Company is currently evaluating the impact of IFRS 9 on its consolidated financial statements.
Amendments to IAS 16, Property, Plant and Equipment, and IAS 38, Intangible Assets: Clarification of Acceptable Methods of Depreciation and Amortization
On May 12, 2014, the IASB issued Amendments to IAS 16, Property, Plant and Equipment, and IAS 38, Intangible Assets. In issuing the amendments, the IASB has clarified that the use of revenue-based methods to calculate the depreciation of a tangible asset is not appropriate because revenue generated by an activity that includes the use of a tangible asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB has also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption for an intangible asset, however, can be rebutted in certain limited circumstances. The standard is to be applied prospectively for fiscal years beginning on or after January 1, 2016 with early application permitted. The Company is currently evaluating the impact of these amendments on its consolidated financial statements.
3
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
3. PRODUCTION COSTS
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
Raw materials and consumables | | $ | 13,463 | | $ | 9,036 | | $ | 40,487 | | $ | 26,953 | |
Salaries and employee benefits | | 8,352 | | 7,816 | | 26,511 | | 23,684 | |
Contractors | | 5,792 | | 3,529 | | 16,841 | | 12,616 | |
Definition and delineation drilling | | 861 | | 916 | | 3,255 | | 3,763 | |
Royalties | | 1,444 | | 980 | | 4,527 | | 2,885 | |
Rentals and operating leases | | 262 | | 215 | | 805 | | 744 | |
Change in inventories | | (726 | ) | 884 | | (1,190 | ) | 4,473 | |
Share based payments | | 92 | | (66 | ) | 275 | | 180 | |
Other | | 14 | | 118 | | 114 | | 241 | |
| | $ | 29,554 | | $ | 23,428 | | $ | 91,625 | | $ | 75,539 | |
4. OTHER INCOME (LOSS), NET
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
Unrealized and realized gain on embedded derivatives note 9(a(i)) | | $ | 1,985 | | $ | (2,175 | ) | $ | 3,774 | | $ | 8,416 | |
Unrealized and realized foreign exchange (loss) gain, net | | (1,960 | ) | 490 | | (4,358 | ) | 66 | |
Gain on deemed disposition of investments in associates note 7 | | — | | — | | 1,038 | | — | |
Write down of unamortized transaction costs on loan prepayment note 9(a(ii)) | | — | | — | | (964 | ) | — | |
Amortization of deferred premium on flow through shares | | 101 | | — | | 101 | | — | |
Loss on deemed disposition of available for sale investment note 7(ii) | | — | | — | | — | | (1,681 | ) |
Gain on disposal of mining interest | | — | | — | | — | | 200 | |
Unrealized loss on warrants | | — | | — | | — | | (38 | ) |
Other income (loss), net | | $ | 126 | | $ | (1,685 | ) | $ | (409 | ) | $ | 6,963 | |
Unrealized and realized foreign exchange loss for the three and nine months ended September 30, 2014 includes $1,987 and $4,378 of unrealized and realized loss (same periods in 2013, respectively — gain of $540 and loss of $49) from certain embedded derivatives (note 9(a(i))).
5. FINANCE INCOME AND FINANCE EXPENSE
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
Interest income on bank deposits | | $ | 168 | | $ | 194 | | $ | 369 | | $ | 652 | |
Finance income | | $ | 168 | | $ | 194 | | $ | 369 | | $ | 652 | |
Borrowing costs and other interest expense | | $ | (4,686 | ) | $ | (3,670 | ) | $ | (14,654 | ) | $ | (9,995 | ) |
Unwinding of the discount on environmental rehabilitation provision | | (6 | ) | (19 | ) | (43 | ) | (47 | ) |
Finance expense | | $ | (4,692 | ) | $ | (3,689 | ) | $ | (14,697 | ) | $ | (10,042 | ) |
Net finance items | | $ | (4,524 | ) | $ | (3,495 | ) | $ | (14,328 | ) | $ | (9,390 | ) |
4
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
Borrowing costs and other interest expense for the three and nine months ended September 30, 2014 and 2013 include the following:
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
Gold Loan interest expense and amortization of transaction costs note 9(a(i)) | | $ | 781 | | $ | 1,370 | | $ | 2,775 | | $ | 4,455 | |
Standby Line interest expense and unwinding of discount | | 800 | | 1,409 | | 3,153 | | 3,716 | |
Debentures interest and accretion | | 2,798 | | 2,650 | | 8,117 | | 7,742 | |
Borrowing costs before costs capitalized | | $ | 4,379 | | $ | 5,429 | | $ | 14,045 | | $ | 15,913 | |
Capitalized in mining interests | | — | | (1,849 | ) | — | | (6,202 | ) |
Borrowing costs | | $ | 4,379 | | $ | 3,580 | | $ | 14,045 | | $ | 9,711 | |
Other interest expense includes bank charges and interest expense related to finance leases of $307 and $609 for the three and nine months ended September 30, 2014 (same periods in 2013 - $81 and $275).
6. INVENTORIES AND STOCKPILED ORE
As at | | September 30, 2014 | | December 31, 2013 | |
Gold in circuit | | $ | 7,292 | | $ | 10,068 | |
Stockpiled ore | | 3,829 | | 3,902 | |
Bullion | | 3,852 | | 782 | |
Materials and supplies inventory | | 8,191 | | 5,626 | |
| | $ | 23,164 | | $ | 20,378 | |
The cost of inventories and stockpiled ore recognized as an expense during the three and nine months ended September 30, 2014 (excluding royalty expense of $1,444 and $4,528) is $28,110 and $87,097 (same periods in 2013 - $22,448 and $72,654, respectively, excluding royalty expense of $980 and $2,885). There were no write downs or reversals of write downs of inventory to net realizable value during the three and nine months ended September 30, 2014 and 2013.
7. INVESTMENTS IN ASSOCIATES
The Company’s investments in associates are as follows:
| | September 30, 2014 | | December 31, 2013 | |
As at | | Net book
value | | Fair
value | | Ownership | | Net book
value | | Fair value | | Ownership | |
Northern Superior Resources Inc. | | $ | 897 | | $ | 1,573 | | 23.78 | % | $ | 1,349 | | $ | 1,349 | | 23.82 | % |
IDM Mining Ltd. (formerly Revolution Resources Corp.) | | $ | — | | $ | — | | — | | $ | 400 | | $ | 400 | | 22.45 | % |
| | $ | 897 | | | | | | $ | 1,749 | | | | | |
On June 10, 2014, Revolution Resources Corp. changed its name to IDM Mining Ltd. (“IDM”). On June 13, 2014 the Company’s interest in IDM was diluted to 11.6% (from 22.5%) reflecting Lake Shore Gold’s decision to not participate in a financing by IDM. Effective June 13, 2014 (the “change date”), the investment in IDM was transferred to available for sale investments since IDM is no longer considered an associate of the Company. The Company recorded a gain of $1,038 on the change date representing the difference between the Company’s carrying value of investment in IDM and market value of the available for sale investment in IDM on June 13, 2014.
5
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
During the three and nine months ended September 30, 2014, the Company recorded a loss of $172 and $554, respectively (same period in 2013 - $411 and $962), representing the Company’s share of losses in respect of its equity investments. During the three and nine months ended September 30, 2013, the Company wrote down its investments in associates to their fair value and recorded impairment charges of $619 and $3,572, respectively, as the decline in value was considered significant or prolonged.
Sale of the Mexico subsidiary
On January 30, 2013 the Company and IDM entered into an agreement for the sale of the Company’s Mexico subsidiary (which held 100% of the Company’s Mexico property portfolio) to IDM for a number of shares of IDM and other consideration.
The agreement closed on May 8, 2013 (“closing date”) at which time the Company received 20 million common shares of IDM.
(i) Disposal of the Mexico subsidiary
The net assets of the Mexico subsidiary were recorded as assets held for sale at December 31, 2012. In the second quarter of 2013, the Company recorded a loss of $4,302 on the disposal of the Mexico subsidiary, of which $3,967 was transferred from other comprehensive income (loss).
(ii) Deemed disposition of available for sale investment in IDM
At closing date the Company’s interest in IDM increased to 22.5% (from approximately 7% before May 8, 2013) and IDM became an associate of Lake Shore Gold. As such, from May 8, 2013 to June 13, 2014, IDM was accounted for under the equity method of accounting.
Prior to the closing date, the Company’s investment in IDM was considered available for sale and marked to market at each period end with changes in value accumulated in other comprehensive income (loss) as part of investment revaluation reserve. The Company recorded a loss of $1,681 on the transaction (deemed disposition of the available for sale investment in IDM), $1,785 of which was transferred from investment revaluation reserve.
8. MINING INTERESTS
Period ended September 30, 2014 | | Depletable | | Non
depletable | | Total | | Plant and
equipment | | Total | |
Cost | | | | | | | | | | | |
At January 1, 2014 | | $ | 412,533 | | $ | 104,509 | | $ | 517,042 | | $ | 165,192 | | $ | 682,234 | |
Additions | | 31,383 | | 400 | | 31,783 | | 11,467 | | 43,250 | |
Construction in progress | | — | | — | | — | | 7,650 | | 7,650 | |
Cost at September 30, 2014 | | $ | 443,916 | | $ | 104,909 | | $ | 548,825 | | $ | 184,309 | | $ | 733,134 | |
Accumulated depreciation and depletion | | | | | | | | | | | |
At January 1, 2014 | | $ | 93,228 | | $ | — | | $ | 93,228 | | $ | 57,421 | | $ | 150,649 | |
Depreciation | | — | | — | | — | | 9,779 | | 9,779 | |
Depletion | | 45,854 | | — | | 45,854 | | — | | 45,854 | |
Accumulated depreciation and depletion at September 30, 2014 | | $ | 139,082 | | $ | — | | $ | 139,082 | | $ | 67,200 | | $ | 206,282 | |
Carrying amount at September 30, 2014 | | $ | 304,834 | | $ | 104,909 | | $ | 409,743 | | $ | 117,109 | | $ | 526,852 | |
6
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
Year ended December 31, 2013 | | Depletable | | Non
depletable | | Total | | Plant and
equipment | | Total | |
Cost | | | | | | | | | | | |
At January 1, 2013 | | $ | 501,107 | | $ | 134,605 | | $ | 635,712 | | $ | 175,851 | | $ | 811,563 | |
Additions | | 57,461 | | 302 | | 57,763 | | 3,193 | | 60,956 | |
Construction in progress additions net of transfers | | — | | — | | — | | 38,232 | | 38,232 | |
Change in estimate and discount rate (environmental rehabilitation assets) | | (540 | ) | — | | (540 | ) | — | | (540 | ) |
Sale leaseback transaction | | — | | — | | — | | (2,977 | ) | (2,977 | ) |
Impairment charge | | (145,495 | ) | (30,398 | ) | (175,893 | ) | (49,107 | ) | (225,000 | ) |
Cost at December 31, 2013 | | $ | 412,533 | | $ | 104,509 | | $ | 517,042 | | $ | 165,192 | | $ | 682,234 | |
Accumulated depreciation and depletion | | | | | | | | | | | |
At January 1, 2013 | | $ | 47,779 | | $ | — | | $ | 47,779 | | $ | 43,896 | | $ | 91,675 | |
Sale leaseback transaction | | — | | — | | — | | (821 | ) | (821 | ) |
Depreciation | | — | | — | | — | | 14,346 | | 14,346 | |
Depletion | | 45,449 | | — | | 45,449 | | — | | 45,449 | |
Accumulated depreciation and depletion at December 31, 2013 | | $ | 93,228 | | $ | — | | $ | 93,228 | | $ | 57,421 | | $ | 150,649 | |
Carrying amount at December 31, 2013 | | $ | 319,305 | | $ | 104,509 | | $ | 423,814 | | $ | 107,771 | | $ | 531,585 | |
During the first quarter of 2014, the Company issued 50,000 common shares to certain First Nation communities, under an Impact and Benefits Agreement, valued at $45 and capitalized in mining interests.
The depreciation of plant and equipment utilized in capital development is capitalized ($308 and $959, respectively, for the three and nine months ended September 30, 2014; $522 and $1,911 for same periods in 2013).
9. LONG TERM DEBT
As at | | September 30, 2014 | | December 31, 2013 | |
Gold Loan (a(i)) | | $ | 9,849 | | $ | 18,458 | |
Standby Line (a(ii)) | | 18,492 | | 26,275 | |
Convertible Debentures (b) | | 86,939 | | 85,292 | |
| | $ | 115,280 | | $ | 130,025 | |
Current portion of long term debt and derivatives(a) | | 13,460 | | 13,339 | |
Long term debt | | $ | 101,820 | | $ | 116,686 | |
(a) Sprott Resource Lending Partnership Credit Facility
On June 14, 2012, the Company signed a financing agreement with Sprott Resource Lending Partnership (“Sprott”) for a credit facility (the “Facility”) totaling up to $70,000, secured by the material assets of the Company. The Facility involves two components, a $35,000 gold loan (the “Gold Loan”), payable monthly starting on January 31, 2013 to May 31, 2015, and a standby line of credit (the “Standby Line”) for an additional $35,000. The transaction closed on July 16, 2012, at which time the Company received $35,000 for the Gold Loan. The Standby Line of $35,000 was fully drawn on February 1, 2013.
On December 12, 2013, the Company entered into a modification agreement (the “Modification Agreement”) with Sprott whereby the Company will repay the Standby Line through 18 equal monthly payments starting on June 30, 2015 with the final payment due on November 30, 2016; previously, the Standby Line was due in full on January 1, 2015. The Company paid $5,000 of principal on the Standby
7
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
Line in December 2013 and $10,000 on June 4, 2014, leaving $20,000 of principal outstanding on the Standby Line.
The Sprott debt facility has certain financial covenants, as disclosed in note 19 of the annual consolidated financial statements, which must be maintained on an ongoing basis. The Company was in compliance with all debt covenants throughout the nine months ended September 30, 2014 and the year ended December 31, 2013.
(i) Gold Loan
As at | | September 30, 2014 | | December 31, 2013 | |
Accreted principal, net of unamortized transaction costs | | $ | 11,439 | | $ | 22,754 | |
Embedded Derivative asset | | (2,385 | ) | (6,702 | ) |
Minimum Return Derivative liability | | 795 | | 2,406 | |
| | 9,849 | | $ | 18,458 | |
Current portion of Gold Loan | | 11,439 | | 18,024 | |
Current portion of embedded derivatives | | (1,590 | ) | (4,685 | ) |
Long term portion of Gold Loan | | $ | — | | $ | 5,119 | |
The Gold Loan is being repaid through 29 monthly cash payments which started on January 31, 2013 based on 947 ounces of gold each month multiplied by the Bloomberg gold closing price on the date of payment.
As a result of the indexation of the principal repayments to the movement in the price of gold, the Gold Loan contains a derivative which is embedded in the Canadian dollar denominated debt instrument (the “Embedded Derivative”). The Embedded Derivative is marked to market at each period end with changes in fair value recorded as other income (expense) and foreign exchange gain (loss), the latter representing the impact of changes in the US$/Canadian$ exchange rate on the fair value of the derivative.
The Modification Agreement provided for the minimum return (the “floor”) on the Gold Loan to increase to 7.5% (from 5% under the original agreement); the minimum return provision is considered a derivative embedded in the Gold Loan (the “Minimum Return Derivative”) due to the floor being in the money at the time of the modification. The Minimum Return Derivative is equivalent to the additional amount (if any) the Company will have to pay at the maturity of the Gold Loan to ensure the return to Sprott is at least 7.5%; the derivative is marked to market at each period end with changes in fair value recorded as unrealized derivative gain (loss).
Gold Loan changes for three and nine months ended September 30, 2014 and 2013 were as follows:
| | Three months ended September 30, 2014 | | Nine months ended September 30, 2014 | |
| | Accreted
Principal | | Transaction
Costs | | Total | | Accreted
Principal | | Transaction
Costs | | Total | |
At beginning of period | | $ | 16,122 | | $ | (740 | ) | $ | 15,382 | | $ | 23,894 | | $ | (1,140 | ) | $ | 22,754 | |
Cash payments | | (3,948 | ) | — | | (3,948 | ) | (11,988 | ) | — | | (11,988 | ) |
Interest expense | | 578 | | 203 | | 781 | | 2,172 | | 603 | | 2,775 | |
Realized derivative gain | | (1,012 | ) | — | | (1,012 | ) | (2,857 | ) | — | | (2,857 | ) |
Realized foreign exchange loss | | 236 | | — | | 236 | | 755 | | — | | 755 | |
At September 30, 2014 | | $ | 11,976 | | $ | (537 | ) | $ | 11,439 | | $ | 11,976 | | $ | (537 | ) | $ | 11,439 | |
8
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
| | Three months ended September 30, 2013 | | Nine months ended September 30, 2013 | |
| | Accreted
Principal | | Transaction
Costs | | Total | | Accreted
Principal | | Transaction
Costs | | Total | |
At beginning of period | | $ | 31,010 | | $ | (1,548 | ) | $ | 29,462 | | $ | 37,577 | | $ | (1,948 | ) | $ | 35,629 | |
Cash payments | | (3,998 | ) | — | | (3,998 | ) | (12,669 | ) | — | | (12,669 | ) |
Interest expense | | 1,167 | | 203 | | 1,370 | | 3,852 | | 603 | | 4,455 | |
Realized derivative gain | | (811 | ) | — | | (811 | ) | (1,625 | ) | — | | (1,625 | ) |
Realized foreign exchange loss | | 154 | | — | | 154 | | 387 | | — | | 387 | |
At September 30, 2013 | | $ | 27,522 | | $ | (1,345 | ) | $ | 26,177 | | $ | 27,522 | | $ | (1,345 | ) | $ | 26,177 | |
Embedded Derivative and Minimum Return Derivative (together “the embedded derivatives”) movements for the three and nine months ended September 30, 2014 and 2013 were as follows:
| | Three months ended September 30, 2014 | | Nine months ended September 30, 2014 | |
Embedded derivatives | | Embedded
Derivative
(asset) liability | | Minimum
Return
Derivative
liability | | Total | | Embedded
Derivative
(asset) liability | | Minimum
Return
Derivative
liability | | Total | |
At beginning of period | | $ | (2,559 | ) | $ | 191 | | $ | (2,368 | ) | $ | (6,702 | ) | $ | 2,406 | | $ | (4,296 | ) |
Unrealized derivative (gain) loss | | (1,577 | ) | 604 | | (973 | ) | 694 | | (1,611 | ) | (917 | ) |
Unrealized foreign exchange loss | | 1,751 | | — | | 1,751 | | 3,623 | | — | | 3,623 | |
At September 30, 2014 | | $ | (2,385 | ) | $ | 795 | | $ | (1,590 | ) | $ | (2,385 | ) | $ | 795 | | $ | (1,590 | ) |
| | Three months ended September 30, 2013 | | Nine months ended September 30, 2013 | |
Embedded derivatives | | Embedded
Derivative
(asset) liability | | Minimum Return
Derivative
liability | | Total | | Embedded
Derivative (asset)
liability | | Minimum
Return
Derivative
liability | | Total | |
At beginning of period | | $ | (8,276 | ) | $ | — | | $ | (8,276 | ) | $ | 1,145 | | $ | — | | $ | 1,145 | |
Unrealized derivative loss (gain) | | 2,986 | | — | | 2,986 | | (6,791 | ) | — | | (6,791 | ) |
Unrealized foreign exchange gain | | (694 | ) | | | (694 | ) | (338 | ) | — | | (338 | ) |
At September 30, 2013 | | $ | (5,984 | ) | $ | — | | $ | (5,984 | ) | $ | (5,984 | ) | $ | — | | $ | (5,984 | ) |
(ii) Standby Line
| | Nine months ended | | Year ended December 31, | |
As at | | September 30, 2014 | | 2013 | |
Balance at beginning of period | | $ | 26,275 | | $ | — | |
Principal payments | | (10,000 | ) | (5,000 | ) |
Write down of unamortized transaction costs | | 964 | | — | |
Loan principal draw down net of transaction costs | | — | | 30,905 | |
Interest expense and unwinding of discount | | 3,154 | | 3,527 | |
Interest payments | | (1,901 | ) | (3,157 | ) |
Balance at end of period | | $ | 18,492 | | $ | 26,275 | |
Current portion of Standby Line | | 3,611 | | — | |
Long term portion of Standby Line | | $ | 14,881 | | $ | 26,275 | |
The Standby Line bears annual interest of 9.75%, compounded monthly. The Company can prepay up to $10,000 of the principal in 2014 without penalty ($10,000 was paid on June 4, 2014) and incur a penalty of 8% for prepayments above $10,000. The Company will incur prepayment penalties of 6% and 4%, respectively, for any prepayments in 2015 and 2016. The Company is liable for a 1% rollover fee on the outstanding principal at December 31, 2014 (reduced from 2% with the $10,000 prepayment in June 2014).
9
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
(b) Convertible Debentures
| | Nine months ended
September 30, 2014 | | Year ended December 31,
2013 | |
Balance at beginning of period | | $ | 85,292 | | $ | 81,778 | |
Interest expense and unwinding of discount | | 8,116 | | 10,390 | |
Interest payments | | (6,469 | ) | (6,876 | ) |
| | $ | 86,939 | | $ | 85,292 | |
In September 2012, the Company issued 103,500 at $1.0 of Convertible Unsecured Debentures (the “Debentures”) for an aggregate principal amount of $103,500 which bears annual interest at 6.25%, payable semi-annually in arrears on March 31 and September 30 of each year, starting on March 31, 2013, and maturing on September 30, 2017.
The Debenture holders may convert the Debentures at their option at any time prior to the maturity date. The Debentures are convertible into common shares of the Company at a conversion rate of 714.2857 common shares for every $1,000 amount principal of the Debentures, subject to adjustment in certain events.
The Debentures are redeemable in cash or in the Company’s shares starting from September 30, 2015 provided the volume weighted average price of the Company’s shares on the TSX for 20 consecutive trading days ending five days prior to the date on which notice of redemption is given (the “current market price”) is at least $1.82 per common share. The number of shares to be issued will be determined by dividing the principal amount of Debentures to be redeemed by 95% of the current market price.
The Company may purchase the Debentures in the market at any time, subject to regulatory requirements.
The option of the holders to convert the Debentures into common shares of the Company resulted in the Debentures being accounted for as a compound financial instrument with $82,512 recorded at inception as long term debt and $20,988 as equity (the latter representing the value of the holder conversion option). The debt component is subsequently measured at amortized cost using the effective interest rate method.
10. EQUITY
a) Share capital
On May 22, 2014, the Company raised gross proceeds of $5,035 through the issuance of 5,300,000 flow-through common shares under a private placement at $0.95 per flow through share. The Company has until December 31, 2015 to spend the flow through funds raised on eligible Canadian exploration expenditures (“CEE”). The Company has spent $570 on CEE to September 30, 2014.
Under the Company’s accounting policy, the proceeds from the issuance of the flow through shares are split between the offering of shares and the sale of tax benefits. The allocation is made based on the difference between the market price of the shares on the date of issuance and the amount the investor pays for the shares. A deferred flow-through premium liability is recognized for the difference. The liability is reversed when the expenditures are made and is recorded in other income. The spending also gives rise to a deferred tax timing difference between the carrying value and tax value of the qualifying expenditure. The net proceeds from the flow through financing of $4,961 were recorded as share capital ($4,077) and deferred premium liability ($884). During the three and nine months ended September 30,
10
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
2014, the Company amortized $101 and $101, respectively, of deferred premium (recorded on other income(loss)).
b) Reserves
i) Share Options
As at September 30, 2014, the Company had 20,694,566 options outstanding of which 10,290,000 are exercisable. Movements in share options during the nine months ended September 30, 2014 and 2013 were as follows:
| | September 30, 2014 | | September 30, 2013 | |
| | Number of
options | | Weighted-average
exercise price | | Number of
options | | Weighted-average
exercise price | |
Outstanding, beginning of year | | 24,245,365 | | $ | 1.89 | | 23,087,535 | | $ | 2.32 | |
Granted | | 495,000 | | $ | 0.79 | | 450,000 | | $ | 0.37 | |
Forfeited and expired | | (3,492,799 | ) | $ | 1.92 | | (3,782,085 | ) | $ | 2.02 | |
Exercised | | (553,000 | ) | $ | 0.87 | | (30,000 | ) | $ | 0.79 | |
Outstanding, end of period | | 20,694,566 | | $ | 1.89 | | 19,725,450 | | $ | 2.34 | |
Exercisable, end of period | | 10,290,000 | | | | 10,614,450 | | | |
ii) Share-based payment expense
Share based payment expense includes the stock option expense for the period and the expense related to the performance share units (PSUs) and deferred share units (DSUs”). During the three and nine months ended September 30, 2014, the Company recognized $668 and $1,789, respectively (same period in 2013, $Nil and $25, respectively) share based payment expense related to PSUs and DSUs (included as part of general and administrative expenses).
Share-based payment expense recognized (representing stock option expense for the period) is allocated to production costs (options granted to mine employees), general and administrative costs (options granted to directors and corporate employees), exploration expenses (options granted to individuals involved in exploration work on the green field exploration stage properties), and capitalized as part of mining properties (options granted to individuals involved on the specific projects capitalized). The Company capitalized $Nil of share-based payments for the three and nine months ended September 30, 2014 (same periods in 2013 - $23 and $28).
The Company granted 495,000 stock options to its employees during the nine months ended September 30, 2014 which vest over a period of 3 years, are exercisable at $0.78 per option (for 450,000 stock options) and $0.89 per option (for 45,000 stock options), and have a total fair value of $211. The fair value of stock options granted during the nine months ended September 30, 2014 is estimated at the time of the grant using the Black-Scholes options pricing model with assumptions as follows: expected volatility of 93%, based on past history, a risk-free interest rate of 1.03%, dividend rate of $Nil and expected time to exercise of 3.5 years.
The allocation of the share-based payment expense (including PSUs and DSUs expense) in the condensed consolidated statements of comprehensive income (loss) for the three and nine month periods ended September 30, 2014 and 2013 is as follows:
11
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
General and administrative | | $ | 775 | | $ | 484 | | $ | 2,381 | | $ | 1,395 | |
Production costs | | 99 | | (66 | ) | 295 | | 180 | |
Exploration | | — | | 19 | | — | | 72 | |
Total share-based payments | | $ | 874 | | $ | 437 | | $ | 2,676 | | $ | 1,647 | |
c) Basic and diluted earnings (loss) per share
The basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2014 and 2013 is calculated as shown in the table below. The diluted income per share for the three and nine months ended September 30, 2014 includes the impact of certain outstanding options; the impact of the outstanding convertible debentures is not included in the calculations as the impact would be anti-dilutive. The calculation of diluted loss per share for the three and nine months ended September 30, 2013 does not include impact of the outstanding options and convertible debentures as the impact would have been anti-dilutive.
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
Net earnings (loss) from continuing operations | | $ | 7,889 | | $ | (1,718 | ) | $ | 25,716 | | $ | (3,474 | ) |
Weighted average basic number of common shares outstanding (in ‘000s) | | 422,342 | | 416,620 | | 419,367 | | 416,507 | |
Basic income (loss) per share from continuing operations | | $ | 0.02 | | $ | (0.00 | ) | $ | 0.06 | | $ | (0.01 | ) |
| | | | | | | | | |
Weighted average diluted number of common shares outstanding (in ‘000s) | | 428,673 | | 416,620 | | 423,919 | | 416,507 | |
Diluted income (loss) per share from continuing operations | | $ | 0.02 | | $ | (0.00 | ) | $ | 0.06 | | $ | (0.01 | ) |
| | | | | | | | | |
Net earnings (loss) | | $ | 7,889 | | $ | (1,718 | ) | $ | 25,716 | | $ | (7,776 | ) |
Weighted average basic number of common shares outstanding (in ‘000s) | | 422,342 | | 416,620 | | 419,367 | | 416,507 | |
Basic income (loss) per share | | $ | 0.02 | | $ | (0.00 | ) | $ | 0.06 | | $ | (0.02 | ) |
| | | | | | | | | |
Weighted average diluted number of common shares outstanding (in ‘000s) | | 428,673 | | 416,620 | | 423,919 | | 416,507 | |
Diluted income (loss) per share | | $ | 0.02 | | $ | (0.00 | ) | $ | 0.06 | | $ | (0.02 | ) |
Weighted average diluted number of common shares for the three and nine months ended September 30, 2014 and 2013 is calculated as follows:
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
Weighted average commons share outstanding | | 422,342 | | 416,620 | | 419,367 | | 416,275 | |
In the money shares-share options (in ‘000s) | | 6,331 | | — | | 4,552 | | — | |
Weighted average diluted number of common shares outstanding | | 428,673 | | 416,620 | | 423,919 | | 416,275 | |
12
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
11. SUPPLEMENTAL CASH FLOW INFORMATION
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
Change in operating working capital | | | | | | | | | |
Decrease in receivables and prepaids | | $ | 287 | | $ | 1,285 | | $ | 8 | | $ | 1,997 | |
(Increase) decrease in inventories and stockpiled ore | | (746 | ) | (552 | ) | (4,809 | ) | 2,144 | |
Increase (decrease) in accounts payable and accrued liabilities | | 1,222 | | (2,370 | ) | 3,632 | | (1,954 | ) |
| | $ | 763 | | $ | (1,637 | ) | $ | (1,169 | ) | $ | 2,187 | |
| | | | | | | | | |
| | | | | | 2014 | | 2013 | |
Cash and cash equivalents at September 30 consist of: | | | | | | | | | |
Cash | | | | | | $ | 32,120 | | $ | 14,746 | |
Short term investments | | | | | | 30,070 | | — | |
| | | | | | $ | 62,190 | | $ | 14,746 | |
| | Three months ended September 30, | | Nine months ended September 30, | |
Non-cash investing and financing activities | | 2014 | | 2013 | | 2014 | | 2013 | |
| | | | | | | | | |
Mining interests | | | | | | | | | |
Reduction in working capital related to mining interests | | $ | 1,137 | | $ | (3,171 | ) | $ | (1,506 | ) | $ | (7,158 | ) |
Shares issued as part of mining property agreements | | — | | — | | 45 | | 32 | |
Stock options capitalized | | — | | 23 | | — | | 28 | |
Non cash interest capitalized | | — | | 796 | | — | | 2,110 | |
Changes in mine closure assets | | | | (394 | ) | 562 | | (394 | ) |
| | $ | 1,137 | | $ | (2,746 | ) | $ | (899 | ) | $ | (5,382 | ) |
Assets held for sale | | | | | | | | | |
Translation of foreign operations note 7(i) | | $ | — | | $ | 0 | | $ | — | | $ | 3,967 | |
Shares received as consideration for disposal of foreign operations | | — | | — | | — | | 1,700 | |
| | $ | — | | $ | 0 | | $ | — | | $ | 5,667 | |
Share Capital | | | | | | | | | |
Transfer of amounts from contributed surplus | | $ | 177 | | $ | 0 | | $ | 177 | | $ | 13 | |
Shares issued as part of mining property agreement | | — | | — | | 45 | | 32 | |
Shares issued as part of the Facility agreement | | — | | — | | — | | 700 | |
Deferred premium on flow throgh financing note 10(a) | | — | | — | | (884 | ) | — | |
| | $ | 177 | | $ | — | | (662 | ) | $ | 745 | |
12. SEGMENTED INFORMATION
The Company has two operating segments: mining operations and exploration and advanced exploration. Corporate, which is not an operating segment, includes all the corporate growth and development activities and the corporate team that provides administrative, technical, financial and other support to all of the Company’s business units. Other corporate expenses include general and administrative costs and the Company’s share of loss of its equity investments; finance (loss) income, net, includes bank and debt interest and other charges and interest earned on cash and cash equivalents. The information reported below is based on the information provided to the Chief Executive Officer, who is the chief operating decision maker.
13
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
As at and for the three months ended September 30, 2014
| | Mining
operations* | | Exploration and
advanced
exploration** | | Corporate | | Total | |
Revenues | | $ | 63,514 | | $ | — | | $ | — | | $ | 63,514 | |
Earnings from mine operations | | 16,144 | | — | | — | | $ | 16,144 | |
Expenses | | | | | | | | | |
General and administrative | | — | | — | | (3,281 | ) | (3,281 | ) |
Exploration and evalution | | — | | (404 | ) | — | | (404 | ) |
Share of loss of investments in associates | | — | | — | | (172 | ) | (172 | ) |
Earnings (loss) from operations and associates | | 16,144 | | (404 | ) | (3,453 | ) | 12,287 | |
Other income | | — | | — | | 126 | | 126 | |
Finance items (net) | | — | | — | | (4,524 | ) | (4,524 | ) |
Net earnings (loss) | | $ | 16,144 | | $ | (404 | ) | $ | (7,851 | ) | 7,889 | |
Expenditures on mining interests including movements in working capital | | $ | 13,562 | | $ | 401 | | $ | — | | $ | 13,963 | |
Total assets | | $ | 453,763 | | $ | 104,967 | | $ | 66,529 | | $ | 625,259 | |
Total liabilities | | $ | 41,708 | | $ | — | | $ | 121,110 | | $ | 162,818 | |
As at and for the nine months ended September 30, 2014
| | Mining
operations* | | Exploration and
advanced
exploration** | | Corporate | | Total | |
Revenues | | $ | 200,064 | | $ | — | | $ | — | | $ | 200,064 | |
Earnings from mine operations | | 52,825 | | — | | — | | $ | 52,825 | |
Expenses | | | | | | | | | |
General and administrative | | — | | — | | (10,967 | ) | (10,967 | ) |
Exploration and evalution | | — | | (851 | ) | — | | (851 | ) |
Share of loss of investments in associates | | — | | — | | (554 | ) | (554 | ) |
Earnings (loss) from operations and associates | | 52,825 | | (851 | ) | (11,521 | ) | 40,453 | |
Other loss | | — | | — | | (409 | ) | (409 | ) |
Finance items (net) | | — | | — | | (14,328 | ) | (14,328 | ) |
Net earnings (loss) | | $ | 52,825 | | $ | (851 | ) | $ | (26,258 | ) | $ | 25,716 | |
Expenditures on mining interests including movements in working capital | | $ | 40,347 | | $ | 401 | | $ | — | | $ | 40,748 | |
Total assets | | $ | 453,763 | | $ | 104,967 | | $ | 66,529 | | $ | 625,259 | |
Total liabilities | | $ | 41,708 | | $ | 0 | | $ | 121,110 | | $ | 162,818 | |
14
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
Three months ended September 30, 2013
| | Mining operations* | | Exploration and
advanced exploration** | | Corporate | | Total | |
Revenues | | $ | 44,301 | | $ | — | | $ | — | | $ | 44,301 | |
Earnings from mine operations | | 7,554 | | — | | — | | $ | 7,554 | |
Expenses | | | | | | | | | |
General and administrative | | — | | — | | (2,823 | ) | (2,823 | ) |
Exploration and evalution | | — | | (239 | ) | — | | (239 | ) |
Share of loss of investments in associates | | — | | — | | (411 | ) | (411 | ) |
Write down of investments in associates | | — | | — | | (619 | ) | (619 | ) |
Earnings (loss) from operations and associates | | 7,554 | | (239 | ) | (3,853 | ) | 3,462 | |
| | | | | | | | | |
Other income | | — | | — | | (1,685 | ) | (1,685 | ) |
Finance items (net) | | — | | — | | (3,495 | ) | (3,495 | ) |
Earnings (loss) from continuing operations | | 7,554 | | (239 | ) | (9,033 | ) | (1,718 | ) |
Loss from discontinued operations | | — | | — | | — | | — | |
Net earnings (loss) | | $ | 7,554 | | $ | (239 | ) | $ | (9,033 | ) | $ | (1,718 | ) |
Expenditures on mining interests including movements in working capital | | $ | 17,362 | | $ | — | | $ | — | | $ | 17,362 | |
As at December 31, 2013 | | | | | | | | | |
Total assets | | $ | 454,350 | | $ | 104,568 | | $ | 39,014 | | $ | 597,932 | |
Total liabilities | | $ | 33,086 | | $ | — | | $ | 133,678 | | $ | 166,764 | |
Nine months ended September 30, 2013
| | Mining operations* | | Exploration and
advanced exploration** | | Corporate | | Total | |
Revenues | | $ | 126,833 | | $ | — | | $ | — | | $ | 126,833 | |
Earnings from mine operations | | 13,211 | | — | | — | | $ | 13,211 | |
Expenses | | | | | | | | | |
General and administrative | | — | | — | | (8,711 | ) | (8,711 | ) |
Exploration and evalution | | — | | (1,013 | ) | — | | (1,013 | ) |
Share of loss of investments in associates | | — | | — | | (962 | ) | (962 | ) |
Write down of investments in associates | | — | | | | (3,572 | ) | (3,572 | ) |
Earnings (loss) from operations and associates | | 13,211 | | (1,013 | ) | (13,245 | ) | (1,047 | ) |
| | | | | | | | | |
Other income | | — | | — | | 6,963 | | 6,963 | |
Finance items (net) | | — | | — | | (9,390 | ) | (9,390 | ) |
Earnings (loss) from continuing operations | | 13,211 | | (1,013 | ) | (15,672 | ) | (3,474 | ) |
Loss from discontinued operations | | — | | (4,302 | ) | — | | (4,302 | ) |
Net earnings (loss) | | $ | 13,211 | | $ | (5,315 | ) | $ | (15,672 | ) | $ | (7,776 | ) |
Expenditures on mining interests including movements in working capital | | $ | 87,622 | | $ | 64 | | $ | — | | $ | 87,686 | |
As at December 31, 2013 | | | | | | | | | |
Total assets | | $ | 454,350 | | $ | 104,568 | | $ | 39,014 | | $ | 597,932 | |
Total liabilities | | $ | 33,086 | | $ | — | | $ | 133,678 | | $ | 166,764 | |
* Mining operations include activities on the Company’s Timmins West Mine, Bell Creek Mine and Bell Creek Mill.
** Exploration and advanced exploration include green field exploration (which is expensed on the consolidated statement of income (loss)) as well as properties capitalized as per the Company’s policy (other than expenditures on properties forming part of mining operations).
The Company sells its gold bullion through several brokers and there is no economic dependence; the Company does not have any long term sales contracts.
15
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
13. FINANCIAL INSTRUMENTS
CARRYING VALUES OF FINANCIAL INSTRUMENTS
The carrying values of the financial assets and liabilities at September 30, 2014 and December 31, 2013 are as follows:
As at, | | September 30, 2014 | | December 31, 2013 | |
Financial Assets | | | | | |
At fair value through profit or loss | | | | | |
Cash and cash equivalents | | $ | 62,190 | | $ | 33,120 | |
Restricted cash | | 7,343 | | 7,095 | |
Embedded Derivative asset note 9(a) | | 2,385 | | 6,702 | |
| | $ | 71,918 | | $ | 46,917 | |
Loans and receivable, measured at amortized cost | | | | | |
Receivables | | $ | 2,805 | | $ | 2,405 | |
| | | | | |
Available-for-sale, measured at fair value | | | | | |
Investments in public companies | | $ | 1,820 | | $ | 416 | |
| | | | | |
Financial Liabilities | | | | | |
At fair value through profit or loss | | | | | |
Minimum Return Derivative liability note 9(a) | | $ | 795 | | $ | 2,406 | |
| | | | | |
Other financial liabilities, measured at fair value | | | | | |
Share-based liabilities | | $ | 2,533 | | $ | 754 | |
| | | | | |
Other financial liabilities, measured at amortized cost | | | | | |
Accounts payable and accrued liabilities | | $ | 23,330 | | $ | 21,619 | |
Long term debt note 9 | | $ | 115,280 | | $ | 130,025 | |
| | $ | 138,610 | | $ | 151,644 | |
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of cash and cash equivalents, restricted cash, receivables and accounts payable and accrued liabilities approximate their carrying values due to the short term to maturity of these financial instruments. The fair value of Debentures at September 30, 2014 is $104,545 (December 31, 2013 - $79,809).
The fair value hierarchy of financial instruments measured at fair value on the balance sheet is as follows:
16
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
| | September 30, 2014 | | December 31, 2013 | |
As at | | Level 1 | | Level 1 | |
| | | | | |
Cash and cash equivalents | | $ | 62,190 | | $ | 33,120 | |
Restricted cash | | $ | 7,343 | | $ | 7,095 | |
Investments in public companies | | $ | 1,820 | | $ | 416 | |
Standby Line liability | | $ | 20,000 | | $ | 30,120 | |
| | | | | |
| | Level 2 | | Level 2 | |
| | | | | |
Gold Loan liability | | $ | 10,695 | | $ | 21,192 | |
Embedded Derivative asset note 9(a) | | $ | 2,385 | | $ | 6,702 | |
Minimum Return Derivative liability note 9(a) | | $ | 795 | | $ | 2,406 | |
Share-based liabilities | | $ | 2,533 | | $ | 754 | |
The Company does not have Level 3 input financial instruments. The Company does not offset financial assets with financial liabilities and there were no transfers between Level 1 and Level 2 input financial instruments in the period.
The fair value of the gold loan liability and embedded derivative (asset) liability are determined by discounting future payments based on forward gold prices and forward US$/Canadian$ foreign exchange rates.
The fair value of share based liabilities and warrant investments are determined based on option pricing models that utilize a variety of inputs that are a combination of quoted prices and market corroborated inputs.
17
