Exhibit 99.2
LAKE SHORE GOLD CORP.
Condensed Consolidated Interim Financial Statements
(June 30, 2015 and 2014)
(unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of Canadian dollars, unaudited )
As at | | Note | | June 30, 2015 | | December 31, 2014 | |
| | | | | | | |
Assets | | | | | | | |
Current assets | | | | | | | |
Cash and cash equivalents | | | | $ | 81,433 | | $ | 54,370 | |
Receivables and prepaids | | | | 3,604 | | 3,697 | |
Inventories and stockpiled ore | | 6 | | 22,293 | | 25,450 | |
| | | | 107,330 | | 83,517 | |
Non-current assets | | | | | | | |
Available for sale financial assets | | 7(a) | | 610 | | 708 | |
Investments in associate | | 7(b) | | 586 | | 586 | |
Restricted cash | | | | 7,726 | | 7,418 | |
Mining interests | | 8 | | 517,236 | | 527,449 | |
| | | | $ | 633,488 | | $ | 619,678 | |
| | | | | | | |
Liabilities | | | | | | | |
Current liabilities | | | | | | | |
Accounts payable and accrued liabilities | | | | $ | 28,969 | | $ | 26,531 | |
Current portion of finance lease obligations | | | | 7,005 | | 7,090 | |
Current portion of long term debt | | 9 | | — | | 6,590 | |
Current portion of share based liabilities | | 10(b(ii)) | | 1,820 | | 394 | |
Deferred premium on flow through shares | | 10(a) | | 1,056 | | 3,128 | |
| | | | 38,850 | | 43,733 | |
Non-current liabilities | | | | | | | |
Finance lease obligations | | | | 7,292 | | 6,851 | |
Long term debt | | 9 | | 92,084 | | 89,708 | |
Share based liabilities | | 10(b(ii)) | | 1,683 | | 1,694 | |
Environmental rehabilitation provision | | | | 6,499 | | 5,640 | |
| | | | 107,558 | | 103,893 | |
| | | | | | | |
Equity | | | | | | | |
Share capital | | | | 1,034,642 | | 1,033,623 | |
Equity portion of convertible debentures | | | | 14,753 | | 14,753 | |
Reserves | | | | 32,526 | | 32,297 | |
Deficit | | | | (594,841 | ) | (608,621 | ) |
| | | | 487,080 | | 472,052 | |
| | | | $ | 633,488 | | $ | 619,678 | |
Commitments (notes 7(a) and 10 (a))
Subsequent events (note 14)
See accompanying notes to the condensed consolidated interim financial statements
Approved by the Board
/s/ Alan Moon | | /s/ 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
(in thousands of Canadian dollars, except per share amounts, unaudited)
| | | | Three months ended June 30, | | Six months ended June 30, | |
| | Note | | 2015 | | 2014 | | 2015 | | 2014 | |
| | | | | | | | | | | |
Revenue | | | | $ | 67,442 | | $ | 75,091 | | $ | 146,566 | | $ | 136,550 | |
Production costs | | 3 | | (33,789 | ) | (32,732 | ) | (67,220 | ) | (62,405 | ) |
Depletion and depreciation | | | | (19,448 | ) | (20,301 | ) | (41,796 | ) | (37,798 | ) |
Earnings from mine operations | | | | 14,205 | | 22,058 | | 37,550 | | 36,347 | |
| | | | | | | | | | | |
Expenses | | | | | | | | | | | |
General and administrative | | 10(b(ii)) | | (3,798 | ) | (4,033 | ) | (7,741 | ) | (7,686 | ) |
Exploration and evaluation | | 8 | | (6,827 | ) | (213 | ) | (11,981 | ) | (447 | ) |
Share of loss of investments in associate | | | | — | | (113 | ) | — | | (382 | ) |
Earnings from operations and associate | | | | 3,580 | | 17,699 | | 17,828 | | 27,832 | |
Other income (loss), net | | 4 | | 1,160 | | 73 | | 2,124 | | (534 | ) |
Finance items | | 5 | | | | | | | | | |
Finance income | | | | 175 | | 112 | | 389 | | 201 | |
Finance expense | | | | (3,201 | ) | (4,977 | ) | (6,561 | ) | (10,005 | ) |
Net earnings | | | | $ | 1,714 | | $ | 12,907 | | $ | 13,780 | | $ | 17,494 | |
| | | | | | | | | | | |
Other comprehensive income | | | | | | | | | | | |
Items that may be reclassified subsequently to profit or loss | | | | | | | | | | | |
Other comprehensive loss, net of tax | | | | | | | | | | | |
Unrealized loss on available for sale investments | | | | — | | (138 | ) | (98 | ) | (138 | ) |
Comprehensive income | | | | $ | 1,714 | | $ | 12,769 | | $ | 13,682 | | $ | 17,356 | |
| | | | | | | | | | | |
Basic and diluted earnings per share | | 10(c) | | $ | 0.00 | | $ | 0.03 | | $ | 0.03 | | $ | 0.04 | |
| | | | | | | | | | | |
Weighted average number of common shares outstanding (in 000’s) | | 10(c) | | | | | | | | | |
Basic | | | | 436,002 | | 419,019 | | 435,763 | | 417,840 | |
Diluted | | | | 441,520 | | 421,936 | | 441,138 | | 420,564 | |
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 June 30, | | Six months ended June 30, | |
| | Note | | 2015 | | 2014 | | 2015 | | 2014 | |
| | | | | | | | | | | |
Operating Activities | | | | | | | | | | | |
| | | | | | | | | | | |
Net earnings | | | | $ | 1,714 | | $ | 12,907 | | $ | 13,780 | | $ | 17,494 | |
Add (Deduct): | | | | | | | | | | | |
Depletion and depreciation | | | | 19,448 | | 20,301 | | 41,796 | | 37,798 | |
Share based payments expense | | 10(b(ii)) | | 1,210 | | 955 | | 2,472 | | 1,802 | |
Share of loss of investments in associates | | | | — | | 113 | | — | | 382 | |
Other (income) loss, net | | | | (1,160 | ) | (73 | ) | (2,124 | ) | 534 | |
Finance income | | | | (175 | ) | (112 | ) | (389 | ) | (201 | ) |
Interest received | | | | 194 | | 115 | | 365 | | 164 | |
Finance expense | | | | 3,201 | | 4,977 | | 6,561 | | 10,005 | |
Interest paid | | | | (5 | ) | (670 | ) | (3,248 | ) | (4,626 | ) |
Change in non-cash operating working capital | | 11 | | 1,972 | | (1,685 | ) | 3,041 | | (1,596 | ) |
Net cash provided by operating activities | | | | 26,399 | | 36,828 | | 62,254 | | 61,756 | |
| | | | | | | | | | | |
Investing Activities | | | | | | | | | | | |
Additions to mining interests, including movements in working capital | | | | (10,539 | ) | (12,675 | ) | (23,201 | ) | (26,787 | ) |
Restricted cash | | | | (308 | ) | — | | (308 | ) | (248 | ) |
Net cash used in investing activities | | | | (10,847 | ) | (12,675 | ) | (23,509 | ) | (27,035 | ) |
| | | | | | | | | | | |
Financing Activities | | | | | | | | | | | |
Long term debt payments | | 9(b) | | (2,862 | ) | (13,965 | ) | (7,223 | ) | (18,040 | ) |
Payment of finance lease obligations | | | | (2,522 | ) | (1,061 | ) | (5,165 | ) | (1,918 | ) |
Common shares issued for cash (net of share issue costs) | | 10(a) | | — | | 4,961 | | — | | 4,961 | |
Exercise of stock options | | | | 601 | | 140 | | 678 | | 195 | |
Net cash used in financing activities | | | | (4,783 | ) | (9,925 | ) | (11,710 | ) | (14,802 | ) |
| | | | | | | | | | | |
Impact of foreign exchange on cash balances | | | | (56 | ) | (14 | ) | 28 | | (6 | ) |
| | | | | | | | | | | |
Increase in cash and cash equivalents during the period | | | | 10,713 | | 14,214 | | 27,063 | | 19,913 | |
Cash and cash equivalents at beginning of period | | | | 70,720 | | 38,819 | | 54,370 | | 33,120 | |
Cash and cash equivalents at end of period | | | | $ | 81,433 | | $ | 53,033 | | $ | 81,433 | | $ | 53,033 | |
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)
| | | | | | | | | | Reserves | | | | | |
| | | | Share capital | | Equity portion | | | | | | Investment | | | | | |
| | | | Shares | | | | of convertible | | | | Share based | | revaluation | | | | | |
| | Note | | (‘000s) | | Amount | | debentures | | Warrants | | payments | | reserve | | Deficit | | Equity | |
At January 1, 2015 | | | | 435,433 | | $ | 1,033,623 | | $ | 14,753 | | $ | 2,469 | | $ | 29,828 | | $ | — | | $ | (608,621 | ) | $ | 472,052 | |
Shares issued as part of impact and benefit agreement, net of share issuance costs of $15 | | 8 | | 50 | | 41 | | — | | — | | — | | — | | — | | 41 | |
Share based payments | | 10(b(ii)) | | — | | — | | — | | — | | 612 | | — | | — | | 612 | |
Stock options exercised (including transfer from reserves of $285) | | | | 1,184 | | 978 | | — | | — | | (285 | ) | — | | — | | 693 | |
Net earnings and comprehensive income | | | | — | | — | | — | | — | | — | | — | | 13,780 | | 13,780 | |
Other comprehensive income, net of tax | | | | — | | — | | — | | — | | — | | (98 | ) | — | | (98 | ) |
Total comprehensive (loss) income | | | | | | | | | | | | | | (98 | ) | 13,780 | | | |
At June 30, 2015 | | | | 436,667 | | $ | 1,034,642 | | $ | 14,753 | | $ | 2,469 | | $ | 30,155 | | $ | (98 | ) | $ | (594,841 | ) | $ | 487,080 | |
| | | | | | | | Equity portion | | Reserves | | | | | |
| | | | Share capital | | of convertible | | | | Share based | | Investment | | | | | |
| | Note | | Shares (‘000s) | | Amount | | debentures | | Warrants | | payments | | revaluation reserve | | Deficit | | Equity | |
At January 1, 2014 | | | | 416,620 | | $ | 1,017,262 | | $ | 14,753 | | $ | 2,469 | | $ | 28,682 | | $ | 237 | | $ | (632,235 | ) | $ | 431,168 | |
Flow through shares issued | | 10(a) | | 5,300 | | 4,077 | | — | | — | | — | | — | | — | | 4,077 | |
Shares issued as part of impact and benefit agreement | | | | 50 | | 45 | | — | | — | | — | | — | | — | | 45 | |
Share based payments | | 10(b(ii)) | | — | | — | | — | | — | | 681 | | — | | — | | 681 | |
Stock options exercised (including transfer from share based payments reserves of $72) | | | | 225 | | 268 | | — | | — | | (72 | ) | — | | — | | 196 | |
Net income | | | | — | | — | | — | | — | | — | | — | | 17,494 | | 17,494 | |
Other comprehensive loss, net of tax | | | | — | | — | | — | | — | | — | | (138 | ) | — | | (138 | ) |
Total comprehensive loss | | | | | | | | | | | | | | (138 | ) | 17,494 | | 17,356 | |
At June 30, 2014 | | | | 422,195 | | $ | 1,021,652 | | $ | 14,753 | | $ | 2,469 | | $ | 29,291 | | $ | 99 | | $ | (614,741 | ) | $ | 453,523 | |
Flow through shares issued | | | | 12,900 | | 11,575 | | — | | — | | — | | — | | — | | 11,575 | |
Share based payments | | | | — | | — | | — | | — | | 653 | | — | | — | | 653 | |
Stock options exercised (including transfer from share based payments reserves of $116) | | | | 338 | | 396 | | — | | — | | (116 | ) | — | | — | | 280 | |
Net income and comprehensive income | | | | — | | — | | — | | — | | — | | — | | 6,120 | | 6,120 | |
Other comprehensive loss, net of tax | | | | — | | — | | — | | — | | — | | (99 | ) | — | | (99 | ) |
Total comprehensive income | | | | | | | | | | | | | | (99 | ) | 6,120 | | — | |
At December 31, 2014 | | | | 435,433 | | $ | 1,033,623 | | $ | 14,753 | | $ | 2,469 | | $ | 29,828 | | $ | — | | $ | (608,621 | ) | $ | 472,052 | |
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(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, 2014, except as noted below under changes in accounting policies. These condensed consolidated interim financial statements do not contain all disclosures required by International Financial Reporting Standards (“IFRS”) and accordingly should be read in conjunction with the 2014 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 July 29, 2015.
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 2014 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 2014 annual consolidated financial statements.
CHANGES IN ACCOUNTING POLICIES
The Company has adopted the following new standard, along with any consequential amendments, effective January 1, 2015. These changes were made in accordance with the applicable transitional provisions.
IFRS 8, Operating Segments
On December 12, 2013 the IASB amended IFRS 8, Operating Segments (“IFRS 8”). The amendments add a disclosure requirement for the aggregation of operating segments and clarify the reconciliation of the total reportable segments’ assets to the entity’s assets. The amendments are effective for annual periods beginning on or after July 1, 2014. The amendments 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 SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE
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.
On April 28, 2015, the IASB proposed to defer the mandatory effective date of IFRS 15 by one year to January 1, 2018 (with earlier application still permitted). The Company is currently evaluating the impact of IFRS 15 on its condensed consolidated interim 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 condensed consolidated interim 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 condensed consolidated interim financial statements.
IFRS 11, Joint Arrangements
On May 6, 2014 the IASB amended IFRS 11, Joint Arrangements (“IFRS 11”). The amendments add new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a
2
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
business. The amendments are effective for annual periods beginning on or after January 1, 2016. These amendments will not impact the Company’s condensed consolidated interim financial statements.
IAS 1, Presentation of Financial Statements
On December 18, 2014 the IASB amended IAS 1, Presentation of Financial Statements (“IAS 1”). The amendments to existing IAS 1 requirements relate to materiality; order of the notes; subtotals; accounting policies; and disaggregation. The amendments are effective for annual periods beginning on or after January 1, 2016. The Company is currently evaluating the impact of these amendments on its condensed consolidated interim financial statements.
IAS 19, Employee Benefits
On November 13, 2013 the IASB amended IAS 19, Employee Benefits (“IAS 19”). The amendments provide additional guidance to IAS 19 on the accounting for contributions from employees or third parties set out in the formal terms of a defined benefit plan. The amendments are effective for annual periods beginning on or after July 1, 2014. IAS 19 was further amended on July 30, 2014. The amendments to IAS 19 clarify the application of the requirements of IAS 19 on determination of the discount rate to a regional market consisting of multiple countries sharing the same currency. The amendments are effective for annual periods beginning on or after January 1, 2016. The amendments will not impact the Company’s condensed consolidated interim financial statements.
IAS 38, Intangible Assets
On May 12, 2014 the IASB amended IAS 38, Intangible Assets (“IAS 38”). The amendments clarify that an amortization method based on revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. However, the amendments provide limited circumstances when a revenue based method can be an appropriate basis for amortization. The amendments are effective for annual periods beginning on or after January 1, 2016. The Company is currently evaluating the impact of these amendments on its condensed consolidated interim financial statements.
3. PRODUCTION COSTS
| | Three months ended June 30, | | Six months ended June 30, | |
| | 2015 | | 2014 | | 2015 | | 2014 | |
Raw materials and consumables | | $ | 12,859 | | $ | 13,084 | | $ | 28,402 | | $ | 27,358 | |
Salaries and employee benefits | | 10,795 | | 9,330 | | 20,545 | | 18,159 | |
Contractors | | 5,112 | | 5,456 | | 9,919 | | 11,049 | |
Definition and delineation drilling | | 976 | | 1,093 | | 2,010 | | 2,394 | |
Royalties | | 1,387 | | 1,753 | | 3,141 | | 3,083 | |
Rentals and operating leases | | 266 | | 242 | | 512 | | 543 | |
Change in inventories | | 2,127 | | 1,680 | | 2,124 | | (464 | ) |
Share based payments | | 93 | | 88 | | 232 | | 183 | |
Other | | 174 | | 6 | | 335 | | 100 | |
| | $ | 33,789 | | $ | 32,732 | | $ | 67,220 | | $ | 62,405 | |
3
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
4. OTHER INCOME (LOSS), NET
| | Three months ended June 30, | | Six months ended June 30, | |
| | 2015 | | 2014 | | 2015 | | 2014 | |
Unrealized and realized gain on embedded derivatives note 9(b(i)) | | $ | 870 | | $ | 803 | | $ | 2,757 | | $ | 1,789 | |
Unrealized and realized foreign exchange loss, net | | (902 | ) | (804 | ) | (2,705 | ) | (2,397 | ) |
Amortization of deferred premium on flow through shares note 10(a) | | 1,192 | | — | | 2,072 | | — | |
Write down of unamortized transaction costs on loan prepayment note 9(b(ii)) | | — | | (964 | ) | — | | (964 | ) |
Gain on deemed disposition of investment in associates note 7(a) | | — | | 1,038 | | — | | 1,038 | |
Other income (loss), net | | $ | 1,160 | | $ | 73 | | $ | 2,124 | | $ | (534 | ) |
Unrealized and realized foreign exchange loss for the three and six months ended June 30, 2015 includes $871 and $2,759, respectively, of unrealized and realized loss (same periods in 2014 —$789 and $2,391, respectively) from certain embedded derivatives (note 9(b(i)).
5. FINANCE INCOME AND FINANCE EXPENSE
| | Three months ended June 30, | | Six months ended June 30, | |
| | 2015 | | 2014 | | 2015 | | 2014 | |
Interest income on bank deposits | | $ | 175 | | $ | 112 | | $ | 389 | | $ | 201 | |
Finance income | | $ | 175 | | $ | 112 | | $ | 389 | | $ | 201 | |
Borrowing costs and other interest expense | | $ | (3,186 | ) | $ | (4,958 | ) | $ | (6,534 | ) | $ | (9,968 | ) |
Unwinding of the discount on environmental rehabilitation provision | | (15 | ) | (19 | ) | (27 | ) | (37 | ) |
Finance expense | | $ | (3,201 | ) | $ | (4,977 | ) | $ | (6,561 | ) | $ | (10,005 | ) |
Net finance items | | $ | (3,026 | ) | $ | (4,865 | ) | $ | (6,172 | ) | $ | (9,804 | ) |
Borrowing costs for the three and six months ended June 30, 2015 and 2014 include the following:
| | Three months ended June 30, | | Six months ended June 30, | |
| | 2015 | | 2014 | | 2015 | | 2014 | |
Gold Loan interest expense and amortization of transaction costs note 9(b) | | $ | 197 | | $ | 929 | | $ | 631 | | $ | 1,995 | |
Standby Line interest expense and unwinding of discount | | — | | 1,132 | | — | | 2,352 | |
Debentures interest and accretion | | 2,814 | | 2,671 | | 5,615 | | 5,319 | |
Borrowing costs | | $ | 3,011 | | $ | 4,732 | | $ | 6,246 | | $ | 9,666 | |
Other interest expense includes bank charges and interest expense related to finance leases of $176 and $288, respectively for the three and six months ended June 30, 2015 (same periods in 2014 - $226 and $302, respectively).
6. INVENTORIES AND STOCKPILED ORE
As at | | June 30, 2015 | | December 31, 2014 | |
Gold in circuit | | $ | 7,926 | | $ | 8,170 | |
Stockpiled ore | | 2,843 | | 4,304 | |
Bullion | | 3,046 | | 5,118 | |
Materials and supplies inventory | | 8,478 | | 7,858 | |
| | $ | 22,293 | | $ | 25,450 | |
4
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
The cost of inventories and stockpiled ore recognized as an expense during the three and six months ended June 30, 2015 (excluding royalty expense of $1,387 and $3,141, respectively) is $32,402 and $64,079 (same periods in 2014 — $30,979 and $59,322, respectively, excluding royalty expense of $1,753 and $3,083). There were no write downs or reversals of write downs of inventory to net realizable value during the three and six months ended June 30, 2015 and 2014.
7. AVAILABLE FOR SALE FINANCIAL ASSETS AND INVESTMENT IN ASSOCIATE
(a) Available for sale financial asset
In connection with the sale in 2012 of the Company’s Mexican property portfolio to IDM Mining Ltd. (“IDM”), IDM agreed to pay to the Company, on or before December 31, 2017, $5,000 or, at IDM’s election, issue common shares of IDM having an equivalent market value (subject to an upper limit of 25 million shares). On June 10, 2015, the Company and IDM, signed a letter of intent (‘the “letter of intent”) whereby it was agreed that conditional upon and in connection with the closing of a non-brokered private placement (the “Financing”) announced by IDM, the Company will agree to accept the following in full satisfaction of the $5,000 obligation:
· 7,500,000 common shares of IDM;
· Warrants to acquire 20,000,000 common shares of IDM at an exercise price of $0.20 per common share, exercisable at any time during the 60 months following issuance, provided that if IDM shares trade on a public market at or above a price of $0.40 per share for 20 consecutive trading days (subject to standard adjustment provisions in the event of any stock split or consolidation), the Company will be required to exercise the warrants within 30 days.
The Company also agreed to participate in the Financing in the amount of $250 by acquiring 2,500,000 common shares and warrants to acquire 1,250,000 common shares at a purchase price of $0.15 at any time during the 24 months following issuance. For so long as the Company holds common shares of IDM representing not less than 9.9% of the issued and outstanding common shares of IDM, Lake Shore Gold shall have the right, but not the obligation, to nominate one director to the board of directors of IDM.
The Financing is subject to shareholder and other regulatory approvals.
The Company currently holds 4,452,290 shares of IDM, representing approximately 9% of IDM’s issued and outstanding shares, and would hold approximately 19% (not including the exercise of any warrants) following the completion of the transaction.
In the second quarter of 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; the investment in IDM was transferred from investments in associates to to available for sale investments since IDM was no longer considered an associate of the Company and the Company recorded a gain of $1,038 on the transfer.
5
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
(b) Investment in associate
The Company’s investment in associate is as follows:
| | June 30, 2015 | | December 31, 2014 | |
As at | | Net book value | | Fair value | | Net book value | | Fair value | |
Northern Superior Resources Inc. | | $ | 586 | | $ | 1,573 | | $ | 586 | | $ | 1,123 | |
| | | | | | | | | | | | | |
8. MINING INTERESTS
Period ended June 30, 2015 | | Depletable | | Non
depletable | | Total | | Plant and
equipment | | Total | |
Cost | | | | | | | | | | | |
At January 1, 2015 | | $ | 455,240 | | $ | 105,182 | | $ | 560,422 | | $ | 191,001 | | $ | 751,423 | |
Additions, including transfer from construction in progress of $3,337 | | 20,949 | | — | | 20,949 | | 8,329 | | 29,278 | |
Construction in progress | | — | | — | | — | | (303 | ) | (303 | ) |
Acquisition of mining interest | | — | | 709 | | 709 | | — | | 709 | |
Change in estimate and discount rate (environmental closure assets) | | 847 | | — | | 847 | | — | | 847 | |
Disposals | | — | | — | | — | | (1,991 | ) | (1,991 | ) |
Cost at June 30, 2015 | | $ | 477,036 | | $ | 105,891 | | $ | 582,927 | | $ | 197,036 | | $ | 779,963 | |
Accumulated depreciation and depletion | | | | | | | | | | | |
At January 1, 2015 | | $ | 153,256 | | $ | — | | $ | 153,256 | | $ | 70,718 | | $ | 223,974 | |
Depreciation | | — | | — | | — | | 6,307 | | 6,307 | |
Depletion | | 34,428 | | — | | 34,428 | | — | | 34,428 | |
Disposals | | — | | — | | — | | (1,982 | ) | (1,982 | ) |
Accumulated depreciation and depletion at June 30, 2015 | | $ | 187,684 | | $ | — | | $ | 187,684 | | $ | 75,043 | | $ | 262,727 | |
Carrying value at June 30, 2015 | | $ | 289,352 | | $ | 105,891 | | $ | 395,243 | | $ | 121,993 | | $ | 517,236 | |
6
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
Year ended December 31, 2014 | | Depletable | | Non
depletable | | Total | | Plant and
equipment | | Total | |
Cost | | | | | | | | | | | |
At January 1, 2014 | | $ | 412,059 | | $ | 104,509 | | $ | 516,568 | | $ | 165,666 | | $ | 682,234 | |
Additions | | 43,181 | | 673 | | 43,854 | | 20,781 | | 64,635 | |
Construction in progress | | — | | — | | — | | 4,554 | | 4,554 | |
Cost at December 31, 2014 | | $ | 455,240 | | $ | 105,182 | | $ | 560,422 | | $ | 191,001 | | $ | 751,423 | |
Accumulated depreciation and depletion | | | | | | | | | | | |
At January 1, 2014 | | $ | 93,228 | | $ | — | | $ | 93,228 | | $ | 57,421 | | $ | 150,649 | |
Depreciation | | — | | — | | — | | 13,297 | | 13,297 | |
Depletion | | 60,028 | | — | | 60,028 | | — | | 60,028 | |
Accumulated depreciation and depletion at December 31, 2014 | | $ | 153,256 | | $ | — | | $ | 153,256 | | $ | 70,718 | | $ | 223,974 | |
Carrying amount at December 31, 2014 | | $ | 301,984 | | $ | 105,182 | | $ | 407,166 | | $ | 120,283 | | $ | 527,449 | |
On January 5, 2015, the Company entered into an agreement to acquire a 100% interest in the Vogel property, located contiguous to the Bell Creek Mine, for $654; the agreement closed on March 3, 2015. Previously the Company had a mining lease on the property and was paying an advance royalty.
During the first quarter of 2015, the Company issued 50,000 common shares to certain First Nation communities, under an Impact and Benefits Agreement, valued at $56 and capitalized in mining interests.
The depreciation of plant and equipment utilized in capital development is capitalized ($204 and $545, respectively for the three and six months ended June 30, 2015; $306 and $651, respectively for same periods in 2014).
Exploration Spending
Exploration and evaluation of $6,827 and $11,981, respectively for the three and six months ended June 30, 2015, includes $6,571 and $11,447, respectively, on drilling and other exploration work at the 144 property ($213 and $447 for the same periods in 2014, respectively, with $Nil spending at the 144 property in both periods).
9. LONG TERM DEBT
As at | | June 30, 2015 | | December 31, 2014 | |
Convertible Debentures (a) | | $ | 92,084 | | $ | 89,708 | |
Gold Loan (b) | | — | | $ | 6,590 | |
| | $ | 92,084 | | $ | 96,298 | |
Current portion of long term debt (b) | | — | | 6,590 | |
Long term debt | | $ | 92,084 | | $ | 89,708 | |
7
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
(a) Convertible Debentures
As at | | June 30, 2015 | | December 31, 2014 | |
Balance at beginning of period | | $ | 89,708 | | $ | 85,292 | |
Interest expense and unwinding of discount | | 5,615 | | 10,885 | |
Interest payments | | (3,239 | ) | (6,469 | ) |
| | $ | 92,084 | | $ | 89,708 | |
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 $1.0 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.
(b) Sprott Resource Lending Partnership Credit Facility
On June 14, 2012, the Company signed a financing agreement (“Initial 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 involved 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. The annual interest rate for the Standby Line was 9.75% compounded monthly.
On December 12, 2013, the Company entered into a modification agreement (the “Modification Agreement”) with Sprott whereby the Company agreed to 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.
8
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
The Gold Loan was repaid through monthly cash payments based on 947 ounces of gold each month multiplied by the Bloomberg gold closing price on the date of payment, with the last payment made on May 29, 2015. The Standby Line was fully repaid as at December 31, 2014.
The Sprott debt facility had certain financial covenants, as disclosed in note 17 of the Company’s annual consolidated financial statements. The Company was in full compliance with all debt covenants throughout the period from January 1, 2015 through the date of the last payment, May 29, 2015 and throughout the year ended December 31, 2014.
(i) Gold Loan
As at | | June 30, 2015 | | December 31, 2014 | |
Accreted principal, net of unamortized transaction costs | | $ | — | | $ | 7,315 | |
Embedded Derivative asset | | — | | (1,412 | ) |
Minimum Return Derivative liability | | — | | 687 | |
| | $ | — | | $ | 6,590 | |
Current portion of Gold Loan | | $ | — | | 7,315 | |
Current portion of embedded derivative asset | | — | | (725 | ) |
Long term portion of Gold Loan | | $ | — | | $ | — | |
As a result of the indexation of the principal repayments to the movement in the price of gold, the Gold Loan contained a derivative which was embedded in the Canadian dollar denominated debt instrument (the “Embedded Derivative”). The Embedded Derivative was marked to market at each period end with changes in fair value recorded as other income (loss) 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 was 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 was equivalent to the additional amount (if any) the Company would have to pay at the maturity of the Gold Loan to ensure the return to Sprott was at least 7.5%; the derivative was marked to market at each period end with changes in fair value recorded as unrealized derivative gain (loss). At May 29, 2015 (the last payment on the Gold Loan), the Company paid $92 for the Minimum Return Derivative.
9
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
Gold Loan changes for three and six months ended June 30, 2015 and 2014 were as follows:
| | Three months ended June 30, 2015 | | Six months ended June 30, 2015 | |
| | Accreted
Principal | | Transaction
Costs | | Total | | Accreted
Principal | | Transaction
Costs | | Total | |
At beginning of period | | $ | 3,126 | | $ | (136 | ) | $ | 2,990 | | $ | 7,650 | | $ | (335 | ) | $ | 7,315 | |
Cash payments | | (2,862 | ) | — | | (2,862 | ) | (7,223 | ) | — | | (7,223 | ) |
Interest expense | | 61 | | 136 | | 197 | | 296 | | 335 | | 631 | |
Realized derivative gain | | (860 | ) | — | | (860 | ) | (2,070 | ) | — | | (2,070 | ) |
Realized foreign exchange loss | | 535 | | — | | 535 | | 1,347 | | — | | 1,347 | |
At June 30, 2015 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | Three months ended June 30, 2014 | | Six months ended June 30, 2014 | |
| | Accreted
Principal | | Transaction
Costs | | Total | | Accreted
Principal | | Transaction
Costs | | Total | |
At beginning of period | | $ | 20,085 | | $ | (942 | ) | $ | 19,143 | | $ | 23,895 | | $ | (1,141 | ) | $ | 22,754 | |
Cash payments | | (3,966 | ) | — | | (3,966 | ) | (8,041 | ) | — | | (8,041 | ) |
Interest expense | | 727 | | 202 | | 929 | | 1,594 | | 401 | | 1,995 | |
Realized derivative gain | | (927 | ) | — | | (927 | ) | (1,845 | ) | — | | (1,845 | ) |
Realized foreign exchange loss | | 202 | | — | | 202 | | 519 | | — | | 519 | |
At June 30, 2014 | | $ | 16,121 | | $ | (740 | ) | $ | 15,381 | | $ | 16,122 | | $ | (740 | ) | $ | 15,382 | |
Embedded Derivative and Minimum Return Derivative (together “the embedded derivatives”) movements for the three and six months ended June 30, 2015 and 2014 were as follows:
| | Three months ended June 30, 2015 | | Six months ended June 30, 2015 | |
Embedded derivatives | | Embedded
Derivative
(asset)
liability | | Minimum
Return
Derivative
liability | | Total | | Embedded
Derivative
(asset)
liability | | Minimum
Return
Derivative
liability | | Total | |
At beginning of period | | $ | (336 | ) | $ | 10 | | $ | (326 | ) | $ | (1,412 | ) | $ | 687 | | $ | (725 | ) |
Unrealized derivative gain | | — | | (10 | ) | (10 | ) | — | | (687 | ) | (687 | ) |
Unrealized foreign exchange loss | | 336 | | — | | 336 | | 1,412 | | — | | 1,412 | |
At June 30, 2015 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | Three months ended June 30, 2014 | | Six months ended June 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 | | $ | (3,079 | ) | $ | — | | $ | (3,079 | ) | $ | (6,702 | ) | $ | 2,406 | | $ | (4,296 | ) |
Unrealized derivative (gain) loss | | (67 | ) | 191 | | 124 | | 2,271 | | (2,215 | ) | 56 | |
Unrealized foreign exchange loss | | 587 | | — | | 587 | | 1,872 | | — | | 1,872 | |
At June 30, 2014 | | $ | (2,559 | ) | $ | 191 | | $ | (2,368 | ) | $ | (2,559 | ) | $ | 191 | | $ | (2,368 | ) |
(ii) Standby Line
As at December 31, 2014, the Standby Line was fully repaid with $5,000 paid in December 2013 and the remaining balance of $30,000 paid in 2014, the latter including $10,000 on June 4 without penalty and $20,000 on December 31 together with a 6% prepayment fee ($1,200) and a 1% rollover fee ($200) as provided in the Modification Agreement. $3,356 of unamortized transaction costs were written off as at
10
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
December 31, 2014 ($964 for the three and six months ended June 30, 2014 related to the prepayment on June 4).
During the three and six months ended June 30, 2015 the Company incurred $Nil of interest expense and unwinding of discount related to the Standby Line (same periods in 2014 - $1,132 and $2,352, respectively), and paid $Nil in respect of interest expense (same periods in 2014 - $1,400 and $3,157, respectively).
10. EQUITY
a) Share capital
In 2014, the Company raised gross proceeds of $20,128 by issuing flow through common shares under two private placements (5,300,000 flow through common shares at $0.95 per flow through share issued in May 2014 and 12,900,000 flow through common shares at $1.17 per flow through share issued in December 2014). The net proceeds from the flow through financings of $19,310 were recorded as share capital ($15,652) and deferred premium liability ($3,658). The Company has until December 31, 2015 to spend the flow through funds raised in 2014 on eligible Canadian exploration expenditures (“CEE”). The Company has spent $11,398 on CEE to June 30, 2015 ($2,980 to December 31, 2014).
During the three and six months ended June 30, 2015, the Company amortized $1,192 and $2,072 (same periods in 2014 - $Nil) of deferred premium (recorded in other income (loss)).
b) Reserves
i) Share Options
As at June 30, 2015, the Company had 19,963,727 options outstanding of which 11,095,393 are exercisable. Movements in share options during the six months ended June 30, 2015 and 2014 were as follows:
| | June 30, 2015 | | June 30, 2014 | |
| | Number of
options | | Weighted-
average
exercise price | | Number of options | | Weighted-average
exercise price | |
Outstanding, beginning of year | | 21,915,856 | | $ | 1.55 | | 24,245,365 | | $ | 1.89 | |
Granted | | — | | — | | 495,000 | | $ | 0.79 | |
Forfeited and expired | | (768,000 | ) | $ | 2.24 | | (1,888,650 | ) | $ | 2.19 | |
Exercised | | (1,184,129 | ) | $ | 0.58 | | (225,000 | ) | $ | 0.87 | |
Outstanding, end of period | | 19,963,727 | | $ | 1.58 | | 22,626,715 | | $ | 1.86 | |
Exercisable, end of period | | 11,095,393 | | | | 11,231,000 | | | |
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 six months ended June 30, 2015, the Company recognized $891 and $1,800, respectively (same periods in 2014, $594 and $1,121) of share based payment expense related to PSUs
11
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
and DSUs. Share based liabilities at June 30, 2015 and December 31, 2014 were $3,503 and $2,088, respectively ($1,820 and $394 current share based liability, respectively at June 30, 2015 and December 31, 2014).
Share based payment expense recognized for the period is allocated to production costs (expense related to stock options granted to mine employees) and general and administrative costs (expense related to PSUs, DSUs and stock options granted to directors and corporate employees).
The allocation of the share based payment expense (including stock options related expense and PSUs and DSUs expense) in the condensed consolidated statements of comprehensive income for the three and six month periods ended June 30, 2015 and 2014 is as follows:
| | Three months ended June 30, | | Six months ended June 30, | |
| | 2015 | | 2014 | | 2015 | | 2014 | |
General and administrative | | $ | 1,117 | | $ | 854 | | 2,240 | | 1,606 | |
Production costs | | 93 | | 101 | | 232 | | 196 | |
Total share based payment expense | | $ | 1,210 | | $ | 955 | | $ | 2,472 | | $ | 1,802 | |
| | | | | | | | | | | | | |
c) Basic and diluted earnings per share
The basic and diluted earnings per share for the three and six months ended June 30, 2015 and 2014 is calculated as shown in the table below. The diluted earnings per share for the three and six months ended June 30, 2015 and 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.
| | Three months ended June 30, | | Six months ended June 30, | |
| | 2015 | | 2014 | | 2015 | | 2014 | |
Net earnings | | $ | 1,714 | | $ | 12,907 | | $ | 13,780 | | $ | 17,494 | |
Weighted average basic number of common shares outstanding (in ‘000s) | | 436,002 | | 419,019 | | 435,763 | | 417,840 | |
Basic earnings per share | | $ | 0.00 | | $ | 0.03 | | $ | 0.03 | | $ | 0.04 | |
| | | | | | | | | |
Weighted average diluted number of common shares outstanding (in ‘000s) | | 441,520 | | 421,936 | | 441,138 | | 420,564 | |
Diluted earnings per share | | $ | 0.00 | | $ | 0.03 | | $ | 0.03 | | $ | 0.04 | |
Weighted average diluted number of common shares for the three and six months ended June 30, 2015 and 2014 is calculated as follows:
| | Three months ended June 30, | | Six months ended June 30, | |
| | 2015 | | 2014 | | 2015 | | 2014 | |
Weighted average commons share outstanding | | 436,002 | | 419,019 | | 435,763 | | 417,840 | |
In the money shares - share options | | 5,518 | | 2,917 | | 5,375 | | 2,724 | |
Weighted average diluted number of common shares outstanding | | 441,520 | | 421,936 | | 441,138 | | 420,564 | |
12
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
11. SUPPLEMENTAL CASH FLOW INFORMATION
| | Three months ended June 30, | | Six months ended June 30, | |
| | 2015 | | 2014 | | 2015 | | 2014 | |
Change in operating working capital | | | | | | | | | |
(Increase) decrease in receivables and prepaids | | $ | (28 | ) | $ | 1,282 | | $ | (80 | ) | $ | (279 | ) |
Decrease (increase) in inventories and stockpiled ore | | 2,151 | | 246 | | 1,592 | | (3,730 | ) |
Increase (decrease) in accounts payable and accrued liabilities | | 234 | | (3,213 | ) | 1,914 | | 2,413 | |
Decrease in current portion of share based payments | | (385 | ) | — | | (385 | ) | — | |
| | $ | 1,972 | | $ | (1,685 | ) | $ | 3,041 | | $ | (1,596 | ) |
| | | | | | | | | |
Cash and cash equivalents at June 30 consist of: | | | | | | | | | |
Cash | | | | | | $ | 34,146 | | $ | 33,033 | |
Short term investments | | | | | | 47,287 | | 20,000 | |
| | | | | | $ | 81,433 | | $ | 53,033 | |
| | Three months ended June 30, | | Six months ended June 30, | |
| | 2015 | | 2014 | | 2015 | | 2014 | |
Non-cash investing and financing activities | | | | | | | | | |
Mining interests | | | | | | | | | |
Reduction (increase) in working capital related to mining interests | | $ | 1,039 | | $ | (1,486 | ) | $ | 721 | | $ | (2,642 | ) |
Shares issued as part of impact and benefit agreement | | — | | — | | 56 | | 45 | |
| | $ | 1,039 | | $ | (1,486 | ) | $ | 777 | | $ | (2,597 | ) |
Share Capital | | | | | | | | | |
Transfer of amounts from contributed surplus | | 257 | | 51 | | 285 | | 72 | |
Shares issued as part of impact and benefit agreement | | — | | — | | 56 | | 45 | |
Deferred premium on flow through financing | | — | | (885 | ) | — | | (885 | ) |
| | $ | 257 | | (834 | ) | $ | 341 | | $ | (768 | ) |
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, 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 SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
As at and for the three months ended June 30, 2015
| | Mining
operations* | | Exploration and
advanced
exploration** | | Corporate | | Total | |
Revenue | | $ | 67,442 | | $ | — | | $ | — | | $ | 67,442 | |
Earnings from mine operations | | 14,205 | | — | | — | | 14,205 | |
Expenses | | | | | | | | | |
General and administrative | | — | | — | | (3,798 | ) | (3,798 | ) |
Exploration and evaluation | | — | | (6,827 | ) | — | | (6,827 | ) |
Earnings (loss) from operations | | 14,205 | | (6,827 | ) | (3,798 | ) | 3,580 | |
Other income | | — | | — | | 1,160 | | 1,160 | |
Finance items (net) | | — | | — | | (3,026 | ) | (3,026 | ) |
Net earnings (loss) | | $ | 14,205 | | $ | (6,827 | ) | $ | (5,664 | ) | $ | 1,714 | |
Expenditures on mining interests including movements in working capital | | 10,539 | | $ | — | | $ | — | | $ | 10,539 | |
Total assets | | $ | 443,802 | | $ | 105,915 | | $ | 83,771 | | $ | 633,488 | |
Total liabilities | | $ | 46,802 | | $ | — | | $ | 99,606 | | $ | 146,408 | |
Three months ended June 30, 2014
| | Mining operations* | | Exploration and
advanced exploration** | | Corporate | | Total | |
Revenue | | $ | 75,091 | | $ | — | | $ | — | | $ | 75,091 | |
Earnings from mine operations | | 22,058 | | — | | — | | 22,058 | |
Expenses | | | | | | | | | |
General and administrative | | — | | — | | (4,033 | ) | (4,033 | ) |
Exploration and evaluation | | — | | (213 | ) | — | | (213 | ) |
Share of loss of investments in associates | | — | | — | | (113 | ) | (113 | ) |
Earnings (loss) from operations and associates | | 22,058 | | (213 | ) | (4,146 | ) | 17,699 | |
Other loss | | — | | — | | 73 | | 73 | |
Finance items (net) | | — | | — | | (4,865 | ) | (4,865 | ) |
Net earnings (loss) | | $ | 22,058 | | $ | (213 | ) | $ | (8,938 | ) | $ | 12,907 | |
Expenditures on mining interests including movements in working capital | | $ | 12,675 | | $ | — | | $ | — | | $ | 12,675 | |
As at December 31, 2014 | | | | | | | | | |
Total assets | | $ | 454,611 | | $ | 105,182 | | $ | 59,885 | | $ | 619,678 | |
Total liabilities | | $ | 42,024 | | $ | — | | $ | 105,602 | | $ | 147,626 | |
14
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
As at and for the six months ended June 30, 2015
| | Mining operations* | | Exploration and
advanced
exploration** | | Corporate | | Total | |
Revenue | | $ | 146,566 | | $ | — | | $ | — | | $ | 146,566 | |
Earnings from mine operations | | 37,550 | | — | | — | | 37,550 | |
Expenses | | | | | | | | | |
General and administrative | | — | | — | | (7,741 | ) | (7,741 | ) |
Exploration and evaluation | | — | | (11,981 | ) | — | | (11,981 | ) |
Earnings (loss) from operations and associate | | 37,550 | | (11,981 | ) | (7,741 | ) | 17,828 | |
Other income | | — | | — | | 2,124 | | 2,124 | |
Finance items (net) | | — | | — | | (6,172 | ) | (6,172 | ) |
Net earnings (loss) | | $ | 37,550 | | $ | (11,981 | ) | $ | (11,789 | ) | $ | 13,780 | |
Expenditures on mining interests including movements in working capital | | $ | 22,492 | | $ | 709 | | $ | — | | $ | 23,201 | |
Total assets | | $ | 443,802 | | $ | 105,915 | | $ | 83,771 | | $ | 633,488 | |
Total liabilities | | $ | 46,802 | | $ | — | | $ | 99,606 | | $ | 146,408 | |
Six months ended June 30, 2014
| | Mining operations* | | Exploration and
advanced
exploration** | | Corporate | | Total | |
Revenue | | $ | 136,550 | | $ | — | | $ | — | | $ | 136,550 | |
Earnings from mine operations | | 36,347 | | — | | — | | 36,347 | |
Expenses | | | | | | | | | |
General and administrative | | — | | — | | (7,686 | ) | (7,686 | ) |
Exploration and evaluation | | — | | (447 | ) | — | | (447 | ) |
Share of loss of investments in associates | | — | | — | | (382 | ) | (382 | ) |
Earnings (loss) from operations and associates | | 36,347 | | (447 | ) | (8,068 | ) | 27,832 | |
Other loss | | — | | — | | (534 | ) | (534 | ) |
Finance items (net) | | — | | — | | (9,804 | ) | (9,804 | ) |
Net earnings (loss) | | $ | 36,347 | | $ | (447 | ) | $ | (18,406 | ) | $ | 17,494 | |
Expenditures on mining interests including movements in working capital | | $ | 26,787 | | $ | — | | $ | — | | $ | 26,787 | |
As at December 31, 2014 | | | | | | | | | |
Total assets | | $ | 454,611 | | $ | 105,182 | | $ | 59,885 | | $ | 619,678 | |
Total liabilities | | $ | 42,024 | | $ | — | | $ | 105,602 | | $ | 147,626 | |
* Mining operations include activities on the Company’s Timmins West Mine, Bell Creek Mine and Bell Creek Mill.
15
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
** Exploration and advanced exploration include green field exploration (which is expensed on the consolidated statement of comprehensive income) 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.
13. FINANCIAL INSTRUMENTS
CARRYING VALUES OF FINANCIAL INSTRUMENTS
The carrying values of the financial assets and liabilities at June 30, 2015 and December 31, 2014 are as follows:
As at, | | June 30, 2015 | | December 31, 2014 | |
Financial Assets | | | | | |
At fair value through profit or loss | | | | | |
Cash and cash equivalents | | $ | 81,433 | | $ | 54,370 | |
Restricted cash | | 7,726 | | 7,418 | |
Embedded Derivative asset note 9(b) | | — | | 1,412 | |
| | $ | 89,159 | | $ | 63,200 | |
Loans and receivable, measured at amortized cost | | | | | |
Receivables | | $ | 2,982 | | $ | 3,395 | |
Available-for-sale, measured at fair value | | | | | |
Investments in public companies | | $ | 610 | | $ | 708 | |
Financial Liabilities | | | | | |
At fair value through profit or loss | | | | | |
Minimum Return Derivative liability note 9(b) | | $ | — | | $ | 687 | |
Other financial liabilities, measured at fair value | | | | | |
Share based liabilities | | $ | 3,503 | | $ | 2,088 | |
Other financial liabilities, measured at amortized cost | | | | | |
Accounts payable and accrued liabilities | | $ | 28,969 | | $ | 26,531 | |
Long term debt note 9 | | 92,084 | | 96,298 | |
| | $ | 121,053 | | $ | 122,829 | |
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 June 30, 2015 is $116,934 (December 31, 2014 - $97,021).
16
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
The fair value hierarchy of financial instruments measured at fair value on the balance sheet is as follows:
As at | | June 30, 2015 | | December 31, 2014 | |
| | Level 1 | | Level 1 | |
Cash and cash equivalents | | $ | 81,433 | | $ | 54,370 | |
Restricted cash | | $ | 7,726 | | $ | 7,418 | |
Investments in public companies | | $ | 610 | | $ | 708 | |
| | Level 2 | | Level 2 | |
Gold Loan liability | | $ | — | | $ | 7,049 | |
Embedded Derivative asset note 9(b) | | $ | — | | $ | 1,412 | |
Minimum Return Derivative liability note 9(b) | | $ | — | | $ | 687 | |
Share based liabilities | | $ | 3,503 | | $ | 2,088 | |
The Company does not have any financial instruments measured using Level 3 inputs. The Company does not offset financial assets with financial liabilities and there were no transfers between Level 1 and Level 2 input financial instruments.
The fair value of the gold loan liability and embedded derivative asset 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 is determined based on option pricing models that utilize a variety of inputs that are a combination of quoted prices and market corroborated inputs.
14 SUBSEQUENT EVENTS
On July 16, 2015, the Company submitted a binding proposal to Temex Resources Corp. (“Temex”) for the acquisition of all of the common shares of Temex. Under the terms of the proposal, Temex shareholders would receive, for each Temex share, 0.105 of a Lake Shore Gold share (approximately 19 million shares of the Company valued at $23,000 at July 15, 2015).
The proposal by the Company follows the announcement in June that Temex had entered into an agreement with Oban Mining Corporation (“Oban”) in respect of its proposed acquisition of all common shares of each of Eagle Hill Exploration Corporation, Ryan Gold Corp., Corona Gold Corporation and Temex (the “Oban Agreement”).
Temex has disclosed that its Board of Directors has determined that the proposed agreement with Lake Shore Gold is a “superior proposal” as defined in the Oban Agreement and has provided notice of such determination to Oban.
17
LAKE SHORE GOLD CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(in thousands of Canadian dollars, except for share information and per share amounts, unaudited)
Under the terms of the Oban Agreement, Oban has a period of ten business days expiring on July 30, 2015 (the “Response Period”) to submit an offer to amend the terms of that agreement with Temex. If, within the Response Period, Oban offers to amend the Oban Agreement such that the Temex Board determines that the proposed agreement with Lake Shore Gold is no longer a superior proposal, Temex will be required to enter into an amendment to the Oban Agreement and implement the amended agreement. In that circumstance, no agreement will be entered into between Temex and Lake Shore Gold with respect to the transaction proposed by Lake Shore Gold.
Temex has disclosed that if, within the Response Period, Oban does not offer to amend the Oban Agreement, or if the proposed Lake Shore Gold transaction continues to be superior to an amended transaction proposed by Oban, Temex may pay Oban the agreed upon termination payment of $691,856, terminate the Oban Agreement, and enter into an agreement with Lake Shore Gold to complete a transaction on the terms proposed by Lake Shore Gold. In that event, the agreement proposed by the Company would require the directors and officers of Temex to enter into lock-up agreements with respect to the transaction with Lake Shore Gold on substantially the same terms as the agreements entered into with Oban and pursuant to which, among other things, they would agree to vote their Temex common shares in favour of the Lake Shore Gold transaction at a meeting of shareholders of Temex to be called to consider such transaction.
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