GALIANO GOLD INC.
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
UNAUDITED
For the three months ended March 31, 2021 and 2020
TABLE OF CONTENTS
GALIANO GOLD INC. |
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
AS AT MARCH 31, 2021 AND DECEMBER 31, 2020 |
(In thousands of United States Dollars) |
March 31, 2021 | December 31, 2020 | ||||||
Note | $ | $ | |||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | 61,235 | 62,151 | |||||
Receivables | 248 | 186 | |||||
Receivable due from related party | 4 | 3,504 | 2,675 | ||||
Prepaid expenses and deposits | 480 | 529 | |||||
65,467 | 65,541 | ||||||
Non-current assets | |||||||
Financial assets | 5 | 75,622 | 78,299 | ||||
Investment in joint venture | 6 | 72,533 | 59,159 | ||||
Right-of-use as set | 458 | 485 | |||||
Property, plant and equipment | 110 | 106 | |||||
Exploration and evaluation assets | 7 | 1,590 | - | ||||
150,313 | 138,049 | ||||||
Total assets | 215,780 | 203,590 | |||||
Liabilities | |||||||
Current liabilities | |||||||
Accounts payable and accrued liabilities | 2,462 | 3,524 | |||||
Lease liability | 99 | 94 | |||||
2,561 | 3,618 | ||||||
Non-current liabilities | |||||||
Long-term incentive plan liability | 9 | 422 | 668 | ||||
Lease liability | 394 | 421 | |||||
816 | 1,089 | ||||||
Total liabilities | 3,377 | 4,707 | |||||
Equity | |||||||
Share capital | 8 | 579,131 | 578,750 | ||||
Equity reserves | 9 | 50,068 | 49,957 | ||||
Accumulated deficit | (416,796 | ) | (429,824 | ) | |||
Total equity | 212,403 | 198,883 | |||||
Total liabilities and equity | 215,780 | 203,590 | |||||
Commitments and contingencies | 10 |
The accompanying notes form an integral part of these condensed consolidated interim financial statements .
Approved on behalf of the Board of Directors:
"Greg McCunn" | “Marcel de Groot” | |
Director | Director |
GALIANO GOLD INC. |
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME |
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 |
(In thousands of United States Dollars, except dollar per share amounts) |
March 31, 2021 | March 31, 2020 | ||||||
Note | $ | $ | |||||
Share of net earnings related to joint venture | 6 | 13,374 | 20,534 | ||||
Service fee earned as operators of joint venture | 4 | 1,240 | 1,222 | ||||
General and administrative expenses | 11 | (3,924 | ) | (2,674 | ) | ||
Income from operations and joint venture | 10,690 | 19,082 | |||||
Finance income | 12 | 2,412 | 2,813 | ||||
Finance expense | (11 | ) | (11 | ) | |||
Foreign exchange loss | (63 | ) | (78 | ) | |||
Net income and comprehensive income for the period | 13,028 | 21,806 | |||||
Income per share: | |||||||
Basic | 0.06 | 0.10 | |||||
Diluted | 0.06 | 0.10 | |||||
Weighted average number of shares outstanding: | |||||||
Basic | 13 | 224,345,074 | 224,160,499 | ||||
Diluted | 13 | 225,016,643 | 224,272,373 |
The accompanying notes form an integral part of these condensed consolidated interim financial statements .
GALIANO GOLD INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
(In thousands of United States Dollars, except for number of common shares)
Number of shares | Share capital | Equity reserves | Accumulated deficit | Total equity | ||||||||||||
Note | $ | $ | $ | $ | ||||||||||||
Balance as at December 31, 2019 | 225,098,810 | 578,385 | 50,072 | (487,200 | ) | 141,257 | ||||||||||
Shares repurchased and cancelled under | 8(c) | (2,431,409 | ) | (2,016 | ) | - | - | (2,016 | ) | |||||||
normal course issuer bid | ||||||||||||||||
Share-based compensation expense | 9(a) | - | - | (112 | ) | - | (112 | ) | ||||||||
Net income and comprehensive income for | ||||||||||||||||
the period | - | - | - | 21,806 | 21,806 | |||||||||||
Balance as at March 31, 2020 | 222,667,401 | 576,369 | 49,960 | (465,394 | ) | 160,935 | ||||||||||
Balance as at December 31, 2020 | 224,253,522 | 578,750 | 49,957 | (429,824 | ) | 198,883 | ||||||||||
Shares issued upon exercise of share-based | 9(a) | 309,700 | 381 | (124 | ) | - | 257 | |||||||||
options | ||||||||||||||||
Share-based compensation expense | 9(a) | - | - | 235 | - | 235 | ||||||||||
Net income and comprehensive income for | ||||||||||||||||
the period | - | - | - | 13,028 | 13,028 | |||||||||||
Balance as at March 31, 2021 | 224,563,222 | 579,131 | 50,068 | (416,796 | ) | 212,403 |
The accompanying notes form an integral part of these condensed consolidated interim financial statements .
GALIANO GOLD INC. |
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 |
(In thousands of United States Dollars) |
|
March 31, 2021 | March 31, 2020 | ||||||
Note | $ | $ | |||||
Operating activities: | |||||||
Net income for the period | 13,028 | 21,806 | |||||
Adjustments for: | |||||||
Share of net earnings related to joint venture | 6 | (13,374 | ) | (20,534 | ) | ||
Depreciation | 11 | 37 | 42 | ||||
Share-based compensation | 9, 11 | 1,340 | 245 | ||||
Finance income | 12 | (2,412 | ) | (2,813 | ) | ||
Finance expense | 8 | 9 | |||||
Unrealized foreign exchange loss | 5 | 61 | |||||
Operating cash flow before working capital changes | (1,368 | ) | (1,184 | ) | |||
Change in non-cash working capital | 14 | (3,311 | ) | 339 | |||
Cash used in operating activities | (4,679 | ) | (845 | ) | |||
Investing activities: | |||||||
Redemption of preferred shares in joint venture | 5 | 5,000 | 22,500 | ||||
Acquisition of exploration and evaluation assets, net of cash acquired | 7 | (1,470 | ) | - | |||
Expenditures on property, plant and equipment | (14 | ) | (26 | ) | |||
Interest received | 28 | 56 | |||||
Cash provided by investing activities | 3,544 | 22,530 | |||||
Financing activities: | |||||||
Shares repurchased under normal course issuer bid | 8(c) | - | (2,016 | ) | |||
Shares issued upon exercise of share-based options | 9(a) | 257 | - | ||||
Office lease payments | (30 | ) | (30 | ) | |||
Cash provided by (used in) financing activities | 227 | (2,046 | ) | ||||
Impact of foreign exchange on cash and cash equivalents | (8 | ) | (151 | ) | |||
(Decrease) increase in cash and cash equivalents during the period | (916 | ) | 19,488 | ||||
Cash and cash equivalents, beginning of period | 62,151 | 31,109 | |||||
Cash and cash equivalents, end of period | 61,235 | 50,597 | |||||
Supplemental cash flow information | 14 |
The accompanying notes form an integral part of these condensed consolidated interim financial statements .
GALIANO GOLD INC. |
1. Nature of operations
Galiano Gold Inc. ("Galiano" or the "Company") was incorporated on September 23, 1999 under the Business Corporations Act of British Columbia, Canada. The Company's head office and principal address is located at 1640 - 1066 West Hastings Street, Vancouver, British Columbia, V6E 3X1, Canada. The Company's registered and records office is located at Suite 2600, Three Bentall Centre, 595 Burrard Street, Vancouver, V7X 1L3. The Company's common shares trade on the Toronto Stock Exchange ("TSX") and NYSE American Exchange ("NYSE American") under the ticker symbol "GAU".
The Company's principal business activity is the operation of the Asanko Gold Mine ("AGM") through a 50:50 joint venture arrangement (the "JV") associated with the Company's 45% economic interest in the AGM (see note 6) and exploration and development of the JV's mineral property interests. The Government of Ghana has a 10% free-carried interest in the AGM. The AGM consists of two neighboring gold projects, the Obotan Project and the Esaase Project, both located in the Amansie West District of the Republic of Ghana ("Ghana"), West Africa.
In addition to its interest in the AGM, the Company holds gold concessions in various stages of exploration. The concessions include a portfolio of Ghanaian properties through its 50% interest in the JV, in addition to exploration properties in Mali 100% owned by the Company.
2. Basis of presentation
(a) Statement of compliance
These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34 - Interim Financial Reporting, using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and Interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"). These condensed consolidated interim financial statements do not include all of the necessary annual disclosures in accordance with IFRS and should be read in conjunction with the Company's audited consolidated annual financial statements for the years ended December 31, 2020 and 2019.
The accounting policies followed in these condensed consolidated interim financial statements are the same as those applied in the Company's most recent audited consolidated annual financial statements for the years ended December 31, 2020 and 2019.
These condensed consolidated interim financial statements were authorized for issue and approved by the Board of Directors on May 5, 2021.
(b) Basis of presentation and consolidation
The financial statements have been prepared on a historical cost basis, except for financial instruments carried at fair value.
All amounts are expressed in thousands of United States dollars, unless otherwise stated, and the United States dollar is the functional currency of the Company and each of its subsidiaries. References to C$ are to Canadian dollars.
These condensed consolidated interim financial statements incorporate the financial information of the Company and its subsidiaries as at March 31, 2021. Subsidiaries are entities controlled by the Company. Control exists when the Company has power, directly or indirectly, to govern the financial and operating policies of an entity as to obtain benefits from its activities.
GALIANO GOLD INC. |
2. Basis of presentation (continued)
Subsidiaries are included in the consolidated financial results of the Company from the effective date of acquisition up to the effective date of disposition or loss of control.
All significant intercompany amounts and transactions between the Company and its subsidiaries have been eliminated on consolidation.
The principal subsidiaries and joint arrangements to which the Company is a party, as well as their geographic locations, were as follows as at March 31, 2021:
Subsidiary name | Location | Interest | Classification and accounting method |
Galiano Gold South Africa (PTY) Ltd. | South Africa | 100% | Consolidated |
Galiano International (Isle of Man) | Isle of Man | 100% | Consolidated |
Limited | |||
Galiano Gold (Isle of Man) Limited | Isle of Man | 100% | Consolidated |
ABG Mali Exploration SARL | Mali | 100% | Consolidated |
Asanko Gold Ghana Limited | Ghana | 45% | Joint venture; equity method |
Adansi Gold Company (GH) Limited | Ghana | 50% | Joint venture; equity method |
Shika Group Finance Limited | Isle of Man | 50% | Joint venture; equity method |
(c) Accounting standards adopted during the period
There were no new standards effective January 1, 2021 that impacted these condensed consolidated interim financial statements or are expected to have a material effect in the future.
(d) Accounting standards and amendments issued but not yet adopted
The following standards and interpretations, which may be applicable to the Company or the JV, have been issued but are not yet effective as of March 31, 2021:
Amendment to IAS 16
On May 14, 2020, the IASB amended IAS 16 "Property, Plant and Equipment" to prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling such items, and the cost of producing those items, in profit or loss. The amendments are effective for annual periods beginning on or after January 1, 2022 with early adoption permitted. The Company does not expect the amendments to IAS 16 to have a significant impact on its or the JV's financial statements.
GALIANO GOLD INC. |
3. Significant accounting judgements and estimates
The preparation of financial statements, in conformity with IFRS, requires management to make judgements, estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Management believes the estimates and assumptions used in these condensed consolidated interim financial statements are reasonable; however, actual results could differ from those estimates and could impact future results of operations and cash flows. The Company's significant accounting judgments and estimates were presented in note 5 of the audited annual consolidated financial statements for the years ended December 31, 2020 and 2019.
The Company considered the impact of the COVID-19 pandemic on the significant judgments and estimates made in these condensed consolidated interim financial statements and determined that the effects of COVID-19 did not have a material impact on the estimates and judgments applied.
4. Receivable due from related party
Under the terms of the Joint Venture Agreement (the "JVA") that governs the management of the JV (note 6), the Company remains the manager and operator of the JV and receives an arm's length fee for services rendered to the JV of $6.2 million per annum (originally $6.0 million, but adjusted annually for inflation).
During the three months ended March 31, 2021, the Company earned a service fee of $1.2 million as operator of the JV (three months ended March 31, 2020 - $1.2 million). For the three months ended March 31, 2021, the service fee was comprised of a gross service fee of $1.5 million less withholding taxes payable in Ghana of $0.3 million (three months ended March 31, 2020 - gross service fee of $1.5 million less withholding taxes payable in Ghana of $0.3 million). As at March 31, 2021, the Company had a receivable due from the JV in respect of the service fee in the amount of $3.5 million, net of withholding taxes (December 31, 2020 - $2.7 million).
All transactions with related parties have occurred in the normal course of operations and were measured at the exchange amount agreed to by the parties. All amounts are unsecured, non-interest bearing and have no specific terms of settlement.
5. Financial assets
As part of the JV transaction with Gold Fields (note 6), the Company initially subscribed to 184.9 million non-voting fixed redemption price redeemable preferences shares in Shika Group Finance Limited (the "preference shares"), which were issued at a par value of $1 per redeemable share. The preference shares have no fixed redemption date. As these preference shares have no contractual fixed terms of repayment that arise on specified dates, they are measured at fair value through profit or loss at each reporting period-end.
The following table summarizes the change in the carrying amount of the Company's preference shares held in the joint venture:
March 31, 2021 | December 31, 2020 | ||||||||
Number of shares | $ | $ | |||||||
Balance, beginning of period | 137,400 | 78,299 | 108,025 | ||||||
Fair value adjustment for the period | - | 2,323 | 7,774 | ||||||
Redemption of preferred shares during the period | (5,000 | ) | (5,000 | ) | (37,500 | ) | |||
Balance, end of period | 132,400 | 75,622 | 78,299 |
GALIANO GOLD INC. |
5. Financial assets (continued)
During the three months ended March 31, 2021, the JV redeemed $5.0 million of the Company's preference shares, bringing the Company's holding to 132.4 million preference shares in the JV as at March 31, 2021 (December 31, 2020 - 137.4 million preference shares).
As at March 31, 2021, the Company re-measured the fair value of the redeemable preference shares to $75.6 million (applying a discount rate of 11.6%) resulting in the recognition of a positive fair value adjustment of $2.3 million in finance income for the three months ended March 31, 2021 (three months ended March 31, 2020 - a positive fair value adjustment of $2.7 million recognized in finance income). These preference shares are classified as a Level 3 financial asset in the fair value hierarchy.
6. Investment in Joint Venture
On July 31, 2018, the Company completed a transaction (the "JV Transaction") with a subsidiary of Gold Fields Limited ("Gold Fields"), following which:
- the Company and Gold Fields each own a 45% economic interest in Asanko Gold Ghana Limited ("AGGL"), which owns the AGM, with the Government of Ghana retaining a 10% free-carried interest in the AGM;
- the Company and Gold Fields each own a 50% interest in Adansi Gold Company (GH) Limited ("Adansi Ghana"), which owns a number of exploration licenses; and
- the Company and Gold Fields each acquired a 50% interest in the JV entity, Shika Group Finance Limited ("Shika").
As the JV is structured within the legal entities of AGGL, Adansi Ghana and Shika, the JV represents a joint venture as defined under IFRS 11 - Joint Arrangements, and the Company commenced equity accounting for its interest in the JV effective July 31, 2018.
The following table summarizes the change in the carrying amount of the Company's investment in the AGM joint venture:
March 31, 2021 | December 31, 2020 | |||||
$ | $ | |||||
Balance, beginning of period | 59,159 | - | ||||
Company's share of net income for the period | 13,374 | 59,159 | ||||
Balance, end of period | 72,533 | 59,159 |
The Company's share of the net earnings of the JV was $13.4 million for the three months ended March 31, 2021 (three months ended March 31, 2020 - share of net earnings of $20.5 million).
Operating and financial results of the AGM JV for the three months ended March 31, 2021 and 2020
Summarized financial information for the Company's investment in the JV, on a 100% basis, is outlined in the table below.
All disclosures in this note 6 are on a 100% JV basis, unless otherwise indicated. The JV applies the same accounting policies as the Company.
GALIANO GOLD INC. |
6. Investment in Joint Venture (continued)
Three months ended March 31, 2021 and 2020
Three months ended March 31, | |||||||
Notes | 2021 | 2020 | |||||
Revenues | (i) | 110,805 | 104,774 | ||||
Production costs | (ii) | (57,101 | ) | (41,204 | ) | ||
Depreciation and depletion | (vi) | (12,217 | ) | (9,951 | ) | ||
Royalties | (ii) | (5,540 | ) | (5,239 | ) | ||
Income from mine operations | 35,947 | 48,380 | |||||
Exploration and evaluation expenditures | (2,796 | ) | (1,685 | ) | |||
General and administrative expenses | (3,005 | ) | (1,843 | ) | |||
Income from operations | 30,146 | 44,852 | |||||
Finance expense | (xi) | (864 | ) | (547 | ) | ||
Finance income | 53 | 61 | |||||
Foreign exchange gain | 395 | 1,281 | |||||
Net income after tax for the period | 29,730 | 45,647 | |||||
Company's share of net income of the JV for the period | 13,374 | 20,534 |
GALIANO GOLD INC. |
6. Investment in Joint Venture (continued)
The assets and liabilities of the AGM JV, on a 100% basis, as at March 31, 2021 and December 31, 2020 were as follows:
March 31, 2021 | December 31, 2020 | ||||||
Note | $ | $ | |||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | 59,398 | 64,254 | |||||
Receivables | 11,184 | 10,820 | |||||
Inventories | (iii) | 87,160 | 81,675 | ||||
Prepaid expenses and deposits | 4,422 | 4,841 | |||||
Financial assets | 193 | 68 | |||||
VAT receivable | 16,333 | 8,911 | |||||
178,690 | 170,569 | ||||||
Non-current assets | (iii), (iv), (v), (vi) | 282,676 | 280,769 | ||||
Total assets | 461,366 | 451,338 | |||||
Liabilties | |||||||
Current liabilities | |||||||
Accounts payable and accrued liabilities | 75,625 | 73,102 | |||||
Revolving credit facility | (vii) | 15,000 | 30,000 | ||||
Lease liability | (viii) | 9,741 | 5,608 | ||||
Asset retirment provisions | (ix) | 1,021 | 1,025 | ||||
101,387 | 109,735 | ||||||
Non-current liabilities | |||||||
Lease liability | (viii) | - | 113 | ||||
Long-term incentive plan liability | 163 | 596 | |||||
Asset retirement provisions | (ix) | 70,862 | 71,668 | ||||
71,025 | 72,377 | ||||||
Total liabilities | 172,412 | 182,112 | |||||
Equity | (x) | 288,954 | 269,226 | ||||
Total liabilities and equity | 461,366 | 451,338 |
GALIANO GOLD INC. |
6. Investment in Joint Venture (continued)
The Company has provided the following incremental disclosures for stakeholders to evaluate the financial performance and financial condition of the AGM. All amounts in the following tables and descriptions are on a 100% basis.
(i) Revenues
AGGL has an offtake agreement with a special purpose vehicle of RK Mine Finance Trust I ("Red Kite") with the following details (the "Offtake Agreement"):
- sale of 100% of the future gold production from the AGM up to a maximum of 2.2 million ounces to Red Kite;
- Red Kite to pay for 100% of the value of the gold ten business days after shipment;
- a provisional payment of 90% of the estimated value will be made one business day after delivery;
- the gold sale price will be a spot price selected during a nine-day quotational period following shipment of gold from the mine;
- performance obligations of the AGM are satisfied once the refining outturn report is provided to Red Kite; and
- should AGGL wish to terminate the Offtake Agreement, a termination fee will be payable according to a schedule dependent upon the amount of gold delivered under the Offtake Agreement at the time of termination.
During the three months ended March 31, 2021, the AGM sold 62,925 ounces of gold to Red Kite under the Offtake Agreement (three months ended March 31, 2020 - 67,820 ounces).
Included in revenue of the AGM is $0.2 million relating to by-product silver sales for the three months ended March 31, 2021 (three months ended March 31, 2020 - $0.2 million).
As of March 31, 2021, the AGM has delivered 1,146,105 ounces to Red Kite under the Offtake Agreement. The Offtake Agreement was not affected by the JV Transaction and will remain in effect until all contracted ounces have been delivered to Red Kite or AGGL elects to terminate the Offtake Agreement and pay the associated termination fee.
GALIANO GOLD INC. |
6. Investment in Joint Venture (continued)
(ii) Production costs and royalties
The following is a summary of production costs by nature, on a 100% basis, incurred during the three months ended March 31, 2021 and 2020:
Three months ended March 31, | ||||||
2021 | 2020 | |||||
Raw materials and consumables | (13,117 | ) | (13,229 | ) | ||
Salaries and employee benefits | (9,924 | ) | (8,636 | ) | ||
Contractors (net of deferred stripping costs) | (34,324 | ) | (29,066 | ) | ||
Change in stockpile, gold-in-process and gold dore inventories | 5,281 | 13,602 | ||||
Insurance, government fees, permits and other | (4,824 | ) | (3,676 | ) | ||
Share-based payments | (193 | ) | (199 | ) | ||
Total production costs | (57,101 | ) | (41,204 | ) |
During the three months ended March 31, 2021, the AGM recognized a $0.7 million reversal of previously recorded net realizable value adjustments on its stockpile inventory, of which $0.6 million was credited against production costs and $0.1 million was credited against depreciation expense (three months ended March 31, 2020 - $16.2 million reversal of previously recorded net realizable value adjustments on its stockpile inventory, of which $7.7 million was credited against production costs and $8.5 million was credited against depreciation expense).
All of the AGM's concessions are subject to a 5% gross revenue royalty payable to the Government of Ghana. The AGM's Akwasiso mining concession is also subject to an additional 2% net smelter return royalty payable to the previous owner of the mineral tenement, and the AGM's Esaase mining concession is also subject to an additional 0.5% net smelter return royalty payable to the Bonte Liquidation Committee, both of which are presented in production costs.
(iii) Inventories
The following is a summary of inventories held by the AGM, on a 100% basis, as at March 31, 2021 and December 31, 2020:
March 31, 2021 | December 31, 2020 | |||||
$ | $ | |||||
Gold dore on hand | 6,102 | 8,197 | ||||
Gold-in-process | 1,979 | 1,814 | ||||
Ore stockpiles | 61,543 | 54,701 | ||||
Materials and spare parts | 23,082 | 22,152 | ||||
Total inventories | 92,706 | 86,864 | ||||
Less non-current inventories: | ||||||
Ore stockpiles | (5,546 | ) | (5,189 | ) | ||
Total current inventories | 87,160 | 81,675 |
GALIANO GOLD INC. |
6. Investment in Joint Venture (continued)
(iv) Reclamation deposit
The AGM is required to provide security to the Environmental Protection Agency of Ghana ("EPA") for the performance by the AGM of its reclamation obligations in respect of its mining leases. The reclamation deposit accrues interest and is carried at $1.9 million as of March 31, 2021 (December 31, 2020 - $1.9 million).
The AGM deposits the reclamation deposit in a Ghanaian bank and the reclamation deposit is required to be held until receiving a final reclamation completion certificate from the EPA. The AGM is expected to be released from this requirement 45 days following the third anniversary of the date that the AGM receives a final completion certificate.
During 2020, the AGM updated its reclamation bond for the Obotan deposit. Total security expected to be provided to the EPA totals $15.6 million and comprises a reclamation deposit of $4.7 million (including the $1.9 million previously paid) and a bank guarantee of $10.9 million, 50% of which was provided by the Company (note 10). The additional cash reclamation deposit of $2.8 million is expected to be paid in the second quarter of 2021.
During 2020, the AGM also finalized its reclamation bond for the Esaase deposit. The security provided to the EPA totaled $1.1 million and comprised a reclamation deposit of $0.2 million and a bank guarantee of $0.9 million, 50% of which was provided by the Company (note 10). The cash reclamation deposit of $0.2 million is expected to be paid in the second quarter of 2021.
(v) Right-of-use assets
The following table shows the movement in the right-of-use asset related to the service and lease agreements of the AGM for the three months ended March 31, 2021 and year ended December 31, 2020:
March 31, 2021 | December 31, 2020 | |||||
$ | $ | |||||
Balance, beginning of period | 2,873 | 9,429 | ||||
Recognition of mining contractor services agreements entered into during | 7,586 | 5,604 | ||||
the period | ||||||
Depreciation expense | (3,463 | ) | (9,407 | ) | ||
Derecognition associated with termination of contractor services agreement | - | (2,753 | ) | |||
Balance, end of period | 6,996 | 2,873 |
(vi) Mineral properties, plant and equipment
Additions to mineral properties, plant and equipment
During the three months ended March 31, 2021, the AGM capitalized $6.8 million in expenditures related to mineral properties, plant and equipment ("MPP&E"), excluding capitalized deferred stripping costs and asset retirement costs (three months ended March 31, 2020 - additions of $5.9 million).
GALIANO GOLD INC. |
6. Investment in Joint Venture (continued)
Of the $6.8 million capitalized to MPP&E during the three months ended March 31, 2021, $1.4 million was capitalized exploration costs relating to properties with existing defined mineral reserves (three months ended March 31, 2020 - $0.4 million capitalized exploration costs).
Deferred stripping
During the three months ended March 31, 2021, the AGM deferred a total of $1.0 million of stripping costs to depletable mineral interests (three months ended March 31, 2020 - additions of $2.9 million).
Depreciation and depletion
During the three months ended March 31, 2021, the AGM recognized depreciation and depletion expense of $12.3 million, of which $0.1 million was allocated to the cost of inventories (three months ended March 31, 2020 - depreciation and depletion expense of $19.7 million, of which $9.7 million was allocated to the cost of inventories).
(vii) Revolving credit facility
In October 2019, the JV entered into a $30.0 million revolving credit facility (the "RCF") with Rand Merchant Bank ("RMB"). The term of the RCF is three years, maturing in September 2022 provided an updated and approved LOM plan is provided to the lenders on or before June 30, 2021. In the event an updated LOM plan is not provided by this deadline, then the term of the RCF expires on December 31, 2021. The RCF bears interest on a sliding scale of between LIBOR plus a margin of 4% and LIBOR plus a margin of 3.8%, depending on the security granted to RMB. Commitment fees in respect of any undrawn portion of the RCF will accrue on a similar sliding scale of between 1.33% and 1.40%. The JV utilized the full value of the RCF on March 30, 2020. During the quarter, the JV repaid $15.0 million of the RCF and as such the balance of the RCF as of March 31, 2021 was $15.0 million (December 31, 2020 - $30.0 million). During the three months ended March 31, 2021, the AGM recognized interest expense and other fees associated with the RCF of $0.3 million (three months ended March 31, 2020 - $0.1 million).
(viii) Lease liability
The following table shows the movement in the lease liability related to the service and lease of the AGM for the three months ended March 31, 2021 and year ended December 31, 2020:
March 31, 2021 | December 31, 2020 | |||||
$ | $ | |||||
Balance, beginning of period | 5,721 | 23,205 | ||||
Recognition of lease agreements entered into during the period | 7,586 | 5,604 | ||||
Lease payments made during the period | (3,659 | ) | (17,160 | ) | ||
Interest expense | 93 | 732 | ||||
Derecognition associated with termination of contractor services agreement | - | (6,660 | ) | |||
Total lease liability, end of period | 9,741 | 5,721 | ||||
Less: current lease liability | (9,741 | ) | (5,608 | ) | ||
Total non-current lease liability, end of period | - | 113 |
GALIANO GOLD INC. |
6. Investment in Joint Venture (continued)
(ix) Asset retirement provisions
The following table shows the movement in the asset retirement provisions of the AGM for the three months ended March 31, 2021 and year ended December 31, 2020:
March 31, 2021 | December 31, 2020 | |||||
$ | $ | |||||
Balance, beginning of period | 72,693 | 56,148 | ||||
Accretion expense | 322 | 550 | ||||
Change in estimated obligation | (1,113 | ) | 16,149 | |||
Reclamation undertaken during the period | (19 | ) | (154 | ) | ||
Balance, end of period | 71,883 | 72,693 | ||||
Less: current portion of asset retirement provisions | (1,021 | ) | (1,025 | ) | ||
Total non-current portion of asset retirement provisions | 70,862 | 71,668 |
The asset retirement provisions consist of reclamation and closure costs for the JV's Ghanaian mining properties. Reclamation and closure activities include land rehabilitation, dismantling of buildings and mine facilities, ongoing care and maintenance and other costs.
As at March 31, 2021, the AGM's reclamation cost estimates were discounted using a long-term risk-free discount rate of 1.7% (December 31, 2020 - 1.0%).
(x) Preferred shares
The following table shows the movement in the JV partners' preferred share investments in the JV for the three months ended March 31, 2021 and year ended December 31, 2020:
March 31, 2021 | December 31, 2020 | |||||
$ | $ | |||||
Balance, beginning of period | 274,880 | 349,880 | ||||
Distributions to partners during the period | (10,000 | ) | (75,000 | ) | ||
Balance, end of period | 264,880 | 274,880 |
GALIANO GOLD INC. |
6. Investment in Joint Venture (continued)
(xi) Finance expense
The following is a summary of finance expenses incurred by the AGM JV during the three months ended March 31, 2021 and 2020:
Three months ended March 31, | ||||||
2021 | 2020 | |||||
$ | $ | |||||
Realized and unrealized losses on hedging instruments | (89 | ) | - | |||
Interest on lease liabilities (note viii) | (93 | ) | (295 | ) | ||
Accretion charges on asset retirement provisions (note ix) | (322 | ) | (136 | ) | ||
Interest and fees associated with RCF (note vii) | (311 | ) | (90 | ) | ||
Other | (49 | ) | (26 | ) | ||
Total | (864 | ) | (547 | ) |
(xii) The cash flows of the AGM, on a 100% basis, were as follows for the three months ended March 31, 2021 and 2020:
Three months ended March 31, | ||||||
2021 | 2020 | |||||
$ | $ | |||||
Cash provided by (used in): | ||||||
Operating cash flow before working capital changes | 42,923 | 56,518 | ||||
Operating activities | 35,354 | 36,970 | ||||
Investing activities | (11,294 | ) | (5,303 | ) | ||
Financing activities | (28,893 | ) | (19,781 | ) | ||
Impact of foreign exchange on cash and cash equivalents | (23 | ) | (85 | ) | ||
(Decrease) increase in cash and cash equivalents during the period | (4,856 | ) | 11,801 | |||
Cash and cash equivalents, beginning of period | 64,254 | 43,758 | ||||
Cash and cash equivalents, end of period | 59,398 | 55,559 |
7. Exploration and evaluation assets
During the quarter, the Company acquired a 100% interest in ABG Mali Exploration SARL ("ABG Mali") from a subsidiary of Barrick Gold Corporation for total cash consideration of $1.5 million. ABG Mali holds exploration licenses (no stated mineral reserves or resources) on the Senegal Mali Shear Zone located in Mali, West Africa. The concessions cover over 167km2.
As a result of this transaction, the Company recognized a $1.6 million exploration and evaluation asset as at March 31, 2021, which includes $0.1 million of acquisition-related costs.
GALIANO GOLD INC. |
8. Share capital
(a) Authorized:
Unlimited common shares without par value or restrictions.
(b) Issued and outstanding common shares
Number of shares | Amount | |||||
$ | ||||||
Balance, December 31, 2019 | 225,098,810 | 578,385 | ||||
Issued pursuant to exercise of share-based options | 1,912,775 | 2,661 | ||||
Shares repurchased and cancelled under normal course issuer bid (note 8(c)) | (2,758,063 | (2,296 | ) | |||
Balance, December 31, 2020 | 224,253,522 | 578,750 | ||||
Issued pursuant to exercise of share-based options (note 9(a)) | 309,700 | 381 | ||||
Balance, March 31, 2021 | 224,563,222 | 579,131 |
(c) Normal course issuer bid
The Company received approval from the TSX to commence a normal course issuer bid ("NCIB") on November 15, 2019 to purchase up to 11,310,386 common shares, representing 5% of the Company's issued and outstanding common shares.
All common shares purchased by the Company under the NCIB were purchased at the market price at the time of acquisition in accordance with the rules and policies of the TSX and NYSE American and applicable securities laws. All common shares acquired by the Company under the NCIB were cancelled and purchases were funded out of the Company's working capital. The NCIB had a term of one-year and was terminated on November 14, 2020.
During the term of the NCIB, the Company repurchased and cancelled a total of 3,866,983 common shares for $3.3 million, at a weighted average price of $0.84 per share.
GALIANO GOLD INC. |
8. Share capital (continued)
(d) At-the-Market Offering ("ATM")
On June 25, 2020, the Company entered into an ATM agreement with H.C. Wainwright & Co. and Cormark Securities (the "Agents"). Under the ATM agreement, the Company may, at its discretion and from time-to-time during the term of the ATM agreement, sell through the Agents common shares of the Company for aggregate gross proceeds to the Company of up to $50.0 million (the "Offering"). The Company expects to use any net proceeds of the Offering for general corporate and working capital requirements, including, but not limited to, funding exploration activity on the Company's wholly owned early stage exploration properties in Ghana and Mali, funding the Company's working capital requirements, repaying indebtedness outstanding from time to time, completing future acquisitions and/or for other corporate purposes.
Sales of common shares will be made through "at-the-market distributions" as defined in the Canadian Securities Administrators' National Instrument 44-102 - Shelf Distributions, including sales made directly on the NYSE American Stock Exchange ("NYSE American"), or any other recognized marketplace upon which the Company's common shares are listed or quoted or where the common shares are traded in the United States. No offers or sales of common shares will be made in Canada on the Toronto Stock Exchange or other trading markets in Canada. The Company will pay the Agents a commission of 3.0% of the aggregate gross proceeds from each sale of common shares. The Company will determine, in its sole discretion, the date, price and number of common shares to be sold under the Offering, if any. Any common shares sold in the Offering will be distributed at market prices or prices related to prevailing market prices from time to time. The Company is not required to sell any common shares in the Offering at any time.
The Offering is being made by way of a prospectus supplement dated June 25, 2020 (the "Prospectus Supplement") to the Company's existing U.S. registration statement on Form F-10 (the "Registration Statement") and Canadian short form base shelf prospectus (the "Base Shelf Prospectus") each dated June 11, 2020. The Prospectus Supplement relating to the Offering has been filed with the securities commissions in each of the provinces and territories of Canada (other than Québec) and with the U.S. Securities and Exchange Commission (the "SEC"). The Prospectus Supplement and the Registration Statement are available on the SEC's website and the Prospectus Supplement (together with the related Base Shelf Prospectus) is available on the SEDAR website maintained by the Canadian Securities Administrators.
In addition, in connection with Gold Fields Limited's ("GF") existing pre-emptive right to maintain its 9.9% pro rata ownership interest in the Company, the Company has agreed to sell to GF, from time to time during the term of the Offering at GF's election, on a private basis, such number of common shares as represent 9.9% of the common shares issued under the Offering, if any.
As of March 31, 2021, the Company has not issued any common shares under the Offering.
GALIANO GOLD INC. |
9. Equity reserves
Under the Company's Share Unit Plan, the Company is able to issue a combination of equity‐settled restricted share units ("RSUs"), performance share units ("PSUs") and deferred share units ("DSUs") up to 5% of the outstanding common shares of the Company, provided that the total number of stock options and equity‐settled RSUs, PSUs and DSUs do not exceed 9% of the Company's outstanding common shares. The Company's Board (at its sole discretion) may designate grants of RSUs, PSUs and DSUs to be settled in either cash, equity or a combination thereof.
(a) Stock options
The Company maintains a rolling stock option plan providing for the issuance of stock options to its directors, officers, employees and other service providers. Options granted vest in 1/3 increments every twelve months following the grant date for a total vesting period of three years. Stock options have a maximum term of 5 years following the grant date.
The following table is a reconciliation of the movement in stock options for the period:
Number of Options | Weighted average exercise price | |||||
C$ | ||||||
Balance, December 31, 2019 | 12,568,362 | 1.93 | ||||
Granted | 4,676,000 | 1.39 | ||||
Exercised | (1,912,775 | ) | 1.33 | |||
Cancelled/Expired/Forfeited | (7,000,767 | ) | 1.88 | |||
Balance, December 31, 2020 | 8,330,820 | 1.81 | ||||
Granted | 4,872,000 | 1.55 | ||||
Exercised | (309,700 | ) | 1.04 | |||
Cancelled/Expired/Forfeited | (1,153,585 | ) | 1.89 | |||
Balance, March 31, 2021 | 11,739,535 | 1.71 |
During the three months ended March 31, 2021, the Company recognized $0.2 million of share-based compensation expense relating to stock options (three months ended March 31, 2020 - $0.1 million reversal of share-based compensation expense due to option forfeitures). Additionally, during the three months ended March 31, 2021, 309,700 stock options were exercised at weighted average exercise prices of C$1.04 per option for total aggregate proceeds of $0.3 million (three months ended March 31, 2020 - nil).
(b) Restricted Share Units
The following table is a reconciliation of the movement in the number of RSUs outstanding for the three months ended March 31, 2021 and year ended December 31, 2020:
Number of RSUs | ||||||
March 31, 2021 | December 31, 2020 | |||||
Balance, beginning of period | 2,421,200 | 2,243,255 | ||||
Granted | 271,400 | 2,371,700 | ||||
Settled in cash | (631,798 | ) | (844,361 | ) | ||
Cancelled/Forfeited | (283,545 | ) | (1,349,394 | ) | ||
Balance, end of period | 1,777,257 | 2,421,200 |
All RSUs granted during the period vest in 1/3 increments every twelve months following the grant date for a total vesting period of three years.
GALIANO GOLD INC. |
9. Equity reserves (continued)
The RSUs granted are cash-settled awards and, therefore, represent a financial liability which is required to be marked-to-market at each reporting period end with changes in fair value recognized in the Statement of Operations and Comprehensive Income. For the three months ended March 31, 2021, the Company recognized share-based compensation expense in relation to RSUs of $0.1 million, net of forfeitures (three months ended March 31, 2020 - $0.3 million).
As at March 31, 2021, the Company recognized a financial liability for cash-settled RSUs of $1.0 million (December 31, 2020 - $1.7 million). The financial liability associated with the cash-settled awards is recorded in accounts payable and accrued liabilities, for amounts expected to be settled within one year, and a separate non-current liability for amounts to be settled in excess of one year. The following table is a reconciliation of the movement in the RSU liability for the three months ended March 31, 2021 and year ended December 31, 2020:
March 31, 2021 | December 31, 2020 | |||||
$ | $ | |||||
Balance, beginning of period | 1,658 | 1,001 | ||||
Awards vested during the period, net of cancelled/forfeited awards | 92 | 1,460 | ||||
Settled in cash during the period | (776 | ) | (803 | ) | ||
Total RSU liability, end of period | 974 | 1,658 | ||||
Less: current portion of RSU liability | (721 | ) | (1,046 | ) | ||
Total non-current RSU liability, end of period | 253 | 612 |
(c) Phantom share units
On November 6, 2020, the Company granted 1,000,000 cash-settled phantom share units to the Chair of the Board. The units will vest three years from the grant date, but will only become payable upon the Chair's departure from the Board or upon a change of control of the Company, in a cash settlement amount equal to the value of 1,000,000 common shares (in C$) as at the Chair's departure date or date of change of control.
The phantom share units represent a financial liability, as they will be settled in cash, and are marked-to-market at each reporting period end and presented in the Statement of Financial Position as a long-term incentive plan liability. For the three months ended March 31, 2021, the Company recognized share-based compensation expense of $0.1 million (three months ended March 31, 2020 - nil) in relation to the phantom share units and a financial liability of $0.2 million is included in the long-term incentive plan liability as at March 31, 2021 (December 31, 2020 - $0.1 million).
(d) Performance share units
During the three months ended March 31, 2021, the Company granted 893,400 PSUs to officers and employees of the Company (three months ended March 31, 2020 - nil).
The PSUs are cash settled awards and therefore represent a financial liability which is required to be marked-to-market at each reporting period end with changes in fair value recognized in the Statement of Operations and Comprehensive Income. The PSUs vest in 1/3 increments every twelve months following the grant date for a total vesting period of three years and also contain a performance criterion applied to the number of units that vest on a yearly basis. The number of units that vest will be determined by the Company's relative share price performance in comparison to a peer group of companies. The PSU performance multiplier ranges from 0% to 150%.
GALIANO GOLD INC. |
9. Equity reserves (continued)
During the three months ended March 31, 2021, the Company recognized $27,000 of share-based compensation expense associated with the PSUs (three months ended March 31, 2020 - nil), of which $11,000 was presented as a non-current long-term incentive plan liability at March 31, 2021.
(e) Deferred share units
During the three months ended March 31, 2021, the Company granted 784,200 DSUs to directors of the Company (three months ended March 31, 2020 - nil). The DSUs are cash settled awards and therefore represent a financial liability which is required to be marked-to-market at each reporting period end with changes in fair value recognized in the Statement of Operations and Comprehensive Income. The DSUs have no vesting terms or conditions and such the Company recognized 100% of the fair value of the DSUs as at March 31, 2021 in the Statement of Operations and Comprehensive Income. The DSUs will be paid to directors upon their retirement from the Board of Directors of the Company or upon a change of control.
During the three months ended March 31, 2021, the Company recognized share-based compensation expense of $0.9 million (three months ended March 31, 2020 - nil) in relation to DSUs and the corresponding liability was presented within accounts payable and accrued liabilities as at March 31, 2021 (December 31, 2020 - nil).
10. Commitments and contingencies
Commitments
The following table reflects the Company's contractual obligations as they fall due, excluding commitments and liabilities of the JV, as at March 31, 2021 and December 31, 2020:
Within 1 year | 1 - 5 years | Over 5 years | At March 31, 2021 | At December 31, 2020 | |||||||||||
Accounts payable and accrued liabilities | 832 | - | - | 832 | 2,478 | ||||||||||
Long-term incentive plan (cash-settled | 1,630 | 422 | - | 2,052 | 1,714 | ||||||||||
awards) | |||||||||||||||
Corporate office leases | 129 | 473 | - | 602 | 627 | ||||||||||
Total | 2,591 | 895 | - | 3,486 | 4,819 |
In addition to the above commitments, the Company has provided a parent company guarantee on the unfunded portion of the AGM's reclamation bond in the amount of $5.9 million.
Contingencies
Due to the nature of its business, the Company and/or its affiliates may be subject to regulatory investigations, claims, lawsuits and other proceedings in the ordinary course of its business. While the Company cannot reasonably predict the ultimate outcome of these actions, and inherent uncertainties exist in predicting such outcomes, the Company believes that the ultimate resolution of these actions is not reasonably likely to have a material adverse effect on the Company's financial condition or future results of operations.
GALIANO GOLD INC. |
11. General and administrative expenses
The following is a summary of general and administrative expenses incurred during the three months ended March 31, 2021 and 2020. The general and administrative expenses for the period presented include, but are not limited to, those expenses incurred in order to earn the service fee as operators of the JV (note 4).
Three months ended March 31, | ||||||
2021 | 2020 | |||||
$ | $ | |||||
Wages, benefits and consulting | (1,955 | ) | (1,732 | ) | ||
Office, rent and administration | (277 | ) | (162 | ) | ||
Professional and legal | (145 | ) | (126 | ) | ||
Share-based compensation | (1,340 | ) | (245 | ) | ||
Travel, marketing, investor relations and regulatory | (170 | ) | (367 | ) | ||
Depreciation and other | (37 | ) | (42 | ) | ||
Total | (3,924 | ) | (2,674 | ) |
12. Finance income
The following is a summary of finance income earned during the three months ended March 31, 2021 and 2020:
Three months ended March 31, | ||||||
2021 | 2020 | |||||
$ | $ | |||||
Fair value adjustment on redeemable preference shares (note 5) | 2,323 | 2,650 | ||||
Interest income and other | 89 | 163 | ||||
Total | 2,412 | 2,813 |
13. Income per share
For the three months ended March 31, 2021 and 2020, the calculation of basic and diluted income per share is based on the following data:
Three months ended March 31, | ||||||
2021 | 2020 | |||||
Earnings ($) | ||||||
Net income after tax for the period | 13,028 | 21,806 | ||||
Number of shares | ||||||
Weighted average number of ordinary shares - basic | 224,345,074 | 224,160,499 | ||||
Effect of dilutive share options | 671,569 | 111,874 | ||||
Weighted average number of ordinary shares - diluted | 225,016,643 | 224,272,373 |
For the three months ended March 31, 2021, 9,534,000 stock options outstanding were excluded from the calculation of diluted weighted average shares as they were determined to be anti-dilutive.
GALIANO GOLD INC. |
For the three months ended March 31, 2020, 10,208,403 stock options outstanding were excluded from the calculation of diluted weighted average shares as they were determined to be anti-dilutive.
14. Supplemental cash flow information
The following table summarizes the changes in non-cash working capital for the three months ended March 31, 2021 and 2020:
Three months ended March 31, | ||||||
2021 | 2020 | |||||
$ | $ | |||||
Receivables and receivable due from related party | (831 | ) | 1,511 | |||
Prepaid expenses | 46 | (79 | ) | |||
Accounts payable and accrued liabilities | (2,526 | ) | (1,093 | ) | ||
Change in non-cash working capital | (3,311 | ) | 339 |
15. Segmented information
Geographic Information
As at March 31, 2021, the Company has only one reportable operating segment being the corporate function with its head office in Canada. Total assets in Ghana include the Company's 45% interest in the AGM JV.
Geographic allocation of total assets and liabilities
March 31, 2021 | Canada | West Africa | Total | ||||||
$ | $ | $ | |||||||
Current assets | 65,463 | 4 | 65,467 | ||||||
Property, plant and equipment and right-of-use assets | 568 | - | 568 | ||||||
Other non-current assets | - | 149,745 | 149,745 | ||||||
Total assets | 66,031 | 149,749 | 215,780 | ||||||
Current liabilities | 2,502 | 59 | 2,561 | ||||||
Non-current liabilities | 816 | - | 816 | ||||||
Total liabilities | 3,318 | 59 | 3,377 |
December 31, 2020 | Canada | Ghana | Total | ||||||
$ | $ | $ | |||||||
Current assets | 65,541 | - | 65,541 | ||||||
Property, plant and equipment and right-of-use assets | 591 | - | 591 | ||||||
Other non-current assets | - | 137,458 | 137,458 | ||||||
Total assets | 66,132 | 137,458 | 203,590 | ||||||
Current liabilities | 3,618 | - | 3,618 | ||||||
Non-current liabilities | 1,089 | - | 1,089 | ||||||
Total liabilities | 4,707 | - | 4,707 |
GALIANO GOLD INC. |
15. Segmented information (continued)
Geographic allocation of the Statement of Operations and Comprehensive Income
For the three months ended:
March 31, 2021 | Canada | West Africa | Total | ||||||
$ | $ | $ | |||||||
Share of net earnings related to joint venture | - | 13,374 | 13,374 | ||||||
Net (loss) income before tax | (304 | ) | 13,332 | 13,028 | |||||
Income tax expense | - | - | - | ||||||
Net (loss) income after tax | (304 | ) | 13,332 | 13,028 |
March 31, 2020 | Canada | Ghana | Total | ||||||
$ | $ | $ | |||||||
Share of net earnings related to joint venture | - | 20,534 | 20,534 | ||||||
Net income before tax | 1,272 | 20,534 | 21,806 | ||||||
Income tax expense | - | - | - | ||||||
Net income after tax | 1,272 | 20,534 | 21,806 |