EXHIBIT 99.1
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended
March 31, 2020 and 2019
(Unaudited)
ALIO GOLD INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS AND COMPREHENSIVE (LOSS) INCOME
For the three months ended March 31, 2020 and 2019
(In thousands of United States dollars) - Unaudited
| Note | | 2020 | | | 2019 | |
| | | | | | | | | |
| | | | | | | | | |
Metal revenues | 18 | $ | | 15,771 | | $ | | 16,081 | |
| | | | | | | | | |
Cost of sales (including depreciation and depletion) | 4a) | | | 14,720 | | | | 14,882 | |
| | | | | | | | | |
Earnings from mine operations | | | | 1,051 | | | | 1,199 | |
| | | | | | | | | |
Corporate and administrative expenses | 4b) | | | 1,869 | | | | 1,428 | |
Exploration expense | | | | 627 | | | | - | |
| | | | | | | | | |
Loss from operations | | | | (1,445 | ) | | | (229 | ) |
| | | | | | | | | |
Other (loss) income, net | | | | (401 | ) | | | 340 | |
Finance expense, net | 4c) | | | (1,268 | ) | | | (336 | ) |
Loss on derivative contracts | 16 | | | - | | | | (48 | ) |
Foreign exchange gain | | | | 1,252 | | | | 136 | |
| | | | | | | | | |
Loss from operations before income taxes | | | | (1,862 | ) | | | (137 | ) |
| | | | | | | | | |
Income taxes | | | | | | | | | |
Current tax recovery | | | | - | | | | (1,301 | ) |
Deferred tax expense | | | | 234 | | | | 1,545 | |
| | | | 234 | | | | 244 | |
| | | | | | | | | |
Loss and comprehensive loss from continuing operations for the period | | | | (2,096 | ) | | | (381 | ) |
| | | | | | | | | |
(Loss) earnings and comprehensive (loss) income from discontinued operations | 3 | | | (581 | ) | | | 1,982 | |
| | | | | | | | | |
(Loss) earnings and comprehensive (loss) income for the period | | $ | | (2,677 | ) | $ | | 1,601 | |
| | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | |
Basic | 15 | | | 85,993,371 | | | | 84,707,143 | |
Diluted | 15 | | | 85,993,371 | | | | 84,707,143 | |
| | | | | | | | | |
Loss per share from continuing operations: | | | | | | | | | |
Basic | 15 | $ | | (0.02 | ) | $ | | (0.00 | ) |
Diluted | 15 | $ | | (0.02 | ) | $ | | (0.00 | ) |
| | | | | | | | | |
(Loss) earnings per share: | | | | | | | | | |
Basic | 15 | $ | | (0.03 | ) | $ | | 0.02 | |
Diluted | 15 | $ | | (0.03 | ) | $ | | 0.02 | |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
ALIO GOLD INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
For the three months ended March 31, 2020 and 2019
(In thousands of United States dollars) - Unaudited
| Note | | 2020 | | | 2019 | |
| | | | | | | | | |
OPERATING ACTIVITIES | | | | | | | | | |
(Loss) earnings before income taxes (1) | | $ | | (2,443 | ) | $ | | 1,048 | |
Items not affecting cash: | | | | | | | | | |
Depletion and depreciation | | | | 1,851 | | | | 2,412 | |
Share-based payments recovery | 4b) | | | (6 | ) | | | (116 | ) |
Finance expense, net | | | | 1,348 | | | | 422 | |
Unrealized loss (gain) on reclamation bonds | 8 | | | 492 | | | | (239 | ) |
Unrealized gain on derivative contracts | | | | - | | | | (121 | ) |
Unrealized foreign exchange loss | | | | 958 | | | | 78 | |
| | | | 2,200 | | | | 3,484 | |
Changes in non-cash working capital items: | | | | | | | | | |
Trade and other receivables | | | | (316 | ) | | | 551 | |
Inventories | | | | 217 | | | | 2,635 | |
Advances and prepaid expenses | | | | 434 | | | | (342 | ) |
Trade payables and accrued liabilities | | | | (5,548 | ) | | | (3,803 | ) |
Cash (used in) provided by operating activities | | | | (3,013 | ) | | | 2,525 | |
| | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | |
Expenditures on mineral properties, property, plant and equipment | | | | (1,562 | ) | | | (1,770 | ) |
Expenditures on exploration and evaluation | | | | - | | | | (3,310 | ) |
Proceeds received on equipment sale | | | | 1,000 | | | | - | |
Cash used in investing activities | | | | (562 | ) | | | (5,080 | ) |
| | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | |
Repayment of equipment loans payable | | | | (146 | ) | | | (381 | ) |
Repayment of lease liabilities | | | | (549 | ) | | | - | |
Interest payments on lease liabilities | | | | (323 | ) | | | - | |
Interest payments on equipment loans and other financial liability | | | | (89 | ) | | | (122 | ) |
Interest payments on loan facility | | | | (379 | ) | | | - | |
Cash used in financing activities | | | | (1,486 | ) | | | (503 | ) |
| | | | | | | | | |
Effects of exchange rate changes on the balance of cash held in foreign currencies | | | | (32 | ) | | | (14 | ) |
| | | | | | | | | |
Decrease in cash and cash equivalents | | | | (5,093 | ) | | | (3,072 | ) |
Cash and cash equivalents, beginning of period | | | | 16,567 | | | | 21,978 | |
Cash and cash equivalents, end of period | | $ | | 11,474 | | $ | | 18,906 | |
Less: cash relating to discontinued operations | 3 | | | (1,052 | ) | | | - | |
Cash and cash equivalents | | $ | | 10,422 | | $ | | 18,906 | |
(1) | Note | | 2020 | | | 2019 | |
Loss from operations before income taxes | | | | (1,862 | ) | | | (137 | ) |
(Loss) earnings and comprehensive (loss) earnings from discontinued operations | 3 | | | (581 | ) | | | 1,982 | |
Deferred tax recovery on discontinued operations | 3 | | | - | | | | (797 | ) |
(Loss) earnings before income taxes | | | | (2,443 | ) | | | 1,048 | |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
ALIO GOLD INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of United States dollars) - Unaudited
| | | March 31, | | | December 31, | |
| Note | | 2020 | | | 2019 | |
| | | | | | | | | |
ASSETS | | | | | | | | | |
Current | | | | | | | | | |
Cash and cash equivalents | | $ | | 10,422 | | $ | | 16,567 | |
Trade and other receivables | 5 | | | 2,516 | | | | 7,914 | |
Inventories | 6 | | | 47,469 | | | | 62,949 | |
Advances and prepaid expenses | | | | 1,748 | | | | 2,717 | |
Assets held for sale | 3 | | | 26,500 | | | | - | |
Total current assets | | | | 88,655 | | | | 90,147 | |
| | | | | | | | | |
Mineral properties, plant and equipment, exploration and evaluation | 7 | | | 145,014 | | | | 148,877 | |
Reclamation bonds | 8 | | | 11,768 | | | | 12,260 | |
Total assets | | $ | | 245,437 | | $ | | 251,284 | |
| | | | | | | | | |
LIABILITIES | | | | | | | | | |
Current | | | | | | | | | |
Trade payables and accrued liabilities | 9 | $ | | 15,988 | | $ | | 29,457 | |
Current portion of equipment loans payable | 10 | | | 604 | | | | 614 | |
Current portion of loan facility | 12 | | | 1,875 | | | | - | |
Current portion of lease liability | 11 | | | 10,009 | | | | 10,009 | |
Other provisions | | | | - | | | | 1,420 | |
Liabilities held for sale | 3 | | | 18,644 | | | | - | |
Total current liabilities | | | | 47,120 | | | | 41,500 | |
| | | | | | | | | |
Equipment loans payable | 10 | | | 583 | | | | 729 | |
Loan facility | 12 | | | 12,336 | | | | 14,109 | |
Lease liabilities | 11 | | | 27,422 | | | | 29,375 | |
Other financial liability | | | | 2,500 | | | | 2,500 | |
Deferred tax liabilities | | | | 8,281 | | | | 8,670 | |
Provision for site reclamation and closure | | | | 31,044 | | | | 35,640 | |
Other | | | | 126 | | | | 150 | |
Total liabilities | | | | 129,412 | | | | 132,673 | |
| | | | | | | | | |
EQUITY | | | | | | | | | |
Issued capital | | | | 324,360 | | | | 324,360 | |
Share-based payment reserve | | | | 20,640 | | | | 20,549 | |
Deficit | | | | (228,975 | ) | | | (226,298 | ) |
Total equity | | | | 116,025 | | | | 118,611 | |
Total liabilities and equity | | $ | | 245,437 | | $ | | 251,284 | |
Events after the reporting period (notes 3 and 19)
Approved by the Directors |
|
“Mark Backens” | Director | “David Whittle” | Director |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
ALIO GOLD INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the three months ended March 31, 2020 and 2019
(In thousands of United States dollars, except share numbers) - Unaudited
| | Number of common shares | | | Issued capital | | | Share- based payment reserve | | | (Deficit) Retained earnings | | | Total equity | |
Balance at January 1, 2020 | Note | | 85,993,371 | | $ | | 324,360 | | $ | | 20,549 | | $ | | (226,298 | ) | $ | | 118,611 | |
Loss and comprehensive loss for the period | | - | | | - | | | - | | | | (2,677 | ) | | | (2,677 | ) |
Equity settled share-based payments expense | 14b) | | - | | | | - | | | | 91 | | | | - | | | | 91 | |
Balance at March 31, 2020 | | | 85,993,371 | | $ | | 324,360 | | $ | | 20,640 | | $ | | (228,975 | ) | $ | | 116,025 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2019 | | | 84,707,143 | | $ | | 323,685 | | $ | | 20,614 | | $ | | (90,075 | ) | $ | | 254,224 | |
Earnings and comprehensive income for the period | | | - | | | | - | | | | - | | | | 1,601 | | | | 1,601 | |
Equity settled share-based payments recovery | 14b) | | - | | | | - | | | | (48 | ) | | | - | | | | (48 | ) |
Balance at March 31, 2019 | | | 84,707,143 | | $ | | 323,685 | | $ | | 20,566 | | $ | | (88,474 | ) | $ | | 255,777 | |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
Alio Gold Inc. (“Alio” or “the Company”) was incorporated on March 17, 2005, under the laws of the Province of British Columbia, Canada. The Company is in the business of acquiring, exploring, developing and operating mineral resource properties.
On May 25, 2018, Alio acquired all the outstanding common shares of Rye Patch Gold Corp. (“Rye Patch”). Through this acquisition, Alio consists of the following 100% owned additional subsidiaries: Alio Gold (US) Inc. (formally Rye Patch Gold Corp.), Rye Patch Gold US Inc., Rye Patch Mining US Inc., Florida Canyon Mining Inc. (“FCMI”), Standard Gold Mining Inc., and RP Dirt Inc. FCMI owns the Florida Canyon Mine (“Florida Canyon”) in Nevada, US.
In Mexico, the Company, through its wholly-owned subsidiaries, Timmins Goldcorp Mexico, S.A. de C.V., Molimentales del Noroeste, S.A. de C.V. (“Molimentales”) and Minera Aurea, S.A de C.V. (“Minera Aurea”) owns the San Francisco Mine in Sonora, Mexico, and the Ana Paula Property (“Ana Paula” or “Ana Paula Project”), an exploration and evaluation asset in Guerrero, Mexico.
The Company is listed for trading on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange American under the symbol ALO. The registered office of the Company is located at Suite 507 - 700 West Pender Street, Vancouver, British Columbia, Canada, V6C 1G8.
a) | Statement of compliance |
These condensed interim consolidated financial statements (“interim financial statements”) were approved by the Board of Directors and authorized for issue on May 7, 2020.
These interim financial statements have been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. As such, these interim financial statements do not contain all the disclosures required by IFRS for annual financial statements and should be read in conjunction with the Company’s audited annual consolidated financial statements for the years ended December 31, 2019, 2018 and 2017 (“annual consolidated financial statements”).
b) | Significant accounting policies |
The accounting policies applied in the preparation of these interim financial statements are consistent with those applied and disclosed in note 3 to the annual consolidated financial statements with exception of the following:
| i. | Amendments to IAS 1 - Presentation of financial statements (“IAS 1”) and IAS 8 - Accounting policies, changes in accounting estimates and errors (“IAS 8”) |
The amendments are intended to make the definition of material in IAS 1 easier to understand and are not intended to alter the underlying concept of materiality in IFRS Standards. The concept of ‘obscuring’ material information with immaterial information has been included as part of the new definition.
The threshold for materiality influencing users has been changed from ‘could influence’ to ‘could reasonably be expected to influence’.
The definition of material in IAS 8 has been replaced by a reference to the definition of material in IAS 1. In addition, the IASB amended other Standards and the Conceptual Framework that contain a definition of material or refer to the term ‘material’ to ensure consistency.
7
ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
The Company adopted the amendments to IAS 1 effective January 1, 2020, which did not have a material impact on the Company’s interim financial statements.
c) | Critical judgements and estimates |
The Company’s management makes judgements in the process of applying the Company’s accounting policies in the preparation of its interim financial statements. In addition, the preparation of the financial statements requires that the Company’s management make assumptions and estimates of effects of uncertain future events on the carrying amounts of the Company’s assets and liabilities at the end of the reporting period and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates as the estimation process is inherently uncertain. Estimates are reviewed on an ongoing basis based on historical experience and other factors that are considered to be relevant under the circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively. The Company’s interim results are not necessarily indicative of its results for a full year. The critical judgements and estimates applied in the preparation of these interim financial statements are consistent with those applied and disclosed in notes 2(d) and 2(e) to the annual consolidated financial statements.
These interim financial statements include the accounts of the Company and its subsidiaries. All amounts are presented in United States dollars, which is the functional currency of the Company and each of the Company’s subsidiaries, except as otherwise noted. References to C$ are to Canadian dollars. All inter-company balances, transactions, revenues and expenses have been eliminated.
e) | Discontinued Operations |
A discontinued operation is a component of the Company’s business that represents a separate major segment of business operations or geographical area of operations that has been, or is in the process of, being disposed of, abandoned or meets the criteria to be classified as held for sale. Classification of a business segment as a discontinued operation results in the reclassification of assets and liabilities to current balances, and (loss) earnings restated for the current and comparative periods to reclassify as resulting from discontinued operations.
3. | DISPOSAL OF MINING INTERESTS |
On March 6, 2020, the Company announced that it had entered into a definitive share purchase agreement with Magna Gold Corp. (“Magna”), to sell its wholly-owned subsidiary, Molimentales, which owns a 100% interest in the San Francisco Mine and the surrounding mineral concessions. Under the terms of the share purchase agreement, Alio will receive as consideration 9,740,000 common shares of Magna, representing approximately 19.9% of the issued and outstanding common shares of Magna, and $5,000 in cash or a 1% net smelter royalty, due to Alio within twelve months of closing of the transaction. Accordingly, per the application of IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations, Molimentales, represented as the San Francisco Mine segment, has been reclassified as an asset held for sale and a discontinued operation.
As a result of the reclassification, (loss) earnings has been restated for the current and comparative periods to reclassify the (loss) earnings relating to the San Francisco Mine segment as (loss) earnings from discontinued operations. All assets and liabilities relating to Molimentales have been classified as current assets held for sale and current liabilities held for sale as of March 31, 2020. There is no impact on the presentation of the statement of cash flows.
On May 6, 2020, the Company completed the sale with Magna under the terms of the definitive share purchase agreement.
8
ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
The (loss) earnings from discounted operations for the three months ended March 31, 2020 and 2019, are:
Three months ended March 31, | |
| | | 2020 | | | 2019 | |
Metal revenues | | $ | | 9,031 | | $ | | 15,325 | |
Cost of sales (including depreciation and depletion) | | | | (7,261 | ) | | | (13,980 | ) |
Corporate and administrative expenses | | | | (383 | ) | | | (444 | ) |
Exploration expense | | | | (410 | ) | | | - | |
Finance expense, net | | | | (80 | ) | | | (85 | ) |
Gain on derivative contracts | | | | - | | | | 54 | |
Foreign exchange (loss) gain | | | | (1,707 | ) | | | 155 | |
Other income, net | | | | 229 | | | | 160 | |
(Loss) earnings before taxes | | | | (581 | ) | | | 1,185 | |
Deferred tax recovery | | | | - | | | | 797 | |
(Loss) earnings and comprehensive (loss) earnings from discontinued operations | | $ | | (581 | ) | $ | | 1,982 | |
The net assets of Molimentales are as follows:
| | | | | March 31, | |
| | | | | 2020 | |
Cash and cash equivalents | | | | $ | | 1,052 | |
Trade and other receivables (1) | | | | | | 3,497 | |
Inventories (2) | | | | | | 16,217 | |
Advances and prepaid expenses | | | | | | 535 | |
Mineral properties, plant and equipment, exploration and evaluation (3) | | | | | | 5,199 | |
Assets held for sale | | | | | | 26,500 | |
| | | | | | | |
Trade payables and accrued liabilities | | | | | | (11,847 | ) |
Provision for site reclamation and closure | | | | | | (4,815 | ) |
Other provisions | | | | | | (1,420 | ) |
Deferred tax liabilities | | | | | | (562 | ) |
Liabilities held for sale | | | | | | (18,644 | ) |
Net Assets | | | | $ | | 7,856 | |
| (1) | Trade and other receivables includes VAT receivable of $2,501 (December 31, 2019 - $4,401). This is value added tax payments made by the Company, which in Mexico are refundable. During the three months ended March 31, 2020, Molimentales collected $1,001 (three months ended March 31, 2019 - $2,803) of the VAT receivable. Subsequent to March 31, 2020, $286 of VAT was received by Molimentales. |
| (2) | The costs of inventories recognized as an expense for the three months ended March 31, 2020, was $6,296 (March 31, 2019 - $12,761) and are included in cost of sales. |
| (3) | At March 31, 2020, mineral properties included deferred stripping costs with a carrying value of $1,596 (December 31, 2019 - $1,596). |
9
ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
The cash flows of Molimentales included in the Corporation’s condensed interim consolidated statement of cash flows are as follows:
Three months ended March 31, | |
| | | 2020 | | | 2019 | |
Cash (used in) provided by operating activities | | $ | | (1,148 | ) | $ | | 2,517 | |
Cash used in investing activities | | | | - | | | | (968 | ) |
Cash used in financing activities | | | | - | | | | - | |
| | $ | | (1,148 | ) | $ | | 1,549 | |
Three months ended March 31, | |
| | | 2020 | | | 2019 | |
Costs of mining | | $ | | 7,395 | | $ | | 6,205 | |
Crushing and gold recovery costs | | | | 5,656 | | | | 6,026 | |
Mine site administration costs | | | | 992 | | | | 916 | |
Transport and refining | | | | 76 | | | | 27 | |
Royalties | | | | 915 | | | | 987 | |
Change in inventories | | | | (1,933 | ) | | | (481 | ) |
Production costs | | | | 13,101 | | | | 13,680 | |
Depreciation and depletion | | | | 1,619 | | | | 1,202 | |
Cost of sales (including depreciation and depletion) | | $ | | 14,720 | | $ | | 14,882 | |
b) | Corporate and administrative expenses |
Three months ended March 31, | |
| Note | | 2020 | | | 2019 | |
Salaries | | $ | | 446 | | $ | | 597 | |
Consulting and professional fees (1) | | | | 982 | | | | 542 | |
Share-based payments recovery | 14b), 14c) | | | (6 | ) | | | (116 | ) |
Rent and office costs | | | | 105 | | | | 90 | |
Administrative and other | | | | 342 | | | | 315 | |
Corporate and administrative expenses | | $ | | 1,869 | | $ | | 1,428 | |
| (1) | Consulting and professional fees includes transaction costs of $815 related to the Argonaut Gold merger (note 19) and Molimentales sale (note 3) (three months ended March 31, 2019 - $nil). |
10
ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
Three months ended March 31, | |
| Note | | 2020 | | | 2019 | |
Interest on lease liabilities | 11 | $ | | 943 | | $ | | - | |
Accretion of provision for site reclamation and closure | | | | 139 | | | | 226 | |
Accretion on loan facility | 12 | | | 102 | | | | - | |
Interest and accretion on other financial liability | | | | 56 | | | | 49 | |
Interest on equipment loans payable | 10 | | | 22 | | | | 87 | |
Loss (gain) on revaluation of warrant liabilities | 13 | | | 6 | | | | (26 | ) |
Finance expense, net | | $ | | 1,268 | | $ | | 336 | |
5. | TRADE AND OTHER RECEIVABLES |
| | | March 31, | | | December 31, | |
| | | 2020 | | | 2019 | |
Income tax refund receivable | | $ | | 1,011 | | $ | | 1,010 | |
VAT receivable | | | | 1,505 | | | | 5,272 | |
Equipment loan receivable | | | | - | | | | 1,000 | |
Trade receivable | | | | - | | | | 351 | |
Other receivables | | | | - | | | | 281 | |
| | $ | | 2,516 | | $ | | 7,914 | |
| | | March 31, | | | December 31, | |
| | | 2020 | | | 2019 | |
Stockpile | | $ | | 840 | | $ | | 1,184 | |
Ore in process | | | | 41,023 | | | | 54,963 | |
Finished metal inventory | | | | 3,192 | | | | 3,026 | |
Supplies | | | | 2,414 | | | | 3,776 | |
| | $ | | 47,469 | | $ | | 62,949 | |
The costs of inventories recognized as an expense for the three months ended March 31, 2020, was $12,737 (three months ended March 31, 2019 - $12,952) and are included in cost of sales as costs of contract mining, crushing and gold recovery costs, change in inventories and depreciation and depletion.
11
ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
7. | MINERAL PROPERTIES, PLANT AND EQUIPMENT, EXPLORATION AND EVALUATION |
| Note | | Mineral properties (1) | | | Plant and equipment (2)(3) | | | Exploration and evaluation | | | Total | |
Cost | | | | | | | | | | | | | | | | | |
At January 1, 2020 | | $ | | 239,562 | | $ | | 209,428 | | $ | | 119,871 | | $ | | 568,861 | |
Expenditures | | | | - | | | | 4,209 | | | | - | | | | 4,209 | |
Asset held for sale | 3 | | | (199,642 | ) | | | (107,835 | ) | | | (11,110 | ) | | | (318,587 | ) |
At March 31, 2020 | | | | 39,920 | | | | 105,802 | | | | 108,761 | | | | 254,483 | |
Accumulated depreciation, depletion, disposals and impairment | | | | | | | | | | | | | | | | | |
At January 1, 2020 | | | | 201,022 | | | | 133,971 | | | | 84,991 | | | | 419,984 | |
Depreciation and depletion | | | | 833 | | | | 2,030 | | | | - | | | | 2,863 | |
Asset held for sale | 3 | | | (195,836 | ) | | | (106,432 | ) | | | (11,110 | ) | | | (313,378 | ) |
At March 31, 2020 | | | | 6,019 | | | | 29,569 | | | | 73,881 | | | | 109,469 | |
Carrying amount at March 31, 2020 | | $ | | 33,901 | | $ | | 76,233 | | $ | | 34,880 | | $ | | 145,014 | |
| | | Mineral properties (1) | | | Plant and equipment (2)(3) | | | Exploration and evaluation | | | Total | |
Cost | | | | | | | | | | | | | | | | | |
At January 1, 2019 | | $ | | 242,662 | | $ | | 156,930 | | $ | | 116,627 | | $ | | 516,219 | |
Expenditures | | | | 140 | | | | 51,941 | | | | 3,244 | | | | 55,325 | |
Change in reclamation obligation | | | | (3,240 | ) | | | - | | | | - | | | | (3,240 | ) |
Adjustment on initial application of IFRS 16 | | | | - | | | | 557 | | | | - | | | | 557 | |
At December 31, 2019 | | | | 239,562 | | | | 209,428 | | | | 119,871 | | | | 568,861 | |
Accumulated depreciation, depletion, disposals and impairment | | | | | | | | | | | | | | | | | |
At January 1, 2019 | | | | 171,326 | | | | 107,866 | | | | 8,678 | | | | 287,870 | |
Depreciation and depletion | | | | 3,355 | | | | 5,458 | | | | - | | | | 8,813 | |
Disposals | | | | - | | | | 3,783 | | | | - | | | | 3,783 | |
Impairment | | | | 26,341 | | | | 16,864 | | | | 76,313 | | | | 119,518 | |
At December 31, 2019 | | | | 201,022 | | | | 133,971 | | | | 84,991 | | | | 419,984 | |
Carrying amount at December 31, 2019 | | $ | | 38,540 | | $ | | 75,457 | | $ | | 34,880 | | $ | | 148,877 | |
| (1) | At March 31, 2020, mineral properties included deferred stripping costs at Florida Canyon with a carrying value of $nil (December 31, 2019 - $nil). |
| (2) | Plant and equipment includes construction-in-progress assets of $13,875 (December 31, 2019 - $9,866) consisting of $10,725 and $2,962 related to leach pad expansion and storm water diversion projects, respectively (December 31, 2019 - $6,665 and $2,937, respectively). |
| (3) | For the three months ended March 31, 2020, plant and equipment includes right-of-use assets (note 11) with a cost basis of $42,270 (December 31, 2019 - $42,270) and accumulated depreciation of $2,245 (December 31, 2019 - $1,019), resulting in a carrying value of $40,025 (December 31, 2019 - $41,251). |
| (4) | At March 31, 2020, the Company assessed whether there were any indicators, from external and internal sources of information, that an asset or cash generating unit (“CGU”) may be impaired, thereby requiring adjustment to the carrying value. The Company identified the sustained decrease in market capitalization as an indicator of impairment during the three months ended March 31, 2020. As a result of these impairment indicators, the Company assessed the Florida Canyon Mine and Ana Paula Project CGUs for impairment and concluded that no impairment was required. |
12
ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
Carrying amount by segment
| | | Mineral properties | | | Plant and equipment | | | Exploration and evaluation | | | Total | |
At March 31, 2020 | | | | | | | | | | | | | | | | | |
Florida Canyon Mine | | $ | | 33,901 | | $ | | 73,424 | | $ | | - | | $ | | 107,325 | |
Ana Paula Project | | | | - | | | | 393 | | | | 34,571 | | | | 34,964 | |
Other | | | | - | | | | 2,416 | | | | 309 | | | | 2,725 | |
| | $ | | 33,901 | | $ | | 76,233 | | $ | | 34,880 | | $ | | 145,014 | |
| Note | | Mineral properties | | | Plant and equipment | | | Exploration and evaluation | | | Total | |
At December 31, 2019 | | | | | | | | | | | | | | | | | |
Florida Canyon Mine | | $ | | 34,736 | | $ | | 71,179 | | $ | | - | | $ | | 105,915 | |
San Francisco Mine | 3 | | | 3,804 | | | | 1,402 | | | | - | | | | 5,206 | |
Ana Paula Project | | | | - | | | | 400 | | | | 34,571 | | | | 34,971 | |
Other | | | | - | | | | 2,476 | | | | 309 | | | | 2,785 | |
| | $ | | 38,540 | | $ | | 75,457 | | $ | | 34,880 | | $ | | 148,877 | |
Reclamation bonds of $11,768 are funds that have been placed in trust as security to the United States Bureau of Land Management relating to site closure obligations. The Company is required to submit collateral equivalent to 10% of the reclamation provision.
The surety bonds and restricted certificates of deposit have named the overseeing government agencies as beneficiaries in the event of the Company’s failure to complete site restoration. These deposits will be released when the government approves successful site restoration and surety bonding is no longer required.
During the year ended December 31, 2019, the reclamation provision was revaluated resulting in an increase to the reclamation bonds by $809.
At March 31, 2020, the reclamations bonds were $11,768 (December 31, 2019 - $12,260). The funds consist of $5,532 cash and cash equivalents, $4,513 fixed income funds, and $1,723 equity funds (December 31, 2019 - $5,756, $4,572, and $1,932, respectively). During the three months ended March 31, 2020, interest income and loss on funds were $47 and $539, respectively (three months ended March 31, 2019 - $39 and gain on funds of $239, respectively).
9. | TRADE PAYABLES AND ACCRUED LIABILITIES |
| | | March 31, | | | December 31, | |
| | | 2020 | | | 2019 | |
Trade payables | | $ | | 7,999 | | $ | | 19,531 | |
Income taxes payable | | | | - | | | | 257 | |
Accrued liabilities | | | | 7,989 | | | | 6,715 | |
Deferred revenue | | | | - | | | | 1,229 | |
Vendor loan | | | | - | | | | 1,725 | |
| | $ | | 15,988 | | $ | | 29,457 | |
13
ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
10. EQUIPMENT LOANS PAYABLE
On December 28, 2018, the Company obtained a $2,500 equipment loan from CAT. The loan term was 36 months and matures on January 1, 2022. The loan bears an annual interest rate of 8.29%. Principal and accrued interest of 12 quarterly installments started on April 1, 2019. A loan fee of $50 was paid upon execution of the agreement. The loan is secured with the underlying mobile equipment at the Florida Canyon Mine.
During the year ended December 31, 2019, the Company paid $450 as an additional principal payment on this equipment loan and applied the loan fee of $50.
| | March 31, | | | December 31, | |
| | 2020 | | | 2019 | |
Balance, opening | $ | | 1,343 | | $ | | 2,500 | |
Interest | | | 22 | | | | 171 | |
Payments - principal and interest | | | (178 | ) | | | (1,328 | ) |
| $ | | 1,187 | | $ | | 1,343 | |
Non-current portion of loans payable | $ | | 583 | | $ | | 729 | |
Current portion of loans payable | $ | | 604 | | $ | | 614 | |
Equipment Lease
On October 2, 2019, the Company entered into a Master Services Agreement (the “Agreement”) to lease thirteen trucks and three loaders (the “Equipment”) with Caterpillar Financial Services Corporation to be employed at the Florida Canyon Mine site (the “Equipment Lease”).
The Agreement is for a maximum 72-month term based on the minimum hours of usage. The Company anticipates using the Equipment for greater hours than the minimum and therefore anticipates an approximate five-year term, depending on the actual hours of operation, after which the equipment can be purchased through a buyout price for $1,986.
As at December 31, 2019, all units were in service.
The initial recognition of the value of the Equipment Lease was deemed as $41,713.
The Equipment is to be amortized straight line over the life of the mine to estimated net recoverable value of $500. For the three months ended March 31, 2020, the Company recorded depreciation of $1,174 (three months ended March 31, 2019 - $nil).
| | March 31, | | | December 31, | |
| | 2020 | | | 2019 | |
Balance, opening | $ | | 39,000 | | $ | | - | |
Initial recognition of lease liability | | | - | | | | 41,713 | |
Interest | | | 943 | | | | 1,037 | |
Change in estimated cash flows and assumptions | | | 4 | | | | 14 | |
Invoiced - principal and interest | | | (2,847 | ) | | | (3,764 | ) |
| $ | | 37,100 | | $ | | 39,000 | |
Non-current portion of Equipment Lease liability | $ | | 27,258 | | $ | | 29,158 | |
Current portion of Equipment Lease liability | $ | | 9,842 | | $ | | 9,842 | |
14
ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
Office leases
The Company has two office leases. At March 31, 2020, current and long-term lease liabilities were $167 and $164, respectively (December 31, 2019 - $167 and $217, respectively).
On November 14, 2019, the Company entered into a three-year, $15,000 loan facility (the “Loan Facility”) with Sprott Private Resource Lending II (Collector), LP (“Sprott” or the “Lender”) to fund construction of leach pad expansion at Florida Canyon Mine. The Loan Facility has a maturity date of October 31, 2022, with eight equal quarterly repayments of the principal balance commencing on January 31, 2021, requiring monthly interest payments based on an interest rate of 8% plus the greater of three-month London Inter-bank Offered Rate (“LIBOR”) or 2%. Proceeds are to be solely used for the payment of Sprott fees and expenses, payments related to the leach pad expansion, and other purposes approved by the Lender. Additionally, the Company issued 1,286,228 common shares valued at C$895 ($675) related to the closing of the facility which are included in transaction costs. Other transaction costs incurred by the Company were $263 and are amortized over the life of the Loan Facility.
The Agreement stipulates that the Company complies with certain financial covenants:
| • | Minimum cash balance of $3,000; and, |
| • | Minimum working capital ratio of 1.15, as defined as currents assets, including 80% of ore in process inventory, less current liabilities, excluding the Loan Facility. |
As at March 31, 2020, and December 31, 2019, the Company was in compliance with these covenants.
During the three months ended March 31, 2020, interest and accretion expense on the Loan Facility was $379 and $102, respectively (three months ended March 31, 2019 - $nil and $nil, respectively). Interest expense is capitalized until the leach pad expansion is complete.
During the three months ended March 31, 2020, funds paid for leach pad expansion totalled $1,405 (three months ended March 31, 2019 - $nil). At March 31, 2020, funds remaining for the FCMI leach pad expansion were $6,984 (December 31, 2019 - $8,389).
The share purchase warrants are classified as a financial instrument under the principles of IFRS 9, as the share purchase warrants are considered a derivative financial instrument given that their exercise price is in Canadian dollars (C$) while the functional currency of the Company is the US dollar. Accordingly, the outstanding warrants are remeasured to fair value at each reporting date with change in the fair value charged to finance expense, net (note 4(c)).
| | | Warrants Outstanding at | |
Issuance (1) | Expiry Date | Exercise Price | March 31, 2020 | | December 31, 2019 | |
Rye Patch replacement warrants | July 28, 2021 | C$2.98 ($2.30) | | 1,198,119 | | | 1,198,119 | |
Rye Patch replacement warrants (2) | January 31, 2020 | C$2.71 ($2.09) | | - | | | 147,692 | |
Rye Patch replacement warrants (2) | January 31, 2020 | C$3.44 ($2.65) | | - | | | 7,384,656 | |
| | | | 1,198,119 | | | 8,730,467 | |
| (1) | Replacement warrants issued with the acquisition of Rye Patch. |
| (2) | On January 31, 2020, 7,532,348 warrants expired unexercised. |
15
ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
As at March 31, 2020, the warrant liability was revalued to $6 (December 31, 2019 - $nil) using a Black-Scholes option pricing model based on the following assumptions:
| | | March 31, | December 31, |
| | | 2020 | 2019 |
Risk-free interest rate | | | 1.4% | 1.6% |
Expected life of warrants | | | 1.3 years | 0.1 - 1.6 years |
Annualized volatility | | | 61.2% | 31.3 - 33.3% |
Dividend rate | | | 0.0% | 0.0% |
During the three months ended March 31, 2020, the Company recognized a loss on revaluation of $6 on the share purchase warrant liabilities (three months ended March 31, 2019 - gain on revaluation of $26) (note 4(c)).
a) | Authorized share capital |
| • | Unlimited number of common shares without par value. These shares have voting rights and their holders are entitled to receive dividend payments; and, |
| • | Unlimited number of convertible preference shares without par value, with the same rights as the common shares on dissolution and similar events. These shares have no voting rights and are not entitled to dividend payments. |
There were no common share transactions during the three months ended March 31, 2020 and 2019.
At March 31, 2020, and December 31, 2019, there were 85,993,371 issued and outstanding common shares. The Company does not currently pay dividends and entitlement will only arise upon declaration.
The Company has an incentive share option plan (“the plan”) in place under which it is authorized to grant share options to executive officers, directors, employees and consultants. The plan allows the Company to grant share options up to a maximum of 10.0% of the number of issued shares of the Company.
Share options granted under the plan will have a term not to exceed five years, have an exercise price not less than the Market Price as defined by the TSX Corporate Finance Manual and vest over periods no less than eighteen months.
Share option transactions and the number of share options outstanding during the three months ended March 31, 2020, and year ended December 31, 2019, are summarized as follows:
| Number of share options | | Weighted average exercise price (C$) | |
Outstanding at January 1, 2019 | | 3,023,502 | | | 6.14 | |
Granted | | 2,079,554 | | | 0.96 | |
Expired | | (179,430 | ) | | 13.82 | |
Forfeited | | (1,728,836 | ) | | 3.68 | |
Outstanding at December 31, 2019 | | 3,194,790 | | | 3.67 | |
Forfeited | | (30,960 | ) | | 2.71 | |
Outstanding at March 31, 2020 | | 3,163,830 | | | 3.68 | |
Exercisable at March 31, 2020 | | 1,251,708 | | | 7.61 | |
16
ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
Share options outstanding and exercisable at March 31, 2020, are as follows:
Exercise price range (C$) | Number of options outstanding | | Weighted average exercise price (C$) | | Weighted average remaining life of options (years) | | Number of options exercisable | | Weighted average exercise price (C$) | | Weighted average remaining life of options (years) | |
0.78 - 3.00 | | 2,103,704 | | | 1.18 | | | 4.13 | | | 285,345 | | | 2.62 | | | 2.97 | |
3.01 - 5.00 | | 303,186 | | | 3.36 | | | 2.29 | | | 246,355 | | | 3.38 | | | 2.14 | |
5.01 - 10.00 | | 622,840 | | | 7.16 | | | 1.40 | | | 585,908 | | | 7.28 | | | 1.33 | |
10.01 - 31.40 | | 134,100 | | | 27.39 | | | 1.27 | | | 134,100 | | | 27.39 | | | 1.27 | |
| | 3,163,830 | | | 3.68 | | | 3.30 | | | 1,251,708 | | | 7.61 | | | 1.86 | |
The fair value of share options recognized as an expense during the three months ended March 31, 2020, was $91 (three months ended March 31, 2019 - recovery of $48) (note 4(b)).
No options were granted during the three months ended March 31, 2020 and 2019.
c) | Share-based compensation |
The Board of Directors approved grants of deferred share units (“DSU”), restricted share units (“RSU”), and performance share units (“PSU”) under its long-term incentive plan.
DSU, RSU and PSU Activity | DSUs (thousands) | | | DSU Fair Value | | RSUs (thousands) | | | RSU Fair Value | | PSUs (thousands) | | | PSU Fair Value | |
At January 1, 2019 | | 335 | | $ | | 282 | | | 359 | | $ | | 303 | | | 376 | | $ | | - | |
Granted | | 300 | | | | 232 | | | 353 | | | | 272 | | | 302 | | | | 233 | |
Exercised | | (118 | ) | | | (92 | ) | | - | | | | - | | | - | | | | - | |
Forfeited | | - | | | | - | | | (333 | ) | | | (238 | ) | | (323 | ) | | | (34 | ) |
Change in value | | - | | | | (20 | ) | | - | | | | (42 | ) | | - | | | | (4 | ) |
At December 31, 2019 | | 517 | | $ | | 402 | | | 379 | | $ | | 295 | | | 355 | | $ | | 195 | |
Expired | | - | | | | - | | | - | | | | - | | | (48 | ) | | | - | |
Change in value | | - | | | | (147 | ) | | - | | | | (108 | ) | | - | | | | (71 | ) |
At March 31, 2020 | | 517 | | $ | | 255 | | | 379 | | $ | | 187 | | | 307 | | $ | | 124 | |
Directors were granted DSUs where each DSU has a value equivalent to the price of one common share listed on the TSX. The DSUs are settled in cash and fully vest the day before each Annual General Meeting. Cash settlement takes place following a Director’s resignation.
At March 31, 2020, the carrying amount of DSUs outstanding and included in accrued liabilities was $221 (December 31, 2019 - $288). For the three months ended March 31, 2020, share-based payments recovery related to the DSUs was $67 (three months ended March 31, 2019 - $35) (note 4(b)).
| ii) | Restricted share units |
Selected employees were granted RSUs where each RSU has a value equivalent to the price of one common share listed on the TSX. The RSUs are settled in cash and fully vest on the three-year anniversary date.
At March 31, 2020, the carrying amount of the RSUs outstanding and included in other liabilities was $69 (December 31, 2019 - $84). For the three months ended March 31, 2020, share-based payments recovery related to the RSUs was $15 (three months ended March 31, 2019 - $33) (note 4(b)).
17
ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
| iii) | Performance share units |
Selected employees were granted PSUs where each PSU has a value equivalent to the price of one common share listed on the TSX. The PSUs are settled in cash and fully vest on December 31 starting in the grant year (the “Performance Period”). Performance results at the end of the Performance Period relative to performance criteria and the application of a performance multiplier determines the vesting number of PSUs for each participant. Criteria is based on the Company’s share price performance in relation to its peer group.
At March 31, 2020, the carrying amount of the PSUs outstanding and included in other liabilities was $51 (December 31, 2019 - $66). For the three months ended March 31, 2020, share-based payments recovery related to the PSUs was $15 (three months ended March 31, 2019 - $nil) (note 4(b)).
15. | (LOSS) EARNINGS PER SHARE |
Three months ended March 31, 2020 | | Three months ended March 31, 2019 | |
| | Loss for the period | | Weighted average shares outstanding | | | Loss per share | | | Loss for the period | | Weighted average shares outstanding | | | Loss per share | |
Basic EPS from continuing operations | $ | | (2,096 | ) | | 85,993,371 | | $ | | (0.02 | ) | $ | | (381 | ) | | 84,707,143 | | $ | | (0.00 | ) |
Effect of dilutive securities: | | | | | | | | | | | | | | | | | | | | | | |
Share options | | | - | | | - | | | | - | | | | - | | | - | | | | - | |
Warrants | | | - | | | - | | | | - | | | | - | | | - | | | | - | |
Diluted EPS from continuing operations | $ | | (2,096 | ) | | 85,993,371 | | $ | | (0.02 | ) | $ | | (381 | ) | | 84,707,143 | | $ | | (0.00 | ) |
Three months ended March 31, 2020 | | Three months ended March 31, 2019 | |
| | Loss for the period | | Weighted average shares outstanding | | | Loss per share | | | Earnings for the period | | Weighted average shares outstanding | | | Earnings per share | |
Basic EPS | $ | | (2,677 | ) | | 85,993,371 | | $ | | (0.03 | ) | $ | | 1,601 | | | 84,707,143 | | $ | | 0.02 | |
Effect of dilutive securities: | | | | | | | | | | | | | | | | | | | | | | |
Share options | | | - | | | - | | | | - | | | | - | | | - | | | | - | |
Warrants | | | - | | | - | | | | - | | | | - | | | - | | | | - | |
Diluted EPS | $ | | (2,677 | ) | | 85,993,371 | | $ | | (0.03 | ) | $ | | 1,601 | | | 84,707,143 | | $ | | 0.02 | |
At March 31, 2020, 3,163,830 (March 31, 2019 - 2,765,184) share options were outstanding, of which 3,163,830 were anti-dilutive (March 31, 2019 - 2,765,184).
At March 31, 2020, share purchase warrants that entitle the holders to purchase 1,198,119 (March 31, 2019 - 8,730,467) common shares were outstanding, of which 1,198,119 (March 31, 2019 - 8,730,467) were anti-dilutive.
18
ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
16. | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT |
a) | Fair value measurement of financial assets and liabilities |
The Company has established a fair value hierarchy that reflects the significance of inputs of valuation techniques used in making fair value measurements as follows:
Level 1 - quoted prices in active markets for identical assets or liabilities;
Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. from derived prices); and,
Level 3 - inputs for the asset or liability that are not based upon observable market data.
At March 31, 2020, and December 31, 2019, none of the Company’s financial assets and liabilities are measured and recognized in the condensed interim consolidated statements of financial position at fair value with the exception of the reclamation bonds (note 8) and share purchase warrants (note 13).
The carrying values of cash and cash equivalents, trade and other receivables, trade payables, vendor loan, equipment loan, and other financial liability approximate their fair value due to their short-term nature.
At March 31, 2020, and December 31, 2019, there were no financial assets or liabilities measured and recognized in the condensed interim consolidated statements of financial position at fair value that would be categorized as Level 2 or Level 3 in the fair value hierarchy above with the exception of the share purchase warrants (note 13), which is a Level 2 fair value measurements.
There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2020, and year ended December 31, 2019. At March 31, 2020, and December 31, 2019, there were no financial assets or liabilities measured and recognized on the condensed interim consolidated statements of financial position at fair value that would be categorized as Level 3 in the fair value hierarchy.
Peal Arbitration
During February 2019, Peal de Mexico, S.A. de C.V. gave notice of the termination of the mining agreement between Peal and Molimentales dated September 17, 2009, as amended (the “Peal Agreement”). Peal also entered into an arbitration process seeking to recover demobilization expenses and a termination penalty under the Peal Agreement. Peal filed its demand with the arbitral tribunal on December 3, 2019, and Molimentales filed its answer to the demand and a counterclaim with the arbitral tribunal on December 19, 2019. On January 10, 2020, Peal filed its answer to the counterclaim with the arbitral tribunal. The Company has accrued all expenses, including demobilization costs, based on the actual costs incurred. Peal has also claimed a termination penalty of $20,000. The Company has not accrued this amount as it does not believe there is basis for the claim regarding the termination penalty in the Peal Agreement. No additional liability has been recognized in the condensed interim consolidated financial statements. As a result of the sale of the San Francisco Mine on May 6, 2020 (note 3), the Peal arbitration will transfer to the buyer.
19
ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
Notice of Civil Claim
On May 2, 2019, the Company received a Notice of Civil Claim from a former shareholder of Rye Patch whose shares were acquired by the Company. The plaintiff brought the claim in the Supreme Court of British Columbia pursuant to the Class Proceedings Act and is seeking damages against the Company and certain directors and officers for alleged misrepresentations with respect to anticipated gold production during the year ended December 31, 2018. On August 9, 2019, the Company filed their Response to the Notice of Civil Claim, denying all of the allegations and on October 1, 2019, the parties attended a case planning conference. On October 22, 2019, the plaintiff filed an amendment to the Notice of Civil Claim dropping certain allegations and adding an allegation of insider trading against the Company to their claim. The certification hearing was scheduled to occur during April 2020 but has been postponed indefinitely due to COVID-19. The Company and its counsel have reviewed the claim and the amendments to the claim and the outcome is not determinable at this time. Accordingly, no additional liability has been recognized in the condensed interim consolidated financial statements.
Operating results of operating segments are reviewed by the Company's chief operating decision maker ("CODM") to make decisions about resources to be allocated to the segments and to assess their performance. The Company has determined that it has two reportable operating segments as of March 31, 2020: the Florida Canyon Mine located in the US and the Ana Paula Project located in Mexico. For the three months ended March 31, 2020, the San Francisco Mine was classified as a discontinued operation (note 3).
Other consists primarily of the Company’s corporate assets, warrant liabilities and corporate and administrative expenses which are not allocated to operating segments.
A reporting segment is defined as a component of the Company:
| • | that engages in business activities from which it may earn revenues or incur expenses; |
| • | whose operating results are regularly reviewed by the Company’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and, |
| • | for which discrete financial information is available. |
The CODM evaluates segment performance based on (loss) earnings from operations and capital expenditures.
The Company does not treat the production of gold and silver, the primary two minerals produced at the Florida Canyon Mine, as separate operating segments as they are the output of the same production process, only become separately identifiable as finished goods and are not reported separately from a management perspective.
| | | | | Three months ended March 31, 2020 | |
Segment results | | | | | Florida Canyon Mine | | | Ana Paula Project | | | Other | | | Total | |
Metal revenues | | | | $ | | 15,771 | | $ | | - | | $ | | - | | $ | | 15,771 | |
Production costs | | | | | | (13,101 | ) | | | - | | | | - | | | | (13,101 | ) |
Depreciation and depletion | | | | | | (1,619 | ) | | | - | | | | - | | | | (1,619 | ) |
Corporate and administrative expenses | | | | | | - | | | | - | | | | (1,869 | ) | | | (1,869 | ) |
Exploration expense | | | | | | - | | | | (627 | ) | | | - | | | | (627 | ) |
Earnings (loss) from operations | | | | $ | | 1,051 | | $ | | (627 | ) | $ | | (1,869 | ) | $ | | (1,445 | ) |
Capital expenditures | | | | $ | | 1,562 | | $ | | - | | $ | | - | | $ | | 1,562 | |
20
ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
| | | | | Three months ended March 31, 2019 | |
Segment results | | | | | Florida Canyon Mine | | | Ana Paula Project | | | Other | | | Total | |
Metal revenues | | | | $ | | 16,081 | | $ | | - | | $ | | - | | $ | | 16,081 | |
Production costs | | | | | | (13,680 | ) | | | - | | | | - | | | | (13,680 | ) |
Depreciation and depletion | | | | | | (1,202 | ) | | | - | | | | - | | | | (1,202 | ) |
Corporate and administrative expenses | | | | | | - | | | | - | | | | (1,428 | ) | | | (1,428 | ) |
Earnings (loss) from operations | | | | $ | | 1,199 | | $ | | - | | $ | | (1,428 | ) | $ | | (229 | ) |
Capital expenditures | | | | $ | | 1,342 | | $ | | 2,827 | | $ | | - | | $ | | 4,169 | |
Segment assets and liabilities | | | San Francisco Mine (note 3) | | | Florida Canyon Mine | | | Ana Paula Project | | | Other | | | Total | |
As at March 31, 2020 | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | | 26,500 | | $ | | 170,922 | | $ | | 36,571 | | $ | | 11,444 | | $ | | 245,437 | |
Total liabilities | | $ | | 18,644 | | $ | | 87,633 | | $ | | 2,628 | | $ | | 20,507 | | $ | | 129,412 | |
As at December 31, 2019 | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | | 34,355 | | $ | | 168,882 | | $ | | 36,842 | | $ | | 11,205 | | $ | | 251,284 | |
Total liabilities | | $ | | 24,127 | | $ | | 86,374 | | $ | | 2,272 | | $ | | 19,900 | | $ | | 132,673 | |
During the three months ended March 31, 2020 and 2019, the Company had sales agreements with two customers for its continuing operations. The percentage breakdown of metal revenues by customer is as follows:
| Three months ended March 31, |
| | 2020 | | 2019 |
Customer A | | 97% | | 0% |
Customer B | | 0% | | 100% |
Other | | 3% | | 0% |
Total | | 100% | | 100% |
Due to the nature of the gold market, the Company is not dependent on any customers to sell finished goods.
The Company’s metal revenues from operations, all of which are derived in the Unites States, for the three months ended March 31, 2020 and 2019, are as follows:
| Three months ended March 31, | |
| | 2020 | | | 2019 | |
Gold | $ | | 15,665 | | $ | | 15,942 | |
Silver by-product | | | 106 | | | | 139 | |
| $ | | 15,771 | | $ | | 16,081 | |
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ALIO GOLD INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(In thousands of United States dollars, except where noted) - Unaudited
19. | EVENTS AFTER THE REPORTING PERIOD |
Argonaut Gold merger
On March 30, 2020, the Company announced that Argonaut Gold Inc. (“Argonaut” or “Argonaut Gold”) and Alio entered into a definitive agreement for an at-market merger (the “Arrangement Agreement”) whereby Argonaut will acquire all of the issued and outstanding common shares of Alio (the “Transaction”). Under the terms of the Arrangement Agreement, all of the Alio issued and outstanding common shares will be exchanged on the basis of 0.67 of an Argonaut common share per each Alio common share (the “Exchange Ratio”).
The Exchange Ratio has been agreed based on the volume-weighted average prices of Argonaut and Alio common shares over the 20 trading days ended on March 27, 2020. Upon completion of the Transaction, existing Argonaut and Alio shareholders will own approximately 76% and 24% of the pro forma company, respectively, on a fully-diluted, in-the-money basis. The shareholders of each Argonaut and Alio will vote on the Transaction during May 2020 and if approved, the Transaction is expected to close during the second quarter of 2020.
Management compensation
On April 1, 2020, the Company issued share options and cash-based compensation to key management and directors. The number of share options, deferred share units, and restricted share units issued were 2,222,681, 375,000, and 863,944, respectively.
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