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| (An exploration stage company) |
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| CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS |
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| For the Three and Six Months Ended June 30, 2019 and 2018 |
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| UNAUDITED |
| _______________________ |
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| Auryn Resources Inc. | | |
| Condensed Consolidated Interim Statements of Financial Position | |
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| Unaudited (Expressed in thousands of Canadian dollars) |
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| | | |
| Assets | | |
| | | |
| Current assets: | | |
| Cash | $2,126 | $1,653 |
| Marketable securities | 239 | 186 |
| Amounts receivable | 91 | 57 |
| Prepaid expenses and deposits | 777 | 717 |
| | | |
| | 3,233 | 2,613 |
| | | |
| Non-current assets: | | |
| Restricted cash and cash equivalents | 115 | 115 |
| Prepaid expenses and deposits | 170 | 198 |
| Mineral property interests (note 3(d)) | 39,443 | 39,072 |
| Equipment | 1,396 | 1,525 |
| | 41,124 | 40,910 |
| Total assets | $44,357 | $43,523 |
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| | | |
| Liabilities and Equity | | |
| | | |
| Liabilities | | |
| | | |
| Current liabilities: | | |
| Accounts payable and accrued liabilities | $1,045 | $836 |
| Flow-through share premium liability (note 4) | 207 | 317 |
| | | |
| | 1,252 | 1,153 |
| | | |
| Non-current liabilities: | | |
| Provision for site reclamation and closure (note 5) | 2,061 | 1,891 |
| | | |
| Total liabilities | $3,313 | $3,044 |
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| Equity: | | |
| Share capital | $128,042 | $121,988 |
| Share option and warrant reserve | 8,587 | 6,937 |
| Accumulated other comprehensive income | 57 | 225 |
| Deficit | (95,642) | (88,671) |
| | | |
| Total equity | $41,044 | $40,479 |
| | | |
| Total liabilities and equity | $44,357 | $43,523 |
| Subsequent events (note 14) | | |
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| Approved on behalf of the Board of Directors: | | |
| | | |
| | | |
| "Shawn Wallace" | "Steve Cook" | |
| Chief Executive Officer | Director | |
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| The accompanying notes form an integral part of these condensed consolidated interim financial statements. |
| Auryn Resources Inc. | | | | |
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss |
| | | | | |
| Unaudited (Expressed in thousands of Canadian dollars, except per share amounts) | |
| | Three months ended June 30, | Six months ended June 30, |
| | | | | |
| | | | | |
| Operating expenses | | | | |
| Exploration and evaluation costs (note 6) | $2,425 | $3,272 | $3,200 | $5,563 |
| Fees, salaries and other employee benefits | 1,868 | 814 | 2,401 | 1,301 |
| Insurance | 76 | 77 | 153 | 162 |
| Legal and professional fees | 105 | 85 | 172 | 138 |
| Marketing and investor relations | 442 | 394 | 692 | 742 |
| Office and administration | 133 | 123 | 253 | 218 |
| Regulatory, transfer agent and shareholder information | 77 | 58 | 144 | 140 |
| | 5,126 | 4,823 | 7,015 | 8,264 |
| | | | | |
| Other expenses (income): | | | | |
| Project investigation costs | 45 | 39 | 86 | 57 |
| Accretion of provision for site reclamation and closure | 11 | 10 | 22 | 19 |
| Interest and other income | (19) | (34) | (20) | (46) |
| Amortization of flow-through share premium | (78) | (459) | (110) | (615) |
| (Gain) loss on marketable securities | (53) | (14) | (53) | 159 |
| Foreign exchange loss (gain) | 13 | 7 | 31 | (3) |
| | (81) | (451) | (44) | (429) |
| | | | | |
| Loss for the period | $5,045 | $4,372 | $6,971 | $7,835 |
| | | | | |
| Other comprehensive loss (income), net of tax | | | | |
| Items that may be reclassified subsequently to profit or loss: | | | | |
| Unrealized currency loss (gain) on translation of foreign operations | 94 | (91) | 168 | (157) |
| | | | | |
| Other comprehensive loss (income) for the period | 94 | (91) | 168 | (157) |
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| Total comprehensive loss for the period | $5,139 | $4,281 | $7,139 | $7,678 |
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| Basic and diluted loss per share (note 12) | $0.05 | $0.05 | $0.08 | $0.09 |
| | | | | |
| | | | | |
| Basic and diluted weighted average number of shares outstanding (note 12) | 94,509,705 | 85,925,034 | 92,755,354 | 82,644,677 |
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The accompanying notes form an integral part of these condensed consolidated interim financial statements. |
| Auryn Resources Inc. | | | | | | |
| Condensed Consolidated Interim Statements of Equity | | | | | |
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| Unaudited (Expressed in thousands of Canadian dollars, except share amounts) | | | | | |
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| Balance at December 31, 2017 | 78,746,230 | $105,870 | $6,046 | $(60) | $(70,997) | $40,859 |
| | | | | | | |
| Comprehensive income (loss) for the period | – | – | – | 157 | (7,835) | (7,678) |
| Shares issued pursuant to offering, net of share issue | | | | | | |
| costs and flow-through liability | 7,107,211 | 10,543 | – | – | – | 10,543 |
| Share options exercised (note 7 (b) iv) | 70,000 | 70 | (35) | | | 35 |
| Warrants exercised (note 7 (b) v) | 15,000 | 33 | (12) | – | – | 21 |
| Share-based compensation (note 8 (a)) | – | – | 439 | – | – | 439 |
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| Balance at June 30, 2018 | 85,938,441 | $116,516 | $6,438 | $97 | $(78,832) | $44,219 |
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| Balance at December 31, 2018 | 90,387,816 | $121,988 | $6,937 | $225 | $(88,671) | $40,479 |
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| Comprehensive loss for the period | – | – | – | (168) | (6,971) | (7,139) |
| Shares issued pursuant to offerings, net of share issue | | | | | | |
| costs (note 7 (b) i) | 3,284,375 | 5,120 | – | – | – | 5,120 |
| Share options exercised (note 7 (b) ii) | 864,375 | 934 | (449) | | | 485 |
| Share-based compensation (note 8 (a)) | – | – | 2,099 | – | – | 2,099 |
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| Balance at June 30, 2019 | 94,536,566 | $128,042 | $8,587 | $57 | $(95,642) | $41,044 |
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The accompanying notes form an integral part of these condensed consolidated interim financial statements. |
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| Condensed Consolidated Interim Statements of Cash Flows | | | |
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| Unaudited (Expressed in thousands of Canadian dollars) | | |
| | Three months ended June 30, | Six months ended June 30, |
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| Cash (used in) provided by: | | | | |
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| Operating activities: | | | | |
| Loss for the period | $(5,045) | $(4,372) | $(6,971) | $(7,835) |
| Items not involving cash: | | | | |
| Interest income | (19) | (34) | (20) | (46) |
| Accretion of provision for site reclamation and closure | 11 | 10 | 22 | 19 |
| (Gain) loss on marketable securities | (53) | (13) | (53) | 159 |
| Amortization of flow-through share premium | (78) | (459) | (110) | (615) |
| Unrealized foreign exchange loss | (7) | (15) | (3) | 58 |
| Share-based compensation (note 8(a)) | 1,890 | 380 | 2,099 | 439 |
| Depreciation of fixed assets | 61 | 65 | 127 | 129 |
| Changes in non-cash working capital: | | | | |
| Amounts receivable | (44) | 73 | (33) | 530 |
| Prepaid expenses and deposits | 155 | 105 | (2) | 61 |
| Accounts payable and accrued liabilities | 43 | (289) | 161 | 7 |
| Cash used in operating activities | (3,086) | (4,549) | (4,783) | (7,094) |
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| Investing activities: | | | | |
| Interest received | 19 | 34 | 20 | 46 |
| Purchase of equipment | – | (60) | – | (60) |
| Mineral property acquisition costs | (350) | (1,005) | (362) | (1,027) |
| Increase in reclamation bond | – | (53) | – | (53) |
| Cash used in investing activities | (331) | (1,084) | (342) | (1,094) |
| | | | | |
| Financing activities: | | | | |
| Proceeds from issuance of common shares, | | | | |
| net of cash share issuance costs (note 7 (b)) | (2) | – | 5,120 | 11,290 |
| Proceeds from share option and warrant exercises (note 7 (b)) | 40 | 49 | 485 | 56 |
| Cash provided by financing activities | 38 | 49 | 5,605 | 11,346 |
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| Effect of foreign exchange rate changes on cash | (3) | 34 | (7) | (32) |
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| (Decrease) increase in cash | (3,382) | (5,550) | 473 | 3,126 |
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| Cash, beginning of the period | 5,508 | 11,150 | 1,653 | 2,474 |
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| Cash, end of the period | $2,126 | $5,600 | $2,126 | $5,600 |
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| Supplemental cash flow information (note 10) | | | | |
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The accompanying notes form an integral part of these condensed consolidated interim financial statements. |
Auryn Resources Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Unaudited (Expressed in thousands of Canadian dollars, except per share amounts)
Three and six months ended June 30, 2019 and 2018
Auryn Resources Inc. (the “Company” or “Auryn”) was incorporated on June 9, 2008, under the British Columbia Business Corporations Act.
The Company trades on the Toronto Stock Exchange under the symbol AUG.TO, and effective July 17, 2017 the Company’s common shares commenced trading on the NYSE-American under the symbol AUG. The Company’s principal business activity is the acquisition, exploration and development of resource properties in Canada and Peru.
The Company, through its wholly owned subsidiaries, owns the mineral concessions comprising the Committee Bay and Gibson MacQuoid mineral properties both located in Nunavut (note 3 (a)), as well as the Homestake Ridge Project in northwestern British Columbia (note 3 (b)). The Company has also secured rights to various mining concessions in southern Peru (note 3 (c)) which include the Sombrero and Huilacollo projects.
The head office and principal address of Auryn is located at 1199 West Hastings Street, Suite 600, Vancouver, British Columbia, V6E 3T5.
(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”). 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 financial statements for the year ended December 31, 2018 except as follows:
In January 2016, the IASB published a new accounting standard, IFRS 16 - Leases ("IFRS 16") which supersedes IAS 17 - Leases. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset. Control is considered to exist if the customer has the right to obtain substantially all of the economic benefits from the use of an identified asset and the right to direct the use of that asset during the term of the lease. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on balance sheet accounting model that is similar to the current finance lease accounting, with limited exceptions for short-term leases or leases of low value assets.
The Company has made the following elections under IFRS 16:
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to apply the available exemptions as permitted by IFRS 16 to recognize a lease expense on a straight-line basis for short term leases (lease term of 12 months or less) and low value assets; and
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to apply the practical expedient whereby leases whose term ends within 12 months of the date of initial application would be accounted for in the same way as short-term leases.
The adoption of IFRS 16 did not have a material impact on the Company’s financial statements. Due to the seasonality of the Company’s exploration programs, its exploration and other contracts are short-term in nature and therefore are exempt from the recognition provisions of IFRS 16.
These condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2018, which were filed under the Company’s profile on SEDAR at www.sedar.com.
These condensed consolidated financial statements were approved and authorized for issue by the Board of Directors of the Company on August 13, 2019.
Auryn Resources Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Unaudited (Expressed in thousands of Canadian dollars, except per share amounts)
Three and six months ended June 30, 2019 and 2018
2.
Basis of presentation (continued)
(b)
Basis of preparation and consolidation
These condensed consolidated interim financial statements have been prepared on a historical cost basis except for marketable securities that have been measured at fair value. The presentation currency is the Canadian dollar; therefore, all amounts, with the exception of per share amounts, are presented in thousands of Canadian dollars unless otherwise noted.
These condensed consolidated interim financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control exists when the Company has power over an investee, exposure or rights, to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of the Company’s returns.
| Subsidiary | Place of incorporation | Functional Currency | Beneficial Interest |
| North Country Gold Corp. (“North Country”) | BC, Canada | CAD | 100% |
| Homestake Resource Corporation (“Homestake”) | BC, Canada | CAD | 100% |
| Corisur Peru, S.A.C. (“Corisur”) | Peru | USD | 100% |
| Sombrero Minerales, S.A.C. (“Sombrero”) | Peru | USD | 100% |
| Homestake Royalty Corporation (inactive) | BC, Canada | CAD | 100% |
All intercompany balances and transactions have been eliminated.
(c)
Critical accounting judgments and estimates
The preparation of financial statements in conformity with IFRS requires management to select accounting policies and make estimates and judgments that may have a significant impact on the condensed consolidated interim financial statements. Estimates are continuously evaluated and are based on management’s experience and expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes may differ from these estimates. The Company’s critical accounting judgments and estimates were presented in note 2 of the audited annual consolidated financial statements for the year ended December 31, 2018 and have been consistently applied in the preparation of these condensed consolidated interim financial statements. No new judgements were applied for the periods ended June 30, 2019 and 2018.
3.
Mineral property interests
(a)
Nunavut exploration projects
Committee Bay
The Company, through its wholly owned subsidiary North Country, owns a 100% interest in the Committee Bay project located in Nunavut, Canada. The Committee Bay project includes approximately 300,000 hectares situated along the Committee Bay Greenstone Belt located within the Western Churchill Province of Nunavut. The Committee Bay project is subject to a 1% Net Smelter Royalty (“NSR”) on gold production, with certain portions subject to an additional 1.5% NSR. The 1.5% NSR is payable on only 7,596 hectares and can be purchased by the Company within two years of commencement of commercial production for $2,000 for each one-third (0.5%) of the NSR.
Gibson MacQuoid
In 2017, the Company acquired a number of prospecting permits and mineral claims along the Gibson MacQuoid greenstone belt in Nunavut, Canada and staked additional claims in June 2019. The permits and claims are located between the Meliadine deposit and Meadowbank mine and cover approximately 120 km of strike length of the prospective greenstone belt and greater than 350,000 hectares collectively.
Auryn Resources Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Unaudited (Expressed in thousands of Canadian dollars, except per share amounts)
Three and six months ended June 30, 2019 and 2018
3.
Mineral property interests (continued)
(b) Homestake Ridge
The Company, through its wholly owned subsidiary Homestake, owns a 100% interest in the Homestake Ridge project subject to various royalty interests held by third parties not exceeding 2%. The project covers approximately 7,500 hectares and is located in the Kitsault Mineral district in north western British Columbia. The project is being explored as a potential high-grade underground mining operation.
(c) Peruvian exploration projects
Sombrero
The Sombrero copper-gold project, located in southern Peru, covers more than 120,000 hectares acquired through a combination of staking and option agreements which are outlined below:
On June 28, 2016, the Company entered into an option agreement (the “Alturas Option”) with Alturas Minerals Corp (“Alturas”) to acquire an 80% or 100% interest in the Sombrero concessions held by Alturas. In order to exercise the Alturas Option and acquire an 80% interest in the project, the Company must incur US$2.1 million in work expenditures within a five-year period. As of June 30, 2019 the Company has incurred US$1.6 million in work expenditures and made cash payments totalling US$0.2 million to Alturas, Upon the Company’s completion of the requirements to earn an 80% interest in the Sombrero Project, the parties shall form a 80:20 Joint Venture. For a period of one year after the formation of the Joint Venture, Alturas’ 20% interest shall be “free carried” and the Company shall have a right to acquire the Alturas 20% interest for US$5.0 million.
On June 22, 2018 the Company entered an option agreement (the “Mollecruz Option”) giving the Company the right to acquire a 100% interest in the Mollecruz concessions which are key claims in the northern area of the Sombrero project. Under the Mollecruz Option, the Company may acquire a 100% interest, subject to a 0.5% NSR, through a combination of work expenditures and cash payments as detailed in the table below.
| Due Dates | Payment & Work Expenditure Status | Property Payments (in ‘000 US$) | Work Expenditures (in ‘000 US$) |
| Effective Date (June 22, 2018) | Completed | 50 | - |
| June 22, 2019* | Deferred* | 50 | 150 |
| June 22, 2020* | | 100 | 150 |
| June 22, 2021* | | 200 | 500 |
| June 22, 2022* | | 300 | 700 |
| June 22, 2023* | | 900 | 1,500 |
| Total | | 1,600 | 3,000 |
* Effective May 20, 2019, the Company formally declared the existence of a force majeure event under the Mollecruz Option thereby deferring the Company’s obligation to make the June 22, 2019 property payment and any subsequent property payments and work expenditures for a maximum of 24 months from the declaration date. To date, the Company has not been able to reach an access agreement with the local community in order to commence work in the region but has continued to have open communications with the community and continues to negotiate in good faith to obtain access to the property.
Auryn Resources Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Unaudited (Expressed in thousands of Canadian dollars, except per share amounts)
Three and six months ended June 30, 2019 and 2018
3.
Mineral property interests (continued)
(c)
Peruvian exploration projects (continued)
On December 13, 2018 the Company entered a series of agreements (the “Aceros Option”) with Corporacion Aceros Arequipa S.A. (“Aceros”) giving the Company the right to option three key mineral concessions located within the Company’s Sombrero project. If the Aceros Option is exercised, a joint venture would be formed in which the Company would hold an 80% interest (Aceros – 20%). The joint venture would combine the 530 hectare Aceros concessions plus 4,600 hectares of Auryn’s Sombrero land position. The work expenditures and cash payments required under the agreement are as detailed in the table below.
| Due Dates | Payment & Work Expenditure Status | Property Payments (in ‘000 US$) | Work Expenditures (in ‘000 US$) |
| Effective Date (December 13, 2018) | Completed | 140 | - |
| December 13, 2019 | | 60 | 150 |
| December 13, 2020 | | 250 | 500 |
| December 13, 2021 | | 350 | 1,500 |
| December 13, 2022 | | - | 3,000 |
| Total | | 800 | 5,150 |
Huilacollo
On June 2, 2016, the Company acquired the rights to the Huilacollo epithermal property in the Tacna province of southern Peru, which is comprised of 2,000 hectares of intense hydrothermal alteration. The rights were acquired through an option agreement (the “Huilacollo Option”) with a local Peruvian company, Inversiones Sol S.A.C., under which the Company may acquire 100% interest (subject to a 1.5% NSR on precious metals buyable for US$2.5 million and a 2.5% NSR on base metals buyable for US$7.0 million) through a combination of work expenditures and cash payments as outlined in the table below. As of May 11, 2019, the Company had completed US$4.5 million of work expenditures under the Huilacollo Option and thus did not satisfy the accumulated work expenditure requirement of US$5.0 million at that date. As permitted by the Huilacollo Option, the Company instead made a cash payment of US$258,000 equal to 50% of the shortfall at the due date to keep the option in good standing.
| Due Dates | Payment & Work Expenditure Status | Property Payments (in ‘000 US$) | Work Expenditures (in ‘000 US$) |
| Effective Date (May 11, 2016) | Completed | 250 | - |
| May 11, 2018 | Completed | 500 | 2,000 |
| May 11, 2019 | Completed | - | 3,000 |
| May 11, 2020 | | 250 | - |
| May 11, 2021 | | 250 | 2,000 |
| May 11, 2022 | | 7,500 | - |
| Total | | 8,750 | 7,000 |
During 2017, the Company acquired the rights to certain mineral claims adjacent to the Huilacollo property known as Andamarca claims and Tacora claims. Under the terms of the acquisition agreements, the Company paid US$0.65 million on transferring the concessions in favour of Corisur. The Andamarca concession is subject to a 1.5% NSR of which 50% is buyable for US$2.5 million and the Tacora concession is subject to a 0.5% NSR of which 50% is buyable for US$0.5 million.
Auryn Resources Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Unaudited (Expressed in thousands of Canadian dollars, except per share amounts)
Three and six months ended June 30, 2019 and 2018
3.
Mineral property interests (continued)
(c)
Peruvian exploration projects (continued)
Baños del Indio
On September 26, 2016, the Company announced it had entered into an option agreement (the “Baños Option”) with a local Peruvian company, Exploandes S.A.C to earn a 100% interest in the Baños del Indio gold project located in the Tacna province of southern Peru, just 10 km to the north of the Company’s Huilacollo project.
Under the Baños Option, the Company may acquire a 100% interest, subject to a 3.0% NSR (50% being buyable for US$ 6.0 million), through a combination of work expenditures and cash payments as detailed in the table below.
| Due Dates | Payment & Work Expenditure Status | Property Payments (in ‘000 US$) | Work Expenditures (in ‘000 US$) |
| Effective Date (September 22, 2016) | Completed | 100 | - |
| September 22, 2017 | Completed | 100 | - |
| September 22, 2018* | Deferred* | 100 | 200 |
| September 22, 2019* | | 200 | 250 |
| September 22, 2020* | | 150 | 1,000 |
| September 22, 2021* | | 2,500 | 2,000 |
| Total | | 3,150 | 3,450 |
* Effective September 7, 2018, the Company declared the existence of a force majeure event under the Baños del Indio option thereby deferring the Company’s obligation to make the September 22, 2018 property payment and any subsequent property payments and work expenditures for a maximum of 24 months from the date of declaration. Despite the Company acting in good faith in its negotiations with the community, the Company, to date, has been unable to reach an access agreement in order to initiate its exploration program on the Baños properties. A local community worker has been hired to advocate for the Company and work towards the resolution of this matter.
(d) Costs capitalized as mineral property interests:
The following is a continuity of the Company’s mineral property acquisition costs:
| | Committee Bay & Gibson MacQuoid | | | |
| Balance at December 31, 2017 | $18,681 | $16,060 | $2,517 | $37,258 |
| Additions | - | - | 1,392 | 1,392 |
Change in estimate of provision for site reclamation and closure (note 5) | 190 | - | - | 190 |
| Currency translation adjustment | - | - | 232 | 232 |
| Balance at December 31, 2018 | $18,871 | $16,060 | $4,141 | $39,072 |
| Additions | 11 | - | 362 | 373 |
Change in estimate of provision for site reclamation and closure (note 5) | 148 | - | - | 148 |
| Currency translation adjustment | - | - | (150) | (150) |
| Balance at June 30, 2019 | $19,030 | $16,060 | $4,353 | $39,443 |
4.
Flow-through share premium liability
As at June 30, 2019, the Company has a flow-through share premium liability of $207 (December 31, 2018 - $317) which relates to funds remaining from the non-brokered flow-through private placement completed on August 16, 2018.
Flow-through shares are issued at a premium, calculated as the difference between the price of a flow-through share and the price of a common share at that date, as tax deductions generated by the eligible expenditures are passed through to the shareholders of the flow-through shares once the eligible expenditures are incurred and renounced.
Auryn Resources Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Unaudited (Expressed in thousands of Canadian dollars, except per share amounts)
Three and six months ended June 30, 2019 and 2018
4.
Flow-through share premium liability (continued)
Below is a summary of the 2018 flow-through financings and the related flow-through share premium liability generated by each financing:
| | | | Premium per flow-through share | Flow-through premium liability |
| March 23, 2018* | 1,091,826 | $2.35 | $0.67 | $737 |
| August 16, 2018 | 4,299,375 | $1.60 - $1.87 | $0.30 - $0.57 | 1,742 |
| | 5,391,201 | | | $2,479 |
* Note that the March 23, 2018 flow-through shares were priced in USD with a flow-through price per share of US$1.82 and a flow-through premium of US$0.52 per share.
The following table is a continuity of the flow-through share funding and expenditures along with the corresponding impact on the flow-through share premium liability:
| | Flow-through funding and expenditures | |
| | | | | Flow-through premium liability |
| Balance at December 31, 2017 | $693 | $- | $693 | $185 |
| Flow-through funds raised | 1,870 | 8,023 | 9,893 | 2,479 |
| Flow-through eligible expenditures | (1,826) | (7,590) | (9,416) | (2,347) |
| Balance at December 31, 2018 | $737 | $433 | $1,170 | $317 |
| Flow-through eligible expenditures | (100) | (373) | (473) | (110) |
| Balance at June 30, 2019 | $637 | $60 | $697 | $207 |
5.
Provision for site reclamation and closure
The Company recognizes a provision for site reclamation and closure, which reflects the present value of the estimated amount of cash flows required to satisfy the asset retirement obligation in respect of the Committee Bay property. The components of this obligation are the removal of equipment currently being used at the site as well as costs associated with the reclamation of the camp housing and work sites on the property. The estimate of future asset retirement obligations is subject to change based on amendments to applicable laws, management’s intentions, and mining lease renewals.
The key assumptions on which the present value of the future estimated cash flows is based are:
●
Undiscounted cash flow for site reclamation of $2,564 (December 31, 2018 - $2,545)
●
Expected timing of future cash flows is based on mining leases expiration, which is between 2026 and 2035
●
Annual inflation rate 2% (December 31, 2018 - 2%)
●
Risk-free interest rate 1.68% (December 31, 2018 - 2.41%)
The present value of the liability for the site reclamation and closure provision at Committee Bay project is as follows:
| | | |
| | | |
| Opening balance | $1,891 | $1,662 |
| Accretion | 22 | 39 |
| Change in estimate | 148 | 190 |
| Closing balance | $2,061 | $1,891 |
Auryn Resources Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Unaudited (Expressed in thousands of Canadian dollars, except per share amounts)
Three and six months ended June 30, 2019 and 2018
6.
Exploration and evaluation costs
For the three months ended June 30, 2019, the Company’s exploration and evaluation costs are broken down as follows:
| | Committee Bay & Gibson MacQuoid | | | |
| Assaying | $13 | $3 | $35 | $51 |
| Exploration Drilling | 121 | - | - | 121 |
| Camp cost, equipment and field supplies | 64 | 5 | 92 | 161 |
| Geological consulting services | 31 | 12 | 214 | 257 |
| Permitting, environmental and community costs | 3 | 2 | 722 | 727 |
| Expediting and mobilization | 12 | 2 | 14 | 28 |
| Salaries and wages | 114 | 36 | 165 | 315 |
| Fuel and consumables | 7 | - | 10 | 17 |
| Aircraft and travel | 59 | 4 | 63 | 126 |
| Share based compensation | 106 | 57 | 459 | 622 |
| Total for the three months ended June 30, 2019 | $530 | $121 | $1,774 | $2,425 |
For the three months ended June 30, 2018, the Company’s exploration and evaluation costs are broken down as follows:
| | Committee Bay & Gibson MacQuoid | | | |
| Assaying | $87 | $20 | $53 | $160 |
| Camp cost, equipment and field supplies | 136 | 34 | 142 | 312 |
| Geological consulting services | 36 | 25 | 278 | 339 |
| Geophysical analysis | - | - | 101 | 101 |
| Permitting, environmental and community costs | 58 | 30 | 530 | 618 |
| Expediting and mobilization | 63 | 40 | 14 | 117 |
| Salaries and wages | 298 | 94 | 169 | 561 |
| Fuel and consumables | 10 | - | 6 | 16 |
| Aircraft and travel | 857 | 4 | 43 | 904 |
| Share based compensation | 52 | 9 | 83 | 144 |
| Total for the three months ended June 30, 2018 | $1,597 | $256 | $1,419 | $3,272 |
For the six months ended June 30, 2019 the Company’s exploration and evaluation costs are broken down as follows:
| | Committee Bay & Gibson MacQuoid | | | |
| Assaying | $20 | $11 | $49 | $80 |
| Exploration drilling | 121 | - | - | 121 |
| Camp cost, equipment and field supplies | 132 | 10 | 164 | 306 |
| Geological consulting services | 31 | 12 | 420 | 463 |
| Permitting, environmental and community costs | 9 | 4 | 873 | 886 |
| Expediting and mobilization | 12 | 2 | 19 | 33 |
| Salaries and wages | 189 | 62 | 232 | 483 |
| Fuel and consumables | 7 | - | 15 | 22 |
| Aircraft and travel | 63 | 4 | 73 | 140 |
| Share based compensation | 121 | 63 | 482 | 666 |
| Total for the six months ended June 30, 2019 | $705 | $168 | $2,327 | $3,200 |
Auryn Resources Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Unaudited (Expressed in thousands of Canadian dollars, except per share amounts)
Three and six months ended June 30, 2019 and 2018
6.
Exploration and evaluation costs (continued)
For the six months ended June 30, 2018 the Company’s exploration and evaluation costs are broken down as follows:
| | Committee Bay & Gibson MacQuoid | | | |
| Assaying | $104 | $27 | $101 | $232 |
| Exploration drilling | 128 | - | 307 | 435 |
| Camp cost, equipment and field supplies | 356 | 52 | 516 | 924 |
| Geological consulting services | 125 | 140 | 456 | 721 |
| Geophysical analysis | 2 | - | 101 | 103 |
| Permitting, environmental and community costs | 145 | 54 | 681 | 880 |
| Expediting and mobilization | 77 | 41 | 19 | 137 |
| Salaries and wages | 564 | 132 | 244 | 940 |
| Fuel and consumables | 10 | - | 9 | 19 |
| Aircraft and travel | 933 | 4 | 65 | 1,002 |
| Share based compensation | 63 | 10 | 97 | 170 |
| Total for the six months ended June 30, 2018 | $2,507 | $460 | $2,596 | $5,563 |
Unlimited common shares without par value.
Unlimited preferred shares - nil issued and outstanding.
Six months ended June 30, 2019:
i.
On March 27, 2019, the Company completed a non-brokered private placement for gross proceeds of $5,255. The placement consisted of 3,284,375 common shares (the “Shares”) priced at CAD$1.60 per Share (the “2019 Offering”). The Shares issued under the 2019 Offering are subject to a four-month hold period and were not registered in the United States.
Share issue costs related to the 2019 Offering totaled $135, which included $110 in commissions, and $25 in other issuance costs. A reconciliation of the impact of the 2019 Offering on share capital is as follows:
| | | |
| Common shares issued at $1.60 per share | 3,284,375 | $5,255 |
| Cash share issue costs | - | (135) |
| Proceeds net of share issue costs | 3,284,375 | $5,120 |
ii.
During the six months ended June 30, 2019, 864,375 shares were issued as a result of share options being exercised with a weighted average exercise price of approximately $0.56 for gross proceeds of $485 and $449 attributed to these share options was transferred from the equity reserves and recorded against share capital.
Auryn Resources Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Unaudited (Expressed in thousands of Canadian dollars, except per share amounts)
Three and six months ended June 30, 2019 and 2018
7.
Share capital (continued)
(b)
Share issuances (continued)
Six months ended June 30, 2018:
iii.
On March 23, 2018 the Company closed the “March 2018 Offering” by issuing a total of 6,015,385 common shares of the Company at a price of US$1.30 per share for gross proceeds of US$7.8 million. The March 2018 Offering was completed pursuant to an underwriting agreement dated March 13, 2018 among the Company and Cantor Fitzgerald Canada Corporation and a syndicate of underwriters. In addition, the Company completed a concurrent private placement financing involving the sale of 1,091,826 flow-through common shares at a price equal to the Canadian dollar equivalent of US$1.82 per share, for gross proceeds of US$2.0 million. The proceeds from the sale of the March 2018 flow-through shares were used exclusively for exploration on the Company���s Committee Bay project.
Share issue costs related to the March 2018 Offering totaled $1,340, which included $756 in commissions, and $584 in other issuance costs. A reconciliation of the impact of the March 2018 Offering on share capital is as follows:
| | | |
| Common shares issued at US$1.30 per share | 6,015,385 | $10,054 |
| Flow-through shares issued at US$1.82 per share | 1,091,826 | 2,561 |
| Share issue costs | - | (1,340) |
| Proceeds net of share issue costs | 7,107,211 | 11,275 |
| Flow-through share premium liability (note 4) | - | (737) |
| | 7,107,211 | $10,538 |
iv.
During the six months ended June 30, 2018, 70,000 shares were issued as a result of share options being exercised with a weighted average exercise price of $0.51 for gross proceeds of $35. Attributed to these share options, fair value of $35 was transferred from the equity reserves and recorded against share capital.
v.
During the six months ended June 30, 2018, 15,000 shares were issued as a result of share purchase warrants being exercised with a weighted average exercise price of $1.40 for gross proceeds of $21. Attributed to these share purchase warrants, fair value of $12 was transferred from the share option and warrant reserve and recorded against share capital.
8.
Share option and warrant reserves
The Company maintains a Rolling Share Option Plan providing for the issuance of share options up to 10% of the Company’s issued and outstanding common shares at the time of the grant. The Company may grant share options from time to time to its directors, officers, employees and other service providers. The share options vest as to 25% on the date of the grant and 12½% every three months thereafter for a total vesting period of 18 months.
Auryn Resources Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Unaudited (Expressed in thousands of Canadian dollars, except per share amounts)
Three and six months ended June 30, 2019 and 2018
8.
Share option and warrant reserves (continued)
(a)
Share-based payments (continued)
The continuity of the number of share options issued and outstanding is as follows:
| | | Weighted average exercise price |
| Outstanding, December 31, 2017 | 4,810,000 | $1.97 |
| Granted | 1,775,000 | 1.42 |
| Exercised | (220,000) | 0.91 |
| Expired | (103,750) | 2.35 |
| Forfeited | (56,250) | 1.60 |
| Outstanding, December 31, 2018 | 6,205,000 | $1.85 |
| Granted | 2,995,000 | 1.92 |
| Exercised | (864,375) | 0.56 |
| Expired | (140,000) | 2.02 |
| Outstanding, June 30, 2019 | 8,195,625 | $2.01 |
As at June 30, 2019, the number of share options outstanding and exercisable was:
| | | |
| Expiry date | | | Remaining contractual life (years) | | | Remaining contractual life (years) |
| Aug 17, 2020 | 915,000 | $1.30 | 1.13 | 915,000 | $1.30 | 1.13 |
| June 21, 2021 | 2,095,000 | 2.63 | 1.98 | 2,095,000 | 2.63 | 1.98 |
| Jan 10, 2022 | 440,000 | 3.22 | 2.53 | 440,000 | 3.22 | 2.53 |
| May 5, 2022 | 65,000 | 3.04 | 2.85 | 65,000 | 3.04 | 2.85 |
| June 20, 2023 | 795,000 | 1.42 | 3.98 | 596,250 | 1.42 | 3.98 |
| June 26, 2023 | 900,000 | 1.42 | 3.99 | 675,000 | 1.42 | 3.99 |
| Feb 7, 2024 | 200,625 | 1.36 | 4.61 | 69,375 | 1.36 | 4.61 |
| Apr 24, 2024 | 2,785,000 | 1.96 | 4.78 | 696,250 | 1.96 | 4.78 |
| | 8,195,625 | $2.01 | 3.35 | 5,551,875 | $2.09 | 2.74 |
The Company uses the fair value method of accounting for all share-based payments to directors, officers, employees and other service providers. During the three and six months ended June 30, 2019 and 2018 the Company recognized share-based compensation expense as follows:
| | Three months ended | |
| | | | | |
| | | | | |
| Recognized in net loss: | | | | |
| Included in exploration and evaluation costs | $622 | $144 | $666 | $170 |
| Included in fees, salaries and other employee benefits | 1,239 | 226 | 1,396 | 259 |
| Included in project investigation costs | 29 | 10 | 37 | 10 |
| | $1,890 | $380 | $2,099 | $439 |
During the three and six months ended June 30, 2019, the Company granted 2,785,000 and 2,995,000 share options, respectively, to directors, officers, employees and other service providers. The weighted average fair value per option of these share options was calculated as $1.17 using the Black-Scholes option valuation model at the grant date.
Auryn Resources Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Unaudited (Expressed in thousands of Canadian dollars, except per share amounts)
Three and six months ended June 30, 2019 and 2018
8.
Share option and warrant reserves (continued)
(a)
Share-based payments (continued)
During the three and six months ended June 30, 2018, the Company granted 1,775,000 share options to directors, officers, employees and other service providers. The weighted average fair value per option of these share options was calculated as $0.75 using the Black-Scholes option valuation model at the grant date.
The fair value of the share-based options granted during the three and six months ended June 30, 2019 and 2018 were estimated using the Black-Scholes option valuation model with the following weighted average assumptions:
| | Three months ended June 30, | Six months ended June 30, |
| | | | | |
| Risk-free interest rate | 1.59% | 1.97% | 1.61% | 1.97% |
| Expected dividend yield | | | | |
| Share price volatility | 62% | 67% | 63% | 67% |
| Expected forfeiture rate | 0% | 0% | 0% | 0% |
| Expected life in years | 4.33 | 4.36 | 4.34 | 4.36 |
The risk-free interest rate assumption is based on the Government of Canada benchmark bond yields and treasury bills with a remaining term that approximates the expected life of the share-based options. The expected volatility assumption is based on the historical and implied volatility of the Company’s common shares. The expected forfeiture rate and the expected life in years are based on historical trends.
9.
Related party balances and transactions
All transactions with related parties have occurred in the normal course of operations. All amounts are unsecured, non-interest bearing and have no specific terms of settlement, unless otherwise noted.
| | |
| | | | | |
Universal Mineral Services Ltd. 1 | | | | |
| Exploration and evaluation costs: | | | | |
| Committee Bay and Gibson MacQuoid | $86 | $107 | $167 | $283 |
| Homestake | 30 | 18 | 53 | 44 |
| Peru | 103 | 71 | 129 | 98 |
| Fees, salaries and other employee benefits | 99 | 139 | 191 | 303 |
| Insurance | - | - | - | - |
| Legal and professional fees | - | 6 | - | 6 |
| Marketing and investor relations | 22 | 18 | 40 | 18 |
| Office and administration | 105 | 96 | 199 | 171 |
| Project investigation costs | 11 | - | 15 | 6 |
| Total transactions for the period | $456 | $455 | $794 | $930 |
1.
Universal Mineral Services Ltd., (“UMS”) is a private company with certain directors and officers in common. Pursuant to an agreement dated March 30, 2012 and as amended on December 30, 2015, UMS provides geological, financial and transactional advisory services as well as administrative services to the Company on an ongoing, cost recovery basis.
The outstanding balance owing at June 30, 2019 was $258 (December 31, 2018 – $262). In addition, the Company had $150 on deposit with UMS as at June 30, 2019 (December 31, 2018 - $150).
Auryn Resources Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Unaudited (Expressed in thousands of Canadian dollars, except per share amounts)
Three and six months ended June 30, 2019 and 2018
9.
Related party balances and transactions (continued)
(b) Compensation of key management personnel
During the period, compensation to key management personnel, being the Company’s six executives and six non-executive directors, was as follows:
| Three months ended June 30, | Six months ended June 30, |
| | | | | |
| Short-term benefits provided to executives | $602 | $655 | $918 | $1,007 |
| Directors fees paid to non-executive directors | 38 | 42 | 75 | 86 |
| Share-based payments | 1,328 | 208 | 1,467 | 226 |
| | $1,968 | $905 | $2,460 | $1,319 |
10. Supplemental cash flow information
| Three months ended June 30, | Six months ended June 30, |
| | | | | |
| Increase (decrease) in cash related to: | | | | |
Mineral property acquisition costs included in accounts payable | $11 | $- | $11 | $- |
Deferred financing costs reclassified to share issue costs | - | - | - | 10 |
11. Segmented information
The Company operates in one reportable operating segment, being the acquisition, exploration and development of mineral resource properties.
Geographic segmentation of non-current assets is as follows:
June 30, 2019 | | | |
| | | | |
| Restricted cash and cash equivalents | $115 | $- | $115 |
| Prepaid expenses and deposits, non-current | - | 170 | 170 |
| Equipment, net | 1,314 | 82 | 1,396 |
| Mineral property interests | 35,090 | 4,353 | 39,443 |
| | $36,519 | $4,605 | $41,124 |
December 31, 2018 | | | |
| | | | |
| Restricted cash and cash equivalents | $115 | $- | $115 |
| Prepaid expenses and deposits, non-current | - | 198 | 198 |
| Equipment, net | 1,428 | 97 | 1,525 |
| Mineral property interests | 34,931 | 4,141 | 39,072 |
| | $36,474 | $4,436 | $40,910 |
12. Loss per share
| | Three months ended June 30, | Six months ended June 30, |
| | | | | |
| Net loss | $5,045 | $4,372 | $6,971 | $7,835 |
| Weighted average number of shares outstanding | 94,509,705 | 85,925,034 | 92,755,354 | 82,644,677 |
| Basic and diluted loss per share | $0.05 | $0.05 | $0.08 | $0.09 |
All of the outstanding share options and share purchase warrants at June 30, 2019 and 2018 were anti-dilutive for the periods then ended as the Company was in a loss position.
Auryn Resources Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Unaudited (Expressed in thousands of Canadian dollars, except per share amounts)
Three and six months ended June 30, 2019 and 2018
13.
Financial instruments
The Company’s financial instruments consist of cash, marketable securities, amounts receivable, deposits, and accounts payable and accrued liabilities. The fair values of these financial instruments approximate their carrying values, unless otherwise noted.
The following summarizes fair value hierarchy under which the Company’s financial instruments are valued:
Level 1 – fair values based on unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – fair values based on inputs that are observable for the asset or liability, either directly or indirectly; and
Level 3 – fair values based on inputs for the asset or liability that are not based on observable market data.
As at June 30, 2019 and December 31, 2018 the only financial instruments measured at fair value were the Company’s marketable securities, which were classified under level 1 of the fair value hierarchy. No transfer occurred between the levels during the period.
The Company’s financial instruments are exposed to credit risk, liquidity risk, and market risks, which include currency risk and interest rate risk. As at June 30, 2019 the primary risks were as follows:
Market risk
This is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Significant market risks to which the Company is exposed are as follows:
(i)
Foreign currency risk
The Company is exposed to currency risk by having balances and transactions in currencies that are different from its functional currency (the Canadian dollar). As at June 30, 2019 and December 31, 2018 the Company’s foreign currency exposure related to its financial assets and liabilities held in US dollars as follows:
| | | |
| | | |
| Financial assets denominated in foreign currencies | $81 | $89 |
| Financial liabilities denominated in foreign currencies | (23) | (57) |
| Net exposure | $58 | $32 |
A 10% increase or decrease in the US dollar exchange rate would not have a material impact on the Company’s net loss.
(ii) Other price risk
Other price risk is the risk arising from the effect of changes in market conditions on the Company’s marketable securities. The Company is exposed to other price risk through its investment in Bravada Gold Corporation (“BVA”), which is listed on the TSX Venture Exchange.
A 10% increase or decrease in the BVA share price would not have a material impact on the Company’s net loss.
i.
July 2019 Flow-Through Private Placement
On July 11, 2019 the Company announced that it has completed a non-brokered flow-through private placement. The placement consisted of 633,334 flow-through common shares priced at CAD$3.00 per flow-through share for gross proceeds of $1,900.
Auryn Resources Inc.
Notes to the Condensed Consolidated Interim Financial Statements
Unaudited (Expressed in thousands of Canadian dollars, except per share amounts)
Three and six months ended June 30, 2019 and 2018
14.
Subsequent events (continued)
ii.
Acquisition of Sambalay and Salvador Mineral Concessions
On August 2, 2019, the Company acquired the rights to the Sambalay and Salvador mineral concessions adjacent to the wholly owned Curibaya property in southern Peru. Collectively, the Curibaya project now covers approximately 11,000 hectares and is located 53 km from the provincial capital, Tacna, and 11km from the regional Incapuquio fault.
Under the terms of the mining concession transfer agreement with Wild Acre Metals (Peru) S.A.C., the Company will pay US$250,000 on transfer of the concessions in favour of Corisur. The Sambalay concessions are subject to a combined 3% NSR royalty, 0.5% of which is buyable for US$1.0 million. The Salvador concessions are subject to a 2% NSR royalty and a US$2.0 million production payment, payable at the time a production decision is made, and to secure payment of such consideration a legal mortgage is recorded in the registry files of the Salvador concessions.
