| Suite 1120, Cathedral Place, 925 West Georgia Street
Vancouver, British Columbia, Canada V6C 3L2
Tel: (604) 687-6600 Toll Free: 1-888-411-GOLD
Fax: (604) 687-3932 Email: info@aurizon.com | Toronto Stock Exchange Ticker Symbol - ARZ
NYSE Amex Ticker Symbol - AZK
U.S. Registration (File 001-31893) Website www.aurizon.com |
Aurizon Mines Ltd.
Financial Statements
For the three month period ended March 31, 2013
Aurizon Mines Ltd.
Balance sheets (Unaudited)
(expressed in thousands of Canadian dollars, unless otherwise stated)
| As at, | Notes | March 31, 2013 | December 31, 2012 |
| Assets | | | | | |
| Current assets | | | | | |
| Cash and cash equivalents | | $ | 188,847 | $ | 204,232 |
| Marketable securities | | | 504 | | 477 |
| Inventories | 3 | | 20,197 | | 16,433 |
| Accounts receivable and other | 4 | | 6,220 | | 5,885 |
| Tax credits and other taxes receivable | 5 | | 13,232 | | 10,061 |
| Total current assets | | | 229,000 | | 237,08 |
| Non-current assets | | | | | |
| Property, plant and equipment | 6 | | 212,662 | | 204,451 |
| Mineral properties | 7 | | 4,285 | | 5,285 |
| Deferred finance costs | | | 137 | | 178 |
| Other assets | 8 | | 5,032 | | |
TOTAL ASSETS | | $ | 451,116 | $ | 449,651 |
| | | | | | | | |
| liabilities | | | | | |
| Current liabilities | | | | | |
| Accounts payable and accrued liabilities | 9 | $ | 31,194 | $ | 29,342 |
| Current income and resource tax liabilities | | | 528 | | 3,121 |
| Total current liabilities | | | 31,722 | | 32,463 |
| Non-current liabilities | | | | | |
| Provisions | 10 | | 16,200 | | 16,706 |
| Deferred tax liabilities | | | 38,494 | | 35,955 |
| Total liabilities | | | 86,416 | | 85,124 |
| | | | | | |
| EQUITY | | | | | |
| Shareholders’ equity | | | | | |
| Issued share capital | 12 | | 283,060 | | 282,600 |
| Contributed surplus | | | 3,028 | | 2,921 |
| Stock based compensation | 12 | | 22,189 | | 19,675 |
| Accumulated other comprehensive income | | | 28 | | - |
| Retained earnings | | | 56,395 | | 59,331 |
| Total shareholders' equity | | $ | 364,700 | $ | 364,527 |
| total liabilities AND EQUITY | | $ | 451,116 | $ | 449,651 |
| | | | | | | | |
The attached notes form an integral part of these financial statements.
These financial statements were approved for issue by the Board of Directors on May 14, 2013. They are signed on the Company’s behalf by:
 |  |
| Andre Falzon, Chairman of the Audit Committee | George Paspalas, President and Chief Executive Officer |
Aurizon Mines Ltd.
Statements of Comprehensive Income (Unaudited)
(expressed in thousands of Canadian dollars, unless otherwise stated)
| For the three months ended, | Notes | March 31, 2013 | March 31, 2012 |
| | | | | | |
| Revenue | | $ | 43,245 | $ | 56,753 |
| Less: Cost of sales | 13 | | (30,539) | | (30,822) |
| Gross profit | | | 12,706 | | 25,931 |
| | | | | | |
| Other operating expenses | | | | | |
| General and administrative costs | 13 | | (11,402) | | (4,856) |
| Exploration costs | 13 | | (1,851) | | (6,686) |
| Other net (losses) gains | 7 | | (989) | | 515 |
| Operating (loss) profit | | | (1,536) | | 14,904 |
| Finance income | | | 514 | | 572 |
| Finance costs | | | (203) | | (222) |
| Other derivative losses | | | - | | (357) |
| (Loss) profit before income and resource taxes | | | (1,225) | | 14,897 |
| | | | | | |
| Income and resource tax expense | 14 | | (1,711) | | (6,634) |
| NET (LOSS) PROFIT | | | (2,936) | | 8,263 |
| | | | | | |
| Other comprehensive income (loss) | | | | | |
| Items that may be reclassified to profit | | | | | |
| Unrealized gain (loss) on marketable securities | | | 28 | | (184) |
| TOTAL COMPREHENSIVE (LOSS) INCOME | | $ | (2,908) | $ | 8,079 |
Weighted average number of common shares outstanding – Basic | | | 164,597 | | 163,569 |
| (Loss) earnings per share – Basic | | $ | (0.02) | $ | 0.05 |
Weighted average number of common shares outstanding – Diluted | | | 164,597 | | 164,376 |
| (Loss) earnings per share – Diluted | | $ | (0.02) | $ | 0.05 |
The attached notes form an integral part of these financial statements. | | | | |
Aurizon Mines Ltd.
Statements of Changes in Equity (Unaudited)
(expressed in thousands of Canadian dollars, unless otherwise stated)
| For the three months ended, | | March 31, 2013 | March 31, 2012 |
| | | | | | |
| Issued share capital | | | | | |
| Balance at beginning of period | | $ | 282,600 | $ | 274,165 |
| Share issuances for cash | | | 323 | | 2,299 |
| Share options exercised | | | 137 | | 1,021 |
| Balance at end of period | | | 283,060 | | 277,485 |
| | | | | | |
| Contributed surplus | | | | | |
| Balance at beginning of period | | | 2,920 | | 1,170 |
| Vested share option expiries | | | 108 | | - |
| Balance at end of period | | | 3,028 | | 1,170 |
| | | | | | |
| Share based compensation | | | | | |
| Balance at beginning of period | | | 19,675 | | 18,711 |
| Share based compensation charge | | | 2,759 | | 1,274 |
| Vested share option expiries | | | (108) | | - |
| Share options exercised, transferred to share capital | | | (137) | | (1,021) |
| Balance at end of period | | | 22,189 | | 18,964 |
| | | | | | |
| Accumulated other comprehensive income (loss) | | | | | |
| Balance at beginning of period | | | - | | (386) |
| Unrealized gain (loss) on marketable securities | | | 28 | | (184) |
| Balance at end of period | | | 28 | | (570) |
| | | | | | |
| Retained earnings | | | | | |
| Balance at beginning of period | | | 59,331 | | 27,524 |
| Net (loss) profit | | | (2,936) | | 8,263 |
| Balance at end of period | | | 56,395 | | 35,787 |
| total SHAREHOLDERS’ EQUITY | | $ | 364,700 | $ | 332,836 |
The attached notes form an integral part of these financial statements. | | | | |
Aurizon Mines Ltd.
Statements of Cash Flows (Unaudited)
(expressed in thousands of Canadian dollars, unless otherwise stated)
| For the three months ended, | Notes | March 31, 2013 | March 31, 2012 |
| | | | | | |
| Operating activities | | | | | |
| Net (loss) profit | | $ | (2,936) | $ | 8,263 |
| Adjustments for non-cash items: | | | | | |
| Depreciation and amortization | | | 8,947 | | 7,841 |
| Share-based compensation | | | 2,759 | | 1,274 |
| Deferred income tax expense (recovery) | | | 2,539 | | (5,496) |
| Refundable and non-refundable taxes | | | (398) | | 3,315 |
| Derivative losses | | | - | | 357 |
| Other | 16a | | 374 | | 996 |
| | | | 11,285 | | 16,550 |
| Increase in non-cash working capital items | 16b | | (5,515) | | (12,929) |
| Net cash provided by operating activities | | | 5,770 | | 3,621 |
| | | | | | |
| Investing activities | | | | | |
| Property, plant and equipment | | | (19,597) | | (15,235) |
| Mineral properties | | | - | | (30) |
| Other investing activities | | | (2,079) | | (5,242) |
| Net cash used in investing activities | | | (21,676) | | (20,507) |
| | | | | | |
| Financing activities | | | | | |
| Issuance of shares | | | 323 | | 2,299 |
| Net cash provided by financing activities | | | 323 | | 2,299 |
| | | | | | |
| Net decrease in cash and cash equivalents | | | (15,583) | | (14,587) |
| | | | | | |
| Effect of foreign currency exchange rate changes on cash | | | 198 | | (197) |
| | | | | | |
| Cash and cash equivalents – beginning of period | | | 204,232 | | 213,486 |
| | | | | | |
| Cash and cash equivalents - end of period | | $ | 188,847 | $ | 198,702 |
The attached notes form an integral part of these financial statements. Supplemental cash flow information is presented in Note 16. | | | | |
Aurizon Mines Ltd.
Notes to Financial Statements (Unaudited)
As at and for the Three Months Ended March 31, 2013 and 2012
(Amounts in tables are expressed in thousands of Canadian dollars, unless otherwise stated)
Aurizon Mines Ltd. (“Aurizon” or the “Company”) is a gold producer with operations, development and exploration activities in Quebec, Canada. Aurizon is a public company listed on the Toronto Stock Exchange (“TSX”) and on the NYSE MKT. The Company is incorporated and domiciled in Canada, and has no subsidiaries requiring consolidation. The address of the Company’s head office is Suite 1120 Cathedral Place, 925 West Georgia Street, Vancouver, British Columbia, Canada.
On March 3, 2013, Aurizon entered into an Arrangement Agreement (the “Arrangement”) with Hecla Mining Company and 0963708 B.C. Ltd. (collectively “Hecla”) whereby Hecla agreed to acquire all of the issued and outstanding common shares of Aurizon in exchange for 0.9953 common shares of Hecla Mining Company, or in exchange for $4.75 in cash, or any combination thereof per share, all subject to proration. The maximum aggregate amount of cash consideration to be paid is $513,631,193 and the maximum aggregate number of Hecla Mining Company shares that may be elected is 57,000,000. The Arrangement requires Aurizon to pay a termination fee of $27.2 million or to reimburse Hecla’s expenses in certain circumstances. Upon completion of the Arrangement, Aurizon would become a wholly-owned subsidiary of Hecla.
The anticipated transaction is to be effected by way of a statutory plan of arrangement pursuant to the Business Corporations Act (British Columbia). The Arrangement requires the approval of 66 2/3% of the votes cast by the affected securityholders of Aurizon voting as a single class and the approval of 66 2/3% of the votes cast by the Aurizon shareholders; this approval was obtained at a special meeting on May 9, 2013. Assuming required regulatory approvals are obtained, completion of the transaction is expected in the second quarter of 2013.
On January 14, 2013, Alamos Gold Inc. (“Alamos”) commenced an unsolicited offer to acquire all of the issued and outstanding common shares of Aurizon, other than any common shares held directly or indirectly by Alamos and its affiliates, in exchange for consideration of cash or Alamos shares, or a combination thereof, all subject to proration. On January 23, 2013, Aurizon’s Board of Directors issued a Director’s Circular with a recommendation that shareholders reject the offer and not tender their common shares to the offer for reasons set out therein. On March 5, 2013, Alamos announced the waiver of the minimum tender condition and extended the Offer until March 19, 2013. On March 19, 2013, Alamos announced that it would not extend the Offer and would not take up any shares tendered to the Offer.
Costs incurred by the Company relating to the corporate transactions discussed above are presented in Note 13.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.
These condensed interim financial statements were approved by the Board of Directors on May 14, 2013, and have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements, including IAS 34Interim Financial Reporting. These condensed interim financial statements should be read in conjunction with the annual audited financial statements for the year ended December 31, 2012, which were prepared in accordance with IFRS as issued by the IASB.
| b) | Changes in accounting policies |
The Company adopted the following accounting standards for its financial year beginning on January 1, 2013:
IFRS 10 Consolidated Financial Statements requires an entity to consolidate an investee when it has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12 Consolidation – Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial statements. Adoption of IFRS 10 did not have an impact on the Company’s financial statements.
IFRS 11 Joint Arrangements requires a venture to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venture will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under prior IFRS, entities had a choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities – Non-monetary Contributions by Venturers. Adoption of IFRS 11 did not have an impact on the Company’s financial statements.
IFRS 12 Disclosure of Interests in Other Entities establishes disclosure requirements for interests in other entities, such as subsidiaries, joint arrangements, associates, and unconsolidated structured entities. This standard carries forward existing disclosures and also introduces significant additional disclosure that addresses the nature of, and risks associated with, an entity’s interests in other entities. Adoption of IFRS 12 did not have an impact on the Company’s financial statements.
Aurizon Mines Ltd.
Notes to Financial Statements (Unaudited)
As at and for the Three Months Ended March 31, 2013 and 2012
(Amounts in tables are expressed in thousands of Canadian dollars, unless otherwise stated)
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
| b) | Changes in accounting policies (continued) |
IFRS 13 Fair Value Measurement is a comprehensive standard for fair value measurement and disclosure for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. Under prior IFRS, guidance on measuring and disclosing fair value was dispersed among the specific standards requiring fair value measurements and did not always reflect a clear measurement basis or consistent disclosures. Adoption of IFRS 13 did not have an impact on the Company’s financial statements.
IFRIC 20 Stripping Costs in the Production Phase of a Surface Minesets out the accounting for overburden waste removal (stripping) costs in the production phase of a mine. Stripping activity may create two types of benefit: i) inventory produced and ii) improved access to ore. Stripping costs associated with the former should be accounted for as a current production cost in accordance with IAS 2 Inventories. The latter should be accounted for as an addition to or enhancement of an existing asset. Adoption of IFRIC 20 did not have an impact on the Company’s financial statements.
IAS 1 Presentation of Financial Statements has been amended to require entities to separate items presented in other comprehensive income into two groups, based whether or not items may be recycled in the future. Entities that choose to present items in other comprehensive income on a pre-tax basis will be required to show the amount of tax related to the two groups separately. The Company has complied with the requirements set out in the amended standard.
The Company expects to adopt the following accounting standard for its financial year beginning on January 1, 2015:
IFRS 9 Financial Instruments, issued in November 2009 and effective years beginning on or after January 1, 2015, addresses classification and measurement of financial assets. It replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments. Such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income. Where equity instruments are measured at fair value through other comprehensive income, dividends are recognized in profit or loss to the extent that they do not clearly represent a return of investment; however, other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely. In addition, this new standard has been updated to include guidance on financial liabilities and derecognition of financial instruments. The Company expects to adopt this standard for its financial year beginning on January 1, 2015. The Company has not yet evaluated the impact the final standard is expected to have on its financial statements.
| | | March 31, 2013 | December 31, 2012 |
| | | | | | |
| Gold bullion and in-process ore (a) | | $ | 13,673 | $ | 10,613 |
| Supplies and materials | | | 5,983 | | 5,611 |
| Stockpiled ore | | | 541 | | 209 |
| Inventories | | $ | 20,197 | $ | 16,433 |
| a) | The gold bullion and in-process ore balance as at March 31, 2013 includes imputed non-cash depreciation and amortization charges of $4.2 million (December 31, 2012: $2.9 million). |
| 4. | ACCOUNTS RECEIVABLE AND OTHER |
| | | March 31, 2013 | December 31, 2012 |
| | | | | | |
| Accounts receivable | | $ | 5,135 | $ | 5,093 |
| Prepaid expenses and purchase deposits | | | 1,063 | | 747 |
| Exploration advances | | | 22 | | 45 |
| Accounts receivable and other | | $ | 6,220 | $ | 5,885 |
Aurizon Mines Ltd.
Notes to Financial Statements (Unaudited)
As at and for the Three Months Ended March 31, 2013 and 2012
(Amounts in tables are expressed in thousands of Canadian dollars, unless otherwise stated)
| 5. | TAX CREDITS AND OTHER TAXES RECEIVABLE |
| | March 31, 2013 | December 31, 2012 |
| | | | | | |
| Quebec refundable tax credits | | $ | 7,619 | $ | 5,420 |
| Income taxes receivable (i) | | | 2,656 | | 1,583 |
| Resource taxes receivable (i) | | | 2,957 | | 3,058 |
| Tax credits and other taxes receivable | | $ | 13,232 | $ | 10,061 |
| (i) | These amounts are due to the Company as a result of tax installments paid during the period exceeding the taxes owed. |
| 6. | PROPERTY, PLANT AND EQUIPMENT |
| Producing Property | Mine Infrastructure | Machinery and Equipment | Building and Leasehold Improvements | Computers and Software | Office Equipment and Furniture | TOTAL |
| COST | | | | | | | |
| At December 31, 2011 | $ 245,127 | $ 46,594 | $ 49,190 | $ 1,423 | $ 2,460 | $ 664 | $ 345,458 |
| Additions | 41,142 | 21,151 | 15,542 | 58 | 263 | - | 78,156 |
| Disposals | - | - | (1,815) | - | - | (244) | (2,059) |
| Change in ARO estimates | - | 465 | - | - | - | - | 465 |
| At December 31, 2012 | 286,269 | 68,210 | 62,917 | 1,481 | 2,723 | 420 | 422,020 |
| Additions | 12,062 | 4,726 | 1,689 | - | 1 | - | 18,478 |
| Disposals | - | - | (124) | - | - | - | (124) |
| At March 31, 2013 | 298,331 | 72,936 | 64,482 | 1,481 | 2,724 | 420 | 440,374 |
| | | | | | | | |
| ACCUMULATED DEPRECIATION | | | | | | | |
| At December 31, 2011 | (123,954) | (32,057) | (21,304) | (917) | (1,983) | (460) | (180,675) |
| Charge for period | (27,936) | (3,545) | (6,394) | (45) | (316) | (20) | (38,256) |
| Disposals | - | - | 1,157 | - | - | 205 | 1,362 |
| At December 31, 2012 | (151,890) | (35,602) | (26,541) | (962) | (2,299) | (275) | (217,569) |
| Charge for period | (7,076) | (1,201) | (1,886) | (11) | (53) | (7) | (10,234) |
| Disposals | - | - | 91 | - | - | - | 91 |
| At March 31, 2013 | (158,966) | (36,803) | (28,336) | (973) | (2,352) | (282) | (227,712) |
| | | | | | | | |
| NET BOOK VALUE | | | | | | | |
| At December 31, 2012 | $ 134,379 | $ 32,608 | $ 36,376 | $ 519 | $ 424 | $ 145 | $ 204,451 |
| At March 31, 2013 | $ 139,365 | $ 36,133 | $ 36,146 | $ 508 | $ 372 | $ 138 | $ 212,662 |
Aurizon Mines Ltd.
Notes to Financial Statements (Unaudited)
As at and for the Three Months Ended March 31, 2013 and 2012
(Amounts in tables are expressed in thousands of Canadian dollars, unless otherwise stated)
| | | March 31, 2013 | | December 31, 2012 |
| Exploration properties | | | | | |
| Heva-Hosco, Quebec | | $ | 3,865 | $ | 3,865 |
| Duvay-Fontana, Quebec (i) | | | - | | 1,000 |
| Opinaca, Quebec | | | 220 | | 220 |
| Duverny, Quebec | | | 125 | | 125 |
| Kipawa, Quebec | | | 75 | | 75 |
| Mineral properties | | $ | 4,285 | $ | 5,285 |
| (i) | In March 2013, the Company terminated an option agreement with Tres-Or Resources Ltd. (“Tres-Or”) under which the Company could have earned an initial 50% interest in Tres-Or’s Duvay-Fontana Property.As a result, capitalized property acquisition payments totalling $1.0 million have been charged to profit and are included in Other net (losses) gains in the Other operating expenses section of the Statements of Comprehensive Income. Between September 2011 and March 2013, the Company incurred a total of $2.7 million of exploration expenditures which have been charged to operations in the periods incurred. |
| | | March 31, 2013 | December 31, 2012 |
| | | | | | |
| Reclamation deposits (i) | | $ | 4,635 | $ | 2,557 |
| Refundable tax credits | | | 305 | | - |
| Workers compensation premiums receivable | | | 92 | | 92 |
| Other assets | | $ | 5,032 | $ | 2,649 |
| (i) | During the first quarter of 2013, the Company invested $2.1 million in restricted deposits in accordance with the financial guarantee requirements set forth by theMinistère des Ressources naturelles et de la Faune of the province of Quebec for future site restoration costs at the Casa Berardi mine. |
| 9. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
| | | March 31, 2013 | December 31, 2012 |
| | | | | | |
| Trade payables | | $ | 13,781 | $ | 14,160 |
| Accrued expenses | | | 17,413 | | 15,182 |
| Accounts payable and accrued liabilities | | $ | 31,194 | $ | 29,342 |
| | | March 31, 2013 | December 31, 2012 |
| | | | | | |
| Asset retirement obligations (i) | | $ | 15,867 | $ | 15,802 |
| Non-current employee incentive payments | | | 333 | | 904 |
| Provisions | | $ | 16,200 | $ | 16, 706 |
Aurizon Mines Ltd.
Notes to Financial Statements (Unaudited)
As at and for the Three Months Ended March 31, 2013 and 2012
(Amounts in tables are expressed in thousands of Canadian dollars, unless otherwise stated)
| 10. | PROVISIONS (Continued) |
| (i) | Asset retirement obligations |
| | | March 31, 2013 | | December 31, 2012 |
| | | | | | |
| Asset retirement obligations – beginning of period | | $ | 15,802 | $ | 15,019 |
| Change in obligation | | | - | | 89 |
| Change in ARO estimate | | | (2) | | 376 |
| Accretion expense | | | 67 | | 318 |
| Asset retirement obligations – end of period | | $ | 15,867 | $ | 15,802 |
The Company’s significant contractual obligations and commitments as at March 31, 2013 are as follows:
| (All figures undiscounted) | | Total | Due in less than 1 year | Due 2 - 3 years | Due 3 - 5 years | Due in more than 5 years | As at December 31, 2012 |
| Current liabilities | | $31,722 | $31,722 | $- | $- | $- | $31,795 |
| Asset retirement obligations | | 19,505 | - | - | 1,238 | 18,267 | 19,505 |
| Equipment supply and contracts | | 5,871 | 1,566 | 3,131 | 1,174 | - | 6,263 |
| Reclamation deposits | | 2,902 | 2,902 | - | - | - | 4,981 |
| Employee incentives | | 673 | 340 | 333 | - | - | 1,505 |
| Head office operating lease | | 506 | 253 | 253 | - | - | 822 |
| Mineral properties firm commitments | | - | - | - | - | - | 267 |
| Total contractual obligations and commitments | | $61,179 | $36,783 | $3,717 | $2,412 | $18,267 | $64,885 |
Unlimited number of common shares without par value.
Unlimited number of preferred shares without par value of which 8,050,000 are designated as series “A” convertible preferred shares (Issued: none) and 1,135,050 are designated as series “B” convertible preferred shares (Issued: none).
| Common shares | | | Shares | Amount |
| | | | (000’s) | |
| Outstanding, December 31, 2011 | | | 163,072 | $ 274,165 |
| Exercise of share options | | | 1,491 | 5,837 |
| Fair value of share options exercised | | | - | 2,598 |
| Outstanding, December 31, 2012 | | | 164,563 | 282,600 |
| Exercise of share options | | | 103 | 323 |
| Fair value of share options exercised | | | - | 137 |
| Outstanding, March 31, 2013 | | | 164,666 | $ 283,060 |
Aurizon Mines Ltd.
Notes to Financial Statements (Unaudited)
As at and for the Three Months Ended March 31, 2013 and 2012
(Amounts in tables are expressed in thousands of Canadian dollars, unless otherwise stated)
| 12. | ISSUED SHARE CAPITAL (Continued) |
| c) | Share based compensation |
In accordance with the terms of the Company’s share-based compensation plan, as approved by shareholders’ resolution dated May 10, 2012, key employees, directors, and officers of the Company may be granted options to purchase ordinary shares at an exercise price to be determined by the Board of Directors at the time the option is granted, provided that such price not be less than the closing price of the common shares for the Company on the TSX on the trading day immediately preceding the date of the grant of the option or if there was no trade of the Company’s common shares on such date, on the last day on which there was a trade. Under the terms of the plan, options that are granted are subject to a three year vesting period, whereby 25% of the options vest on the grant date, and subsequent tranches of 25% of the options vest on each of the first, second, and third anniversaries of the grant date. The maximum term of options granted under the plan is five years, and may only be settled in equity. The number of options granted is determined by the Board of Directors and the maximum number of options that can be issued is equal to 10% of the total number of common shares then outstanding on a non-diluted basis. As at March 31, 2013, the maximum number of awards available to be granted under the plan is 16.7 million options (outstanding: 10.4 million).
During the first quarter of 2013, the Company recognized a share-based compensation expense of $2.8 million (2012: $1.3 million). The shareholders’ approval of the Arrangement Agreement with Hecla Mining Company, which is expected to be completed in Q2 2013, has triggered accelerated vesting of the outstanding share options. All of the outstanding options are now expected to vest in Q2 2013, which has resulted in the increased share-based compensation expense in Q1 2013 as compared to the same period of the prior year. Immediately prior to the completion of the Arrangement Agreement with Hecla, all share options having an exercise price of $4.75 or less shall be converted into Aurizon common shares and shall the receive the consideration set forth in the Arrangement Agreement; share options having an exercise price greater than $4.75 per share shall be cancelled, subsequent to which the Company’s share options plans will be terminated.
The following reconciles the share options outstanding as atMarch 31, 2013:
| | | | Number of options | Weighted-average exercise price |
| | | | (000’s) | |
| Outstanding, January 1, 2012 | | | 10,910 | $5.43 |
| Granted | | | 1,992 | $3.62 |
| Exercised | | | (1,491) | $3.92 |
| Expired | | | (910) | $5.32 |
| Outstanding, December 31, 2012 | | | 10,501 | $5.31 |
| Exercised | | | (103) | $3.14 |
| Expired | | | (40) | $6.11 |
| Outstanding, March 31, 2013 | | | 10,358 | $5.33 |
| Vested and exercisable, March 31, 2013 | | | 7,111 | $5.40 |
During the three month period ended March 31, 2013, 102,800 share options were exercised at a weighted-average average price of $3.14 per share (2012: 569,175 share options at $4.04). The weighted-average market price at the time of exercise during the first quarter of 2013 was $4.46 per share (2012: $5.02 per share).
The following shows the vested and exercisable share options, and total outstanding share options, by exercise price range, as at March 31, 2013:
| Vested and exercisable options | All outstanding options |
| Exercise price range | Vested and exercisable options (000’s) | Weighted average remaining contractual life (years) | Weighted average exercise price | Exercise price range | Outstanding options (000’s) | Weighted average remaining contractual life (years) | Weighted average exercise price |
| $2.00 - $2.99 | 882 | 0.7 | $2.95 | $2.00 - $2.99 | 882 | 0.7 | $2.95 |
| $3.00 - $3.99 | 461 | 4.7 | $3.61 | $3.00 - $3.99 | 1,933 | 4.7 | $3.61 |
| $4.00 - $4.99 | 1,734 | 1.8 | $4.84 | $4.00 - $4.99 | 1,757 | 1.8 | $4.83 |
| $5.00 - $5.99 | 1,131 | 0.6 | $5.07 | $5.00 - $5.99 | 1,131 | 0.6 | $5.07 |
| $6.00 - $6.99 | 1,288 | 3.6 | $6.11 | $6.00 - $6.99 | 2,535 | 3.6 | $6.11 |
| $7.00 - $7.59 | 1,615 | 2.7 | $7.52 | $7.00 - $7.59 | 2,120 | 2.7 | $7.52 |
| Totals | 7,111 | 2.2 | $5.40 | Totals | 10,358 | 2.7 | $5.33 |
Aurizon Mines Ltd.
Notes to Financial Statements (Unaudited)
As at and for the Three Months Ended March 31, 2013 and 2012
(Amounts in tables are expressed in thousands of Canadian dollars, unless otherwise stated)
| 12. | ISSUED SHARE CAPITAL (Continued) |
| d) | Deferred and restricted share units |
| | | | Deferred share units (i) | Restricted share units (ii) |
| | | | | |
| Outstanding, January 1, 2013 | | | 260,480 | 249,287 |
| Granted | | | - | - |
| Cancelled | | | - | - |
| Outstanding, March 31, 2013 | | | 260,480 | 249,287 |
The Company has established a Deferred Share Unit Plan for non-executive directors (the “DSU Plan”), whereby a portion of compensation paid to directors may be paid in deferred share units (“DSUs”). Under the terms of the DSU Plan, each director may receive an annual grant of DSUs in an amount and on the date determined by the Board of Directors for that year. DSUs vest immediately and are based on the closing price of the common shares on the TSX on the business day prior to the date of grant. DSUs can only be settled in cash, following the date the director has retired from, or ceased to hold, all positions with the Company, and will be based upon the number of units held, multiplied by the fair market value of the Company’s share price at the time of redemption.
As at March 31, 2013, the fair value of the units outstanding was $1.2 million based upon the Company’s share price of $4.45 on the last trading day of March 2013. Accordingly, the Company has recorded a current liability of $1.2 million as at March 31, 2013 (December 31, 2012: $0.9 million), with a corresponding charge to profit to reflect the fair value of the units.
| (ii) | Restricted share units |
The Company has established a Restricted Share Unit Plan for key employees of the Company (the “RSU Plan”), whereby a portion of these employees’ compensation may be paid in restricted share units (“RSUs”). Under the terms of the RSU Plan, RSUs granted vest over a period of three years, where one third of the units vest at each grant date anniversary. At each vesting date, the RSUs may be settled in cash only, at a value corresponding to the number of units vested multiplied by thethe fair market value of the Company’s closing share price on the vesting date.
Using the graded vesting method, the RSU expense recognized during the first quarter of 2013 was $0.2 million (2012: $nil), based upon the closing share price of $4.45 on the last trading day of March 2013. The current liability accrued as at March 31, 2013 in respect of the RSUs totals $0.4 million (2012: $0.2 million).
| 13. | OPERATING EXPENSES BY NATURE |
| | | March 31, 2013 | March 31, 2012 |
| Cost of sales: | | | | | |
| Operating costs | | $ | 8,921 | $ | 20,246 |
| Employee wages and benefits | | | 12,713 | | 2,778 |
| Depreciation and amortization charge relating to operations | | | 8,905 | | 7,798 |
| Total cost of sales | | $ | 30,539 | $ | 30,822 |
| | | | | | |
| Exploration costs: | | | | | |
| Contractors, supplies and other | | $ | 1,446 | $ | 6,351 |
| Employee wages and benefits | | | 405 | | 335 |
| Total exploration costs | | $ | 1,851 | $ | 6,686 |
| | | | | | |
| General and administrative costs: | | | | | |
| Employee wages and benefits | | $ | 1,359 | $ | 1,325 |
| Other administration costs | | | 1,871 | | 2,214 |
| Depreciation and amortization | | | 42 | | 43 |
| Share-based compensation | | | 2,759 | | 1,274 |
| Corporate transaction costs (i) | | | 5,371 | | - |
Aurizon Mines Ltd.
Notes to Financial Statements (Unaudited)
As at and for the Three Months Ended March 31, 2013 and 2012
(Amounts in tables are expressed in thousands of Canadian dollars, unless otherwise stated)
| Total general and administrative costs | | $ | 11,402 | $ | 4,856 |
| 13. | OPERATING EXPENSE BY NATURE (Continued) |
| (i) | Corporate transaction costs |
During the first quarter of 2013, the Company incurred expenses totalling $5.4 million (2012: nil) related to the Arrangement Agreement involving Hecla Mining Company and the hostile takeover bid launched by Alamos Gold Inc. on January 14, 2013 (Note 1).
| 14. | INCOME AND RESOURCE TAXES |
| | | March 31, 2013 | March 31, 2012 |
| | | | | | |
| Current income tax (recovery) expense | | $ | (2,594) | $ | 8,260 |
| Current resource tax expense | | | 1,765 | | 3,870 |
| Current income and resource tax (recovery) expense | | | (829) | | 12,130 |
| | | | | | |
| Deferred income tax expense (recovery) | | | 2,633 | | (5,055) |
| Deferred resource tax recovery | | | (93) | | (441) |
| Deferred income and resource tax expense (recovery) | | | 2,540 | | (5,496) |
| Total income and resource tax expense | | $ | 1,711 | $ | 6,634 |
The combined federal and provincial statutory income and resource tax rate for 2013 is 38.5% (2012: 38.4%).
| 15. | COMPENSATION OF KEY MANAGEMENT PERSONNEL |
| | | March 31, 2013 | March 31, 2012 |
| | | | | | |
| Wages and short-term benefits | | $ | 918 | $ | 662 |
| Share-based compensation | | | 427 | | 685 |
| Deferred share units | | | 266 | | 447 |
| Restricted share units | | | 80 | | - |
| Total compensation of key management personnel | | $ | 1,691 | $ | 1,794 |
Aurizon Mines Ltd.
Notes to Financial Statements (Unaudited)
As at and for the Three Months Ended March 31, 2013 and 2012
(Amounts in tables are expressed in thousands of Canadian dollars, unless otherwise stated)
| 16. | SUPPLEMENTARY CASH FLOW INFORMATION |
| a) | Analysis of other operating activities |
| | | March 31, 2013 | March 31, 2012 |
| | | | | | |
| Accretion charges on asset retirement obligations | | $ | 67 | $ | 88 |
| Employee incentives liability adjustment | | | (571) | | (262) |
| Non-cash inventory adjustments | | | - | | 515 |
| Loss on sale of property, plant and equipment | | | 35 | | 200 |
| Amortization of deferred finance costs | | | 41 | | 41 |
| Workers’ compensation adjustments | | | - | | 217 |
| Unrealized foreign exchange (gain) loss on cash denominated in U.S. dollars | | (198) | | 197 |
| Mineral property impairment | | | 1,000 | | - |
| | | $ | 374 | $ | 996 |
| a. | Analysis of change in non-cash working capital items |
| | | March 31, 2013 | March 31, 2012 |
| | | | | | |
| Refundable and non-refundable tax assets | | $ | (2,104) | $ | 1,368 |
| Accounts receivable and exploration advances | | | (20) | | (1,578) |
| Prepaid expenses | | | (316) | | (441) |
| Supplies inventory | | | (372) | | (160) |
| Gold inventory | | | (2,106) | | (2,546) |
| Accounts payable and accrued liabilities | | | 2,969 | | 4,672 |
| Current provincial resource taxes payable | | | - | | (13,267) |
| Current income taxes payable | | | (3,566) | | (977) |
| | | $ | (5,515) | $ | (12,929) |
