| Lack of infrastructure could forestall or prevent further exploration and advancement. Exploration activities, as well as any advancement activities, depend on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important factors that affect capital and operating costs and the feasibility and economic viability of a project. Unanticipated or higher than expected costs and unusual or infrequent weather phenomena, or government or other interference in the maintenance or provision of such infrastructure, could adversely affect our business, financial condition and results of operations. | |
Exploration activities, as well as any advancement activities, depend on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important factors that affect capital and operating costs and the feasibility and economic viability of a project. Unanticipated or higher than expected costs and unusual or infrequent weather phenomena, or government or other interference in the maintenance or provision of such infrastructure, could adversely affect our business, financial condition and results of operations.
| Our exploration activities are in countries with developing economies and are subject to the risks of political and economic instability associated with these countries. |
We currently conduct exploration activities almost exclusively in countries with developing economies, including Argentina and Mexico. These countries and other emerging markets in which we may conduct business have from time to time experienced economic or political instability. We may be materially adversely affected by risks associated with conducting exploration activities in countries with developing economies, including: | ·
| | political instability and violence;
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| | warMexico. These countries and civil disturbance;
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| | acts of terrorism or other criminal activity;
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| | expropriation or nationalization;
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| | changing fiscal, royalty and tax regimes;
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| | fluctuationsemerging markets in currency exchange rates;which we may conduct business have from time to
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| | high rates of inflation;
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| | uncertain or changing legal requirements respecting the ownership and maintenance of mineral properties, mines and mining activities, and inconsistent or arbitrary application of such legal requirements;
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39 | | | underdeveloped industrial andtime experienced economic or political instability. We may be materially adversely affected by risks associated with conducting exploration activities in countries with developing economies, including:
| · | | political instability and violence; |
| · | | war and civil disturbance; |
| · | | acts of terrorism or other criminal activity; |
| · | | expropriation or nationalization; |
| · | | changing fiscal, royalty and tax regimes; |
| · | | fluctuations in currency exchange rates; |
| · | | high rates of inflation; |
| · | | uncertain or changing legal requirements respecting the ownership and maintenance of mineral properties, mines and mining activities, and inconsistent or arbitrary application of such legal requirements; |
| · | | uncertain or changing economic and environmental policies of governmental authorities in Mexico or Argentina; |
| · | | underdeveloped industrial and economic infrastructure; |
| · | | unenforceability of contractual rights. |
Changes in mining or investment policies or shifts in the prevailing political climate in any of contractual rights.the countries in which we conduct exploration activities could adversely affect our business. |
Changes in mining or investment policies or shifts in the prevailing political climate in any of the countries in which we conduct exploration activities could adversely affect our business.
| We conduct our business in countries that may be adversely affected by changes in the local government’s policies toward or laws governing the mining industry. |
We have exploration activities primarily in Mexico and Argentina. In these regions there exist uncertainties regarding future changes in applicable law related to mining and exploration. For instance, in January 2014, amendments to the Mexico federal corporate income tax law required titleholders of mining concessions to pay annually a 7.5% duty of their mining related profits and a 0.5% duty on revenues obtained from the sale of gold, silver and platinum that were effective March 2015. These additional duties applicable to Mexico mining concession titleholders will have a significant impact on the annual costs applicable to the Velardeña Properties if we have mining related profits or significant revenues in the future. Additionally, effective January 2015, the Argentina National Mining Code was amended, increasing the annual canon payment by approximately four times. In 2018 and 2019, our annual canon fees payable to the Argentine government was $57,000 and $36,000 respectively, and we expect to pay approximately $30,000 in 2020. In addition to the risk of increased transaction costs, we do not maintain political risk insurance to cover losses that we may incur as a result of nationalization, expropriation or similar events in Mexico or Argentina where we explore or have mining and processing activities. We have exploration activities primarily in Mexico and Argentina. In these regions there exist uncertainties regarding future changes in applicable law related to mining and exploration. For instance, in January 2014, amendments to the Mexico federal corporate income tax law require titleholders of mining concessions to pay annually a 7.5% duty of their mining related profits and a 0.5% duty on revenues obtained from the sale of gold, silver and platinum that were effective March 2015. These additional duties applicable to Mexico mining concession titleholders will have a significant impact on the annual costs applicable to the Velardeña Properties if we have mining related profits or significant revenues in the future.
Additionally, effective January 2015, the Argentina National Mining Code was amended, increasing the annual canon payment by approximately four times. In 2016 and 2017, our annual canon fees payable to the Argentine government was $112,000 and $113,000 respectively, and we expect to pay approximately $115,000 in 2018.
In addition to the risk of increased transaction costs, we do not maintain political risk insurance to cover losses that we may incur as a result of nationalization, expropriation or similar events in Mexico or Argentina where we explore or have mining and processing activities.
| We compete against larger and more experienced companies. |
The mining industry is intensely competitive. Many large mining companies are primarily makers of precious or base metals and may become interested in the types of deposits on which we are focused, which include silver, gold and other precious metals deposits or polymetallic deposits containing significant quantities of base metals, including zinc, lead and copper. Many of these companies have greater financial resources, experience and technical capabilities than we do. We may encounter increasing competition from other mining companies in our efforts to acquire mineral properties and hire experienced mining professionals. Increased competition in our business could adversely affect our ability to attract necessary capital funding or acquire suitable mining properties or prospects for mineral exploration in the future. The mining industry is intensely competitive. Many large mining companies are primarily makers of precious or base metals and may become interested in the types of deposits on which we are focused, which include silver, gold and other precious metals deposits or polymetallic deposits containing significant quantities of base metals, including zinc, lead and copper. Many of these companies have greater financial resources, experience and technical capabilities than we do. We may encounter increasing competition from other mining companies in our efforts to acquire mineral properties and hire experienced mining professionals. Increased competition in our business could adversely affect our ability to attract necessary capital funding or acquire suitable mining properties or prospects for mineral exploration in the future.
| We are dependent on information technology systems, which are subject to certain risks, including cybersecurity risks and data leakage risks. |
We are dependent upon information technology systems in the conduct of our business. Any significant breakdown, invasion, virus, cyber attack, security breach, destruction or interruption of these systems by employees, others with authorized access to our systems, or unauthorized persons could negatively impact our business. To the extent any invasion, cyber attack or security breach results in disruption to our business, loss or disclosure of, or damage to, our data or confidential information, our reputation, business, results of operations and financial condition could be materially adversely affected. Our systems and insurance coverage for protecting against cyber security risks may not be sufficient. Although to date we have not experienced any material losses relating to cyber attacks, we may suffer such losses in the future. We may be required to expend significant additional resources to continue to modify or enhance our protective measures. We also may be subject to significant litigation, regulatory investigation and remediation costs associated with any information security vulnerabilities, cyber attacks or security breaches. We are dependent upon information technology systems in the conduct of our business. Any significant breakdown, invasion, virus, cyber attack, security breach, destruction or interruption of these systems by employees, others with authorized access to our systems, or unauthorized persons could negatively impact our business. To the extent any invasion, cyber attack or security breach results in disruption to our business, loss or disclosure of, or damage to, our data or confidential information, our reputation, business, results of operations and financial condition could be materially adversely affected. Our systems and insurance coverage for protecting against cyber security risks may not be sufficient. Although to date we have not experienced any material losses relating to cyber attacks, we may suffer such losses in the future. We may be required to expend significant additional resources to continue to modify or enhance our protective
measures. We also may be subject to significant litigation, regulatory investigation and remediation costs associated with any information security vulnerabilities, cyber attacks or security breaches.
| The existence of a significant number of warrants may have a negative effect on the market price of our common stock. |
In May 2016, we issued 8.0 million registered shares of common stock at a purchase price of $0.50 per share in a registered direct offering resulting in gross proceeds of $4.0 million. In connection with the offering, each investor received an unregistered warrant to purchase three-quarters of a share of common stock for each share of common stock purchased. The resulting 6,000,000 warrant shares have an exercise price of $0.75 per share, became exercisable on November 7, 2016 and were exercisable until November 6, 2021, five years from the initial exercise date. In connection with the July 2019 offering and private placement (discussed in more detail below), we agreed to exchange, on a one-for-one basis, 4,500,000 of the May 2016 warrants for Series B warrants to purchase 4,500,000 shares of common stock at an exercise price of $0.35 per share. Each Series B warrant is exercisable six months from the date of issuance and has a term expiring in May 2022. As noted above, on July 17, 2019, we issued 8,653,846 registered shares of common stock in a registered direct offering. In connection with the offering, each investor received an unregistered Series A warrant to purchase a share of common stock at an exercise price of $0.35 per share for each share of common stock purchased. Each Series A warrant is exercisable six months from the date of issuance and has a term expiring in January 2025. The existence of securities available for exercise and resale is referred to as an “overhang,” and, particularly if the warrants are "in the money," the anticipation of potential sales could exert downward pressure on the market price of our common stock. In connection with our financing in May 2016, we issued five year warrants to acquire 6,000,000 shares of our common stock at $0.75 per share expiring in November 2021. In connection with our financing in September 2014, we issued five year warrants to acquire 4,746,000 shares of our common stock at $1.21 per share expiring in September 2019. Pursuant to the anti-dilution clauses in the September 2014 warrant agreements, the exercise price of the warrants has been adjusted downward as a result of the subsequent issuance of the Company's common stock in separate transactions, including pursuant to the Hecla Share Issuance (as defined herein), our ATM Program, the May 2016 financing, and the conversion of the Sentient Senior Secured Convertible Note (the “Sentient Note”). As a result of these transactions, the number of shares of common stock issuable upon exercise of the September 2014 warrants was increased from the original 4,746,000 shares to 5,478,172 shares (732,172 share increase) and the exercise price was reduced from the original $1.21 per share to $0.87 per share. The existence of securities available for exercise and resale is referred to as an "overhang," and, particularly if the warrants are "in the money," the anticipation of potential sales could exert downward pressure on the market price of our common stock.
41 | Failure to meet the maintenance criteria of the NYSE American may result in the delisting of our common stock, which could result in lower trading volumes and liquidity, lower prices of our common shares and make it more difficult for us to raise capital. |
Our common stock is listed on the NYSE American, and we are subject to its continued listing requirements, including maintaining certain share prices and a minimum amount of shareholders equity. The market price of our common stock has been and may continue to be subject to significant fluctuation. If we are unable to comply with the NYSE American continued listing requirements, including its trading price requirements, our common stock may be suspended from trading on and/or delisted from the NYSE American. Alternatively, in order to avoid delisting by the NYSE American, we may be required to effect a reverse split of our common stock. Although we have not been notified of any delisting proceedings, there is no assurance that we will not receive such notice in the future or that we will be able to then comply with NYSE American listing standards. The delisting of our common stock from the NYSE American may materially impair our stockholders' ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. In addition, the delisting of our common stock could significantly impair our ability to raise capital.
Our common stock is listed on the NYSE American LLC (the “NYSE American”), and we are subject to its continued listing requirements, including maintaining certain share prices and a minimum amount of stockholders’ equity. On August 19, 2019, we received written notification (the “Notice”) from the NYSE American that we are not in compliance with Section 1003(a)(iii) of the NYSE American Company Guide (the “Company Guide”). We are required to report a stockholders’ equity of $6.0 million or more if we have reported losses from continuing operations and/or net losses in its five most recent fiscal years. The Notice noted that we reported a stockholders’ equity of $4,380,000 as of June 30, 2019 and losses from continuing operations and/or net losses in each of its five most recent fiscal years ended December 31, 2018. As a result, we have become subject to the procedures and requirements of Section 1009 of the Company Guide and were required to submit a plan of compliance by September 18, 2019 to the NYSE American addressing how we intend to regain compliance with Section 1003(a)(iii) of the Company Guide by February 19, 2021. In order to maintain our listing, we timely submitted a plan of compliance to the NYSE American addressing how we intend to regain compliance with Section 1003(a)(iii) of the Company Guide by February 21, 2021. On November 1, 2019, we received notice from the NYSE American that it had accepted our plan of compliance and granted a plan period through February 19, 2021, subject to periodic review by the NYSE American, including quarterly monitoring for compliance with the initiatives outlined in the plan of compliance. If we are not in compliance with the continued listing standards by February 19, 2021, or if we do not make progress consistent with the plan of compliance during the plan period, the NYSE American staff may initiate delisting proceedings as appropriate. If we are delisted from the NYSE American, it may have an adverse impact on our share price and may make it more difficult for us to raise capital in the future. In particular, if we are delisted from the NYSE American, we will be unable to sell our common stock pursuant to the ATM Program. | If our common stock were delisted and determined to be a “penny stock,” a broker-dealer could find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock in the secondary market. |
If our common stock were removed from listing on the NYSE American, it may be subject to the so-called “penny stock” rules. The SEC has adopted regulations that define a “penny stock” to be any equity security that has a market price per share of less than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange. For any transaction involving a “penny stock,” unless exempt, the rules impose additional sales practice requirements on broker-dealers, subject to certain exceptions. If our common stock were delisted and determined to be a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock on the secondary market. These factors could significantly negatively affect the market price of our common stock and our ability to raise capital.
If our common stock were removed from listing on the NYSE American, it may be subject to the so-called “penny stock” rules. The SEC has adopted regulations that define a “penny stock” to be any equity security that has a market price per share of less than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange. For any transaction involving a “penny stock,” unless exempt, the rules impose additional sales practice requirements on broker-dealers, subject to certain exceptions. If our common stock were delisted and determined to be a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock on the secondary market. These factors could significantly negatively affect the market price of our common stock and our ability to raise capital. ITEM 1B: UNRESOLVED STAFF COMMENTS None. ITEM 3: LEGAL PROCEEDINGS None. ITEM 4: MINE SAFETY DISCLOSURES Not applicable. PART II
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock began trading on the NYSE American under the symbol “AUMN” on March 19, 2010. The following table sets forth the high and low sales prices per share and volume traded on the NYSE American from January 1, 2016 through December 31, 2017 | | | | | | | | | | | | | | | | | | Volume | | | | | | | | | | Traded | | | | High | | Low | | (shares) | | 2016 | | | | | | | | | | First Quarter | | $ | 0.68 | | $ | 0.13 | | 16,384,800 | | Second Quarter | | $ | 0.94 | | $ | 0.31 | | 45,674,400 | | Third Quarter | | $ | 1.16 | | $ | 0.66 | | 53,664,500 | | Fourth Quarter | | $ | 0.84 | | $ | 0.58 | | 27,452,000 | |
| | | | | | | | | | | | | | | | | | Volume | | | | | | | | | | Traded | | | | High | | Low | | (shares) | | 2017 | | | | | | | | | | First Quarter | | $ | 0.85 | | $ | 0.55 | | 18,106,800 | | Second Quarter | | $ | 0.68 | | $ | 0.45 | | 9,827,800 | | Third Quarter | | $ | 0.64 | | $ | 0.48 | | 9,855,100 | | Fourth Quarter | | $ | 0.50 | | $ | 0.37 | | 7,101,300 | |
Our common stock is also listed on the Toronto Stock Exchange, also referred to as the “TSX”, and trades under the symbol “AUMN”. The following table sets forth the high and low sales prices per share expressed in Canadian dollars and volume traded on the TSX from January 1, 2016 through December 31, 2017. | | | | | | | | | | | | | | | | | | Volume | | | | High | | Low | | Traded | | | | (Cdn$)(1) | | (Cdn$)(1) | | (shares) | | 2016 | | | | | | | | | | First Quarter | | $ | 0.93 | | $ | 0.19 | | 1,543,600 | | Second Quarter | | $ | 1.22 | | $ | 0.42 | | 5,822,300 | | Third Quarter | | $ | 1.51 | | $ | 0.88 | | 5,043,100 | | Fourth Quarter | | $ | 1.10 | | $ | 0.77 | | 2,239,400 | |
| | | | | | | | | | | | | | | | | | Volume | | | | High | | Low | | Traded | | | | (Cdn$)(1) | | (Cdn$)(1) | | (shares) | | 2017 | | | | | | | | | | First Quarter | | $ | 1.10 | | $ | 0.73 | | 1,549,900 | | Second Quarter | | $ | 0.88 | | $ | 0.61 | | 676,900 | | Third Quarter | | $ | 0.75 | | $ | 0.59 | | 274,100 | | Fourth Quarter | | $ | 0.62 | | $ | 0.47 | | 550,400 | |
| (1)
| | Prices are in Canadian dollars.
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As of February 27, 2018,26, 2020, we had 201175 record holders of our common stock of record based upon the stockholders list provided by our transfer agent, Computershare Trust Company, N.A. Dividends We have not declared or paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all future earnings, if any, to fund the growth of our business. ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data for all periods presented has been derived fromDue to our audited financial statements for that period. Our financial statements are reported in U.S. dollars and have been prepared in accordance with generally accepted accounting principles instatus as a Smaller Reporting Company, the United States. The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and the related notes thereto and “Management’s Discussion and Analysispresentation of Financial Condition and Results of Operations” included in this Form 10-K.information is not required.
| | | | | | | | | | | | | | | | | | | The Year Ended December 31, | | | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | | | | (in thousands, except per share amounts) | | Statement of Operations: | | | | | | | | | | | | | | | | | Revenue | | $ | 6,691 | | $ | 6,400 | | $ | 8,071 | | $ | 235 | | $ | 10,680 | | Net Loss(1) | | $ | (3,892) | | $ | (10,659) | | $ | (25,383) | | $ | (18,823) | | $ | (240,380) | | Net Loss per common share | | $ | (0.04) | | $ | (0.13) | | $ | (0.48) | | $ | (0.41) | | $ | (5.61) | |
| | | | | | | | | | | | | | | | | | | At December 31, | | | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | | Balance Sheet Data: | | | | Total assets | | $ | 13,077 | | $ | 14,008 | | $ | 17,001 | | $ | 41,258 | | $ | 54,881 | | Long term liabilities | | $ | 3,138 | | $ | 4,398 | | $ | 2,840 | | $ | 4,334 | | $ | 2,655 | | Dividends: | | | | | | | | | | | | | | | | | Cash dividends declared per common share | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| (1)
| | The year ended December 31, 2015 includes a $13.2 million impairment of long-lived assets charge. The impairment charge is related to our Velardeña Properties in Mexico and is the result of the shutdown of mining and sulfide processing at the Velardeña Properties in November 2015, which was an event requiring an assessment of the recoverability of the Velardeña Properties assets.There were no such charges during the year ended December 31, 2016. The year ended December 31, 2013 includes a $244.0 million impairment of long-lived assets charge and an $11.7 million impairment of goodwill charge. Both charges are related to our Velardeña Properties in Mexico and are the result of a significant decrease in metals prices during 2013 and the shutdown of mining and processing at the Velardeña Properties at the end of the second quarter 2013, which were events requiring an assessment of the recoverability of the Velardeña Properties assets.
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ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes beginning on page F-1 in this annual report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Risk Factors” in this annual report on Form 10-K. Our Company We were incorporated in Delaware under the Delaware General Corporation Law in March 2009, and are the successor to Apex Silver Mines Limited for purposes of reporting under the Exchange Act. During the year ended December 31, 2017,2019, our only sources of income were revenues from the lease of our Velardeña oxide plant, sales of non-core assets, and a tax refund received by an Argentine subsidiary. We incurred net operating losses for the years ended December 31, 20172019 and 2016.2018. We remain focused on evaluating and searching for mining opportunities in North America (including Mexico) with near term prospects of mining, and particularly for properties in Mexico within reasonable haulage distances of our Velardeña processing plants. We are also reviewing strategic opportunities, focusing primarilyfocused on development or operating properties in North America, including Mexico. During 2018, we also intend to continue evaluation activities at our El Quevar exploration property in Argentina and are continuing our exploration efforts on selected properties in our portfolio of approximately 1012 exploration properties located primarily in Mexico.Mexico, Nevada and Argentina. 2019 Highlights 2017 Highlights
Sale of Mogotes and Pistachon Properties On December 18, 2019, we sold the non-strategic Mogotes and Pistachon properties in Mexico to a subsidiary of Industrias Peñoles for $3.0 million. The Mogotes and Pistachon properties are comprised of a total of four mining concessions located near our Velardeña Properties. None of the claims in the properties contained any identified mineralized material. Option Agreement for Santa Maria On October 16, 2019, we entered into an option agreement for the sale of our right to acquire a 100% interest in the Santa Maria and Las Marias exploration properties to Magellan Gold Corporation (“Magellan”). The agreement provides for a period of up to 150 days during which Magellan will complete its due diligence review and secure financing for the project. Prior to the end of such period, Magellan will have the right to exercise its option to acquire our interests in the project. Under the terms of the agreement, if Magellan exercises its option, it will make a cash payment of $1.0 million to us upon closing. We will retain a 6.5% NSR royalty from all production at Santa Maria until a total of $3.0 million has been paid to us under the royalty agreement. Thereafter, we will retain a 3.0% NSR royalty for the balance of the mine’s life. If Magellan fails to achieve commercial production from the project within one year following closing, we will not be obligated to convey our interests in the project to Magellan and we will retain our interest in the project with no obligation to return any payments to Magellan. El Quevar In the first quarter 2019, we initiated a 3,000 meter, approximately $0.6 million, drilling program to further define the potential for additional mineralized material in the Yaxtché deposit and surrounding area and completed that drill program in the second quarter 2019. In September 2019 we released final results from the 2019 drilling program. A new shallow high-grade silver zone was partially outlined in the Vince area about 2 kilometers south west of the known Yaxtché deposit. Four drill holes cut silver intercepts with grades of 500 to 600 g/t Ag over widths of 1 to 4 meters. These results extend a historical drill intercept by about 200 meters northeast along strike. The zone is open to the north. Other significant results of the program include a 2.1 meter interval grading 340 g/t Ag, in Yaxtché East. This hole represents an approximate 50 meters step out from previous drilling and demonstrates the potential to add to the mineral resources in the northeast sector of the Yaxtché deposit. Drilling at the Argentina prospect located approximately one kilometer east of Yaxtché has also returned silver values in one drill hole with 2 meters of 358 g/t Ag. These results coincide with previous drilling in the area (8 meters of 779 g/t Ag) and are considered encouraging for the area to host mineralization of potential economic significance. We are continuing surface exploration in the district to identify further drill targets in the 57,000-hectare property area. Our property holdings contain two district-scale high sulfidation epithermal systems with potential to host additional precious metals deposits. We plan to continue to advance El Quevar by contracting with a partner to contribute to the funding of further exploration and development. Velardeña Oxide Plant Lease Agreement In July 2015, we leased our VelardeñaDuring the year ended December 31, 2019, Hecla processed approximately 158,000 tonnes of material through the oxide plant, resulting in total revenues to us of approximately $7.7 million, comprised of approximately $5.3 million for direct plant charges and fixed fees and approximately $2.4 million for other net reimbursable costs related to the services we provide under the lease. Hecla is responsible for the ongoing operation and maintenance of the oxide plant. The $2.4 million of reimbursable costs are also reported as plant lease costs, resulting in net operating margin of approximately $5.3 million for the year ended December 31, 2019.
On October 1, 2018, a wholly-owned subsidiary of Hecla Mining Company for(“Hecla”) exercised its option, pursuant to an initial termagreement entered into with us in August 2017, to extend the lease of 18 months beginning July 1, 2015. Theour Velardeña oxide plant until December 31, 2020. On December 2, 2019 we entered into an additional amendment of the lease agreement contained several lease extension options, and inwith Hecla to reduce the third quarter 2016,per tonne fee payable by Hecla for the lease was extended through June 2017. The 2016 extension included an agreement under which Hecla would construct, at its cost, certain tailings expansion facilities to accommodate Hecla's increased use of tailings capacity in excess of an agreed amount, while preserving flexibility for future tailings expansions. The tailings expansion work began in early 2017 and is now completed. The parties agreed that Hecla would either leave unused at the endduration of the lease term, an agreed amountcommencing on January 1, 2020, from $22.00 per tonne to $11.00 per tonne, however, the per tonne fee reverts back to $22 per tonne for any month in which either of capacitythe following conditions are met: (1) the Comex daily silver spot closing average price for such month is $20.00 per ounce or greater, or (2) the mill head grade average from the metallurgical balance for such month is 1,000 grams per ton equivalent silver head grade or greater. If either condition is met in any month, Hecla will pay the higher fee of $22.00 per tonne on all amounts processed in the expanded tailings facility, or construct an additional expansion at its cost. In connection with their agreement regarding tailings impoundment expansions,oxide plant during such month. The reduced fee only applies to the parties agreed that Hecla had the right to extendtonnage-based payments under the lease agreement; the monthly lease payment of $125,000 per month is not affected by the amendment. The latest amendment also extended the notice period for an additional 18 months following June 30, 2017, or until December 31, 2018. On March 24, 2017, Hecla exercised its right to extend the lease until December 31, 2018. On August 2, 2017, we granted Hecla an option to extend the lease for an additional period of up to two years ending no later than December 31, 2020 (the “Extension Period”) in exchange for a $1.0 million cash payment and the purchase of $1.0 million, or approximately 1.8 million shares, of our common stock issued at a price of $0.55 per share, which was the undiscounted 30-day volume weighted average stock price at the time of the option agreement. Hecla must exercise the option to extend the lease no later than October 3, 2018. All of the fixed fees and throughput related charges remain the same as under the original lease. Similar volume limitations apply to any required future tailings expansions, which Hecla will fund, leaving unused at the end of the lease term an agreed amount of capacity in the expanded tailings facility. Hecla will have theHecla’s right to terminate the lease during the Extension Period for any reason withfrom 120 days’ notice.notice to 150 days. Hecla will also havehas a one-time right of first refusal to continue to lease the plant following a termination notice through December 31, 2020 if we decide to use the oxide plant for our own purposes before December 31, 2020.
Hecla is responsible for ongoing operation and maintenance of the oxide plant. During the year ended December 31, 2017, Hecla processed approximately 131,000 tonnes of material through the oxide plant, resulting in total revenues to us of approximately $6.7 million, comprised of approximately $3.0 million for direct plant charges plus fixed fees and other net reimbursable costs totaling approximately $3.7 million. We incurred costs of approximately $2.1 million related to the services we provide under the lease and reported a net operating margin of approximately $4.5 million during the year ended December 31, 2017. We expect Hecla to continue to process material near or above the intended approximately 400 tonnes per day rate during 2018,2020, which would generate cash paymentsa net operating margin to us, net of reimbursable costs, of approximately $4.6$0.8 million during the full year 2018.per quarter. However, because Hecla has the right to terminate the lease on sixtywith 150 days’ notice, there is no assurance that these amounts will be received.continue through 2020.
El Quevar
In February 2018 we announced a revised estimate of mineralized material for the Yaxtché deposit at El Quevar based on re-modeling existing previously released data using updated geologic controls and a modeling method that optimizes grade. See “Item 1 and 2: Business and Properties – El Quevar – Mineralized Material Estimate” above.
We are evaluating plans for further exploration drilling to increase the size of the high grade silver resource at or near the Yaxtché deposit and for preparation of Velardeña PEA that will use the revised estimate of mineralized material for the Yaxtché deposit as a basis. The Yaxtché deposit is open to the west and there are numerous drill intercepts with silver grades of economic interest in the nearby area that represent targets for further expansion. We plan to continue to advance El Quevar as much as possible within the limits of our current exploration budget and remain open to finding a partner to contribute to the funding of further exploration and developmentupdate.
During 2017,The Velardeña Properties contain two underground mines that were last operated in late 2015, at which point mining activities were suspended when a combination of low metals prices and dilution and metallurgical challenges rendered operations unprofitable. We elected to preserve the asset for future use, and since that time we received $1.1 millionhave evaluated and tested various mining methods and processing alternatives that could enable sustainable profitable operations.
The recent rise in refundsprecious metals prices, the advancement of previous VAT payments madein Argentina during 2012 and 2013. The refunds, available through certain provisionsalternative processing technologies in the Argentina Mining Investment Law, have been pending for several years, but were only recently approved for payment byindustry, and the Argentine tax authority. In February 2018, we received an additional $138,000results of VAT refunds and we have approximately $0.1 million of VAT refund claims remaining. Santa Maria
Since 2015, we have completed test mining and processing of 7,500 tons from the Santa Maria mine west of Hildalgo de Parral, Chihuahua, with average grades 338 grams per tonne (“gpt”) silver and 0.7 gpt gold. In March 2017, a PEA was completed on our behalf bytesting activities prompted us to engage the engineering firm Tetra Tech to complete an updated PEA for the Velardeña Properties, prepared pursuant to Canadian National Instrument 43-101, based on anNI 43-101. The updated estimatePEA is expected to incorporate refinements to the resource model as well as a bio-oxidation processing methodology designed to enhance the recovery of mineralized material. The PEA presented a base case assessment of developing Santa Maria’s mineral deposit. The PEA contemplates a 38-month underground mining operation at a mining rate of 200 tonnes per day using a combination of cutgold from pyrite and fill and other mining techniques, and custom milling at a local third-party flotation mill. Based on the assumptionsarsenopyrite that is common in the veins at both the Velardeña and Chicago mines. Recent test work completed in late 2019 and announced in January 2020 has shown bio-oxidation and subsequent cyanide leaching of the pyrite concentrates from the Santa Juana mine area to achieve gold and silver recoveries over 90%. We expect the PEA we believe there mayto be potential to develop a small mining operation at Santa Maria.completed during the first quarter of 2020.
In August 2017, we acquired three additional claims that cover the eastward extensionRodeo
Rodeo, a 1,900-hectare gold project located about 80 kilometers west of the Santa Maria vein. The new claims provide Velardeña, 600 meter potential extension to the strike lengthcontains approximately 46,000 ounces of the vein system and add substantial downdip expansion potential. In August 2017, we also commencedgold with an average grade of 3.3 g/t, as referenced in a new drill program targeting extensions of the vein deposit describedmineral resource estimate prepared in the PEA and recent estimateaccordance with NI 43-101 by Tetra Tech dated January 26, 2017. Rodeo represents a source of mineralized material with the goal of expanding the existing estimate of mineralized material to improve the overall economics reported in the PEA. Through the end of 2017, we drilled 14 holes totaling approximately 3,300 meters, and have received completed assay results showing mineralized intercepts in mostthat may be processed at Velardeña’s oxide mill following completion of the holes. Hecla lease, which is currently set to expire on December 31, 2020.
We increasedplan to initiate a small drilling program at Rodeo to provide greater resource definition for a mine plan and to provide samples for additional metallurgical testing. We have begun the drill program fromprocess of obtaining the required mining and environmental permits for an original 2,000 metersopen pit mining operation, a process that could take up to approximately 4,800 meters dueone year. Complementary to the geologic complexity alongpermitting process, we have initiated an internal study to support the eastern extension and newly encountered mineralization on the western extension of the vein system. Based on thepotential economic results of the 2017 drilling program, we anticipate that we will be able to increase the size of the existing mineralized material estimate, although the extent of that increaseplanned operation. has not yet been determined. We are continuing to drill in 2018 and have completed 1,000 meters in five drill holes. We will likely complete another 500 meters in three additional drill holes before completing the program, after which we plan to review the drill results and revise the existing PEA and mineralized material estimate.
We have the right to acquire the Santa Maria property under two separate option agreements representing the total concessions that comprise the property for additional payments of $1.4 million, payable through April 2022. The first option agreement, covering concessions we acquired in August 2014, requires an additional approximately $0.7 million be paid to acquire a 100% interest in the concessions related to that option by continuing to make minimum payments of $0.1 in 2018 and $0.2 in each of the years 2019 through 2021. In addition, until the total due under the first option agreement has been paid, the property owners have the right to 50% of any net profits from mining activities from the concessions related to the option, after reimbursement of all costs incurred by us since April 2015, to the extent that such net profit payments exceed the minimum payments. The second option agreement, covering concessions recently acquired in August 2017, requires an additional approximately $0.7 million be paid to acquire a 100% interest in the concessions related to that option by making additional payments of $0.1 million in 2018 and $0.2 million in each of the years 2019 through 2021.
Sand Canyon Celaya Farm-out
In August 2016, our wholly owned Mexican subsidiaryDuring the second quarter 2019 we entered into an earn-in agreement with Golden Gryphon Explorations for the Sand Canyon project located in northwestern Nevada, where surface work has identified a 100% owned Mexican subsidiarylarge system of Electrum Global Holdings, L.P.,epithermal veins with potential for gold and silver deposits. We hold an option to earn a privately owned company (together “Electrum”), related to our Celaya exploration property in Mexico. We received an upfront payment of $0.2 million and Electrum agreed to incur exploration expenditures totaling at least $0.5 million within the first year of the agreement, reduced by certain costs Electrum previously incurred on the property since December 2015 in its ongoing surface exploration program. Electrum, at its option, can elect to acquire an undivided 60% interest in a joint venture company to be formed to hold the CelayaSand Canyon project after incurring exploration expenditures totaling $2.5 million during the initial first three years of the agreement. Electrum would serve as manager of the joint venture. Prior to an amendment to the agreement, we would have been allowed to maintain a 40% interest in the Celaya project, following the initial three-year earn-in period, by contributing our pro-rata share of an additionalspending $2.5 million in exploration or developmentexpenses over four years, with guaranteed minimum expenditures incurred over a second three-year period. In February 2018, we amended the Celaya earn-in agreementof $0.5 million in year one. To continue to permit Electrum to earn at its option, an additional 20% interest in the Celaya project in exchange for a payment of $1.0 million. Electrum can now increase its total interest in the project, to 80% by contributing 100%we must spend at least $0.75 million in each of years two and three and $0.5 million in year four, and drill at least 5,000 feet of core or 10,000 feet of reverse circulation or a combination of the $2.5 milliontwo, by the end of the second year. We paid $25,000 cash and $50,000 in reimbursed exploration expenditures to acquire the option and will make staged payments of a total additional expenditures required$135,000 ($35,000 in 2020, $50,000 in 2021 and $50,000 in 2022) over the next three anniversaries of the agreement.
We have completed surface exploration activities on the project including mapping and geochemical sampling to identify drill targets. Based on this work we have obtained the necessary drill permits and have begun a drilling program, with initial results expected in the second three-year earn-in period. Followingquarter of 2020. Registered direct purchase agreement, commitment purchase agreement and registration rights agreement On May 9, 2018 we entered into a registered direct purchase agreement (the “Registered Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”) pursuant to which LPC purchased 3,153,808 shares of our common stock at a price of $0.4122 per share, the second earn-in periodclosing price of our common stock on the NYSE American on May 8, 2018, for an aggregate purchase price of $1.3 million. On the same day, we willalso entered into a commitment purchase agreement (the “Commitment Purchase Agreement” and together with the Registered Purchase Agreement, the “LPC Program”) pursuant to which we have the right for a period of three years, at our sole discretion, to maintainsell up to an additional $10.0 million of our 20% participating interest orcommon stock to LPC, subject to certain limitations and conditions contained in the Commitment Purchase Agreement. Subject to the terms of the Commitment Purchase Agreement, we will control the timing and amount of any future sale of common stock to LPC. LPC has no right to require any sales by us under the Commitment Purchase Agreement but is obligated to make purchases at our interest could ultimatelysole direction, as governed by such agreement. There are no upper limits to the price LPC may be converted into a carried 10% net profits interest if we electobligated to pay to purchase common stock from us and the purchase price of the shares will be based on the prevailing market prices of our shares at the time of each sale to LPC. LPC has agreed not to participate as a joint venture owner. Electrum Global Holdings’ Mexican subsidiary, Minera Adularia, has reported the completioncause or engage in any manner whatsoever, any direct or indirect short selling or hedging of 12,400 metersour shares of drilling on the property in fifteen drill holes in their ongoing drill program through the end of 2017. Results to date show intercepts of epithermal quartz vein mineralization with grades for gold, silver, lead and zinc that warrant further drill testing.
Other Exploration Activities
Mogotes. During the fourth quarter 2017 we completed a 2,580 meter drill program on our Mogotes property on the El Mogote claim located 7 kilometers southeast of the town of Velardeña, Durango, Mexico. The drill program was planned to test an area of silicification and breccias hosted in volcanic rocks. The altered area is exposed over a strike length of 1.5 kilometers and a width of about 500 meters. Results from the drill program showed low grade gold mineralization in two of the holes. The epithermal system appears to be more deeply centered than the surface geochemical values initially indicated.
Additional targeting work is being carried out on the Mogotes claims including geologic mapping and sampling focused on several outcropping veins in the northern portion of the claims and on our adjacent Pistachon claim, part of
the Chicago mine holdings. Previous work on the Mogotes property identified the possible continuation of Industrias Peñoles’ Santa Maria silver-zinc mine mineralization onto our Mogotes claims.
The Mogotes property was purchased from Silver Standard Resources in 2015 and is wholly owned by one of Golden Minerals’ Mexican subsidiaries, subject to a 2% net smelter return royalty to Silver Standard and a pre-existing finder’s fee agreement (2% of direct exploration and development expenditures, capped at $365,000).
Yoquivo. In October 2017 we acquired the right to purchase claims covering the Yoquivo District, Ocampo Municipality, Chihuahua through an option agreement. The Yoquivo District is a past producing, bonanza grade epithermal vein gold and silver district located 35 kilometers southeast of the Ocampo Mining District.common stock. We have the right to purchase six claims totaling 1,906 hectares for payment of $0.5 million over four years plus outstanding claim taxes totaling approximately $0.1 million. No cash payments to the owner are due until the second anniversary of the agreement. The owner retains a 2% net smelter return royalty capped at $2.0 million.
Zacatecas. In April 2016, we entered into an option agreement under which Santacruz Silver Mining Ltd. may acquire our interest in certain nonstrategic mineral claims located in the Zacatecas Mining District, Zacatecas, Mexico for a series of payments totaling $1.5 million, including a final payment of $0.5 million due in April 2018. To date, Santacruz has paid us approximately $0.9 million. We amended the option agreement in February 2018 to extend the due dates for the remaining series of payments through September 2018. To complete the acquisition of the Zacatecas Properties Santacruz must now make three additional payments of $225,000 each in March, June and September 2018. Santacruz has the right to terminate the option agreementCommitment Purchase Agreement at any time, and the agreement could be terminated, at our option, if Santacruz fails to make subsequent payments when due.discretion, without any cost or penalty.
Rodeo.During 2016, we completed a 2,080-meter core drilling program at the Rodeo property, approximately 80kilometers west of the Velardeña Properties in Durango Mexico. The results from the program revealed a gold andsilver bearing epithermal vein and breccia system with encouraging gold and silver values over an approximate 50 to70 meter true width. The system is exposed at the top of a northwesterly striking ridge and dips steeply to thenortheast over about one kilometer of strike length. During January 2017, the engineering firm of Tetra Techcompleted an estimate of mineralized material at the Rodeo deposit, prepared pursuant to Canadian NationalInstrument 43-101, containing 3.3 gpt gold and 11 gpt silver for a total of 46,000 ounces of gold and 0.2 million ounces of silver. We believe this material, as currently identified, could provide additional mined material for ourVelardeña oxide mill following the completion of the Hecla lease, currently set to expireyear ended December 31, 2020.
In initial test work conducted during 2017, we have received confirmation of good gold and silver metallurgical recoveries for milled material. Bottle roll cyanide leach testing of the high-grade samples resulted in gold extractions of 80 to 86 percent. Silver extractions ranged from 72 to 76 percent for all tests. Test work also indicates that the material is not suitable for gold and silver recovery by heap leaching.
Due to the extension of the lease period for the oxide mill, plans to advance the Rodeo project have been delayed until later in 2018.
Sale of Mining Equipment
In August 2016,2019 we sold certain mining equipment consisting2,113,642 shares of two haul trucks, two scoop trams and a compressorcommon stock to Minera Indé,LPC under the LPC Program at an indirect subsidiary of The Sentient Group, a related party, for $687,000. The equipment sold was excess equipment held at our Velardeña Properties that we did not expect to use. We used a third party consultant with experience in the used mining equipment market in Mexico to determine a fair value. We believe the price paid was at least equal to the fair market value of the equipment had it been sold through auction or in the open market. We received 10% of theaverage sales price at the closingper share of the saleapproximately $0.28, resulting in August, with the additional 90%, plus interest on the unpaid balance at an annual rate of 10%, due in February 2017.
With the approval of a Special Committee of our Board of Directors, we amended the original equipment sale with Minera Indé on March 31, 2017 to include the sale of an additional piece of excess equipment for $185,000 and extend the time for payment relating to the original equipment sale. Upon execution of the amendment, we received an additional payment of $100,000. The remaining principal and interest balance, plus additional interest on the unpaid balance at an annual rate of 10%, was amended to be due in August 2017. On May 2, 2017, we received approximately $750,000 from Minera Indé as payment in full for the remaining balance due related to the equipment sale, including interest through that date.
At the Market Offering Program
In December 2016, we entered into an at-the-market offering agreement (as amended from time to time, the “ATM Agreement”) with H. C. Wainwright & Co., LLC (“Wainwright”), under which we may, from time to time, issue and sell shares of our common stock through Wainwright as sales manager in an at-the-market offering under a prospectus supplement for aggregate salesnet proceeds of upapproximately $0.6 million. Subsequent to $5.0 million or a maximum of 10 million shares. The ATM Agreement will remain in full force and effect until the earlier of December 31, 2018, or until the date that the ATM Agreement is terminated in accordance with the terms therein.
Through December 31, 2017,2019, through February 26, 2020, we have sold an aggregate of approximately 1,024,000825,000 common shares under the ATMLPC Program at an average price of $0.70$0.27 for total proceeds of approximately $0.2 million.
Offering and private placement transaction On July 17, 2019, we entered into an agreement with certain institutional investors providing for the issuance and sale of 8,653,846 shares of our common stock at a price of $0.26 per share, and in a concurrent private placement transaction, the issuance of 8,653,846 Series A warrants to purchase up to 8,653,846 shares of our common stock at an exercise price of $0.35 per share, for aggregate gross proceeds of $2.25 million (the “Offering”). Each of the investors in the Offering held warrants that were issued by us in May 2016 and were exercisable until November 2021 at an exercise price of $0.75 per share. In connection with the Offering, we also agreed to exchange, on a one-for-one basis, the May 2016 warrants for Series B warrants to purchase 4,500,000 shares of common stock at an exercise price of $0.35 per share. Each Series A warrant is exercisable six months from the date of issuance and has a term expiring five years after such initial exercise date. Each Series B warrant is exercisable six months from the date of issuance, has a term expiring in May 2022, but is otherwise subject to the same terms and conditions as the Series A warrants. Total costs for the Offering were approximately $720,000. We$0.3 million, including the placement agent fee of six percent of the aggregate gross proceeds. As a result of anti-dilution provisions in our outstanding 2014 warrants, the closing of the Offering resulted in adjustments that reduced the exercise price and increased the number of shares issuable under 2014 warrants. Pursuant to the anti-dilution provisions in the 2014 warrants, the number of shares of common stock issuable upon exercise of the 2014 warrants was increased from 5,551,344 shares to 5,686,365 shares (135,021 share increase), and the 2014 warrants’ exercise price was decreased from $0.84 per share to approximately $0.80 per share. The 5,686,365 warrants expired on September 10, 2019, five years from the original date of issuance. Termination of the Agreement to Sell the Velardeña Properties and Other Assets to Autlán On June 26, 2019, we entered into a Purchase and Sale Agreement (the “Agreement”) along with our indirectly wholly-owned subsidiary, Minera de Cordilleras S. de R.L. de C.V., to sell certain assets to Compañía Minera Autlán S.A.B. de C.V. (“Autlán”) for $22 million. Upon execution of the Agreement, Autlán paid cash commissionsus a deposit of US$1.5 million. Under the terms of the Agreement, Autlán had agreed to purchase three of our Mexican subsidiaries, which together hold the Velardeña Properties, including the Velardeña and Chicago mines (which are currently on care and maintenance), two processing plants, mining equipment and other nominal transaction feesadjacent exploration properties. The sale would have also included the Velardeña oxide plant lease as well as the Rodeo and Santa Maria project concessions. The Agreement provided for a period of up to Wainwright totaling approximately $16,000 or 2.2%75 days for Autlán to conduct due diligence related to the three subsidiary companies, the Rodeo concessions and the Santa Maria concessions. Under the Agreement, Autlán had the right to terminate the Agreement at any time during the due diligence period. On September 11, 2019, we announced that Autlán exercised its right to terminate the Agreement. As a result of the gross proceedstermination of the Agreement, we were required to repay the $1.5 million deposit amount, plus interest at 3% per annum, within 90 days following termination (on or before December 8, 2019). In lieu of us not making the repayment by December 8, 2019, Autlán had the option to receive the Rodeo concessions as full settlement of the deposit. Autlán declined to receive the Rodeo concessions, and incurred additional accounting, legalas a result, we are required to repay the deposit by making monthly payments equal to $257,000, until the deposit amount is repaid with interest at approximately 11% per annuum. Our first payment was made on December 9, 2019 and regulatory costsas of February 26, 2020, we have repaid approximately $34,000.$0.8 million of the deposit. Results of Operations For the results of operations discussed below, we compare the results of operations for the year ended December 31, 20172019 to the results of operations for the year ended December 31, 2016.2018. Revenue from oxide plant lease. We recorded revenue of $6.7$7.7 million and $6.4$7.2 million for the years ended December 31, 20172019 and 20162018 respectively, from the lease of our Velardeña oxide plant to Hecla. The increase in revenue for the year ended December 31, 2019 is due to additional material delivered by Hecla to our oxide plant. Oxide plant lease costs. During the years ended December 31, 20172019 and 20162018 we recorded $2.2$2.4 and $2.0$2.3 million, respectively, of costs related to the oxide plant lease consisting primarily of reimbursable labor and utility costs which for accounting purposes were also included in revenue from the oxide plant lease. Exploration Expense.Expense. Our exploration expense, including work at the Sand Canyon, Yoquivo, Santa Maria Mogotes and other properties, totaled $3.1$4.1 million for the year ended December 31, 2017.2019. Our exploration expense including drilling at the San Luis del Cordero, Santa Maria, and Rodeo properties, totaled $3.7$3.9 million for the year ended December 31, 2016.2018. Exploration expense for both years was incurred primarily in Mexico and includes property holding costs, costs incurred by our local exploration offices, and allocated corporate administrative expenses. Velardeña shutdown and care and maintenance costs. We recorded $1.6$1.8 million and $2.0$1.9 million for the years ended December 31, 20172019 and 2016,2018, respectively, for expenses related to shut down and care and maintenance at our Velardeña Properties as the result of the suspension of mining and processing activities in November 2015. The 2016 expense included certain one-time repairhigher care and maintenance costs associated with the plant shut down.in 2018 are related to increased maintenance. El Quevar Project Expense. During the yearsyear ended December 31, 20172019 we recorded an expense of approximately $2.0 million primarily related to exploration, holding and 2016evaluation costs for the Yaxtché deposit at our El Quevar project in Argentina. During the year ended December 31, 2018 we incurred $0.8$1.3 million and $0.5 million of expenses, respectively, primarily related to holding and evaluation costs for the Yaxtché deposit at our El Quevar project in Argentina. The 2017 expense included certain property evaluation costs not incurredincrease in 2016.2019 was primarily related to a drilling program conducted during the year. For both years, additional nominal costs incurred in Argentina and not related to the El Quevar project are included in “Exploration Expense”, discussed above. Administrative Expense. Administrative expenses totaled $3.5$3.6 million for the year ended December 31, 20172019 compared to $3.9$3.4 million for the year ended December 31, 2016.2018. Administrative expenses, including costs associated with being a public company, are incurred primarily by our corporate activities in support of the Velardeña Properties, El Quevar project and our exploration portfolio. The $3.5$3.6 million of administrative expenses we incurred during 20172019 is comprised of $1.6$1.5 million of employee compensation and directors’ fees, $0.8$1.2 million of professional fees and $1.1$0.9 million of insurance, rents, travel expenses, utilities and other office costs. The $3.9$3.4 million of administrative expenses we incurred during 20162018 is comprised of $1.4$1.6 million of employee compensation and directors’ fees, $1.3$0.9 million of professional fees and $1.2$0.9 million of insurance, travel expenses, rents, utilities and other office costs. Administrative expenses were higher in the period ended December 31, 2019 due to increased legal costs associated with the proposed Agreement with Autlán, as discussed above in “Termination of the Agreement to sell the Velardeña Properties and other Assets to Autlán.” Stock based compensation. During the year ended December 31, 20172019 we incurred expense related to stock basedstock-based compensation in the amount of $0.3$0.8 million compared to $0.6$0.2 million for the year ended December 31, 2016.2018. Stock based compensation varies from period to period depending on the number and timing of shares granted, the type of grant, the market value of the shares on the date of grant and other variables. The 20172019 and 2016 stock based2018 stock-based compensation amounts includesinclude $0.5 million of expense and a $0.1 million and $0.3 million,reduction of expense, respectively, related to KELTIP grants made to two officers and the related fair value adjustments to the KELTIP liability (see Note 1517 to the consolidated financial statements filed as part of this Form 10-K for a discussion of KELTIP grants). Reclamation and accretion expense. During each of the years ended December 31, 20172019 and 20162018, we incurred $0.2 million of reclamation expense related to the accretion of an asset retirement obligation at the Velardeña Properties. Other Operating Income, Net. We recorded other operating income of $2.1$3.2 million for the year ended December 31, 2017 compared to $1.82019, consisting of $3.0 million for the sale of the Mogotes and Pistachon properties in Mexico and $0.2 million for the sale of surplus equipment in Argentina and property in Peru. We recorded $5.1 million of other operating income for the year ended December 31, 2016. The net amounts for both years consist primarily2018, consisting of net gains recorded$4.0 million related to an option payment and the ultimate sale of our Celaya property, $0.7 million from payments received on the sales of certain fixed assetsour Zacatecas Properties and non-strategic exploration properties. The 2017 amount includes approximately $0.1$0.4 million related to the $1.0 million lease option extension payment received from Hecla. The lease option extension payment has been recorded as Deferred Revenue and is being amortized to Other Operating Income on a straight-line basis from August 2, 2017 through December 31, 2020.sale of two non-strategic Mexican subsidiaries. Depreciation, depletion and amortization. During the year ended December 31, 20172019 we incurred depreciation, depletion and amortization expense of $1.0$1.1 million compared to $1.5$1.2 million for the year ended December 31, 2016. The decrease in depreciation, depletion and amortization expense during the 2017 period is primarily the result of certain equipment at our Velardeña Properties having been fully depreciated or sold.2018. Interest expense.and Other Income, net. We recorded $0.2 million of interest and other expense, net for the year ended December 31, 2019 primarily related to the sale of common stock we owned in a junior mining company. During the year ended December 31, 20162018 we recorded approximately $0.5$0.1 million of interest expense related to the Sentient Loan. The remaining Sentient Loan was fully converted in June 2016 and at December 31, 2016 and 2017 we had no outstanding debt. For the year ended December 31, 2017 we did not record any interest expense. Interest and Other Income. During the year ended December 31, 2017 we recorded only a nil amount of interest and other income. During the year ended December 31, 2016 we recorded approximately $0.4 million of interestincome and other income which included a refund of previously paid social security taxes in Mexico of approximately $0.4 million.
Warrant loss. For the year ended December 31, 2016 we recorded approximately $1.7 million of lossprimarily related to an increase in the fair value of the liability for warrants to acquire the Company’s stock. The warrant liability was recorded at fair value as of December 31, 2016 based primarilymark-to-market gains on a valuation performed by a third party expert using a Monte Carlo simulation, which falls within Level 3 of the fair value hierarchy. The valuation method is discussed in detail in Note 13 of our consolidated financial statements. We did not record any warrant derivative gains or losses during 2017 following a change in accounting principle and the subsequent reclassification of the warrant liabilities to equity retroactively to the beginning of 2017 (see Note 3 to the consolidated financial statements filed as part of this Form 10-K).short-term investments.
Derivative Loss. For the year ended December 31, 2016 we recorded a $0.8 million loss related to the fair value adjustment to the beneficial conversion feature of the Sentient Note (as defined herein), which constitutes an imbedded derivative (see Note 10 of our consolidated financial statements filed as part of this Form 10-K). There were no such
amounts recorded for the year ended December 31, 2017 as the Sentient Note was fully converted and no longer outstanding as of September 30, 2016.
Gain (Loss) on Foreign Currency. We recorded a $0.1 million foreign currency loss infor each of the years ended December 31, 20172019 and 2016.2018. Foreign currency gains and losses are primarily related to the effect of currency fluctuations on monetary assets net of liabilities held by our foreign subsidiaries that are denominated in currencies other than USU.S. dollars. Income Taxes. We recorded $13,000a nil amount of income tax expense for the yearyears ended December 31, 20172019 and 2018 related to a Mexican subsidiary. We recorded no tax expense or benefit for the year ended December 31, 2016. Liquidity and Capital Resources At December 31, 2017,2019, our aggregate cash and cash equivalents totaled $3.3$4.6 million, $0.7 million higher thancompared to the $2.6$3.3 million in similar assets held at December 31, 2016.2018. The net increase resultedDecember 31, 2019 balance is due in part from the following expenditures and cash inflows for the year ended December 31, 2017.2019. Expenditures totaled $9.0$11.4 million from the following: | · | | $3.14.0 million in exploration expenditures, including costs related to drillingwork at the Sand Canyon, Yoquivo, Santa Maria and Mogotesother properties; |
| · | | $1.6million in care and maintenance costs at the Velardeña Properties; |
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| | $0.82.0 million in evaluation activities, care and maintenance and property holding costs at the El Quevar project;
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| · | | $1.8 million in care and maintenance costs at the Velardeña Properties; and |
| · | | $3.53.6 million in general and administrative expenses. |
The foregoing expenditures were offset by cash inflows of $9.7$12.7 million from the following: | · | | $4.55.3 million of net operating margin received pursuant to the oxide plant lease (defined as oxide plant lease revenue less oxide plant lease costs); |
| · | | $1.93.0 million from Hecla comprisedthe sale of $1.0 million for an optioncertain nonstrategic mineral claims to extend the oxide plant lease for an additional period of up to two years and $1.0 million for the purchase of 1.8 million shares of the Company’s common stock issued at a price of $0.55 per share, less $0.1 million in legal and stock exchange issuance costs; |
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| | $1.1 million in refunds of previous VAT payments made in Argentina during 2012 and 2013;Peñoles;
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| · | | $0.81.9 million of net proceeds from final payments related to the sale of excess mining equipment to Minera Indéour common stock in a registered direct offering (as described above); |
| · | | $0.71.3 million received as a deposit, net of net proceeds received fromrepayments, related to the issuanceproposed sale of our common stock under the ATM Program;Velardeña Properties and other mineral concessions to Autlán (as described above); |
| · | | $0.50.6 million, net of commitment fees and other offering related costs, from the farm out of certain nonstrategic mineral claims to Santacruz;LPC Program (as described above); |
| · | | $0.20.1 million of net proceeds from the sale of other nonstrategic exploration propertiesmiscellaneous assets and $0.1 million from the sale of an investment in a junior mining equipment.company; and |
| · | | $0.4 million from a decrease in working capital related primarily to an increase in accrued liabilities for value added taxes collected from the sale of mineral claims to Peñoles, as described above (these value added taxes were required to be remitted to the Mexican government in January 2020). |
In addition to our $3.3the $4.6 million cash balance at December 31, 2017, during 20182019, in October 2019 we entered into an option to purchase agreement for the sale of our interest in the Santa Maria property, and we expect to receive an initial cash payment of $1.0 million in connection with the transaction by the end of the first quarter 2020. We also expect to receive approximately $4.6$3.3 million in net operating margin from the lease of the oxide plant and $0.7 million from Santacruz related toduring the Zacatecas farm out.next twelve-month period ending December 31, 2020. In addition, subsequent to December 31, 20172019 we received $1.0approximately $0.4 million in net proceeds from an amendment to
the farm out agreementsale of the Celaya property to Electrum. If no additional sales ofour common stock under the LPC Program and the ATM Program occur, we project we would end 2018 with a cash balance of $1.5 million based onduring the followingyear to date period ended February 25, 2020. Our forecasted expenditures during 2018.the twelve months ending December 31, 2020 are as follows: | · | | Approximately $2.0$3.0 million on exploration activities and property holding costs related to our portfolio of exploration properties located primarily in Mexico, including project assessment and evaluation costs relating to Santa Maria,Sand Canyon, Yoquivo and other properties; |
| · | | Approximately $1.5$1.3 million related to repayment of the remaining Autlán deposit; |
| · | | Approximately $1.8 million at the Velardeña Properties for care and maintenance; |
| · | | Approximately $1.0$0.8 million at the El Quevar project to fund ongoing exploration and evaluation activities, care and maintenance and property holding costs; |
| · | | Approximately $3.4$0.3 million related to the payment of income taxes due in Canada; |
| · | | Approximately $3.2 million on general and administrative costs; and |
| · | | Approximately $0.2 on other$0.5 million related to an increase in working capital.capital related to a decrease in accrued liabilities. |
Our forecasted expenditures of $10.9 million are greater than the cash resources of $9.3 million, noted above, that are projected to be available during the period. Therefore, through December 31, 2020, we will take appropriate actions, which may include sales of certain of our exploration assets, reductions to our currently budgeted level of spending, and/or raising additional equity capital through sales under the ATM Program, the LPC Program or otherwise. The actual amount of cash that we receive or the expenditures that we incur during 2018 and the projected cash balances attwelve-month period ending December 31, 20182020 may vary significantly from the amounts specified above and will depend on a number of factors including variations from anticipated care and maintenance costs at the Velardeña Properties and costs for continued exploration, project assessment, and development at our other exploration properties, including Santa Maria,Sand Canyon, Yoquivo, Rodeo and El Quevar. Moreover, if revenuesLikewise, although we believe it is probable that we will receive the sources of cash described above, the actual amount of cash receipts that we receive during the period may vary significantly from ourthe amounts specified above due to, among other things, a decrease in the quantity of material processed under the oxide plant lease, an unexpected early termination of the oxide plant lease by the lessee, or payments from the exploration farm out agreementelection by the purchaser of the Santa Maria property to terminate the proposed acquisition prior to payment of the initial $1.0 million portion of the purchase price. If cash expenditures are greater than anticipated or if cash receipts are less than anticipated, we would need to take more aggressive actions to maintain sufficient cash balances over the next twelve months, which may reduceinclude sales of certain of our planned expenditures accordingly.exploration assets, reductions to our currently budgeted level of spending, and/or raising additional equity capital through sales under the ATM Program, the LPC Program or otherwise. The consolidated financial statements have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the normal course of business. However, our continuing long-term operations are dependent upon our ability to secure sufficient funding and to generate future profitable operations.operations The underlying value and recoverability of the amounts shown as property, plant and equipment in our consolidated financial statements are dependent on our ability to generate positive cash flows from operations and to continue to fund exploration and development activities that would lead to profitable mining activities or to generate proceeds from the disposition of property, plant and equipment. There can be no assurance that we will be successful in generating future profitable operations or securing additional funding in the future on terms acceptable to us or at all. There can be no assurance that we will be successful in generating future profitable operations or securing additional funding in the future on terms acceptable to us or at all. We believe the continuing cash flow from the lease of the oxide plant, use of the ATM Program and priorthe LPC Program, and the potential for additional asset dispositions make it probable that we will have sufficient cash to meet our financial obligations and continue our business strategy beyond one year from the filing of our consolidated financial statements for the period ended December 31, 2017. 2019. Critical Accounting Policies and Estimates The selection and application of accounting policies is an important process that has developed as our business activities have evolved and as the accounting rules have changed. Accounting rules generally do not involve a selection among alternatives, but involve an implementation and interpretation of existing rules, and the use of judgment, to the specific set of circumstances existing in our business. Discussed below are the accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being reported. Mineral Reserves When and if we determine that a mineral property has proven and probable reserves, subsequent development costs are capitalized to mineral properties. When mineral properties are developed and operations commence, capitalized costs are charged to operations using the units-of-production method over proven and probable reserves. “Mineralized material” as used in this annual report, although permissible under SEC’s Industry Guide 7, does not indicate “reserves” by SEC standards, and therefore all development costs incurred by us are expensed when incurred. The CompanyWe cannot be certain that any part of the deposits at the Velardeña Properties or the Yaxtché deposit at the El Quevar project will ever be confirmed or converted into SEC Industry Guide 7 compliant “reserves”. Asset Retirement Obligations We record asset retirement obligations in accordance with Auditing Standards Codification (“ASC”) 410, “Asset Retirement and Environmental Obligations” (“ASC 410”), which establishes a uniform methodology for accounting for estimated reclamation and abandonment costs. According to ASC 410, the fair value of a liability for an asset retirement obligation (“ARO”) is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. An offsetting asset retirement cost is capitalized as part of the carrying value of the assets with which it is associated, and depreciated over the useful life of the asset. Long Lived Assets Long lived assets are recorded at cost and per the guidance of ASC 360 the Company assesseswe assess the recoverability of itsour long lived assets, including goodwill, whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If the sum of estimated future net cash flows on an undiscounted basis is less than the carrying amount of the related asset, impairment is considered to exist. The related impairment loss is measured by comparing estimated future net cash flows on a discounted basis or by comparing other market indicators to the carrying amount of the asset. Table of Contractual ObligationsObligation The following table summarizes our contractual obligations at December 31, 2017:2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | More | | | | | | | | | | | More | | | | | | Less Than | | 1 - 3 | | 3 - 5 | | Than | | | | | Less Than | | 1 - 3 | | 3 - 5 | | Than | | Contractual Obligations | | Total | | 1 Year | | Years | | Years | | 5 Years | | | Total | | 1 Year | | Years | | Years | | 5 Years | | | | (in thousands of $) | | | (in thousands of $) | | Operating leases(1) | | 567 | | 293 | | 274 | | — | | — | | | 755 | | 161 | | 324 | | 261 | | 9 | | El Quevar and Velardeña concession payments(2) | | 940 | | 188 | | 376 | | 376 | | — | (3) | | 265 | | 53 | | 106 | | 106 | | — | (3) |
| (1) | | The operating lease obligations are related to our corporate headquarters office in Golden, Colorado, which expires November 30, 2019,January 31, 2025, as well as another office lease associated with our Velardeña Properties.Properties and El Quevar project. |
| (2) | | In 20182020 and subsequent years, we expect to make annual maintenance payments of approximately $70,000$23,000 to the Mexico federal government to maintain the Velardeña Properties concessions and $25,000$60,000 to maintain related surface rights under a contract with the local community ejido. In 20182020 and subsequent years, we expect to pay approximately $93,000$30,000 per year to the Argentina federal government in order to maintain our El Quevar concessions. |
| (3) | | We cannot currently estimate the life of the Velardeña Properties or the El Quevar project. This table assumes that no annual maintenance payments will be made more than five years after December 31, 2017.2019. If we continue to hold the Velardeña Properties concessions beyond five years, we expect that we would make annual maintenance payments of approximately $70,000$23,000 per year for the life of the Velardeña Properties concessions. If we continue to hold the El Quevar concessions beyond five years, we expect that we would make annual maintenance payments of approximately $93,000$30,000 per year for the life of the El Quevar concessions. |
From time to time we enter into lease or option agreements related to exploration properties that are of interest to us. These agreements typically contain escalating payments required to maintain our exploration rights to the property. Such agreements are not included in the above table because exploration success is historically low and we have the right to terminate the agreements at any time. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk We invest substantially all of our excess cash with high credit-quality financial institutions or in U.S. government and debt securities rated “investment grade” or better. The rates received on such investments may fluctuate with changes in economic conditions. Based on the average cash, restricted cash, investments and restricted investment balances outstanding during the year ended December 31, 2017,2019, a 1.0% decrease in interest rates would have resulted in a reduction in interest income for the period of less than approximately $0.1 million. Foreign Currency Exchange Risk Although most of our expenditures are in U.S. dollars, certain purchases of labor, supplies and capital assets are denominated in other currencies. As a result, currency exchange fluctuations may impact the costs of our mining and exploration activities. To reduce this risk, we maintain minimum cash balances in foreign currencies and complete most of our purchases in U.S. dollars. Commodity Price Risk We are primarily engaged in the exploration and mining of properties containing silver, gold, zinc, lead and other minerals. As a result, decreases in the price of any of these metals have the potential to negatively impact our ability to establish reserves and mine on our properties. For further detail regarding the effect on our expected cash flow from fluctuations in silver and gold prices, see “Item 7: Management’s Discussion and Analysis—Liquidity and Capital Resources” above. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and supplementary information filed as part of this Item 8 are listed under Part IV, Item 15, “Exhibits, Financial Statement Schedules” and contained in this annual report on Form 10-K at page F-1. ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A: CONTROLS AND PROCEDURES Disclosure Controls and Procedures TheOur management of Golden Minerals Company has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of December 31, 2017.2019.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2017,2019, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective and designed to provide reasonable assurance that (i) information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. The management of Golden Minerals, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of our controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2017.2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on our assessment, management has concluded that, as of December 31, 2017,2019, our internal control over financial reporting is effective based on these criteria. Changes in Internal Control over Financial Reporting ThereDue to the adoption of ASU 2016-02 and ASU 2018-11, we have modified our internal control over financial reporting to include procedures to ensure the appropriate accounting treatment for our operating leases. Other than with respect to the accounting for our operating leases, there have been no changes in the Company’sour internal control over financial reporting that occurred during the year ended December 31, 2017period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.reporting..
ITEM 9B: OTHER INFORMATION None. PART III ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE For Information regarding our executive officers, see “Items 1 and 2: Business and Properties—Executive Officers of Golden Minerals” and “Items 1 and 2: Business and Properties—Board of Directors of Golden Minerals.” Additional information is incorporated by reference from the information in our proxy statement for the 20182020 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this report relates. We have adopted a code of ethics that applies to all of our employees, including the principal executive officer, principal financial officer, principal accounting officer, and those of our officers performing similar functions. The full text of our code of ethics can be found on the Corporate Governance page on our website. In the event our Board of Directors approves an amendment to or waiver from any provision of our code of ethics, we will disclose the required information pertaining to such amendment or waiver on our website. ITEM 11: EXECUTIVE COMPENSATION Incorporated by reference from the information in our proxy statement for the 20182020 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this report relates. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Incorporated by reference from the information in our proxy statement for the 20182020 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this report relates. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Incorporated by reference from the information in our proxy statement for the 20182020 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this report relates. ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES Incorporated by reference from the information in our proxy statement for the 20182020 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this report relates. PART IV ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES | a. | | Documents filed as part of this annual report on Form 10-K or incorporated by reference: |
| (1) | | Our consolidated financial statements are listed on the “Index to Financial Statements” on Page F-1 to this report. |
| (2) | | Financial Statement Schedules (omitted because they are either not required, are not applicable, or the required information is disclosed in the notes to the financial statements or related notes). |
| (3) | | The following exhibits are filed with this annual report on Form 10-K or incorporated by reference. |
ITEM 16: PREPARATION OF STATEMENT OR REPORT Not applicable EXHIBITS | | | Exhibit
Number | | Description | | | | | 3.1 | | Amended and Restated Certificate of Incorporation of Golden Minerals Company.(2) | | | | | 3.2 | | First Amendment to the Amended and Restated Certificate of Incorporation of Golden Minerals Company.(3) | | | | | 3.3 | | Second Amendment to the Amended and Restated Certificate of Incorporation of Golden Minerals Company. (17)(15) | | | | | 3.4 | | Bylaws of Golden Minerals Company.(2) | | | | | 4.1 | | Specimen of Common Stock Certificate.(4) | | | | | 4.2 | | Warrant Agreement by and between Golden Minerals Company and Computershare Trust Company N.A. dated as of September 19, 2012, as amended by Amendment No. 1 dated as of March 7, 2014, as further amended by Amendment No. 2, dated as of May 2,6, 2016.(1) (16) (14) | | | | | 4.3 | | Warrant by and between Golden Minerals Company and Sentient Global Resources Fund IV, L.P. dated asForm of September 19, 2012.(1)Series A Warrant. (25)
| | | | | 4.4 | | Warrant Agreement by and between Golden Minerals Company and Computershare Trust Company N.A. dated asForm of September 10, 2014 (Public Offering). (11)Series B Warrant. (25)
| | | | | 4.5 | | Warrant Agreement by and between Golden Minerals Company and Computershare Trust Company N.A. dated asDescription of September 10, 2014 (Sentient Private Placement), as amended by Amendment No. 1 dated as of May 2, 2016. (12) (16)Registrant’s Securities
| | | | 4.6 | | Warrant Agreement by and between Golden Minerals Company and Computershare Trust Company N.A., dated as of May 6, 2016. (16) *
| | | | | 10.1 | | Form of Indemnification Agreement.(2) | | | | | 10.2 | | Form of Change of Control Agreement.(2) | | | | | 10.3 | | Amendment No. 1 to Change of Control Agreement.(5) | | | | | 10.4 | | Golden Minerals Company Amended and Restated 2009 Equity Incentive Plan.(6) |
| 10.8 | | Registration Rights Agreement by and among Golden Minerals Company, Sentient Global Resources Fund III, L.P., SGRF III Parallel I, L.P. and Sentient Global Resources Fund IV, L.P. dated as of October 7, 2011.(9) | | | | | 10.9 | | Registration Rights Agreement between Golden Minerals Company and Sentient Global Resources Fund IV, L.P. dated as of September 19, 2012.(1) | | | | | 10.10 | | Subscription Agreement between Golden Minerals Company and Sentient Global Resources Fund IV, L.P. dated as of September 10, 2014.(12)
| | | | 10.11 | | Registration Rights Agreement between Golden Minerals Company and Sentient Global Resources Fund IV, L.P. dated as of September 10, 2014.(11) | | | | 10.1210.11 | | Golden Minerals Company 2013 Key Employee Long-Term Incentive Plan.(10) | | | | 10.1310.12 | | Master Agreement and Lease Agreement, dated as of July 1, 2015, by and between Minera William S.A de C.V. and Minera Hecla, S.A. de C.V., as amended by the (12) | | | | | 10.13 | | First Amendment to Master Agreement and Lease Agreement by and between Minera William S.A de C.V. and Minera Hecla, S.A. de C.V., dated as of July 1, 2016 as further amended by the Second Amendment to the Master Agreement and Lease Agreement, dated as of August 2, 2017. (13) (21) (23)(18) | | | | | 10.14 | | Contract of Mining ExplorationSecond Amendment to the Master Agreement and Exploitation, dated as of November 13, 2015,Lease Agreement by and between Minera William S.A.S.A de C.V. and Minera Fumarola,Hecla, S.A. de C.V, a wholly owned subsidiaryC.V., dated as of Prospero Silver Corp. (14)August 2, 2017 (20)
| | | | | 10.15 | | Registration RightsThird Amendment to the Master Agreement and Lease Agreement by and between Golden Minerals CompanyMinera William S.A de C.V. and Sentient Global Resources Fund IV, L.P.Minera Hecla, S.A. de C.V., dated as of February 11, 2016.(15)December 2, 2019 (23)
| | | | | 10.16 | | Form of Securities PurchaseFourth Amendment to the Master Agreement and Lease Agreement by and between Golden Minerals CompanyMinera William S.A de C.V. and certain institutional investors,Minera Hecla, S.A. de C.V., dated as of MayJanuary 31, 2020 and effective as of December 2, 2016. (16)2019 *
| | | | | 10.17 | | Registration Rights Agreement between Golden Minerals Company and Sentient Global Resources Fund IV, L.P. dated as of June 10,February 11, 2016. (18)(13) | | | | | 10.18 | | Assignment ofRegistration Rights Agreement between Minera William, S.A. de C.V.Golden Minerals Company and Golden Tag de Mexico, S.A. de C.V.Sentient Global Resources Fund IV, L.P. dated as of August 2,June 10, 2016. (19)(16)
| | | |
| 10.19 | | Form of Unit Agreement Pursuant to the 2013 Key Employee Long-Term Incentive Plan. (20)(17) | | | | | 10.20 | | At the Market Offering Agreement, dated as of December 20, 2016, between Golden Minerals Company and H.C. Wainwright & Co., LLC. (22)LLC, as amended by the Amendment dated November 23, 2018. (19) (21) | | | | | 10.21 | | OptionPurchase Agreement, dated as of August 2, 2017,May 9, 2018 between Golden Minerals Company and Hecla Mining Company. (23)Lincoln Park Capital Fund, LLC (Registered Purchase Agreement). (22)
| | | |
| 10.22 | | Purchase Agreement, dated as of May 9, 2018 between Golden Minerals Company and Lincoln Park Capital Fund, LLC (Commitment Purchase Agreement). (22) | | | | | 10.23 | | Registration Rights Agreement, dated as of May 9, 2018 between Golden Minerals Company and Lincoln Park Capital Fund, LLC. (22) | | | | | 10.24 | | Purchase and Sale Agreement dated as of June 26, 2019 by and between Golden Minerals Company, Minera de Cordilleras S. de R.L. de C.V. and Compañía Minera Autlán S.A.B. de C.V. (24) | | | | | 10.25 | | Form of Securities Purchase Agreement between Golden Minerals Company and certain institutional investors, dated as of July 17, 2019. (25) | | | | | 21.1 | | Subsidiaries of the Company.* | | | | | 23.1 | | Consent of EKS&H LLLP.Plante Moran PLLC.* | | | | | 23.2 | | Consent of Tetra Tech.* | | | | | 23.3 | | Consent of Wood Group PLC * | | | | | 31.1 | | Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002).* | | | | | 31.2 | | Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002).* | | | | | 32.1 | | Certificate of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).** | | | | 101.INS | | XBRL Instance Document* | | | | 101.SCH | | XBRL Taxonomy Extension Schema Document* | | | | 101.CAL | | XBRL Taxonomy Calculation Linkbase Document* | | | | 101.DEF | | XBRL Taxonomy Definition Document* | | | | 101.LAB | | XBRL Taxonomy Label Linkbase Document* | | | | 101.PRE | | XBRL Taxonomy Presentation Linkbase Document* |
| (1) | | Incorporated by reference to our Current Report on Form 8-K filed September 19, 2012. |
| (2) | | Incorporated by reference to our Current Report on Form 8-K filed March 30, 2009. |
| (3) | | Incorporated by reference to our Current Report on Form 8-K filed September 9, 2011. |
| (4) | | Incorporated by reference to our Form S-1/A Registration Statement filed November 16, 2009. |
| (5) | | Incorporated by reference to our Current Report on Form 8-K filed May 28, 2013. |
| (6) | | Incorporated by reference to our Quarterly Report on Form 10-Q filed August 6, 2014. |
| (7) | | Incorporated by reference to our Quarterly Report on Form 10-Q filed August 10, 2009. |
| (8) | | Incorporated by reference to our Quarterly Report on Form 10-Q filed May 4, 2010. |
| (9) | | Incorporated by reference to our Current Report on Form 8-K filed October 11, 2011. |
| (10) | | Incorporated by reference to our Current Report on Form 8-K filed December 18, 2013. |
| (11) | | Incorporated by reference to our Current Report on Form 8-K filed September 10, 2014. |
| (12) | | Incorporated by reference to our QuarterlyCurrent Report on Form 10-Q8-K filed November 6, 2014.July 20, 2015.. |
| (13) | | Incorporated by reference to our Current Report on Form 8-K filed July 20, 2015.
|
| (14)
| | Incorporated by reference to our Current Report on Form 8-K filed on November 18, 2015.
|
| (15)
| | Incorporated by reference to our Current Report on Form 8-K filed on February 18, 2016. |
| (16)(14)
| | Incorporated by reference to our Current Report on Form 8-K filed on May 6, 2016. |
| (17)(15)
| | Incorporated by reference to our Current Report on Form 8-K filed on May 20, 2016. |
| (18)(16)
| | Incorporated by reference to our Current Report on Form 8-K filed on June 14, 2016. |
| (19)
| | Incorporated by reference to our Current Report on Form 8-K filed on August 5, 2016.
|
| (20)(17)
| | Incorporated by reference to our Quarterly Report on Form 10-Q filed August 11, 2016. |
| (21)(18)
| | Incorporated by reference to our Quarterly Report on Form 10-Q filed on November 3, 2016. |
| (22)(19)
| | Incorporated by reference to our Current Report on Form 8-K filed on December 20, 2016. |
| (23)(20)
| | Incorporated by reference to our Current Report on Form 8-K filed on August 3, 2017.2017 |
| (21) | | Incorporated by reference to our Current Report on Form 8-K filed on November 23, 2018. |
| (22) | | Incorporated by reference to our Current Report on Form 8-K filed on May 9, 2018. |
| (23) | | Incorporated by reference to our Current Report on Form 8-K filed on December 6, 2019. |
| (24) | | Incorporated by reference to our Quarterly Report on Form 10-Q filed on August 7, 2019. |
| (25) | | Incorporated by reference to our Current Report on Form 8-K filed on July 19, 2019. |
* Filed herewith. ** Furnished herewith. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | Dated: March 1, 2018February 27, 2020 | GOLDEN MINERALS COMPANY | | Registrant | | | | By: | /s/ WARREN M. REHN | | | Warren M. Rehn | | | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | | | | | Signature | | Title | | Date | | | | | | /s/ WARREN M. REHN | | President and Chief Executive Officer | | March 1, 2018February 27, 2020
| Warren M. Rehn | | (Principal Executive Officer) | | | | | | | | /s/ ROBERT P. VOGELS | | Senior Vice President and Chief Financial Officer | | March 1, 2018February 27, 2020
| Robert P. Vogels | | (Principal Financial and Accounting Officer) | | | | | | | | /s/ JEFFREY G. CLEVENGER | | Chairman of the Board of Directors | | March 1, 2018February 27, 2020
| Jeffrey G. Clevenger | | | | | | | | | | /s/ W. DURAND EPPLER | | Director | | March 1, 2018February 27, 2020
| W. Durand Eppler | | | | | | | | | | /s/ IAN MASTERTON-HUME
| | Director
| | March 1, 2018
| Ian Masterton-Hume
| | | | | | | | | | /s/ KEVIN R. MORANO | | Director | | March 1, 2018February 27, 2020
| Kevin R. Morano | | | | | | | | | | /s/ TERRY M. PALMER | | Director | | March 1, 2018February 27, 2020
| Terry M. Palmer | | | | | | | | | | /s/ ANDREW N. PULLAR | | Director | | March 1, 2018February 27, 2020
| Andrew N. Pullar | | | | | | | | | | /s/ DAVID H. WATKINS | | Director | | March 1, 2018February 27, 2020
| David H. Watkins | | | | |
GOLDEN MINERALS COMPANY FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm To the ShareholdersStockholders and Board of Directors Golden Minerals Company Golden, Colorado
Opinion on the Financial Statements OPINION ON THE CONSOLIDATED FINANCIAL STATEMENTS
We have audited the accompanying consolidated balance sheets of Golden Minerals Company and subsidiaries (the "Company"“Company”) as of December 31, 20172019 and 2016, and2018, the related consolidated statements of operations, and comprehensive loss, changes in equity, and cash flows for each yearof the years in the two‑yeartwo-year period ended December 31, 2017,2019, and the related notes (collectively referred to as the "financial statements"“financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each yearof the years in the two‑yeartwo-year period ended December 31, 2017,2019, in conformity with accounting principles generally accepted in the United States of America. BASIS FOR OPINION
TheseAdoption of New Accounting Standards
As discussed in Note 5 to the consolidated financial statements, are the responsibilityCompany has changed its method for accounting for leases in 2019 due to the adoption of the new lease standard. The Company adopted the new lease standard using a modified retrospective approach. Basis for Opinion The Company's management.management is responsible for these financial statements. Our responsibility is to express an opinion on the Company'sCompany’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB"(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. | | | | | /s/ EKS&H LLLP
| | | | March 1, 2018
| | | Denver, Colorado
/s/ Plante & Moran, PLLC We have served as the Company’s auditor since 2013. | | |
Denver, Colorado February 27, 2020 GOLDEN MINERALS COMPANY CONSOLIDATED BALANCE SHEETS (Expressed in United States dollars) | | | | | | | | | | December 31, | | December 31, | | | | 2017 | | 2016 | | | | (in thousands, except share data) | | Assets | | | | | | | | Current assets | | | | | | | | Cash and cash equivalents (Note 4) | | $ | 3,250 | | $ | 2,588 | | Short-term investments (Note 4) | | | 238 | | | 334 | | Lease receivables | | | 314 | | | 380 | | Inventories, net (Note 6) | | | 242 | | | 245 | | Value added tax receivable, net (Note 7) | | | 148 | | | 5 | | Related party receivable (Note 23) | | | — | | | 643 | | Prepaid expenses and other assets (Note 5) | | | 745 | | | 578 | | Total current assets | | | 4,937 | | | 4,773 | | Property, plant and equipment, net (Note 8) | | | 8,140 | | | 9,235 | | Total assets | | $ | 13,077 | | $ | 14,008 | | | | | | | | | | Liabilities and Equity | | | | | | | | Current liabilities | | | | | | | | Accounts payable and other accrued liabilities (Note 9) | | $ | 1,556 | | $ | 1,224 | | Deferred revenue, current (Note 16) | | | 293 | | | — | | Other current liabilities | | | 9 | | | 24 | | Total current liabilities | | | 1,858 | | | 1,248 | | Asset retirement and reclamation liabilities (Note 11) | | | 2,495 | | | 2,434 | | Deferred revenue, non-current (Note 16) | | | 600 | | | — | | Warrant liability - related party (Note 13) | | | — | | | 976 | | Warrant liability (Note 13) | | | — | | | 922 | | Other long term liabilities | | | 43 | | | 66 | | Total liabilities | | | 4,996 | | | 5,646 | | | | | | | | | | Commitments and contingencies (Note 20) | | | | | | | | | | | | | | | | Equity (Note 15) | | | | | | | | Common stock, $.01 par value, 200,000,000 shares authorized; 91,929,709 and 89,020,041 shares issued and outstanding, respectively | | | 919 | | | 889 | | Additional paid in capital | | | 516,284 | | | 495,455 | | Accumulated deficit | | | (509,082) | | | (488,037) | | Accumulated other comprehensive (loss) income | | | (40) | | | 55 | | Shareholders' equity | | | 8,081 | | | 8,362 | | Total liabilities and equity | | $ | 13,077 | | $ | 14,008 | |
| | | | | | | | | | December 31, | | December 31, | | | | 2019 | | 2018 | | | | (in thousands, except share data) | | Assets | | | | | | | | Current assets | | | | | | | | Cash and cash equivalents (Note 6) | | $ | 4,593 | | $ | 3,293 | | Short-term investments (Note 6) | | | — | | | 330 | | Lease receivables | | | 448 | | | 481 | | Inventories, net (Note 8) | | | 231 | | | 229 | | Derivative at fair value (Note 9) | | | 254 | | | — | | Prepaid expenses and other assets (Note 7) | | | 669 | | | 633 | | Total current assets | | | 6,195 | | | 4,966 | | Property, plant and equipment, net (Note 10) | | | 6,031 | | | 7,109 | | Other long term assets (Note 11) | | | 1,131 | | | 569 | | Total assets | | $ | 13,357 | | $ | 12,644 | | | | | | | | | | Liabilities and Equity | | | | | | | | Current liabilities | | | | | | | | Accounts payable and other accrued liabilities (Note 12) | | $ | 2,127 | | $ | 1,969 | | Deferred revenue, current (Note 18) | | | 472 | | | 293 | | Other current liabilities (Note 14) | | | 1,824 | | | 12 | | Total current liabilities | | | 4,423 | | | 2,274 | | Asset retirement and reclamation liabilities (Note 13) | | | 2,839 | | | 2,683 | | Deferred revenue, non-current (Note 18) | | | — | | | 307 | | Other long term liabilities (Note 14) | | | 494 | | | 10 | | Total liabilities | | | 7,756 | | | 5,274 | | | | | | | | | | Commitments and contingencies (Note 21) | | | | | | | | | | | | | | | | Equity (Note 17) | | | | | | | | Common stock, $.01 par value, 200,000,000 shares authorized; 106,734,279 and 95,620,796 shares issued and outstanding respectively | | | 1,067 | | | 955 | | Additional paid in capital | | | 521,314 | | | 517,806 | | Accumulated deficit | | | (516,780) | | | (511,391) | | Shareholders' equity | | | 5,601 | | | 7,370 | | Total liabilities and equity | | $ | 13,357 | | $ | 12,644 | |
The accompanying notes form an integral part of these consolidated financial statements. GOLDEN MINERALS COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Expressed in United States dollars) | | | | | | | | | | | | | | | | Year Ended | | | | | | December 31, | | | The Year Ended December 31, | | | 2017 | | 2016 | | | 2019 | | 2018 | | | (in thousands, except per share data) | | | (in thousands except per share data) | Revenue: | | | | | | | | | | | | | | Oxide plant lease (Note 16) | | $ | 6,691 | | $ | 6,400 | | | Oxide plant lease (Note 18) | | | $ | 7,730 | | $ | 7,217 | Total revenue | | | 6,691 | | | 6,400 | | | | 7,730 | | | 7,217 | Costs and expenses: | | | | | | | | | | | | | | Oxide plant lease costs (Note 16) | | | (2,189) | | | (2,046) | | | Oxide plant lease costs (Note 18) | | | | (2,377) | | | (2,289) | Exploration expense | | | (3,091) | | | (3,718) | | | | (4,109) | | | (3,909) | El Quevar project expense | | | (822) | | | (508) | | | | (2,011) | | | (1,266) | Velardeña shutdown and care and maintenance costs | | | (1,589) | | | (2,016) | | | Velardeña care and maintenance costs | | | | (1,797) | | | (1,889) | Administrative expense | | | (3,512) | | | (3,890) | | | | (3,614) | | | (3,355) | Stock based compensation | | | (296) | | | (593) | | | | (782) | | | (226) | Reclamation expense | | | (196) | | | (192) | | | | (228) | | | (210) | Other operating income, net (Notes 7 and 8) | | | 2,093 | | | 1,790 | | | Other operating income, net (Note 10) | | | | 3,238 | | | 5,138 | Depreciation and amortization | | | (952) | | | (1,548) | | | | (1,098) | | | (1,171) | Total costs and expenses | | | (10,554) | | | (12,721) | | | | (12,778) | | | (9,177) | Loss from operations | | | (3,863) | | | (6,321) | | | Income (loss) from operations | | | | (5,048) | | | (1,960) | Other income and (expense): | | | | | | | | | | | | | | Interest expense (Note 10) | | | — | | | (515) | | | Interest and other income (Note 17) | | | 37 | | | 390 | | | Warrant derivative loss (Notes 3 and 18) | | | — | | | (1,688) | | | Derivative loss (Note 18) | | | — | | | (778) | | | Loss on debt extinguishment (Note 10) | | | — | | | (1,653) | | | Interest and other income (expense), net (Note 19) | | | | (201) | | | 112 | Other income | | | | — | | | — | Loss on foreign currency | | | (53) | | | (94) | | | | (102) | | | (84) | Total other income (expense) | | | (16) | | | (4,338) | | | Loss from operations before income taxes | | | (3,879) | | | (10,659) | | | Income tax expense | | | (13) | | | — | | | Total other income (loss) | | | | (303) | | | 28 | Income (loss) from operations before income taxes | | | | (5,351) | | | (1,932) | Income taxes (Note 16) | | | | (35) | | | (13) | Net loss | | $ | (3,892) | | $ | (10,659) | | | $ | (5,386) | | $ | (1,945) | Comprehensive loss, net of tax: | | | | | | | | | Unrealized (loss) gain on securities | | | (95) | | | 182 | | | Comprehensive loss | | $ | (3,987) | | $ | (10,477) | | | Net loss per common share — basic | | | | | | | | | | | | | | Loss | | $ | (0.04) | | $ | (0.13) | | | $ | (0.05) | | $ | (0.02) | Weighted average Common Stock outstanding - basic (1) | | | 90,468,606 | | | 81,651,896 | | | | 101,058,219 | | | 94,003,165 |
| (1) | | Potentially dilutive shares have not been included because to do so would be anti-dilutive |
The accompanying notes form an integral part of these consolidated financial statements. GOLDEN MINERALS COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Expressed in United States dollars) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | Additional | | | | | Other | | | | | | | Common Stock | | Paid-in | | Accumulated | | Comprehensive | | Total | | | | Shares | | Amount | | Capital | | Deficit | | Income (loss) | | Equity | | | | (in thousands except share data) | | Balance, December 31, 2015 | | 53,335,333 | | $ | 534 | | $ | 484,742 | | $ | (477,378) | | $ | (127) | | $ | 7,771 | | Stock compensation accrued and shares issued for vested stock awards | | 317,968 | | | 2 | | | 250 | | | — | | | — | | | 252 | | Shares issued on conversion of Sentient Note (Note 10) | | 27,366,740 | | | 273 | | | 6,944 | | | — | | | — | | | 7,217 | | Registered offering common stock, net and warrants (Note 15) | | 8,000,000 | | | 80 | | | 3,519 | | | — | | | — | | | 3,599 | | Unrealized gain on marketable equity securities, net of tax | | — | | | — | | | — | | | — | | | 182 | | | 182 | | Net loss | | — | | | — | | | — | | | (10,659) | | | — | | | (10,659) | | Balance, December 31, 2016 | | 89,020,041 | | $ | 889 | | $ | 495,455 | | $ | (488,037) | | $ | 55 | | $ | 8,362 | | Cumulative adjustment related to change in accounting principle (Note 3) | | — | | | — | | | 19,046 | | | (17,148) | | | — | | | 1,898 | | Adjusted balance at January 1, 2017 | | 89,020,041 | | $ | 889 | | $ | 514,501 | | $ | (505,185) | | $ | 55 | | $ | 10,260 | | Stock compensation accrued and shares issued for vested stock awards | | 200,000 | | | 1 | | | 196 | | | — | | | — | | | 197 | | Shares issued under the at-the-market offering agreement, net (Note 15) | | 1,024,392 | | | 10 | | | 671 | | | — | | | — | | | 681 | | Consideration shares sold to Hecla, net (Notes 15 and 16) | | 1,811,015 | | | 18 | | | 912 | | | — | | | — | | | 930 | | Cancellation of treasury shares (Note 15) | | (125,739) | | | 1 | | | (1) | | | — | | | — | | | — | | Deemed dividend on warrants (Note 3) | | — | | | — | | | 5 | | | (5) | | | — | | | — | | Unrealized loss on marketable equity securities, net of tax | | — | | | — | | | — | | | — | | | (95) | | | (95) | | Net loss | | — | | | — | | | — | | | (3,892) | | | — | | | (3,892) | | Balance, December 31, 2017 | | 91,929,709 | | $ | 919 | | $ | 516,284 | | $ | (509,082) | | $ | (40) | | $ | 8,081 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | Additional | | | | | Other | | | | | | | Common Stock | | Paid-in | | Accumulated | | Comprehensive | | Total | | | | Shares | | Amount | | Capital | | Deficit | | Income (loss) | | Equity | | | | (in thousands except share data) | | Balance, December 31, 2017 | | 91,929,709 | | $ | 919 | | $ | 516,284 | | $ | (509,082) | | $ | (40) | | $ | 8,081 | | Cumulative adjustment related to change in accounting principle (Note 5) | | — | | | — | | | — | | | (89) | | | 40 | | | (49) | | Adjustment related to correction of immaterial error (Note 3) | | — | | | — | | | — | | | (154) | | | — | | | (154) | | Adjusted balance at January 1, 2018 | | 91,929,709 | | $ | 919 | | $ | 516,284 | | $ | (509,325) | | $ | — | | $ | 7,878 | | Stock compensation accrued and shares issued for vested stock awards | | 537,279 | | | 4 | | | 312 | | | — | | | — | | | 316 | | Registered direct purchase agreement, net (Note 17) | | 3,153,808 | | | 32 | | | 1,202 | | | — | | | — | | | 1,234 | | Deemed dividend on warrants (Note 5) | | — | | | — | | | 8 | | | (8) | | | — | | | — | | Net loss | | — | | | — | | | — | | | (1,945) | | | — | | | (1,945) | | Balance, December 31, 2018 | | 95,620,796 | | $ | 955 | | $ | 517,806 | | $ | (511,278) | | $ | — | | $ | 7,483 | | Adjustment related to correction of immaterial error (Note 3) | | — | | | — | | | — | | | (113) | | | — | | | (113) | | Adjusted balance at January 1, 2019 | | 95,620,796 | | $ | 955 | | $ | 517,806 | | $ | (511,391) | | $ | — | | $ | 7,370 | | Stock compensation accrued and shares issued for vested stock awards (Note 17) | | 312,000 | | | 3 | | | 556 | | | — | | | — | | | 559 | | Modification of previously awarded KELTIP Units (Note 17) | | — | | | — | | | 583 | | | — | | | — | | | 583 | | Shares issued under the at-the-market offering agreement, net (Note 17) | | 33,995 | | | 1 | | | 11 | | | — | | | — | | | 12 | | Shares issued under the Lincoln Park commitment purchase agreement, net (Note 17) | | 2,113,642 | | | 21 | | | 507 | | | — | | | — | | | 528 | | Registered direct offering agreement, net (Note 17) | | 8,653,846 | | | 87 | | | 1,848 | | | — | | | — | | | 1,935 | | Deemed dividend on warrants (Note 5) | | — | | | — | | | 3 | | | (3) | | | — | | | — | | Net loss | | — | | | — | | | — | | | (5,386) | | | — | | | (5,386) | | Balance, December 31, 2019 | | 106,734,279 | | $ | 1,067 | | $ | 521,314 | | $ | (516,780) | | $ | — | | $ | 5,601 | |
The accompanying notes form an integral part of these consolidated financial statements. GOLDEN MINERALS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in United States dollars) | | | | | | | | | | | | | | | | | Year Ended | | | Year Ended | | | | December 31, | | | December 31, | | | | 2017 | | 2016 | | | 2019 | | 2018 | | | | (in thousands) | | | (in thousands) | | Cash flows from operating activities: | | | | | | | | | | | | | | | Net cash used in operating activities (Note 19) | | $ | (1,630) | | $ | (6,205) | | | Net cash used in operating activities (Note 20) | | | $ | (4,395) | | $ | (5,711) | | Cash flows from investing activities: | | | | | | | | | | | | | | | Proceeds from sale of assets | | | 762 | | | 1,167 | | | | 3,144 | | | 5,097 | | Proceeds from sale of trading securities | | | | 113 | | | — | | Acquisitions of property, plant and equipment | | | (81) | | | (50) | | | | (38) | | | (152) | | Net cash from investing activities | | $ | 681 | | $ | 1,117 | | | $ | 3,219 | | $ | 4,945 | | Cash flows from financing activities: | | | | | | | | | | | | | | | Proceeds from issuance of common stock, net of issuance costs | | | 1,611 | | | 3,599 | | | | 2,476 | | | 809 | | Net cash from financing activities | | $ | 1,611 | | $ | 3,599 | | | $ | 2,476 | | $ | 809 | | Net increase (decrease) in cash and cash equivalents | | | 662 | | | (1,489) | | | Net increase in cash and cash equivalents | | | | 1,300 | | | 43 | | Cash and cash equivalents, beginning of period | | | 2,588 | | | 4,077 | | | | 3,293 | | | 3,250 | | Cash and cash equivalents, end of period | | $ | 3,250 | | $ | 2,588 | | | $ | 4,593 | | $ | 3,293 | |
The accompanying notes form an integral part of these consolidated financial statements. Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States dollars) The Company is a mining company, holding a 100% interest in the El Quevar advanced exploration silver property in the province of Salta, Argentina, a100% interest in the Velardeña and Chicago precious metals mining properties and associated oxide and sulfide processing plants in the state of Durango, Mexico (the “Velardeña Properties”). , and a diversified portfolio of precious metals and other mineral exploration properties located primarily in or near historical precious metals producing regions of Mexico, Nevada and Argentina. The Velardeña Properties and the El Quevar advanced exploration property are the Company’s only material properties. During November 2015 the Company suspended mining and sulfide processing activities at its Velardeña Properties in order to conserve the asset until the Company is able to develop mining and processing plans that at then current prices for silver and gold indicate a sustainable positive operating margin (defined as revenues less costs of sales) or the Company is able to locate, acquire and develop alternative mineral sources that could be economically mined and transported to the Velardeña Properties for processing. The Company expectshas placed the mine and sulfide processing plant on care and maintenance to incurenable a re-start of either the mine or mill when mining and processing plans and metals prices support a cash positive outlook. The Company incurred approximately $0.4$1.7 million and $1.9 million in quarterly care and maintenance costs atfor the Velardeña Properties while miningyears ended December 31, 2019 and processing remain suspended. December 31, 2018, respectively. The Company has retained a core group of employees at the Velardeña Properties, most of whom have been assigned to operate and provide administrative support for the oxide plant, which is leased to a subsidiary of Hecla Mining Company (“Hecla”) and not affected by the shutdown. The retained employees also include an exploration group and an operations and administrative group to continue to advance the Company’s plans in Mexico, oversee corporate compliance activities, and to maintain and safeguard the longer-term value of the Velardeña Properties assets. The Velardeña oxide plant began processing material for Hecla in mid-December 2015, and the Company receivedrecorded net cash flowoperating margin under the lease of approximately $4.5 million and $4.4$5.3 million in 2017 and 2016 respectively. During2019. On March 24, 2017, Hecla exercised its right to extend the lease through December 31, 2018. On August 2, 2017, the Company granted Hecla an additional option to extend the lease for an additional period of up to two years ending no later than December 31, 2020 in exchange for a $1.0 million cash payment and the purchase of $1.0 million, or approximately 1.8 million shares, of the Company’s common stock, issued at par at a price of $0.55 per share, which was thebased on an undiscounted 30-day volume weighted average stock price at the time of sale (see Note 15)17). On October 1, 2018, Hecla exercised this option to extend the lease through December 31, 2020. On December 2, 2019, the Company entered into a third amendment to the lease agreement with Hecla reducing the per tonne charge from $22.00 to $11.00 under certain silver price and head grade limits as fully discussed in Note 18. The retained employeesthird amendment also include an exploration groupincreased the notice period required for Hecla to terminate the lease from 120 days to 150 days. On June 26, 2019, the Company entered into a Purchase and an operations and administrative groupSale Agreement (the “Agreement”) along with its indirectly wholly-owned subsidiary, Minera de Cordilleras S. de R.L. de C.V., to continuesell certain assets to advanceCompañía Minera Autlán S.A.B. de C.V. (“Autlán”) for $22.0 million. Upon execution of the Agreement, Autlán paid the Company a deposit of $1.5 million (see Note 14). Under the terms of the Agreement, Autlán had agreed to purchase three of the Company’s plans in Mexico, oversee corporate compliance activities, and to maintain and safeguard the longer term value ofMexican subsidiaries, which together hold the Velardeña Properties, assets.including the Velardeña and Chicago mines (which are currently on care and maintenance), two processing plants, mining equipment and other adjacent exploration properties. The sale would have also included the Velardeña oxide plant lease as well as the Rodeo and Santa Maria project concessions. Under the Agreement, Autlán had the right to terminate the Agreement at any time during a due diligence period.On September 11, 2019, the Company announced that Autlán exercised its right to terminate the Agreement. As a result of the termination of the Agreement, the Company was required to repay the $1.5 million deposit amount, plus interest at 3% per annum, within 90 days following termination (on or before December 8, 2019). In lieu of the Company not making the repayment by December 8, 2019, Autlán had the option to receive the Rodeo concessions, which they Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) declined, as full settlement of the deposit. As a result, the Company is now required to repay the deposit by making monthly payments equal to $257,000, commencing on December 9, 2019, until the deposit amount is repaid with interest at approximately 11% per annum. The $1.3 million deposit remaining to be paid at December 31, 2019 is recorded in “Other Current Liabilities” on the accompanying Condensed Consolidated Balance Sheets (see Note 14). The Company remains focused on evaluating and searching for mining opportunities in North America (including Mexico) with near term prospects of mining, and particularly for properties within reasonable haulage distances of our processing plants at the Velardeña Properties. The Company is also focused on advancing our El Quevar exploration property in Argentina and on advancing selected properties in our portfolio of approximately 12 properties, located primarily in Mexico. The Company is also reviewing strategic opportunities, focusing primarily on development or operating properties in North America, including Mexico. The Company is continuing its exploration efforts on selected properties in its portfolio of approximately 10 exploration properties located primarily in Mexico. The Company is also conducting evaluation activities at its El Quevar advanced exploration property in Argentina and remains open to finding a partner to contribute to the funding of further exploration. The Company is considered an exploration stage company under the criteria set forth by the SEC as the Company has not yet demonstrated the existence of proven or probable mineral reserves, as defined by SEC Industry Guide 7, at the Velardeña Properties, or any of the Company’s other properties. As a result, and in accordance with GAAP for exploration stage companies, all expenditures for exploration and evaluation of the Company’s properties are expensed as incurred. As such, the Company’s financial statements may not be comparable to the financial statements of mining companies that do have proven and probable mineral reserves. Such companies would typically capitalize certain development costs including infrastructure development and mining activities to access the ore. The capitalized costs would be amortized on a units-of-production basis as reserves are mined. The amortized costs are typically allocated to inventory and eventually to cost of sales as the inventories are sold. As the Company does not have proven and probable reserves, substantially all expenditures at the Company’s Velardeña Properties for mine construction activity, as well as costs associated with the mill facilities, and for items that do not have a readily identifiable market value apart from the mineralized material, have been expensed as incurred. Such costs are charged to cost of metals sold or project expense during the period depending on the nature of the costs. Certain of the costs may be reflected in inventories prior to the sale of the product. The term “mineralized material” as used herein, although permissible under SEC Industry Guide 7, does not indicate “reserves” by Table of Contents
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
SEC standards. The Company cannot be certain that any deposits at the Velardeña Properties or any other exploration property will ever be confirmed or converted into SEC Industry Guide 7 compliant “reserves”. 2. Liquidity 2.At December 31, 2019, the Company’s aggregate cash and cash equivalents totaled $4.6 million, compared to the $3.3 million in similar assets held at December 31, 2018. The December 31, 2019 balance is due in part to the following expenditures and cash inflows for the year ended December 31, 2019. Expenditures totaled $11.4 million from the following:
| · | | $4.0 million in exploration expenditures, including work at the Sand Canyon, Yoquivo, Santa Maria and other properties; |
| · | | $2.0 million in evaluation activities, care and maintenance and property holding costs at the El Quevar project; and |
| · | | $1.8 million in care and maintenance costs at the Velardeña Properties; and |
| · | | $3.6 million in general and administrative expenses. |
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) The foregoing expenditures were offset by cash inflows of $12.7 million from the following: | · | | $5.3 million of net operating margin received pursuant to the oxide plant lease (defined as oxide plant lease revenue less oxide plant lease costs); |
| · | | $3.0 million from the sale of certain nonstrategic mineral claims to Peñoles; |
| · | | $1.9 million of net proceeds from the sale of the Company’s common stock in a registered direct offering (as described in Note 17); |
| · | | $1.3 million received as a deposit, net of repayments, related to the proposed sale of the Velardeña Properties and other mineral concessions to Autlán (as described in Notes 1 and 14); |
| · | | $0.6 million, net of commitment fees and other offering related costs, from the LPC Program (as described in Note 17); |
| · | | $0.1 million from the sale of miscellaneous assets and $0.1 million from the sale of an investment in a junior mining company (as described in Note 6); and |
| · | | $0.4 million from a decrease in working capital primarily related to an increase in accrued liabilities for value added taxes collected from the sale of mineral claims to Peñoles (as described in Note 14; these value added taxes were required to be remitted to the Mexican government in January 2020). |
In addition to the $4.6 million cash balance at December 31, 2019, in October 2019 the Company entered into an option to purchase agreement for the sale of its interest in the Santa Maria property and expects to receive an initial cash payment of $1.0 million in connection with the transaction by the end of the first quarter 2020. The Company also expects to receive approximately $3.3 million in net operating margin from the lease of the oxide plant during the next twelve-month period ending December 31, 2020. In addition, subsequent to December 31, 2019 the Company received approximately $0.4 million from the sale of our common stock under the LPC Program and the ATM Program during the year to date period ended February 25, 2020. The Company’s forecasted expenditures during the twelve months ending December 31, 2020 are as follows: | · | | Approximately $3.0 million on exploration activities and property holding costs related to our portfolio of exploration properties located primarily in Mexico, including project assessment and evaluation costs relating to Sand Canyon, Yoquivo and other properties; |
| · | | Approximately $1.3 million related to repayment of the remaining Autlán deposit; |
| · | | Approximately $1.8 million at the Velardeña Properties for care and maintenance; |
| · | | Approximately $0.8 million at the El Quevar project to fund ongoing exploration and evaluation activities, care and maintenance and property holding costs; |
| · | | Approximately $0.3 million related to the payment of income taxes due in Canada; |
| · | | Approximately $3.2 million on general and administrative costs; and |
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) | · | | Approximately $0.5 million related to an increase in working capital related to a decrease in accrued liabilities. |
SummaryThe Company’s forecasted expenditures of $10.9 million are greater than the cash resources of $9.3 million, noted above, that are projected to be available during the period. Therefore, through December 31, 2020, the Company will take appropriate actions, which may include sales of certain of the Company’s exploration assets, reductions to the Company’s currently budgeted level of spending, and/or raising additional equity capital through sales under the ATM Program (as defined in Note 17 below), the LPC Program or otherwise.
The actual amount of cash expenditures that the Company incurs during the twelve-month period ending December 31, 2020 may vary significantly from the amounts specified above and will depend on a number of factors, including variations from anticipated care and maintenance costs at the Velardeña Properties and costs for continued exploration, project assessment, and development at the Company’s other exploration properties, including Sand Canyon, Yoquivo and El Quevar. Likewise, although the Company believes it is probable it will receive the sources of cash described above, the actual amount of cash receipts that the Company receives during the period may vary significantly from the amounts specified above due to, among other things, a decrease in the quantity of material processed under the oxide plant lease, an unexpected early termination of the oxide plant lease by the lessee, or the election by the purchaser of the Santa Maria property to terminate the proposed acquisition prior to payment of the initial $1.0 million portion of the purchase price. If cash expenditures are greater than anticipated or if cash receipts are less than anticipated, the Company would need to take more aggressive actions to maintain sufficient cash balances over the next twelve months, which may include sales of certain of the Company’s exploration assets, reductions to the Company’s currently budgeted level of spending, and/or raising additional equity capital through sales under the ATM Program, the LPC Program or otherwise. The consolidated financial statements have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the normal course of business. However, the continuing operations of the Company are dependent upon its ability to secure sufficient funding and to generate future profitable operations. The underlying value and recoverability of the amounts shown as property, plant and equipment in Note 10 are dependent on the ability of the Company to generate positive cash flows from operations and to continue to fund exploration and development activities that would lead to profitable mining activities or to generate proceeds from the disposition of property, plant and equipment. There can be no assurance that the Company will be successful in generating future profitable operations or securing additional funding in the future on terms acceptable to the Company or at all. The Company believes the continuing cash flow from the lease of the oxide plant, use of the ATM Program and the LPC Program, and the potential for additional asset dispositions make it probable that the Company will have sufficient cash to meet its financial obligations and continue its business strategy beyond one year from the filing of the Company’s consolidated financial statements for the period ended December 31, 2019. 3.Correction of Immaterial Error – Income Taxes In the third quarter 2019, the Company became aware that it had failed to timely file withholding tax returns and pay taxes that were due at the end of 2017 and 2018 relating to return of capital distributions made to the Company by one of the Company’s wholly-owned subsidiaries (see Note 16). The effect of correcting this error was to reduce beginning retained earnings by $154,000 and $113,000 at January 1, 2018 and January 1, 2019, respectively as reflected in the accompanying Condensed Consolidated Statements of Changes in Equity. Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) The Company evaluated the materiality of the error described above from a qualitative and quantitative perspective. Based on such evaluation, the Company concluded that the correction would not be material to any individual prior period, nor did it have an effect on the trend of financial results, taking into account the requirements of the SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). Accordingly, we are correcting the error for every effected period of the 2018 Consolidated Financial Statements included in this Form 10-K. 4.Summary of Significant Accounting Policies The Company’s consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to mineralized material and related future metals prices that are the basis for future cash flow estimates utilized in impairment calculations and units-of-productioncalculations; depreciation, depletion and amortization calculations; environmental reclamation and closure obligations; estimates of recoverable metals in stockpiles; valuation allowances for deferred tax assets and the fair value of financial instruments. The Company based its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ significantly from these estimates under different assumptions or conditions. The policies adopted, considered by management to be significant, are summarized as follows: a.Basis of consolidation All of the Company’s consolidated subsidiaries are 100% owned and as such the Company does not have a noncontrolling interest in any of its subsidiaries. All intercompany transactions and balances have been eliminated at consolidation. b.Translation of foreign currencies Substantially all expenditures and sales are made in U.S. dollars. Accordingly, the Company and its subsidiaries use the U.S. dollar as their functional and reporting currency. c.Cash and cash equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. d.Inventories Materials and supplies inventories are valued at the lower of average cost or net realizable value. Cost includes applicable taxes and freight. The Company routinely counts and evaluates its material and supplies to determine the existence of any obsolete stock that is subject to impairment. Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) e. Mining properties, exploration and development costs The Company expenses general prospecting costs and the costs of acquiring and exploring unevaluated mineral properties. When a mineral property is determined to have proven and probable reserves, subsequent development costs are capitalized to mineral properties. For acquired mineral properties with proven and probable reserves, the Company capitalizes acquisition costs and subsequent development costs. When mineral properties are developed and operations Table of Contents
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
commence, capitalized costs are charged to operations using the units-of-production method over proven and probable reserves. Upon abandonment or sale of a mineral property, all capitalized costs relating to the specific property are written off in the period abandoned or sold and a gain or loss is recognized in the accompanying Consolidated Statements of Operations and Comprehensive Loss. As discussed in Note 1, the Company is considered an exploration stage company under the criteria set forth by the SEC since it has not yet demonstrated the existence of proven or probable reserves at the Velardeña Properties, or any of the Company’s other properties. As such, during the periods prior to November 2016 when the Company expensessuspended mining and processing activities, the Company expensed costs as incurred related to any extraction of mineralized material at its Velardeña Properties. The Company established a cost basis for the mineralized material at the Velardeña Properties as a result of purchase accounting for the Company’s business combination transaction with ECU Silver Mining Inc. (“ECU”) in September 2011, the transaction pursuant to which the Company acquired the Velardeña Properties. Mineral properties acquired in the ECU merger were recorded at estimated fair market value based on valuations performed with the assistance of an independent appraisal firm and a minerals engineering company. Although the Company has not demonstrated the existence of proven and probable reserves, and the Company has not completed a pre-feasibility economic assessment, the Company had established the existence of mineralized material that was used in assigning value to mineral properties for purchase accounting purposes. The subsequent extraction of this mineralized material has provided a reasonable basis for the calculation of units-of-production depreciation for the cost basis in the mineral properties. On a quarterly basis the Company evaluates its exploration properties to determine if they meet the Company’s minimum requirements for continued evaluation. The rights to the properties that do not meet the minimum requirements are relinquished and the carrying values, if any, are written off and reflected in “Other operating income, net” on the accompanying Consolidated Statements of Operations and Comprehensive Loss. f.Property, plant and equipment and long lived asset impairment Buildings are depreciated using the straight–line method over the estimated useful lives of 30 to 40 years or the life of the mine whichever is shorter. Mining equipment and machinery, excluding the plant, are depreciated using the straight-line method over useful lives of three to eight years or the lease period, whichever is shorter. Mineral properties and the plant are depreciated using units of production based on estimated mineralized material. Other furniture and equipment are depreciated using the straight-line method over estimated useful lives of three to five years. As discussed above, the Company does not have any properties with proven or probable reserves including the Velardeña Properties.reserves. Property, plant and equipment are recorded at cost and per the guidance of ASC 360 the Company assesses the recoverability of its property, plant and equipment, including goodwill, whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If the sum of estimated future net cash flows on an undiscounted basis is less than the carrying amount of the related asset, impairment is considered to exist. The related impairment loss is measured by comparing estimated future net cash flows on a discounted basis or by comparing other market indicators to the carrying amount of the asset. The Company evaluated its remaining long lived assets at December 31, 20162019 and 2017,2018, and determined that no impairment was required. Table of Contents
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
g.Asset Retirement Obligations The Company records asset retirement obligations (“ARO”) in accordance with ASC 410, “Asset Retirement and Environmental Obligations” (“ASC 410”), which establishes a uniform methodology for accounting for estimated reclamation and abandonment costs. According to ASC 410, the fair value of an ARO is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. An offsetting asset retirement cost (“ARC”) is capitalized Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) as part of the carrying value of the assets with which it is associated, and depreciated over the useful life of the asset (see Note 11)13). The Company prepares estimates of the timing and amount of expected cash flows when an ARO is incurred. The fair value of the ARO is measured by discounting the expected cash flows using a discount rate that reflects the credit adjusted risk-free rate of interest. The Company records the fair value of an ARO when it is incurred and layer adjustments of the ARO are recorded as an adjustment to the corresponding ARC. The ARO is adjusted to reflect the passage of time (accretion cost) calculated by applying the discount rate implicit in the initial fair value measurement to the beginning-of-period carrying amount of the ARO. The Company records accretion costs to expense as incurred. h.Revenueh.Value Added Taxes
The Company pays value added tax (“VAT”) in Mexico as well as other countries, primarily related to exploration projects. The amounts are generally charged to expense as incurred because of the uncertainty of recoverability. i.Revenue Recognition The Company recognizes oxide plant lease fees and reimbursements for labor, utility and other costs as "Revenue"Revenue from Oxide plant lease"lease" in the Consolidated Statements of Operations and Comprehensive Loss following the guidance of Topic Leases 842 (“ASC 605 regarding "income statement characterization of reimbursements received for "out-of-pocket" expenses incurred" and "reporting revenue gross as a principal versus net as an agent"842”). ASC 605842 supports recording as gross revenue fees received for the reimbursement of expenses incurred directly by the Company in performing its obligations under the lease in situations where the recipient isentity has control over the primary obligor and has certain discretion in the incurrence of the reimbursable expense.specific goods or services transferred to a customer as a principal versus as an agent. The actual costs incurred for the reimbursed direct labor utility and otherutility costs are reported as “"Oxide plant lease costs"costs” in the Consolidated StatementStatements of Operations and Comprehensive Loss.Operations. The Company recognizes lease fees during the period asthe fees are earned per the terms of the lease (see Note 16)18). iStockjStock compensation
Stock based compensation costs are recognized per the guidance of ASC 718, “Compensation — Stock Compensation” (“ASC 718”), using a graded vesting attribution method whereby costs are recognized over the requisite service period for each separately vesting portion of the award (see Note 15)17). Stock grants are valued at their grant date at fair value which in the case of options requires the use of the Black-Scholes option pricing model. Per ASC 718 the grants may be classified as equity grants or liability grants depending on the terms of the grant. j.Netk.Leases
Effective January 1, 2019 the Company adopted ASU 2016-02 and ASU No. 2018-11, which requires lessees to recognize a right-of-use asset and a lease liability for all leases with terms greater than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement (see Note 5). l.Net income (loss) per Share of Common Stock Basic income (loss) per share is computed by dividing net income (loss) available to holders of the Company’s Common Stock by the weighted average number of shares of Common Stock outstanding for the period. Diluted income (loss) per share reflects the potential dilution that would occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock. At December 31, 2017 and 2016, all potentially dilutive shares were excluded from the computation of diluted earnings per share because to include them would have been anti-dilutive.
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) At December 31, 2019 and 2018, all potentially dilutive shares were excluded from the computation of diluted earnings per share because to include them would have been anti-dilutive. k.Comprehensivem.Comprehensive Income (Loss)
Comprehensive income (loss) is defined as all changes in equity (deficit), exclusive of transactions with stockholders, such as capital investments. Comprehensive income (loss) includes net income (loss) and changes in certain assets and liabilities that are reported directly in equity. For During the yearsfirst quarter 2018 the Company adopted ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”), which amended its accounting treatment for the recognition, measurement, presentation and disclosure of certain financial assets. ASU 2016-01 requires equity investments that have a readily determinable fair value to be measured at fair value through net income. Previously, entities would recognize changes in fair value of available-for-sale equity securities in other comprehensive income and would recognize in net income impairment losses that were other-than-temporary. There will no longer be an available-for-sale classification (with changes in fair value reported in other comprehensive income) for equity securities with readily determinable fair values. The Company recognized retrospectively the cumulative effect of initially adopting ASU 2016-01 (see Note 5). Accordingly, the Company did not recognize any other comprehensive income or loss for the periods ended December 31, 20172018 and 2016 Comprehensive loss included the change in the market value of available for sale securities and is reported on the Consolidated Statements of Operations and Comprehensive Income (Loss).2019. l.Incomen.Income Taxes
The Company accounts for income taxes in accordance with the provisions of ASC 740, “Income Taxes” (“ASC 740”), on a tax jurisdictional basis. The Company files United States and certain other foreign country income tax returns, and pays taxes reasonably determined to be due. The tax rules and regulations in these countries are highly complex and subject to interpretation. The Company’s income tax returns are subject to examination by the relevant taxing authorities and in connection with such examinations, disputes can arise with the taxing authorities over the interpretation or application of certain tax rules within the country involved. In accordance with ASC 740, the Company identifies and evaluates uncertain tax positions, and recognizes the impact of uncertain tax positions for which there is a less than more-likely-than-not probability of the position being upheld when reviewed by the relevant taxing authority. Such positions are deemed to be unrecognized tax benefits and a corresponding liability is established on the balance sheet. The Company classifies income tax related interest and penalties as income tax expense. m.Recentlyo.Recently Adopted Standards
In July 2017,During the Financial Accounting Standards Board (“FASB”) issuedfirst quarter 2019 the Company adopted ASU 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part 1) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Non public Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception”2016-02, “Leases” (“ASU 2017-11”2016-02”). Part I relates and ASU No. 2018-11 “Leases (Topic 842)” (“ASU 2018-11”), which require lessees to the accountingrecognize a right-of-use asset and a lease liability for certain financial instrumentsall leases with down round features in Subtopic 815-40, which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced based on the pricing of future equity offerings. An entity still is required to determine whether instruments wouldterms greater than twelve months. Leases will be classified as equity undereither finance or operating, with classification affecting the guidancepattern of expense recognition in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities. ASU 2017-11the income statement. For a lessor, the accounting applied is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted, including in an interim period.largely unchanged from previous guidance. The Company earlycurrently leases administrative offices in the U.S. and in several foreign locations under lease agreements that typically exceed one year. The Company has elected the modified retrospective method of adopting ASU 2016-02 (see Note 5).
During the first quarter 2018 the Company adopted ASU 2017-11 during the interim period ended September 30, 2017 (see Note 3). In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-09”2016-01”), which simplifies several aspectsamended its accounting treatment for the recognition, measurement, presentation and disclosure of the accounting for share-based payment award transactions including accounting for income taxes and classification of excess tax benefits on the statement of cash flows, forfeitures and minimum statutory tax withholding requirements. For the Company,certain financial assets. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The adoption of ASU 2016-09 in 2017 did not materially change the Company’s previous accounting methods and therefore did not2016-01 requires equity investments that have a material impact on the Company’s consolidated financial position or results of operation.
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) a readily determinable fair value to be measured at fair value through net income. Previously, entities would recognize changes in fair value of available-for-sale equity securities in other comprehensive income and would recognize in net income impairment losses that were other-than-temporary. There will no longer be an available-for-sale classification (with changes in fair value reported in other comprehensive income) for equity securities with readily determinable fair values. The Company recognized retrospectively the cumulative effect of initially adopting ASU 2016-01 (see Note 5). In November 2015,During the FASB issuedfirst quarter 2018 the Company adopted ASU No. 2015-17, “Income Taxes: Balance Sheet Classification2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”), which clarifies principal versus agent when another party, along with the entity, is involved in providing a good or service to a customer. Topic 606, Revenue from Contracts with Customers, requires an entity to determine whether the nature of Deferred Taxes” (“ASU 2015-17”). ASU 2015-17 requiresits promise is to provide that deferred tax assets and liabilitiesgood or service to the customer (i.e., the entity is a principal) or to arrange for the good or service to be classified as noncurrent onprovided to the balance sheet. This updatecustomer by the other party (i.e., the entity is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016.an agent). The adoption of ASU 2015-17 in 20172016-08 during the first quarter 2018, did not materially change the Company’s previous accounting methods and therefore did not haveresult in a material impact on the Company’sits consolidated financial position or results of operation.operations or the requirement for retrospective reporting.
In July 2015,During the FASB issued ASU No. 2015-11, “Inventory, Simplifyingfirst quarter 2018 the Measurement of Inventory” (“ASU 2015‑11”). ASU 2015-11 affects reporting entities that measure inventory using first-in, first-out or average cost. ASU 2015‑11 requires that inventory be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for annual periods beginning after December 15, 2016. The adoption of ASU 2015-11 in 2017 did not materially change the Company’s previous accounting methods and therefore did not have a material impact on the Company’s consolidated financial position or results of operation.
On August 27, 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014‑15”). ASU 2014-15 will require management to evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statements are issued on both an interim and annual basis. Management is required to provide certain footnote disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern. The Company adopted ASU 2014-15No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) which was issued by the Financial Accounting Standards Board (“FASB”) in 2016May 2014. The Company also adopted ASU No. 2017-05, “Other Income (Subtopic 310-20)” (“ASU 2017-05”), which was issued by the FASB in February 2017 clarifying the scope of Subtopic 610-20, which was originally issued as part of ASU 2014-09. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and has since includedsupersedes most current revenue recognition guidance, including industry-specific guidance. In addition, the guidance requires improved disclosures in itsto help users of financial statements consistent withbetter understand the pronouncement.nature, amount, timing and uncertainty of revenue that is recognized and the related cash flows. The Company has elected the modified retrospective method of adopting ASU 2014 (see Note 5).
n.Recentlyp.Recently Issued Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 modifies the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. ASU 2016-13 will be effective for the Company as of January 1, 2020. As the Company’s principle credit risk is related to its Lease Receivables the Company does not expect the adoption of this update to result in a material impact on its consolidated financial position or results of operations. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”), which clarifies principal versus agent when another party, along with the entity, is involved5. Change in providing a good or service to a customer. Topic 606, Revenue from Contracts with Customers, requires an entity to determine whether the nature of its promise is to provide that good or service to the customer (i.e., the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (i.e., the entity is an agent). For the Company, ASU 2016-08 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. As the Company’s current accounting practices per the guidance of ASC 605 are comparable to the requirements of ASU 2016-08, the Company does not expect the adoption of this update to result in a material impact on its consolidated financial position or results of operations or the requirement for retrospective reporting.Accounting Principle
In February 2016,Leases
Effective January 1, 2019 the FASB issuedCompany adopted ASU 2016-02 “Leases” (“and ASU 2016-02”),2018-11, which will requirerequires lessees to recognize a right-of-use asset and a lease liability for all leases with terms greater than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For a lessor, the accounting applied is largely unchanged from previous guidance. The Company currently leases administrative offices in the U.S. and in several foreign locations under lease agreements that typically exceed one year. The Company has elected the modified retrospective method of adopting ASU 2016-02 per Topic 842. The Company has elected to apply several practical expedients available under the application of ASU 2016-02 and ASU 2018-11, which allowed the Company to forego reassessing the classification of existing or expiring leases, evaluating whether any existing or expiring contracts contain leases or reassessing previously recorded indirect costs. The Company did not elect the Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) statement. Forpractical expedient permitting the combination of lease and non lease components of the contract. The adoption of ASU 2016-02 and ASU 2018-11 at January 1, 2019 resulted in only a lessor, the accounting applied is largely unchanged from previous guidance. The new rules will be effective fornegligible difference to amounts already recorded by the Company in its Consolidated Balance Sheets as of December 31, 2018, and as result the Company did not record an adjustment to the beginning balance of retained earnings at January 1, 2019, as required under the modified retrospective method.
The Company took possession of new office space and began a new long-term lease for its principal headquarters office with an effective commencement date of June 1, 2019. The new office lease will expire five years and eight full calendar months following the commencement date. There are no options to extend the lease beyond the stated term. The Company recorded a right of use asset of approximately $465,000 and a lease liability of approximately $450,000 in the second quarter of 2019 based on the net present value of the future lease payments discounted at 9.5%, which represents the Company’s incremental borrowing rate for purposes of applying the guidance of Topic 842. As required, the Company will recognize a single lease cost on a straight-line basis. The Company also has long-term office leases in Mexico and Argentina that expired in 2019 and recorded a combined lease liability of approximately $45,000 and combined right of use asset of approximately $45,000 relating to both of those leases at January 1, 2019. In November 2019, the Company renewed its Mexican office lease for four years and recorded a right of use asset and lease liability of approximately $174,000. In December 2019, the Company also renewed its Argentina office lease for two years and recorded a right of use asset and lease liability of approximately $18,000. The Company has included its right of use assets for the office leases described above in “Other long-term assets” (Note 11) and its office lease liabilities in “Other liabilities”, short term and long term (Note 14), in the Company’s Consolidated Balance Sheets for the period ended December 31, 2019. Other Income Related to the Sale of Exploration Properties During the first quarter of 2019. The Company does not anticipate early adoption. The Company currently leases administrative offices in the U.S. and in several foreign locations under lease agreements that typically exceed one year. Depending on the number of years remaining under such lease agreements the right-of-use assets and lease liabilities that2018 the Company would record under ASU 2016-2 could be material. In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”) which amended its standards related to the accounting of certain financial instruments. This amendment addresses certain aspects of recognition, measurement, presentation and disclosure. The new rules will become effective for annual and interim periods beginning after December 15, 2017. Early adoption is not permitted. The Company does not expect the adoption of ASU 2016-01 to materially change its current accounting methods and therefore the Company does not expect the adoption to have a material impact on its consolidated financial position or results of operations.
In May 2014, FASB and the International Accounting Standards Board issuedadopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). which was issued by the FASB in May 2014. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In addition, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized and the related cash flows. The Company has elected the modified retrospective method of initially adopting ASU 2014-09.
ASU 2014-09 is effective for interimrequires, in certain instances, that transactions covered by ASC Topic 610, “Other Income” (“Topic 610”) follow the recognition, measurement and annual periods beginning after December 15, 2017; early adoption is not permitted.disclosure guidelines established by ASU 2014-09 was originally effective December 15, 2016 but ASU 2015-14 deferred the effective date by one year. As the Company’s current accounting practices per2014-09. The Company generally follows the guidance of ASU 2014-09 are comparableTopic 610 with respect to the requirementsrecognition of income from the farm-out or sale of exploration properties. As of the beginning of 2018, the Company had one open contract impacted by the adoption of ASU 2014-09, involving an option agreement under which Santacruz Silver Mining Ltd. (“Santacruz”) may acquire the Company’s interest in certain nonstrategic mineral claims located in the Zacatecas Mining District, Zacatecas, Mexico (the “Zacatecas Properties”) for a series of payments totaling $1.5 million (Note 10). In applying ASU 2014-09, approximately $49,000 of the income recognized from the Santacruz transaction in the fourth quarter of 2017 would have been recognized in the first quarter of 2018. Accordingly, the Company does not expecthas recognized retrospectively the adoptioncumulative effect of this updateinitially adopting ASU 2014-09 by recording a negative adjustment to result in a material impact on its consolidated financial position or resultsretained earnings of operations. 3. Change in Accounting Principle
In July 2017,$49,000 at the FASB issued ASU 2017-11. Part I relates to the accounting for certain financial instruments with down round features in Subtopic 815-40, which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. Down round features are featuresbeginning of certain equity-linked instruments (or embedded features) that result2018, included in the strike price being reduced based onCompany’s Consolidated Statement of Changes in Equity, and recording $49,000 in “Other operating income, net” in the pricingaccompanying Consolidated Statements of future equity offerings. An entity still is required to determine whether instruments would be classified in equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities. In the case where the exception from derivative accounting does not apply, warrants must be accounted for as a liability and recorded at fair value at the date of grant and re-valued at the end of each reporting period.
The Company’s September 2012 and 2014 warrants (see Note 15) include anti-dilution provisions characterized as down round features and have previously been accounted for as liabilities, with the fair value of the warrant liabilities remeasured at each reporting date and the change in liabilities recorded as other non-operating income or loss. The Company had recorded a “Warrant liability” of $1.9 million and a warrant derivative gain of $17.1 million in its “Accumulated deficit” as reported in its Condensed Consolidated Balance SheetsOperations for the yearperiod ended December 31, 2016 relating to the September 2012 and 2014 warrants.2018. SeeThe Company had recorded a warrant liability of $1.5 million as of June 30, 2017 and reported a warrant derivative gain of $0.4 million for the six months ended June 30, 2017 relating to the September 2012 and 2014 warrants.
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) Note 10 for a further description of the contract with Santacruz and the identification of performance obligations and other significant judgments used in applying the guidance of Topic 606 to the contract. Available for Sale Securities During the first quarter 2018 the Company adopted ASU No. 2016-01, which amended its accounting treatment for the recognition, measurement, presentation and disclosure of certain financial assets. ASU 2016-01 requires equity investments that have readily determinable fair values to be measured at fair value through net income. Previously, entities would recognize changes in fair value of available-for-sale equity securities in other comprehensive income and would recognize in net income impairment losses that were other-than-temporary. There will no longer be an available-for-sale classification (with changes in fair value reported in other comprehensive income) for equity securities with readily determinable fair values. At December 31, 2017, the Company had equity securities classified as available-for-sale and reported at fair value of $238,000, with cumulative unrealized losses of $40,000 recorded in “Accumulated other comprehensive loss” on its Consolidated Balance Sheets. The Company has recognized the cumulative effect of initially adopting ASU 2016-01 by recording a negative adjustment to retained earnings and other comprehensive income of $40,000 at the beginning of 2018, included in the Company’s Consolidated Statement of Changes in Equity, and has recorded a gain of approximately $51,000 in “Interest and other income, net” in the accompanying Consolidated Statements of Operations for the period ended December 31, 2018. Warrant Liability In addition,July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part 1) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” (“ASU 2017-11”). For freestanding equity-classified financial instruments, ASU 2017-11 also requires entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Certain equity transactions following the issuance of the September 2012 and 2014 warrants have triggered anti-dilution clauses in the warrant agreements resulting in additional warrant shares and a reduction to the original strike price of the warrants. ASU 2017-11 prescribes a method to measure the value of a deemed dividend related to a triggering event by computing the difference in fair value between two instruments that have terms consistent with the actual instrument but that do not have a down round feature, where the number of warrant shares and strike price of one instrument corresponds to the actual instrument before the triggering event and the number of warrant shares and strike price of the other instrument corresponds to the actual instrument immediately after the triggering event. Following ASU 2017-11, for periodsthe years ending on or prior to December 31, 20162019 and December 31, 2018, the Company would have reduced its “Accumulated deficit” as reported on its Condensed Consolidated Balance Sheets by approximately $0.3 million related to prior triggering events. During the nine month period ending September 30, 2017 the Company would have reduced its accumulated deficit by approximately $5,000$3,000 and $8,000 respectively related to triggering events. Except for the down round features in the September 2012 and 2014 warrants, the warrants would have been classified in equity under the guidance in Subtopic 815-40 and therefore qualify for the scope exception in ASU 2017-11. As permitted, the Company elected to adopt the accounting principles prescribed by ASU 2017-11 for the interim period ended September 30, 2017 and has recorded a cumulative-effect adjustment stemming from a change in accounting principle in its financial statements for the year ended December 31, 2017 measured retrospectively to the beginning of 2017. The cumulative effect adjustment appears at the beginning of 2017 in the Company’s Condensed Consolidated Statement of Changes in Equity. The results of operations for the Company for year ended December 31, 2017 reflects application of the change in accounting principle from the beginning of 2017.
The following table details the impact stemming from the cumulative effect of the change in accounting principle on the Company’s Consolidated Balance Sheets as of the beginning of 2017.
| | | | | | | | | | | | | | | | | | Reported after | | | As Previously | | | Cumulative | | the Effect of a Change in | | | Reported | | Effect Adjustment | | Accounting Principle | Balance Sheet Accounts Impacted by | | December 31, | | at the Beginning | | at the Beginning | September 2012 and 2014 Warrants | | 2016 | | of 2017 | | of 2017 | | | (in thousands) | Warrant Liability - Related Party | | $ | 976 | | $ | (976) | | $ | — | Warrant Liability | | | 922 | | | (922) | | | — | Additional Paid-in Capital | | | 495,455 | | | 19,046 | | | 514,501 | Accumulated Deficit | | | (488,037) | | | (17,148) | | | (505,185) |
As noted above, the Company had previously reported a warrant derivative gain of $0.4 million during the six month period ending June 30, 2017. Because the Company has retroactively applied the change in accounting principle discussed above to the beginning of 2017, the Company is no longer reporting warrant derivative gains or losses for the September 2012 and 2014 warrants beginning in 2017. Amounts reported for periods ending on or prior to December 31, 2016 have not been adjusted.
Table of Contents
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
4.Cash6.Cash and Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Short-term investments include investments with maturities greater than three months, but not exceeding 12 months, or highly liquid investments with maturities greater than 12 months that the Company intends to liquidate during the next 12 months for working capital needs. Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) The following tables summarize the Company's short-term investments at December 31, 2017 and 2016:2018: | | | | | | | | | | | | | | | | | | | | | | | | | | Estimated | | Carrying | | | | | | Estimated | | Carrying | | December 31, 2017 | | Cost | | Fair Value | | Value | | | December 31, 2018 | | | Cost | | Fair Value | | Value | | | | | (in thousands) | | | | (in thousands) | | Investments: | | | | | | | | | | | | | | | | | | | | | Short-term: | | | | | | | | | | | | | | | | | | | | | Available for sale common stock | | $ | 275 | | $ | 238 | | $ | 238 | | | Total available for sale | | | 275 | | | 238 | | | 238 | | | Trading securities | | | $ | 275 | | $ | 330 | | $ | 330 | | Total trading securities | | | | 275 | | | 330 | | | 330 | | Total short term | | $ | 275 | | $ | 238 | | $ | 238 | | | $ | 275 | | $ | 330 | | $ | 330 | | | | | | | | | | | | | | | | | | | | | | | December 31, 2016 | | | | | | | | | | | | Investments: | | | | | | | | | | | | Short-term: | | | | | | | | | | | | Available for sale common stock | | $ | 275 | | $ | 334 | | $ | 334 | | | Total available for sale | | | 275 | | | 334 | | | 334 | | | Total short term | | $ | 275 | | $ | 334 | | $ | 334 | | |
The short-term investments at December 31, 2018 consist of 7,500,000 common shares, approximately 10% of the outstanding common shares, of Golden Tag Resources, Ltd. (“Golden Tag”), a junior mining company that was a joint venture partner in the Company’s previously owned San Diego exploration property in Mexico. The Company acquired the shares during 2015 and 2016 in transactions involving the sale of its remaining 50% interest in the San Diego property to Golden Tag. All the Golden Tag shares were sold during the third quarter 2019, resulting in net proceeds of approximately $113,000. For the year ended December 31, 2019 the Company recorded total losses related to ownership of the Golden Tag shares of approximately $217,000 recorded in “Interest and other income (expense), net” in the accompanying Consolidated Statements of Operations. The Company had no short-term investments at December 31, 2019. Credit Risk The Company invests substantially all of its excess cash with high credit-quality financial institutions or in U.S. government or debt securities. Credit risk is the risk that a third party might fail to fulfill its performance obligations under the terms of a financial instrument. For cash and equivalents and investments, credit risk represents the carrying amount on the balance sheet. The Company mitigates credit risk for cash and equivalents and investments by placing its funds and investments with high credit-quality financial institutions, limiting the amount of exposure to each of the financial institutions, monitoring the financial condition of the financial institutions and investing only in government and corporate securities rated “investment grade” or better. The Company invests with financial institutions that maintain a net worth of not less than $1 billion and are members in good standing of the Securities Investor Protection Corporation. 7.Prepaid Expenses and Other Assets Prepaid expenses and other assets consist of the following: | | | | | | | | | | December 31, | | December 31, | | | 2019 | | 2018 | | | | (in thousands) | | Prepaid insurance | | $ | 494 | | $ | 358 | | Recoupable deposits and other | | | 175 | | | 275 | | | | $ | 669 | | $ | 633 | |
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) 5.Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist of the following:
| | | | | | | | | | December 31, | | December 31, | | | 2017 | | | 2016 | | | | (in thousands) | | Prepaid insurance | | $ | 362 | | $ | 296 | | Deferred offering costs | | | 137 | | | 153 | | Recoupable deposits and other | | | 246 | | | 129 | | | | $ | 745 | | $ | 578 | |
The deferred offering costs are related to the ATM Program discussed in detail in Note 15.
6.Inventories8.Inventories
Inventories at the Velardeña Properties were as follows: | | | | | | | | | | December 31, | | December 31, | | | | 2017 | | 2016 | | | | (in thousands) | | Material and supplies | | $ | 242 | | $ | 245 | | | | $ | 242 | | $ | 245 | |
| | | | | | | | | | December 31, | | December 31, | | | | 2019 | | 2018 | | | | (in thousands) | | Material and supplies | | $ | 231 | | $ | 229 | | | | $ | 231 | | $ | 229 | |
The material and supplies inventory at December 31, 20172019 and 20162018 are related to the Velardeña Properties and are reduced by a $0.2 million obsolescence reserve. 7.Value added tax receivable9.Derivative at Fair Value
On December 3, 2019 the Company entered into an amendment to the plant lease agreement with Hecla, reducing the variable per tonne fee contained in the lease agreement from $22.00 to $11.00. Under certain silver price and delivered ore head grade limits, as fully discussed in Note 18, the variable per tonne fee could be increased back to the previous $22.00 per tonne. Pursuant to ASC Topics 815-Derivatives and Hedging (“ASC 815”) and 842-Leases (“ASC 842”), arrangements with variable lease payments must be evaluated to assess whether they contain embedded derivatives. If embedded derivatives are not “clearly and closely related” to the lease contract, they must be bifurcated and accounted for separately from the host contract. The Company has recorded value added tax (“VAT”) paid in Mexico and relateddetermined that the potential for the Company to receive an additional $11.00 variable per tonne fee if certain conditions relating to the Velardeña Propertiessilver price and delivered ore head grades are met does not qualify for the “clearly and closely related” exception, and as a recoverable asset. Mexico law allowsresult, the potential additional $11.00 variable per tonne fee constitutes a derivative that must be valued and accounted for VAT payments to be recovered from VAT collectedapart from the salehost lease contract. Per the guidance of products or rendering of services. At December 31, 2017,ASC 842, the Company has also recorded approximately $19,000 of VAT receivabledetermined that the amendment to the lease agreement constituted a modification that must be accounted for as a reduction to VAT payable in Mexico, which appears in “Accounts payablenew lease commencing on December 2, 2019, the date the amendment was agreed upon by both parties, and other accrued liabilities”expiring on December 31, 2020. The Company is treating the Condensed Consolidated Balance Sheets. During 2017 the Company received refunds of approximately $1.1 million from the government of Argentina for VAT payments made in that country during 2012 and 2013. Because of uncertainties relating to collectabilityfair value of the taxesderivative received at the time of the modification to the lease agreement as an upfront lease payment that will be amortized over the remaining life of the lease on a straight line basis (see Note 15 for a discussion of the valuation method used to compute the fair value of the derivative). At December 2, 2019, the Company had recorded a full valuation allowance against“Derivativeat fair value” asset and “Deferred Revenue” of approximately $194,000 on the VAT receivable atConsolidated Balance Sheet related to the time the taxes were paid. The Company reported the $1.1 million of VAT refunds received during the year endedamended lease agreement. At December 31, 2017 in2019 the company recognized additional “Other operating income”Revenue - plant lease” on the CondensedCompany’s Consolidated Statements of Operations and Comprehensive Loss. In February 2018, we received an additionalincrease to the derivative of approximately $138,000$59,000 related to the change in the fair value of VAT refunds. Atthe derivative between the December 2, 2019 amendment date and December 31, 2017, the2019. The Company reversed $138,000 of the valuation allowance and recorded a VAT receivable of $138,000 with a corresponding gain inalso recognized approximately $15,000 “Other operating income”Revenue - plant lease” on the CondensedCompany’s Consolidated Statements of Operations and Comprehensive Loss. The Company has remaining Argentina VAT refund claims totaling approximately $0.1 million. The Company cannot predict if or when it will receive these additional VAT refunds and accordingly has recorded a full valuation allowance againstrelated to the remaining VAT refund claims. amortization of the deferred revenue.
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) The Company has also paid VAT in Mexico as well as other countries, primarily related to exploration projects, which has been charged to expense as incurred because of the uncertainty of recoverability.
8.Property,10.Property, Plant and Equipment
Property, plant and equipment, net The components of property, plant, and equipment, net were as follows: | | | | | | | | | | | | | | | | | December 31, | | December 31, | | | December 31, | | December 31, | | | | 2017 | | 2016 | | | 2019 | | 2018 | | | | (in thousands) | | | (in thousands) | | Mineral properties | | $ | 9,352 | | $ | 9,352 | | | $ | 9,353 | | $ | 9,353 | | Exploration properties | | | 2,518 | | | 2,518 | | | | 2,518 | | | 2,518 | | Royalty properties | | | 200 | | | 200 | | | | 200 | | | 200 | | Buildings | | | 4,246 | | | 4,386 | | | | 3,755 | | | 4,278 | | Mining equipment and machinery | | | 15,989 | | | 16,351 | | | | 16,049 | | | 16,024 | | Other furniture and equipment | | | 958 | | | 952 | | | | 884 | | | 888 | | Asset retirement cost | | | 865 | | | 992 | | | | 866 | | | 866 | | | | | 34,128 | | | 34,751 | | | | 33,625 | | | 34,127 | | Less: Accumulated depreciation and amortization | | | (25,988) | | | (25,516) | | | | (27,594) | | | (27,018) | | | | $ | 8,140 | | $ | 9,235 | | | $ | 6,031 | | $ | 7,109 | |
Equipment Related to the Oxide Plant Lease In August 2016,Certain assets of the Company sold certain mining equipment consistingare related to the lease of two haul trucks, two scoop trams and the Velardeña compressoroxide plant to Minera Indé, an indirect subsidiary of The Sentient Group, for $687,000Hecla (see Note 23)1). The equipment sold was excess equipment held at the Company’s Velardeña Properties that the Company did not expect to use. The equipment had a net book value of $27,000 resultingthe equipment involved in the lease was $0.5 million and $0.8 million for the years ended December 31, 2019 and December 31, 2018, respectively.
Sale of Mogotes and Pistachon Properties On December 18, 2019, the Company sold the non-strategic Mogotes and Pistachon properties in Mexico to a subsidiary of Industrias Peñoles for $3.0 million. The Mogotes and Pistachon properties are comprised of a total of four mining concessions located near the Company’s Velardeña Properties. Upon receipt of the cash payment, which occurred on the date the properties were sold, all of the Company’s rights and obligations relating to the properties were transferred and the Company had no further performance obligations under the agreement. The Company had previously expensed all costs associated with the Mogotes and Pistachon properties and accordingly recognized a gain of $660,000 in 2016. The gain is included in “Other operating income, net” in the accompanying Consolidated Statements of Operations and Comprehensive Loss. The Company received $69,000 or 10% of the sales price at the closing of the sale, with the remaining $618,000 plus interest on the unpaid balance at an annual rate of 10% due in February 2017. With the approval of a Special Committee of the Company’s Board of Directors, the Company and Minera Indé amended the original equipment sale on March 31, 2017 to include the sale of an additional piece of excess equipment for $185,000 and extend the time for payment relating to the original equipment sale. Upon execution of the amendment the Company received an additional payment of $100,000. The remaining principal and interest balance, plus additional interest on the unpaid balance at an annual rate of 10%, was amended to be due in August 2017. The Company recorded a gain of $105,000 in 2017 on the sale of the additional equipment,$3.0 million included in “Other operating income, net” in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss equal to the gross proceeds less the remaining basis in the equipment. On May 2, 2017, the Company received approximately $750,000 from Minera Indé as payment in full
Property Held for the remaining balance due related to the equipment sale, including interest through that date.Sale On August 2, 2016,October 16, 2019, the Company entered into an option to purchase agreement for the sale of the Company’s option to earn a definitive agreement to sell its remaining 50%100% interest in the San DiegoSanta Maria and Las Marias exploration property in Mexicoproperties to Golden Tag Resources ltd (“Golden Tag”),Magellan Gold Corporation. The agreement provides for a period of up to 150 days for Magellan to complete due diligence and secure financing for the company that heldproject. Under the other 50% interest in the property. As a resultterms of the sale,agreement, if Magellan exercises its option, Magellan will make a cash payment of $1.0 million to the Company received approximately $379,000 in cash and 2,500,000 common sharesupon closing. The Company will retain a 6.5% NSR royalty from all production at Santa Maria until a total of Golden Tag. Pursuant$3.0 million has been paid to the agreement, Golden Tag will be required to payCompany. Thereafter, the Company will retain a 2.0% net smelter return3.0% NSR royalty infor the balance of the mine’s life. Under the terms of the option to purchase agreement, the Company has not yet transferred any of its rights and obligations relating to the Santa Maria property and has not recognized any income with respect to the San Diego property. The Company had previously written down the value of the Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) San Diego property to approximately zerothe agreement. The Company had previously expensed all costs associated with the two properties and accordingly recognized a gain of approximately $0.5 million in 2016 onwill record income from the sale. The gainagreement as cash is included in “Other operating income, net” inreceived and the accompanying Consolidated Statements of Operations and Comprehensive Loss. Following this transaction,Company’s fulfills its performance obligations under the Company now holds 7,500,000 common shares representing approximately 10% of the outstanding common shares of Golden Tag (see Note 4).agreement.
Celaya Farm-out In August 2016, the Company, through its wholly owned Mexican subsidiary, entered into an earn-in agreement with a 100% owned Mexican subsidiary of Electrum Global Holdings, L.P.,Group, LLC, a privately ownedprivately-owned company (together “Electrum”), related to the Company’s Celaya exploration property in Mexico. The Company received an upfront payment of $0.2 million and Electrum agreed to incur exploration expenditures totaling at least $0.5 million in the first year of the agreement, reduced by certain costs Electrum previously incurred on the property since December 2015 in its ongoing surface exploration program. Electrum at its option, can electinitially earned the right to acquire an undivided 60% interest in a joint venture company to be formed to hold the Celaya project afterby incurring exploration expenditures totaling at least $2.5 million during the initial first three years of the agreement. Electrum would serve as manager of the joint venture. Prior to an amendmentsubsequent amendments to the agreement, the Company would have been allowed to maintain a 40% interest in the Celaya project, following the initial three-year earn-in period, by contributing its pro-rata share of an additional $2.5 million in exploration or development expenditures incurred over a second three-year period. In February 2018, the Company and Electrum amended the Celaya earn-in agreement to permit Electrum to earn, at its option, an additionalincremental 20% interest in the Celaya project in exchange for a payment of $1.0 million. Following the amendment, Electrum can now increasecould have increased its total interest in the project to 80% by contributing 100% of the $2.5 million of additional expenditures required in the second three-year earn-in period. Following the second earn-in period, and prior to the Company willentering into a second and final amendment of the agreement, the Company could have the right to maintainmaintained its 20% participating interest, or its interest could ultimately behave been converted into a carried 10% net profits interest if the Company electselected not to participate as a joint venture owner. In September 2018, the Company and Electrum entered into a second and final amendment of the Celaya earn-in agreement pursuant to which Electrum acquired 100% of the Company’s remaining interest in the Celaya project in exchange for a payment of $3.0 million. The transaction was set out in a definitive Assignment of Rights Agreement (the “Assignment Agreement”) containing customary terms and conditions. The earn-in agreement was terminated upon entry into the Assignment Agreement. The Company hashad previously expensed all of its costs associated with the Celaya property and accordingly recognized a gain of $0.2 million from the farm-out of the property in 2016 and will recognize an additional gaingains of $1.0 million from the execution of the first amendment to the agreement and $3.0 million upon execution of the Assignment Agreement, during the year ended December 31, 2018, with the amounts included in “Other operating income, net” in the accompanying Consolidated Statements of Operations. Zacatecas Farm-out In April 2016, the Company entered into an option agreement, which was later amended in February 2018, under which Santacruz Silver Mining Ltd. (“Santacruz”) has acquired the Company’s interest in the Zacatecas Properties for a series of payments totaling approximately $1.5 million through October 2018, including $249,000, $225,000 and $212,000 paid to the Company during the first, quartersecond and third quarters of 2018, respectively. The final payment due the Company of $13,000 was received in October 2018. Upon receipt of each cash payment, the agreement imposed a performance obligation on the Company to provide Santacruz an exclusive right to the Zacatecas Properties to conduct exploration activities during the period from receipt of the payment until the next payment due date, with a final obligation, following receipt of the final payment, to formally acknowledge completion of the sale enabling Santacruz to register the title to the Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) properties in their name. At December 31, 2018, there were no further performance obligations and the Company had taken all steps necessary for Santacruz to take title to the properties. The $0.2 million gainCompany has previously expensed all its costs associated with the Zacatecas Properties. The Company recognized in 2016income, equal to the cash payments made, evenly over the period covered by each payment. The Company recognized approximately $748,000 of income under the agreement during the year ended December 31, 2018, which is included in “Other operating income, net” in the accompanying Consolidated Statements of Operations and Comprehensive Loss.. . 11.Other Long-Term Assets In April 2016, the Company entered into an option agreement under which Santacruz Silver Mining Ltd. (“Santacruz”) may acquire the Company’s interest in certain nonstrategic mineral claims located in the Zacatecas Mining District, Zacatecas, Mexico (the “Zacatecas Properties”) for a series of payments totaling $1.5 million, including a final payment of $0.5 million due in April 2018. To date, Santacruz has paid the Company approximately $0.9 million. The CompanyOther long-term assets at December 31, 2019 and Santacruz amended the option agreement in FebruaryDecember 31, 2018 to extend the due dates for the remaining series of payments through September 2018. To complete the acquisitionconsist of the Zacatecas Properties Santacruz must now make three additional payments of $225,000 each in March, June and September 2018. Santacruz has the right to terminate the option agreement at any time, and the agreement could be terminated, at the Company’s option, if Santacruz fails to make subsequent payments when due. following:
| | | | | | | | | | December 31, | | December 31, | | | 2019 | | 2018 | | | | (in thousands) | | Deferred offering costs | | $ | 511 | | $ | 569 | | Right of use assets | | | 620 | | | — | | | | $ | 1,131 | | $ | 569 | |
The Company has previously expensed all of itsdeferred offering costs are associated with the Zacatecas PropertiesLPC Program and accordingly recognized a gainATM Agreement (see Note 17). The right of $0.5 million and $0.4 million in 2017 and 2016 respectively, included in “Other operating income, net” in the accompanying Consolidated Statements of Operations and Comprehensive Loss.use assets is related to certain office leases (see Note 5). 12.Accounts Payable and Other Accrued Liabilities The Asset retirement cost (“ARC”) is allCompany’s accounts payable and other accrued liabilities consist of the following: | | | | | | | | | | December 31, | | December 31, | | | | 2019 | | 2018 | | | | (in thousands) | | Accounts payable and accruals | | $ | 710 | | $ | 282 | | Accrued employee compensation and benefits | | | 724 | | | 1,344 | | Value added tax payable | | | 401 | | | 76 | | Income taxes payable | | | 292 | | | 267 | | | | $ | 2,127 | | $ | 1,969 | |
December 31, 2019 Accounts payable and accruals at December 31, 2019 are primarily related to amounts due to contractors and suppliers in the amounts of $0.3 million related to the Company’s Velardeña Properties. The amounts for ARC have been fully depreciatedProperties and $0.3 million related to corporate administrative and exploration activities. Accrued employee compensation and benefits at December 31, 2017. The decrease2019 consist of $0.2 million of accrued vacation payable and $0.5 million related to withholding taxes and benefits payable. Included in the ARC during the period$0.7 million of accrued employee compensation and benefits is $0.5 million related to an adjustment toactivities at the ARO, as discussed below in Note 11. Velardeña Properties. Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) 9.Accounts PayableThe VAT payable is primarily related to VAT collected on the sale of the Mogotes and Other Accrued LiabilitiesPistachon properties in Mexico with such amount being remitted to the Mexican government in January 2020. The Company has recorded VAT paid in Mexico and related to the Velardeña Properties as a recoverable asset. At December 31, 2019, the Company recorded approximately $73,000 of VAT receivable as a reduction to VAT payable presented in the table above.
The Company’s accountsincome taxes payable and other accrued liabilities consist ofare related to certain Canadian taxes due on capital distributions the following:Company received from its Canadian subsidiary (see Note 16). | | | | | | | | | | December 31, | | December 31, | | | | 2017 | | 2016 | | | | (in thousands) | | Accounts payable and accruals | | $ | 310 | | $ | 344 | | Accrued employee compensation and benefits | | | 1,246 | | | 880 | | | | $ | 1,556 | | $ | 1,224 | |
December 31, 20172018 Accounts payable and accruals at December 31, 2017 consist2018 are primarily of $0.1 million and $0.2 millionrelated to amounts due to contractors and suppliers in the amounts of $0.1 million related to the Company’s Velardeña Properties and $0.2 million related to exploration and corporate administrative activities respectively. In the case of the Velardeña Properties, amounts due also include VAT payable that is partially offset by a small VAT receivable. Accrued employee compensation and benefits at December 31, 20172018 consist of $0.2 million of accrued vacation payable $0.6and $0.7 million ofrelated to withholding taxes and benefits payable (of which $0.3and $0.4 million related to the Company’s 2013 Key Employee Long-Term Incentive Plan (the “KELTIP”) (see Note 17). Included in the $1.3 million of accrued employee compensation and benefits is $0.6 million related to activities at the Velardeña Properties)Properties. The VAT payable is primarily related to VAT collected on revenue from the Hecla lease revenue (note 18). The Company has recorded VAT paid in Mexico and $0.4 million related to the Key Employee Long-Term Incentive Plan ("KELTIP") (see Note 15). December 31, 2016
Accounts payable and accruals at December 31, 2016 consist primarily of $0.1 million and $0.2 million due to contractors and suppliers related to the Company’s Velardeña Properties and corporate administrative activities, respectively. In the case of the Velardeñas a Properties, amounts due also include VAT payable that is a partial offset to the small VAT receivable.
Accrued employee compensation and benefits atrecoverable asset. At December 31, 2016 consist of $0.2 million of accrued vacation payable, $0.4 million of withholding taxes and benefits payable (of which $0.2 million is related to activities at the Velardeña Properties) and $0.3 million related to the KELTIP (see Note 15).
10.Convertible Note Payable – Related Party, Net
In October 2015,2018, the Company borrowed $5.0 million from Sentient, the Company’s largest stockholder, pursuant to the termsrecorded approximately $30,000 of a Senior Secured Convertible Note the (“Sentient Note”) and a related loan agreement (the “Sentient Loan”), with principal and accrued interest due on October 27, 2016. In January 2016, upon approval by the Company’s stockholders, the Sentient Note became convertible, solely at Sentient's option, into shares of the Company's common stock at a price equal to the lowest of: 1) $0.289, 90 percent of the 15-day volume weighted average price ("VWAP") for the period immediately preceding the loan closing date, 2) 90 percent of the 15-day VWAP for the period immediately preceding the loan conversion date, or 3) an anti-dilution adjusted price based on the lowest price for which the Company has sold its stock following the loan closing date. The loan provided for interest at a rate of 9% per annum, compounded monthly.
On February 11, 2016, Sentient converted approximately $3.9 million of principal and $0.1 million of accrued interest (representing the total amount of accrued interest at the conversion date) on the Sentient Note into 23,355,000 shares of
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the Company's common stock at an exercise price of approximately $0.172 per share, equal to 90% of the 15-day VWAP immediately preceding the conversion date. On June 10, 2016, Sentient converted the remaining approximately $1.1 million of principal and approximately $34,000 of accrued interest (representing the total amount of accrued interest at the conversion date) into 4,011,740 shares of the Company's common stock at an exercise price of approximately $0.289 per share, equal to 90% of the 15‐day VWAP immediately preceding the loan’s original issue date.
The beneficial conversion feature of the Sentient Note represented an embedded derivative as defined by ASC 815 "Derivatives and Hedging" ("ASC 815"). ASC 815 provides that a derivative instrument's fair value must be bifurcated from the note and separately recorded on the Company's Consolidated Balance Sheet. The Company used a third party consultant to value the embedded derivative in the Sentient Note employing a Monte Carlo type probability analysis, which falls within Level 3 of the fair value hierarchy (see Note 13). For purposes of valuing the embedded derivative as of the Sentient Loan closing date, at December 31, 2015, at February 11, 2016 (first partial conversion date), and at March 31, 2016, the valuation model took into account, among other items: 1) the probability of successfully achieving stockholder approval of the Sentient Note’s conversion feature, 2) future variations in the Company’s stock price, and 3) the probability of entering into an equity transaction prior to the Sentient Loan maturity date that would lower the conversion price. It was determined that the embedded derivative had a fair value of approximately $1.1 million at October 27, 2015, the date the Company entered into the Sentient Loan. Subsequent mark-to-market changes in the value of the derivative were recorded as income or loss in the Consolidated Statements of Operations and Comprehensive Loss. The Sentient Note was recorded net of the bifurcated embedded derivative at October 27, 2015 with the $1.1 million difference between the face value and the recorded value of the Note representing a loan discount that was amortized to interest expense over the life of the loan using the interest rate method.
The Company incurred approximately $0.3 million in legal and other costs associated with the Sentient Loan. Per the guidance of ASU 2015-03 the loan costs were presentedVAT receivable as a reduction to VAT payable presented in the note payable on the accompanying Consolidated Balance Sheets and were amortized to interest expense over the life of the Sentient note using the interest rate method.table above.
The Company adjusted the recorded value of the Sentient Loan at the first partial conversion date and at March 31, 2016income taxes payable are related to reflect the amortization of the loan discount and loan costs, shown as “Interest expense” in the Consolidated Statements of Operations and Comprehensive Loss. For the nine months ended September 30, 2016,certain Canadian taxes due on capital distributions the Company recorded a total noncash loss on debt extinguishment of $1.7 million reflecting the difference between the value of the shares issued to Sentient as a result of the February 11, 2016 conversion and the recorded value of the Sentient Loan, including related loan costs, loan discount and embedded derivative eliminated at the conversion date. The Company marked-to-market the embedded derivative at the February 11, 2016 conversion date and recorded a total derivative loss of $0.8 million for the nine months ended September 30, 2016 in the Condensed Consolidated Statements of Operations and Comprehensive Loss.received from its Canadian subsidiary (see Note 16). At December 31, 2017 and December 31, 2016, the Sentient Note had been fully converted and the Company had no outstanding debt.
11.Asset13.Asset Retirement and Reclamation Liabilities
The Company retained the services of a mining engineering firm to prepare a detailed closure plan for the Velardeña Properties. The plan was completed during the second quarter 2012 and indicated that the Company had an ARO and offsetting ARC of approximately $1.9 million. The estimated $3.5 million ARO and ARC that was recorded at the time of the acquisition of the Velardeña Properties was adjusted accordingly. Table of Contents
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The Company will continue to accrue additional estimated ARO amounts based on an asset retirement plan as activities requiring future reclamation and remediation occur. During the year ended December 31, 20172019 the Company recognized approximately $0.2 million of accretion expense and approximately $4,000expense. The following table summarizes activity in the Velardeña Properties ARO: | | | | | | | | | | | | | | | | | Year Ended | | | Year Ended | | | | December 31, | | | December 31, | | | | 2017 | | 2016 | | | 2019 | | 2018 | | | | (in thousands) | | | (in thousands) | | Beginning balance | | $ | 2,380 | | $ | 2,480 | | | $ | 2,660 | | $ | 2,448 | | | | | | | | | | | | | | | | | Changes in estimates, and other | | | (128) | | | (293) | | | | (60) | | | 2 | | Accretion expense | | | 196 | | | 193 | | | | 225 | | | 210 | | Ending balance | | $ | 2,448 | | $ | 2,380 | | | $ | 2,825 | | $ | 2,660 | |
The decreasechange in estimate of the ARO recorded during the years ended December 31, 2017 and 20162019 is primarily the result of changes in assumptions related to inflation factors and discount ratesthe timing of future expenditures used in the determination of future cash flows. The ARO set forth on the accompanying Condensed Consolidated Balance Sheets at December 31, 20172019 and December 31, 2016 include approximately $50,0002018 includes a nominal amount of reclamation liabilitiesliability related to activities at the El Quevar project in Argentina. 12.Other14.Other Liabilities
Other Current Liabilities The Company recorded nil amounts offollowing table sets forth the Company’s other current liabilities at December 31, 20172019 and 2018: | | | | | | | | | Year Ended | | | December 31, | | | 2019 | | 2018 | | | (in thousands) | Autlán refundable deposit | | $ | 1,251 | | $ | — | Premium financing | | | 455 | | | — | Office lease liability | | | 118 | | | 12 | | | $ | 1,824 | | $ | 12 |
The Autlán refundable deposit at December 31, 2016. During2019 is the first four monthsremaining principal plus interest liability related to the deposit received for the proposed sale of 2016our Velardeña Properties and other mineral concessions to Autlán (see Note 1). As a result of termination of the Agreement, the Company is required to repay the original $1.5 million deposit amount by making monthly payments of $257,000, commencing on December 9, 2019, until the deposit amount is repaid with interest at approximately 11% per annum. Through December 31, 2019 the Company paid Autlánapproximately $0.2$0.3 million against the original $1.5 million deposit, including interest of Argentine tax on equityapproximately $11,000, leaving a balance due at December 31, 2019 of approximately $0.2$1.3 million, of estimated interest and penalties awaiting a final assessment from the tax authorities. During the third quarter 2016 the Argentine government adopted an amnesty program that theincluding accrued interest. The Company effectively used to eliminate the remaining $0.2 millionrecorded approximately $19,000 of interest and penalties that had been accrued. The reversal ofexpense for the accrual reduced expenses incurred atyear ended December 31, 2019 related to the El Quevar project during the third quarter 2016. Autlán refundable deposit.
13.FairThe premium financing at December 31, 2019 consists of the remaining balance, plus accrued interest, related to premiums payable for the Company’s directors and officers insurance and general liability insurance. In June 2019 the company financed $151,000 of its premium for general liability insurance. The premium is payable in twelve equal payments at an interest rate of 5.74% per annum. At December 31, 2019, the remaining balance, plus accrued interest, was
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) approximately $51,000. In December 2019 the company financed $482,000 of its premium for directors and officers insurance. The premium is payable in twelve equal payments at an interest rate of 5.74% per annum. At December 31, 2019 the remaining balance, plus accrued interest, was approximately $404,000. The office lease liability is related to lease liabilities for office space at the Company’s principal headquarters in Golden, Colorado and in Mexico and Argentina (see Note 5). Other Long-Term Liabilities Other long-term liabilities of $0.5 million for the period ended December 31, 2019 are primarily related to lease liabilities for office space at the Company’s principal headquarters in Golden Colorado and in Mexico and Argentina (see Note 5). 15.Fair Value Measurements Financial assets and liabilities and nonfinancial assets and liabilities are measured at fair value on a recurring (annual) basis under a framework of a fair value hierarchy which prioritizes the inputs into valuation techniques used to measure fair value into three broad levels. This hierarchy gives the highest priority to quoted prices (unadjusted) in active markets and the lowest priority to unobservable inputs. Further, financial assets and liabilities should be classified by level in their entirety based upon the lowest level of input that was significant to the fair value measurement. The three levels of the fair value hierarchy per ASC 820 are as follows: Level 1: Unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date. Table of Contents
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Level 2: Quoted prices in inactive markets for identical assets or liabilities, quoted prices for similar assets or liabilities in active markets, or other observable inputs either directly related to the asset or liability or derived principally from corroborated observable market data. Level 3: Unobservable inputs due to the fact that there is little or no market activity. This entails using assumptions in models which estimate what market participants would use in pricing the asset or liability. The Company has consistently applied the valuation techniques discussed
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in Notes 2, 10 and 15 in all periods presented.United States dollars) Recurring Fair Value Measurements The following table summarizes the Company’s financial assets and liabilities measured on a recurring basis at fair value at December 31, 20172019 and 20162018 by respective level of the fair value hierarchy: | | | | | | | | | | | | | | | | Level 1 | | Level 2 | | Level 3 | | Total | | | | (in thousands) | | At December 31, 2017 | | | | | | | | | | | | | | Assets: | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 3,250 | | $ | — | | $ | — | | $ | 3,250 | | Trade accounts receivable | | | 314 | | | — | | | — | | | 314 | | Short-term investments | | | 238 | | | — | | | — | | | 238 | | | | $ | 3,802 | | $ | — | | $ | — | | $ | 3,802 | | | | | | | | | | | | | | | | At December 31, 2016 | | | | | | | | | | | | | | Assets: | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 2,588 | | $ | — | | $ | — | | $ | 2,588 | | Trade accounts receivable | | | 380 | | | — | | | — | | | 380 | | Trade accounts receivable - related party | | | 643 | | | — | | | — | | | 643 | | Short-term investments | | | 334 | | | — | | | — | | | 334 | | | | $ | 3,945 | | $ | — | | $ | — | | $ | 3,945 | | Liabilities: | | | | | | | | | | | | | | Warrant liability - related party | | $ | — | | $ | — | | $ | 976 | | $ | 976 | | Warrant liability | | | — | | | — | | | 922 | | | 922 | | | | $ | — | | $ | — | | $ | 1,898 | | $ | 1,898 | |
| | | | | | | | | | | | | | | | Level 1 | | Level 2 | | Level 3 | | Total | | | | (in thousands) | | At December 31, 2019 | | | | | | | | | | | | | | Assets: | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 4,593 | | $ | — | | $ | — | | $ | 4,593 | | Derivative at fair value | | | — | | | — | | | 254 | | | 254 | | | | $ | 4,593 | | $ | — | | $ | 254 | | $ | 4,847 | | | | | | | | | | | | | | | | At December 31, 2018 | | | | | | | | | | | | | | Assets: | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 3,293 | | $ | — | | $ | — | | $ | 3,293 | | Short-term investments | | | 330 | | | — | | | — | | | 330 | | | | $ | 3,623 | | $ | — | | $ | — | | $ | 3,623 | |
The Company’s cash equivalents, comprised principally of U.S. treasury securities, are classified within Level 1 of the fair value hierarchy. The Company’s trade accounts receivable are classified within Level 1 ofAt December 31, 2019, the fair value hierarchy and areCompany had recorded a “Derivative at Fair Value” asset on the Consolidated Balance Sheets related to the oxideamendment to the Hecla plant lease peragreement (see Notes 9 and 18). The Company has determined that the termsportion of the variable lease rates established inpayment that is based on the plant lease agreement.
At December 31, 2016, the Company recorded a liability for warrants to acquire the Company’s stock as a result of anti-dilution clauses in the warrant agreements that could result in a resetting of the warrant exercise price in the event the Company were to issue additional shares of its common stock in a future transaction at a price lower than the current exerciseaverage price of silver and the warrantsaverage grade of material processed during a given month represents an embedded derivative (see Note 15)9). The Company assesses the fair value of its warrant liabilitythe derivative at the end of each
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reporting period, with changes in the value recorded as an increase or decrease to “Warrant derivative (loss) gainOxide Plant Revenue” ” on the Company’s Condensed Consolidated Statements of OperationsOperations. The derivative asset was recorded at fair value as of December 2, 2019, the effective date of the lease amendment, and Comprehensive Loss.at December 31, 2019, based primarily on a valuation performed by a third-party expert using a Monte Carlo simulation and an option pricing model to calculate the potential discounted cash flow from the derivative based on the probability that the price of silver will have an average price for any given month during 2020 that equals or exceeds $20.00 per ounce or a grade processed equal to or exceeding 1,000 grams per tonne combined with a risk adjusted estimate of material to be processed. The valuation falls within Level 3 of the fair value hierarchy. The valuation policies are approved by the Chief Financial Officer who reviews and approves the inputs used in the fair value calculations and the changes in fair value measurements from period to period for reasonableness. Fair value measurements are discussed with the Company’s Chief Executive Officer, as deemed appropriate. The warrant liability had been recorded atvaluation model primarily takes into consideration the potential At December 31, 2019 the Company did not have any financial assets or liabilities classified within Level 2 of the fair value as ofhierarchy. At December 31, 2016 based primarily on a valuation performed by a third party expert using a Monte Carlo simulation, which falls2018 the Company did not have any financial assets or liabilities classified within Level 2 or Level 3 of the fair value hierarchy. The valuation model takes into account the probability that the Company could issue additional shares in a future transaction at a lower price than the current exercise price of the warrants. The Company did not have a warrant liability Non-recurring Fair Value Measurements There were no non-recurring fair value measurements at December 31, 2017 as the result of a change in accounting principal during the period as discussed in Note 3. The beneficial conversion feature of the Sentient Note represents an embedded derivative as defined by ASC 815 (see Note 10). ASC 815 provides that a derivative instrument’s fair value must be bifurcated from the host contract and separately recorded on the Company’s Condensed Consolidated Balance Sheets. At2019 or December 31, 2015 and at each of the conversion dates (see Note 10), the Company had recorded a derivative liability related to the beneficial conversion feature of the Sentient Note. On June 10, 2016, the remaining Sentient Note and related embedded derivative had been fully retired. The Company assesses the fair value of the derivative liability at the end of each reporting period, with changes in the value recorded as “Derivative loss” on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss. The valuation policies are approved by the Chief Financial Officer who reviews and approves the inputs used in the fair value calculations and the changes in fair value measurements from period to period for reasonableness. Fair value measurements are discussed with the Company’s Chief Executive Officer, as deemed appropriate. The derivative liability was recorded at fair value at December 31, 2015 and each of the conversion dates based primarily on a valuation performed by a third party expert using a Monte Carlo simulation, which falls within Level 3 of the fair value hierarchy. The valuation model takes into account, among other items: 1) the probability of successfully achieving stockholder approval of the loan’s conversion feature, 2) future variations in the Company’s stock price, and 3) the probability of entering into an equity transaction prior to the Loan maturity date that would lower the conversion price.2018.
In addition to the warrant exercise prices (see Note 15) and Sentient Note conversion price (see Note 10) other significant inputs to the warrant valuation model and derivative valuation model included the following as applicable:
| | | | | | | | | | | | December 31, | | | | 2016 | | Company's ending stock price | | $ | 0.58 | | Company's stock volatility | | | 110% | | Applicable risk free interest rate | | | 1.39% | |
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) An increase or decrease in the Company’s stock price, in isolation, would result in a relatively lower or higher fair value measurement respectively. A decrease in the probability of the issuance of additional common stock at a lower price than the current warrant exercise price would result in a lower value for the warrants. The table below highlights the change in fair value of the warrant liability and the derivative liability.
| | | | | | | | Fair Value Measurements | | | | | Using Significant Unobservable | | | | | Inputs (Level 3) | | | | Warrant Liabilities | | | | (in thousands) | | Ending balance at December 31, 2015 | | $ | 1,898 | | Change in estimated fair value | | | (364) | | Ending balance at December 31, 2016 | | $ | 1,534 | |
At December 31, 2017, the remaining warrants are recorded as equity as the result of a change in accounting principal as fully detailed in Note 3.
Non-recurring Fair Value Measurements
There were no non-recurring fair value measurements at December 31, 2017 or December 31, 2016.
The Company assesses the fair value of its long lived assets if circumstances indicate a change in the fair value has occurred. The valuation policies are approved by the Chief Financial Officer who reviews and approves the inputs used in the fair value calculations and the changes in fair value measurements from period to period for reasonableness. Fair value measurements are discussed with the Company’s Chief Executive Officer, as deemed appropriate. No fair value adjustments to long lived assets were recorded during the years ended December 31, 20172019 and December 31, 2016.2018. 14.Income16.Income Taxes
The Company accounts for income taxes in accordance with the provisions of ASC 740 on a tax jurisdictional basis. The provision for income taxes consists of the following: | | | | | | | | | | | | | | | For the Year Ended December 31, | | For the Year Ended December 31, | | | 2017 | | 2016 | | 2019 | | 2018 | CURRENT TAXES: | | (in thousands) | | (in thousands) | United States | | $ | — | | $ | — | | $ | — | | $ | — | Other Countries | | | 13 | | | — | �� | | 35 | | | 13 | | | $ | 13 | | $ | — | | $ | 35 | | $ | 13 | DEFERRED TAXES: | | | | | | | | | | | | | United States | | $ | — | | $ | — | | $ | — | | $ | — | Other Countries | | | — | | | — | | | — | | | — | | | | $ | — | | $ | — | Total income tax provision | | $ | 13 | | $ | — | | $ | 35 | | $ | 13 |
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Income (loss) from operations before income taxes by country consists of the following: | | | | | | | | | | | | | | | | | For the Year Ended December 31, | | | For the Year Ended December 31, | | | | 2017 | | 2016 | | | 2019 | | 2018 | | | | (in thousands) | | | (in thousands) | | United States | | $ | (7,197) | | $ | (11,732) | | | $ | (7,373) | | $ | (1,930) | | Other Countries | | | 3,318 | | | 1,073 | | | | 2,022 | | | (2) | | | | $ | (3,879) | | $ | (10,659) | | | $ | (5,351) | | $ | (1,932) | |
In 2017 theThe Company recorded $35,000 and $13,000 of current tax expense for the years ended December 31, 2019 and December 31, 2018, respectively, stemming primarily from taxable income of a subsidiary in Mexico, and no current taxes were recorded in 2016.Mexico. No deferred taxes were recorded in 20172019 or 2016,2018, as any such tax expense or benefit incurred during the year has been offset against a change in the valuation allowance of various deferred tax assets in each country.
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) A reconciliation of the provision for income taxes computed at the statutory rate to the provision for income taxes as shown in the Consolidated Statements of Operations and Comprehensive Loss is summarized below. | | | | | | | | | | | | | | | | | For Year Ended December 31, | | | For Year Ended December 31, | | | | 2017 | | 2016 | | | 2019 | | 2018 | | | | (in thousands) | | | (in thousands) | | Tax expense (benefit) at US rate of 35% | | $ | (1,319) | | $ | (3,624) | | | Tax expense (benefit) at U.S. rate of 21% | | | $ | (1,124) | | $ | (406) | | Other adjustments: | | | | | | | | | | | | | | | Rate differential of other jurisdictions | | | (70) | | | (98) | | | | 292 | | | 67 | | Effects of foreign earnings | | | 310 | | | (786) | | | | (937) | | | (455) | | Change in valuation allowance | | | 33,975 | | | (4,690) | | | | (78) | | | (16,142) | | Provision to tax return true-ups | | | (33,720) | | | 209 | | | | (24) | | | (2,012) | | Exchange rate changes on deferred tax assets | | | (8,444) | | | 8,802 | | | | 1,340 | | | 5,891 | | Effect of a change in tax rates | | | 11,516 | | | (1,177) | | | Debt extinguishment loss | | | — | | | 550 | | | Warrant liability loss | | | — | | | 838 | | | Tax loss on sale of subsidiary | | | (1,693) | | | — | | | GILTI inclusion | | | | 537 | | | — | | Inflation adjustment on net operating losses | | | (2,491) | | | — | | | | (1,183) | | | (550) | | Expired net operating losses | | | 1,931 | | | — | | | | 1,138 | | | 13,669 | | Other | | | 18 | | | (24) | | | | 74 | | | (49) | | Income tax provision | | $ | 13 | | $ | — | | | $ | 35 | | $ | 13 | |
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The components of the deferred tax assets and deferred tax liabilities are as follows: | | | | | | | | | | | | | | | | | For the year ended | | | For the year ended | | | | December 31, | | | December 31, | | | | 2017 | | 2016 | | | 2019 | | 2018 | | | | (in thousands) | | | (in thousands) | | Deferred tax assets: | | | | | | | | | | | | | | | Net operating loss carryforwards | | $ | 131,866 | | $ | 96,038 | | | $ | 112,553 | | $ | 117,665 | | Stock-based compensation | | | 517 | | | 1,435 | | | | 671 | | | 593 | | Property, plant and equipment | | | 4,307 | | | 7,545 | | | | 2,940 | | | 3,284 | | Other | | | 3,274 | | | 1,016 | | | | 2,985 | | | 2,809 | | | | | 139,964 | | | 106,034 | | | | 119,149 | | | 124,351 | | Less: Valuation allowance | | | (139,795) | | | (105,820) | | | | (118,283) | | | (123,652) | | Total deferred tax assets | | | 169 | | | 214 | | | | 866 | | | 699 | | | | | | | | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | | | | | | | Property, plant and equipment | | | (169) | | | (195) | | | | (686) | | | (699) | | Other | | | — | | | (19) | | | | (180) | | | — | | Total deferred tax liabilities | | | (169) | | | (214) | | | | (866) | | | (699) | | Net deferred tax asset (liability) | | $ | — | | $ | — | | | $ | — | | $ | — | |
In accordance with ASC 740, the Company presents deferred tax assets net of its deferred tax liabilities on a tax jurisdictional basis on its Consolidated Balance Sheets. The net deferred tax liability as of December 31, 20172019 and December 31, 20162018 was zero. At the end of 2017 a new U.S. tax law was enacted, lowering the U.S. corporate tax rate beginning in 2018 to 21% from the top rate of 35% beginning in 2018. The tax rate change resulted in a reduction of the Company’s U.S. deferred tax assets by $10.2 million. The Company’s deferred tax assets are currently completely offset by a valuation allowance so the reduction in U.S. deferred tax assets has no impact on the Company’s financial statements for the year ended December 31, 2017.. In addition, the new U.S. tax law imposes a transition tax onintroduced the accumulated earnings and profits of controlled foreign corporations (“CFC’s). NoneGlobal Intangible Low Taxed Income (GILTI) tax. During 2019, one of the Company’s CFCs currently have accumulated earnings and profits and therefore the Company has no transition tax liability. No other provisions of the new tax lawforeign subsidiaries had a material impact on the Company’s financial statements for the period ended December 31, 2017. Based on the Company’s current interpretation and subjectsignificant taxable income prior to the release of the related regulations and any future interpretive guidance, the Company believes the effects of the change in the tax law incorporated herein are substantially complete. At December 31, 2017 the Company had net operating loss carryforwards in the U.S. and in certain non-U.S. jurisdictions totaling $484.9 million. Of these, $83.9 million is related to the Velardeña Properties in Mexico and expires in future years through 2027, $22.6 million is related to other Mexico exploration activities expiring in future years through 2027, $121.1 million exists in Spain and has no expiration date, and $186.5 million exists in other non-U.S. countries, which will expire in future years through 2027. In the U.S. there are $70.8 million of net operating loss carryforwards which will expire in future years through 2037.
The valuation allowance offsetting the net deferred tax assets of the Company of $139.8 million and $105.8 million at December 31, 2017 and 2016, respectively, relates primarily to the uncertain utilization of certain deferred tax assets, primarily net operating loss carryforwards, in various tax jurisdictions. The Company continually assesses both
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) loss carryovers, which resulted in a GILTI income inclusion of approximately $2.6M. The GILTI income was fully offset by the Company’s current U.S. income tax losses. There was no significant GILTI income inclusion in 2018. No other provisions of the new tax law had a material impact on the Company’s financial statements for the periods ended December 31, 2019 and 2018. At December 31, 2019 the Company had net operating loss carryforwards in the U.S. and in certain non-U.S. jurisdictions totaling $435.6 million. Of these, $80.1 million is related to the Velardeña Properties in Mexico and expires in future years through 2028, $13.7 million is related to other Mexico exploration activities expiring in future years through 2029, $88.5 million exists in Spain and has no expiration date, and $176.6 million exists in other non-U.S. countries, which will expire in future years through 2036. In the U.S. there are $76.7 million of net operating loss carryforwards which have no expiration. The valuation allowance offsetting the net deferred tax assets of the Company of $123.5 million and $118.3 million at December 31, 2019 and 2018, respectively, relates primarily to the uncertain utilization of certain deferred tax assets, primarily net operating loss carryforwards, in various tax jurisdictions. The Company continually assesses both positive and negative evidence to determine whether it is more likely than not that deferred tax assets can be realized prior to their expiration. In the third quarter 2019, the Company became aware that it had failed to timely file withholding tax returns and pay taxes that were due relating to return of capital distributions made to the Company by ECU Silver Mining Inc. (the Company’s wholly-owned Canadian subsidiary) at the end of 2017 and 2018. The capital distributions constituted dividends under Canadian tax law, subject to a 5% withholding tax. The Canadian withholding taxes, which constituted taxes on income for the months of December 2017 and December 2018, totaled approximately $292,000 at December 31, 2019, including an estimate of interest due of approximately $23,000 on the late filing. The Company has accrued this amount in “other accrued liabilities” in its Condensed Consolidated Balance Sheets at December 31, 2019. The Company has treated the income tax expense related to this liability as the correction of an accounting error and has adjusted the beginning balance of retained earnings at January 1, 2018 and January 1, 2019 (Note 3). In February 2020 the Company applied to enter into the Canadian Revenue Agency’s Voluntary Disclosure Program, whereby the Company paid the taxes and the estimated interest due and requested abatement of any penalties or additional interest that may apply. If the Canada Revenue Agency denies the Company’s request for abatement, additional interest and penalties could be assessed. The Company, a Delaware corporation, and its subsidiaries file tax returns in the United States and in various foreign jurisdictions. The tax rules and regulations in these countries are highly complex and subject to interpretation. The Company’s tax returns are subject to examination by the relevant taxing authorities and in connection with such examinations, disputes can arise with the taxing authorities over the interpretation or application of certain tax rules within the country involved. In accordance with ASC 740, the Company identifies and evaluates uncertain tax positions, and recognizes the impact of uncertain tax positions for which there is less than a more-likely-than-not probability of the position being upheld upon review by the relevant taxing authority. Such positions are deemed to be “unrecognized tax benefits” which require additional disclosure and recognition of a liability within the financial statements. If recognized, none of the unrecognized tax benefits would affect the Company’s effective tax rate. The Company had no unrecognized tax benefits at December 31. 2019 or December 31, 2018. Below is a reconciliation of the beginning and ending amount of gross unrecognized tax benefits, which excludes any estimated penalties and interest on all identified unrecognized tax benefits. The Company’s unrecognized tax benefits Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) as of December 31, 20172019 and 20162018 are completely offset by net deferred tax benefits and therefore do not appear on the Consolidated Balance Sheet. | | | | | | | | | | | | | | | | | The Year Ended December 31, | | | The Year Ended December 31, | | | | 2017 | | 2016 | | | 2019 | | 2018 | | | | (in thousands) | | | (in thousands) | | Gross unrecognized tax benefits at beginning of period | | $ | 740 | | $ | 937 | | | $ | 373 | | $ | 586 | | Increases for tax positions taken during prior years | | | — | | | — | | | | — | | | — | | Decreases relating to settlements with taxing authorities | | | — | | | — | | | | — | | | — | | Reductions due to lapse of statute of limitations | | | (154) | | | (197) | | | | (104) | | | (213) | | Gross unrecognized tax benefits at end of period | | $ | 586 | | $ | 740 | | | $ | 269 | | $ | 373 | |
Tax years as early as 20122014 remain open and are subject to examination in the Company’s principal tax jurisdictions. The Company does not expect a significant change to its net unrecognized tax benefits over the next 12 months. No interest and penalties were recognized in the Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 20172019 or 2016,2018, and there were no interest and penalties recognized in the statement of financial position as of December 31, 20172019 and 2016.2018. The Company classifies income tax related interest and penalties as income tax expense. 15.Equity17.Equity
Cancellation of Treasury SharesOffering and private placement transaction
Pursuant toOn July 17, 2019, the terms ofCompany entered into an agreement betweenwith certain institutional investors providing for the Companyissuance and ECU, relating to the mergersale of the two companies on September 2, 2011, ECU shareholders had the right to receive 0.058,653,846 shares of the Company’s common stock for eachat a price of $0.26 per share, and in a concurrent private placement transaction, the issuance of ECU common stock held. On the sixth anniversary following the merger any unconverted shares expired per the terms of the agreement. Accordingly, during December 2017, ECU shares being held for conversion, representing 125,7398,653,846 Series A warrants to purchase up to 8,653,846 shares of the Company’s common stock at an exercise price of $0.35 per share, for aggregate gross proceeds of $2.25 million (the “Offering”). Each Series A warrant became exercisable on January 17, 2020 and will expire on January 17, 2025, five years from the initial exercise date. Each of the investors in the Offering held warrants that were issued by the Company in May 2016 and were returnedexercisable until November 2021 at an exercise price of $0.75 per share. In connection with the Offering, the Company also agreed to treasuryexchange, on a one-for-one basis, the May 2016 warrants for Series B warrants to purchase 4,500,000 shares of common stock at an exercise price of $0.35 per share. Each Series B warrant became exercisable on January 17, 2020 and canceled.will expire on May 20, 2022 but are otherwise subject to the same terms and conditions as the Series A warrants.
The net proceeds of the Offering were recorded in equity and appear as a separate line item in the Condensed Consolidated Statements of Changes in Equity. Total costs for the Offering were approximately $0.3 million, including the placement agent fee of six percent of aggregate gross proceeds, listing fees and legal and other costs. Such costs were recorded as a reduction to “Additional paid in capital” on the Condensed Consolidated Balance Sheets. Using the Black Scholes model, the fair value of the Series A warrants issued was approximately $2.1 million and the incremental fair value of the Series B warrants, when compared to the warrants that they replaced, was approximately $0.3 million. The Black Scholes inputs for the Series A warrants included the closing stock price on July 16, 2019 (the day preceding the date the Company entered into the agreement to issue the shares) of $0.33, the exercise price and exercise period of the warrants, the Company’s applicable volatility rate for the period of the Series A warrants of 95%, and the applicable risk-free rate of 1.9%. The Black Scholes inputs for the Series B warrants included the closing stock price on July 16, 2019 of $0.33, the exercise price and exercise period of the warrants, the Company’s applicable volatility rate for the period of the Series B warrants of 88%, and the applicable risk-free rate of 1.9%. Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) Consideration Shares
Registered direct purchase agreement and commitment purchase agreement and registration rights agreement On August 2, 2017,May 9, 2018 the Company granted Hecla an optionentered into a registered direct purchase agreement (the “Registered Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”) pursuant to extend the oxide plant lease for an additional period of up to two years (see Note 16). As partial consideration for the option Heclawhich LPC purchased $1.0 million, or approximately 1.8 million3,153,808 shares of the Company’s common stock (the “Consideration Shares”), issued at a price of $0.55$0.4122 per share, which was the undiscounted 30-day volume weighted averageclosing price of the Company’s common stock price. The Consideration Shares were offered and sold without registration under the Securities Act of 1933, as amended (the “Act”) in reliance on the exemptions provided by Section 4(a)(2)NYSE American on May 8, 2018, for an aggregate purchase price of $1.3 million. On May 9, 2018, the Company also entered into a commitment purchase agreement (the “Commitment Purchase Agreement” and together with the Registered Purchase Agreement, the “LPC Program”) and a registration rights agreement (the “Registration Rights Agreement”) with LPC, pursuant to which the Company, at its sole discretion, has the right to sell up to an additional $10.0 million of the Act and/or Regulation D promulgated thereunder. UnderCompany’s common stock to LPC, subject to certain limitations and conditions contained in the Commitment Purchase Agreement. The Company closed on the Commitment Purchase Agreement in July 2018. On June 7, 2018, pursuant to the terms of the Option Agreement (defined herein),Registration Rights Agreements, the Company filed a registration statement on Form S-1 (File No. 333-225483) (the “Registration Statement”) registering the resale up to 15,222,941 shares of the Company’s common stock to be issued to LPC pursuant to the terms of the Commitment Purchase Agreement. The Registration Statement was declared effective on June 28, 2018. Proceeds from the LPC Program will be used for general corporate purposes, including advancing the exploration program at the Company’s El Quevar property in Argentina. Subject to the terms of the Commitment Purchase Agreement, the Company will control the timing and amount of any future sale of the Company’s common stock to LPC. LPC has no right to require any sales by the Company under the Commitment Purchase Agreement but is obligated to make purchases at the Company’s sole direction, as governed by such agreement. There are no upper limits to the price LPC may be obligated to pay to purchase common stock from the Company and the purchase price of the shares will be based on the prevailing market prices of the Company’s shares at the time of each sale to LPC. LPC has agreed not to registercause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s shares of common stock. The Company has the right to terminate the Commitment Purchase Agreement at any time, at its discretion, without any cost or penalty. In consideration for LPC’s commitment to purchase shares pursuant to the Commitment Purchase Agreement, the Company paid LPC a commitment fee of $300,000 and incurred an additional approximate $190,000 in stock exchange fees, legal and other associated costs in connection with the SEC the resale of the Consideration Shares. A resale registration statement with the SEC became effective in September 2017.LPC Program. The $1.0 million receivedtotal costs for the Consideration Shares, net of $71,000 in legal and stock exchange issuance fees, has beenLPC Program will be recorded as a reduction to equity as common stock is sold to LPC. As of December 31, 2018, approximately $58,000 of LPC Program costs had been amortized against $1.3 million in proceeds received, resulting in $432,000 of deferred LPC Program costs, recorded in “Other long-term assets” on the Consolidated Balance Sheets. As of December 31, 2018, no additional common stock had been sold to LPC under the LPC Program following the initial sale of common stock pursuant to the Registered Purchase Agreement. During the year ended December 31, 2019 the Company sold 2,113,642 shares of common stock to LPC under the LPC Program at an average sales price per share of approximately $0.28, resulting in net proceeds of approximately $590,000. In addition, approximately $58,000 of LPC Program costs were amortized, resulting in a remaining balance of $376,000 of deferred LPC Program costs, recorded in “Other long-term assets” on the Condensed Consolidated Balance Sheets atas of December 31, 2017.2019. Subsequent to December 31, 2019 the Company sold an aggregate of approximately 825,000 common shares under the Commitment Purchase Agreement at an average price of $0.27 per common share for total proceeds of approximately $0.2 million during the year to date period ended February 25, 2020. Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) At the Market Offering Agreement In December 2016, the Company entered into an at-the-market offering agreement (as amended from time to time, the “ATM Agreement”) with H. C. Wainwright & Co., LLC (“Wainwright”), under which the Company may, from time to time, issue and sell shares of the Company’s common stock through Wainwright as sales manager in an at-the-market offering under a prospectus supplement for aggregate sales proceeds of up to $5.0 million (the “ATM Program”) or a maximum of 10 million shares. On September 29, 2017, the Company entered into an amendment to the ATM Agreement with Wainwright to reflect a new registration statement on Form S-3 (File No. 333-220461) under which shares of the Company’s common stock may be sold under the ATM Program. TheOn November 23, 2018 the Company entered into a second amendment of the ATM Agreement will remain in full force and effectextending the agreement until the earlier of December 31, 2018,20, 2020, or the date that the ATM Agreement is terminated in accordance with the terms therein. Offers or sales of common shares under the ATM Program will be made only in the United States and no offers or sales of common shares under the ATM Agreement will be made in Canada. The common stock will be distributed at the market prices prevailing at the time of sale. As a result, prices of the common stock sold under the ATM Program may vary as between purchasers and during the period of distribution. The ATM Agreement provides that Wainwright will be entitled to compensation for its services at a commission rate of 2.0% of the gross sales price per share of common stock sold. The Company reimbursed certain legal expenses of Wainwright totaling $50,000 and incurred additional accounting, legal, and regulatory costs of approximately $109,000 in connection with establishing the ATM Program. Such costs have been deferred and will be amortized to equity as sales are completed under the ATM Program. At December 31, 2017,2019 and December 31, 2018, respectively, unamortized costs totaling $135,000 and $136,000 appear on the accompanying Consolidated Balance Sheets as ““OPrepaid expense and otherther long-term assets.” During the year ended December 31, 20172019, the Company sold an aggregate of 33,995 shares of common stock under the ATM Agreement at an average price of $0.34 per share of common stock for total proceeds of approximately $11,000. Subsequent to December 31, 2019 the Company sold an aggregate of approximately 1,024,000545,000 common shares under the ATM Program at an average price of $0.70$0.31 per common share for grosstotal proceeds of approximately $720,000. $0.2 million during the year to date period ended February 25, 2020. The Company paid cash commissions and other nominal transaction fees to Wainwright totaling approximately $16,000 or 2.2% ofdid not sell any stock under the gross proceeds and amortized approximately $23,000 of deferred accounting, legal and regulatory costs resulting in a net amount of approximately $682,000 that has been recorded as equity in the Condensed Consolidated Balance Sheets. DuringATM Program during the year ended December 31, 20172018. During the years ended December 31, 2019 and 2018, the Company also incurred a nil amount and approximately $34,000$15,000, respectively in additional accounting, legal, and regulatory costs associated with the ATM Program that were included in “General and administrative costs” in the Condensed Consolidated Statement of Operations and Comprehensive Loss.Operations. Sentient Note conversion
On February 11, 2016, Sentient converted approximately $3.9 million of principal and $0.1 million of accrued interest (representing the total amount of accrued interest at the conversion date) into 23,355,000 shares of the Company's
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GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
common stock at an exercise price of approximately $0.172 per share, reflecting 90% of the 15-day VWAP immediately preceding the conversion date. On June 10, 2016, Sentient converted the remaining approximately $1.1 million of principal and approximately $34,000 of accrued interest (representing the total amount of accrued interest at the conversion date) pursuant to the Sentient Note into 4,011,740 shares of the Company's common stock at an exercise price of approximately $0.289 per share, equal to 90% of the 15‐day VWAP immediately preceding the loan’s original issue date (see Note 10). At September 30, 2016 the Sentient Note had been fully converted and the Company had no further debt outstanding. After conversion, and following the sale of additional shares of the Company’s common stock in 2017 pursuant to the ATM Program (discussed above), Sentient holds approximately 45% of the Company’s 91.9 million shares of issued and outstanding common stock.
Offering and Private Placement
On May 6, 2016, the Company issued 8.0 million registered shares of common stock at a purchase price of $0.50 per share in a registered direct offering (the “Offering”) resulting in gross proceeds of $4.0 million. The Company incurred costs and fees of approximately $0.4 million related to the Offering, resulting in net proceeds of approximately $3.6 million. In connection with the Offering, each investor received in a private placement an unregistered warrant to purchase three‐quarters of a share of common stock for each share of common stock purchased. The 6.0 million warrants have an exercise price of $0.75 per share and are exercisable beginning six months after the date of issuance and will expire five years from the initial exercise date.
The net proceeds of the Offering were recorded in equity and appear as a separate line item in the Consolidated Statements of Changes in Equity. Using the Black Scholes model, the fair value of the warrants issued was $3.6 million, considering the closing stock price on April 29, 2016 (the first business day preceding May 2, 2016, the date the Company entered into a definitive agreement to issue the shares), the exercise price and exercise period of the warrants, the Company’s volatility rate of 105%, and the applicable risk free rate of 0.74%.
Equity Incentive Plans In May 2014,Under the Company’s stockholders approved amendments to the Company’s 2009 Equity Incentive Plan, adopting the Amended and Restated 2009 Equity Incentive Plan (the “Equity Plan”), pursuant to which awards of the Company’s common stock may be made to officers, directors, employees, consultants and agents of the Company and its subsidiaries. The Company recognizes stock-based compensation costs using a graded vesting attribution method whereby costs are recognized over the requisite service period for each separately vesting portion of the award.
The following table summarizes the status of the Company’s restricted stock grants issued under the Equity Plan at December 31, 2019 and 2018 and changes during the years then ended: Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) The following table summarizes the status of the Company’s restricted stock grants issued under the Equity Plan at December 31, 2017 and 2016 and changes during the years then ended:
| | | | | | | | | | | | | | | | | | | | | | | | | The Year Ended December 31, | | | The Year Ended December 31, | | | | 2017 | | 2016 | | | 2019 | | 2018 | | | | | | Weighted | | | | Weighted | | | | | Weighted | | | | Weighted | | | | | | Average Grant | | | | Average | | | | | Average Grant | | | | Average | | | | | | Date Fair | | | | Grant Date | | | | | Date Fair | | | | Grant Date | | | | Number of | | Value Per | | Number of | | Fair Value | | | Number of | | Value Per | | Number of | | Fair Value | | Restricted Stock Grants | | Shares | | Share | | Shares | | Per Share | | | Shares | | Share | | Shares | | Per Share | | Outstanding at beginning of period | | 100,000 | | $ | 0.63 | | 84,170 | | $ | 0.46 | | | 340,001 | | $ | 0.45 | | 203,334 | | $ | 0.55 | | Granted during the period | | 200,000 | | | 0.53 | | 100,000 | | | 0.63 | | | 312,000 | | | 0.26 | | 280,000 | | | 0.37 | | Restrictions lifted during the period | | (96,666) | | | 0.60 | | (84,170) | | | 0.46 | | | (333,998) | | | 0.41 | | (143,333) | | | 0.44 | | Forfeited during the period | | — | | | — | | — | | | — | | | — | | | — | | — | | | — | | Outstanding at end of period | | 203,334 | | $ | 0.55 | | 100,000 | | $ | 0.63 | | | 318,003 | | $ | 0.30 | | 340,001 | | $ | 0.45 | |
During the year ended December 31, 2017 restricted stock grants were made to two employees. During the year ended December 31, 2016 restricted stock grants were made to three employees. Restrictions were lifted on 46,666 shares during the year ended December 31, 2017 on the anniversaries of grants made to three employees in prior years. In addition, during 2017, 50,000 shares of a 150,000 share grant to a new employee vested on the grant date. Restrictions were lifted on 84,170 shares during the year ended December 31, 2016 on the anniversaries of grants made to two officers in prior years.
For the year ended December 31, 20172019 the Company recognized approximately $0.1 million of compensation expense related to the restricted stock grants. ForThe Company expects to recognize additional compensation expense related to these awards of approximately $0.1 million over the next 18 months. During the year ended December 31, 20162019, 312,000 shares were granted to two employees, with 104,000 shares vesting on the grant date and the remaining shares vesting equally on the first and second anniversaries of the grant date. In addition, during 2019, restrictions were lifted on 229,998 shares granted to five employees in a prior year.
During the year ended December 31, 2018 the Company recognized a nominal amountapproximately $0.1 million of compensation expense related to the restricted stock grants. The Company expectsDuring the year ended December 31, 2018, 280,000 shares were granted to recognize approximately $0.1 millionsix employees, with one third of compensation expense relatedthe grants vesting on the grant date and the remaining shares vesting equally on the first and second anniversaries of the grant date. In addition to these grants over the next 35 months.vesting of one third of the shares granted in 2018, restrictions were lifted on 50,000 shares granted to an employee in a prior year. The following table summarizes the status of the Company’s stock option grants issued under the Equity Plan at December 31, 20172019 and 20162018 and changes during the years then ended: | | | | | | | | | | | | | | | | | | | | | | | | | The Year Ended December 31, | | | The Year Ended December 31, | | | | 2017 | | 2016 | | | 2019 | | 2018 | | | | | | Weighted | | | | Weighted | | | | | Weighted | | | | Weighted | | | | | | Average | | | | Average | | | | | Average | | | | Average | | | | | | Exercise | | | | Exercise | | | | | Exercise | | | | Exercise | | | | Number of | | Price Per | | Number of | | Price Per | | | Number of | | Price Per | | Number of | | Price Per | | Equity Plan Options | | Shares | | Share | | Shares | | Share | | | Shares | | Share | | Shares | | Share | | Outstanding at beginning of period | | 95,810 | | $ | 8.02 | | 245,810 | | $ | 3.47 | | | 30,310 | | $ | 8.06 | | 40,310 | | $ | 8.05 | | Granted during the period | | — | | | — | | — | | | — | | | — | | | — | | — | | | — | | Forfeited or expired during period | | (55,500) | | | 8.00 | | (150,000) | | | 0.56 | | | — | | $ | — | | (10,000) | | | 8.00 | | Exercised during period | | — | | | — | | — | | | — | | | — | | | — | | — | | | — | | Outstanding at end of period | | 40,310 | | $ | 8.05 | | 95,810 | | $ | 8.02 | | | 30,310 | | $ | 8.06 | | 30,310 | | $ | 8.06 | | Exercisable at end of period | | 40,310 | | $ | 8.05 | | 95,810 | | $ | 8.02 | | | 30,310 | | $ | 8.06 | | 30,310 | | $ | 8.06 | | Granted and vested | | 40,310 | | $ | 8.05 | | 95,810 | | $ | 8.02 | | | 30,310 | | $ | 8.06 | | 30,310 | | $ | 8.06 | |
The Company does not expect to record any additional expense related to these options. Table of Contents
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
Also, pursuant to the Equity Plan, the Company’s Board of Directors adopted the Non-Employee Director’s Deferred Compensation and Equity Award Plan (the “Deferred Compensation Plan”). Pursuant to the Deferred Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) Compensation Plan the non-employee directors receive a portion of their compensation in the form of Restricted Stock Units (“RSUs”) issued under the Equity Plan. The RSUs vest on the first anniversary of the grant and each vested RSU entitles the director to receive one unrestricted share of common stock upon the termination of the director’s board service. The following table summarizes the status of the RSU grants issued under the Deferred Compensation Plan at December 31, 20172019 and 20162018 and changes during the years then ended: | | | | | | | | | | | | | | | | | | | | | | | | | The Year Ended December 31, | | | The Year Ended December 31, | | | | 2017 | | 2016 | | | 2019 | | 2018 | | | | | | Weighted | | | | Weighted | | | | | Weighted | | | | Weighted | | | | | | Average Grant | | | | Average | | | | | Average Grant | | | | Average | | | | | | Date Fair | | | | Grant Date | | | | | Date Fair | | | | Grant Date | | | | Number of | | Value Per | | Number of | | Fair Value | | | Number of | | Value Per | | Number of | | Fair Value | | Restricted Stock Units | | Shares | | Share | | Shares | | Per Share | | | Shares | | Share | | Shares | | Per Share | | Outstanding at December 31, 2016 | | 1,607,317 | | $ | 1.28 | | 1,245,285 | | $ | 1.66 | | | Outstanding at beginning of period | | | 2,230,038 | | $ | 0.93 | | 1,887,317 | | $ | 1.16 | | Granted during the period | | 280,000 | | | 0.48 | | 530,000 | | | 0.42 | | | 600,000 | | | 0.24 | | 600,000 | | | 0.42 | | Restrictions lifted during the period | | — | | | — | | (167,968) | | | 1.40 | | | — | | | — | | (257,279) | | | 1.44 | | Forfeited during the period | | — | | | — | | — | | | — | | | — | | | — | | — | | | — | | Outstanding at December 31, 2017 | | 1,887,317 | | $ | 1.16 | | 1,607,317 | | $ | 1.28 | | | Outstanding at end of period | | | 2,830,038 | | $ | 0.78 | | 2,230,038 | | $ | 0.93 | |
For the years ended December 31, 20172019 and 20162018 the Company recognized approximately $0.1 million and $0.2 million of compensation expense, respectivelyeach year, related to the RSU grants. During each of the years 2019 and 2018, 100,000 RSUs were granted to each of the six board members. Restrictions lifted on 257,279 RSU shares during 2018 relate to the retirement of a member of the Company’s Board of Directors during the year. The Company expects to recognize additional compensation expense related to the RSU grants of less thanapproximately $0.1 million over the next six months. Restrictions lifted on 167,968 RSU shares during 2016 all relate to the retirement of Michael T. Mason from the Company’s Board of Directors during the year.
Key Employee Long-Term Incentive Plan Pursuant toThe Company’s 2013 Key Employee Long-Term Incentive Plan (the “KELTIP”) provides for the grant of units (“KELTIP (see Note 9), KELTIP Units may be grantedUnits”) to certain officers and key employees of the Company, which units will, once vested, entitle such officers and employees to receive an amount, in cash or in Company common stock (such method of settlement at the sole discretion of the Board of Directors) issued pursuant to the Company’s Equity Plan, measured generally by the price of the Company's Company’s common stock on the settlement date. The KELTIP Units are recordednot an actual equity interest in the Company and are solely unfunded and unsecured obligations of the Company that are not transferable and do not provide the holder with any stockholder rights. Payment of the settlement amount of vested KELTIP Units is deferred generally until the earlier of a change of control of the Company or the date the grantee ceases to serve as a liability as discussed in Note 9.an officer or employee of the Company.
During the year ended December 31, 2017On February 26, 2019, the Company awarded 435,000an additional total of 705,000 KELTIP Units to two officers of the Company. Due to the Company’s desire to preserve its limited current cash reserves for funding expenditures related to its portfolio of exploration projects, the Company anddetermined it no longer had the current intent to settle any of its outstanding KELTIP Units in cash. The Company now intends to settle all of the KELTIP Units, including those previously issued, in common stock of the Company, an option that the Board of Directors holds in its sole discretion so long as sufficient shares remain available under the Equity Plan. As a result, the Company recorded approximately $0.2 million$254,000 of compensation expense, included in ““Stock based compensationcompensation”” in the Condensed Consolidated Statement of Operations and Comprehensive Loss. At December 31, 2017,for the KELTIP Units were marked-to-market andawarded on February 26, 2019 with a similar amount recorded as “Additional Paid-in Capital” in the Consolidated Statements of Changes in Equity. The Company recognized approximately a $0.1 million reduction of compensation expense. At December 31, 2017 1,020,000has treated the previously awarded KELTIP Units were outstanding.
Duringas effectively modified at February 26, 2019. The Company marked-to-market the year ended December 31, 2016 the Company awarded 585,000prior KELTIP Units to two officersas of the Companythat date and recorded approximately $0.2 million$227,000 of additional compensation expense, included in ““Stock based compensationcompensation”” in the Condensed Consolidated Statement of Operations and Comprehensive Loss. At December 31, 2016 the KELTIP Units were marked-to-market and the Company recognized approximately $0.1 million of additional compensation expense. At December 31, 2016 585,000 KELTIP Units were outstanding.
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) Operations and recorded approximately $583,000 as “Additional Paid-in Capital” in the Consolidated Statements of Changes in Equity, an amount representing the sum of the compensation expense recorded on February 26, 2019 and the liability for the KELTIP Units recorded at December 31, 2018. All KELTIP Units are recorded in equity at December 31, 2019. At December 31, 2019 2,325,000 KELTIP Units were outstanding. At December 31, 2018 the Company had awarded 1,620,000 KELTIP Units to two officers of the Company, reported as a liability of approximately $356,000 and included in “Accounts payable and other accrued liabilities” in the Consolidated Balance Sheets on the basis that the Company had the intent to settle the obligation in cash. Through December 31, 2018, the KELTIP Units were marked to market at the end of each reporting period and for the year ended December 31, 2018 the Company recognized an approximate $334,000 reduction to compensation expense related to the KELTIP Units. At December 31, 2018 1,620,000 KELTIP Units were outstanding. Common stock warrants The following table summarizes the status of the Company’s common stock warrants at December 31, 20172019 and December 31, 216,2018, and the changes during the years then ended: | | | | | | | | | | | | | | | | | | | | | | | | | The Year Ended December 31, | | | The Year Ended December 31, | | | | 2017 | | 2016 | | | 2019 | | 2018 | | | | | | Weighted | | | | Weighted | | | | | Weighted | | | | Weighted | | | | Number of | | Average Exercise | | Number of | | Average Exercise | | | Number of | | Average Exercise | | Number of | | Average Exercise | | | | Underlying | | Price Per | | Underlying | | Price Per | | | Underlying | | Price Per | | Underlying | | Price Per | | Common Stock Warrants | | Shares | | Share | | Shares | | Share | | | Shares | | Share | | Shares | | Share | | Outstanding at December 31, 2016 | | 17,578,950 | | $ | 2.17 | | 8,777,409 | | $ | 3.96 | | | Granted during period | | — | | | — | | 6,000,000 | | | 0.75 | | | Outstanding at beginning of period | | | 11,517,696 | | $ | 0.81 | | 11,478,172 | | $ | 0.81 | | Granted during the period: | | | | | | | | | | | | | Series A warrants | | | 8,653,846 | | | 0.35 | | — | | | — | | Dilution adjustment | | 157,302 | | | | | 2,801,541 | | | — | | | 168,669 | | | 0.80 | | 39,524 | | | 0.87 | | Expired during period | | (6,258,080) | | | 4.62 | | — | | | — | | | (5,686,365) | | | 0.80 | | — | | | — | | Exchanged during the period: | | | | | | | | | | | | | May 2016 warrants | | | (4,500,000) | | | 0.75 | | — | | | | | Series B warrants | | | 4,500,000 | | | 0.35 | | — | | | | | Exercised during period | | — | | | | | — | | | — | | | — | | | | | — | | | — | | Outstanding at December 31, 2017 | | 11,478,172 | | $ | 0.81 | | 17,578,950 | | $ | 2.17 | | | Outstanding at end of period | | | 14,653,846 | | $ | 0.39 | | 11,517,696 | | $ | 0.81 | |
The warrants relate to prior and current registered offerings and private placements of the Company’s stock. In September 2012,2014, the Company closed on both a registered public offering and concurrent private placement with The Sentient in which it sold units, consisting of one share of common stock and a five-year warrant to acquire one half of a share of common stock at an exercise price of $8.42 per share. A total of 3,431,649 warrant shares were issued and became exercisable on March 20, 2013 and expired on September 19, 2017, five years from the date of issuance. In September 2014 the Company closed on both a registered public offering and concurrent private placement with SentientGroup (“Sentient”) in which it sold units, consisting of one share of common stock and a five-year warrant to acquire one half of a share of common stock at an exercise price of $1.21 per share. A total of 4,746,000 warrant shares were issued that became exercisable on March 11, 2015. Pursuant to the anti-dilution clauses in the 2014 warrant agreements, the exercise price of the warrants has been adjusted downward as a result of the subsequent issuance of the Company’s common stock in separate transactions, including the conversion of the Senior Secured Convertible Note which the Company entered into in October 2015 to borrow $5.0 million from Sentient, the Company’s largest stockholder, the May 2016 Offering and will expireprivate placement, the ATM Program, the issuance of shares to Hecla in August 2017, the Registered Purchase Agreement with LPC and LPC share sales (discussed above) and the July 17, 2019 offering and private placement transaction. Prior to their expiration on September 10, 2019, the number of shares of common stock
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) issuable upon exercise of the September 2014 warrants increased from the original 4,746,000 shares to 5,686,365 shares (940,365 share increase) and the exercise price had been reduced from the original $1.21 per share to $0.80 per share. The 5,686,365 warrants expired on September 10, 2019, five years from the original date of issuance. In May 2016, the Company issued 8.0 million registered shares of common stock at a purchase price of $0.50 per share in a registered direct offering (the “Offering”) resulting in gross proceeds of $4.0 million. In connection with the Offering, each investor received an unregistered warrant to purchase three‐quarters of a share of common stock for each share of common stock purchased. The resulting 6,000,000 warrant shares have an exercise price of $0.75 per share, became exercisable on November 7, 2016 and will expire on November 6, 2021, five years from the initial exercise date. In connection with the July 2019 registered direct offering discussed above, the Company agreed to exchange, on a one-for-one basis, 4,500,000 of the May 2016 warrants for Series B warrants to purchase 4,500,000 shares of common stock at an exercise price of $0.35 per share. Each Series B warrant is exercisable six months from the date of issuance and has a term expiring in May 2022. The September 2012 and 2014 warrant agreements contain anti-dilution clauses that could result in a resetting of the warrant exercise price and the number of warrant shares outstanding in the eventAs discussed above, on July 17, 2019, the Company were to issue additionalissued 8,653,846 registered shares of its common stock in a future transaction at an offering price lower than the current exercise price of the warrants. Asregistered direct offering. In a result of the subsequent issuance of the Company’s common stock in separate transactions, including the September 2014 registered public offering andconcurrent private placement the conversion of the Sentient Note, the May 2016 Offering and private placement, the ATM Program and the Hecla Share Issuance (defined herein) the exercise price of the 2012 and 2014 warrants has been adjusted downward. Astransaction, each investor received a result of these transactions, the number of sharesSeries A warrant to purchase a share of common stock issuable upon exercise of the September 2012 warrants, prior to their expiration on September 19, 2017, had increased from the original 3,431,649 shares to 6,258,080 shares (2,826,431for each share increase) and the exercise price has been reduced from the original $8.42 per share to $4.62 per share. The number of shares of common stock issuable upon exercise of the September 2014 warrants has increasedpurchased. Each Series A warrant is exercisable six months from the original 4,746,000 shares to 5,478,172 shares (732,172 share increase)date of issuance and the exercise price has been reduced from the original $1.21 per share to $0.87 per share.
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GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expresseda term expiring in United States dollars)
January 2025. TheAll outstanding warrants issuedare recorded in September 2012 and September 2014 were recorded as a liability on the balance sheetequity at December 31, 2016, as a result of anti-dilution clauses in the warrant agreements as discussed above. The May 2016 warrants are not subject to anti-dilution2019 and the warrants are recorded as equity. At December 31, 2016, the total liability recorded for the 2012 and 2014 warrants was approximately $1.9 million, consisting of approximately $1.8 million for the 2014 warrants and $0.1 million for the 2012 warrants. The September 2012 warrants expired during 2017 and as a result of a change in accounting principle the September 2014 warrants were recorded in equity on the balance sheet at December 31, 2017 (see Note 3). As a result, the Company did not record a warrant liability at December 31, 2017. 2018.
16.Revenue,18.Revenue, Deferred Revenue and Related Costs
Oxide Plant Lease and Oxide Plant Lease Costs For the year ended December 31, 20172019 the Company recorded revenue of approximately $6.7$7.7 million and related costs of approximately $2.2$2.4 million associated with the lease of the Velardeña Properties oxide plant. The Company recognizes oxide plant lease fees and reimbursements for labor, utility and other costs as “Revenue: Oxide plant lease” in the Condensed Consolidated Statements of Operations and Comprehensive Loss following the guidance of ASC 605 regarding "income statement characterization of reimbursements received for "out-of-pocket expenses incurred" and "reporting revenue gross as a principal versus net as an agent".842. ASC 605842 supports recording as gross revenue fees received for the reimbursement of expenses incurred directly by the Company in performing its obligations under the lease in situations where the recipient isentity has control over the primary obligor and has certain discretion in the incurrence of the reimbursable expense.specific goods or services transferred to a customer as a principal versus as an agent. The actual costs incurred for reimbursed direct labor and utility costs are reported as “Oxide plant lease costs” in the Condensed Consolidated Statements of Operations and Comprehensive Loss.Operations. The Company recognizes lease fees during the period the fees are earned per the terms of the lease. The oxide plant lease revenue includes a minimum fixed fee of $125,000 per month that is not dependent on tonnes processed. The monthly fixed fee remains payable for as long as the lease is in effect. DuringOn August 2, 2017, the Company granted Hecla an option to extend the oxide plant lease for an additional period of up to two years ending no later than December 31, 2020 (the “Extension Period”) in exchange for a $1.0 million upfront cash payment and the purchase of $1.0 million, or approximately 1.8 million shares, of the Company’s common stock, issued at par at a price of $0.55 per share, which was thebased on an undiscounted 30-day volume weighted average stock price (see Note 15).price. The option and lease extension were memorialized in (i) an Option Agreement dated August 2, 2017 among the Company and Hecla Mining Company (the “Option Agreement”), and (ii) a Second Amendment to Master Agreement and Lease Agreement dated August 2, 2017 among Minera William S.A. de C.V., an indirect subsidiary of the Company, and Minera Hecla S.A. de C.V. (“Hecla”), an indirect subsidiary of Hecla Mining Company (the “Second Amendment”). Under the Second Amendment, Hecla must exercise thehad an option to extend the lease to December 31, 2020 by exercising the option no later than October 3, 2018. On October 1, 2018 Hecla exercised the Second Amendment option and extended the lease to December 31, 2020. All of the fixed fees and throughput related charges remainremained the same as under the original lease. Similar volume
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) limitations apply to any required future tailings expansions, which Hecla will fund, leaving unused at the end of the lease term an agreed amount of capacity in the expanded tailings facility. Pursuant The Company will recognize the $1.0 million of income from granting the option over the expected life of the lease through December 31, 2020 on a straight-line basis, including such income in “Revenue: Oxide plant lease” in the Consolidated Statements of Operations and Comprehensive Loss. During each of the years ended December 31, 2019 and 2018, the company recognized approximately $0.3 million of amortized income related to the Secondupfront cash payment, included in “Revenue: Oxide plant lease” in the Consolidated Statements of Operations and Comprehensive Loss. As of December 31, 2019, the unamortized portion of the lease option totaled approximately $0.3 million recorded as short term “Deferred revenue” on the Consolidated Balance Sheets. On December 2, 2019 the Company and Hecla entered into a Third Amendment to the Master Agreement and Lease Agreement dated August 2, 2017. Under the terms of the Third Amendment, the Company has agreed to reduce the per tonne fee payable by Hecla for the duration of the lease term, commencing on January 1, 2020 from $22.00 per tonne to $11.00 per tonne. However, the Company will receive $22.00 per tonne processed during any month in which one of the following conditions occur: (1) the Comex daily silver spot closing average price for such month is equal to or greater than $20.00 per ounce, or (2) the mill head grade average from the metallurgical balance for such month is equal to or greater than 1,000 grams per ton equivalent silver head grade. If either of the conditions are met in any month, Hecla will havepay the $22.00 fee on all amounts processed in the oxide plant during such month. The reduced fee only applies to the tonnage-based payments under the Lease Agreement; the monthly lease payment of $125,000 per month is not affected by the Third Amendment. Under the terms of the Lease Agreement, Hecla had the right to terminate the Lease Agreement at any time upon 120 days written notice. The Third Amendment extended the advance notice required to 150 days. The Company has determined that the ability to receive the higher $22.00 per tonne fee, as described above, creates a derivative asset. The Company treated the derivative asset as an upfront lease duringpayment that will be amortized over the Extension Periodremaining life of the lease and also recorded deferred revenue equal to the value of the derivative asset, as more fully described in Note 9. The amortization of the upfront lease payment and the increase in the derivative asset at December 31, 2019 were recorded as an increase of approximately $74,000 to “Revenue: Oxide plant lease” in the Consolidated Statements of Operations for any reason with 120 days’ notice.the period ended December 31, 2019. Hecla will also havehas a one-time right of first refusal to continue to lease the plant following a termination notice through December 31, 2020 if the Company decides to use the oxide plant for its own purposes before December 31, 2020. The Company expects to recognize the $1.0 million of income from granting the option over the expected life of the lease from August 2, 2017 through December 31, 2020 on a straight-line basis, including such income in “Other operating income” in the Condensed Consolidated Statements of Operations and Comprehensive Loss. As of December 31, 2017, the unamortized portion of the lease option payment totaled approximately $0.9 million recorded as short and long term “Deferred revenue” on the Condensed Consolidated Balance Sheets. The $1.0 million received for the Consideration Shares, net of $71,000 in legal and stock exchange issuance fees, has been recorded as equity in the Condensed Consolidated Balance Sheets at December 31, 2017.
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GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
For the year ended December 31, 20162018 the Company recorded revenue of approximately $6.4$7.2 million and related costs of approximately $2.0$2.3 million associated with the lease of the Velardeña Properties oxide plant. . 17.Interest19.Interest and Other Income
For the year ended December 31, 20172019 the Company had only a nominal amountrecognized approximately $0.2 million other expense primarily related to the sale of Golden Tag shares held by the Company (Note 6). For the year ended December 31, 2018 the Company recorded approximately $0.1 million of interest and other income, primarily related to interestmark-to-market gains on amounts receivable from the sale of mining equipment as discussed in Note 8.short term investments (Note 6). For the year ended December 31, 2016 the Company reported interest and other income of $0.4 million, which is primarily related to a refund of previously paid social security taxes in Mexico.
18.Derivative Loss
During the year ended December 31, 2016 the Company recorded approximately $1.7 million of warrant derivative loss related to an increase in the fair value of the liability recorded for warrants to acquire the Company’s common stock (see Note 13). The warrant liability at December 31, 2016 was recorded at fair value based primarily on a valuation performed by a third-party expert using a Monte Carlo simulation which falls within Level 3 of the fair value hierarchy (see Note 13). The third party valuation model takes into account the probability that the Company could issue additional shares in a future transaction at a lower price than the current exercise price of the warrants. Significant inputs to the third party valuation model included prices for the warrants disclosed above, the probability of an additional issuance of the Company’s common stock at a lower price than the current warrant exercise price and the inputs in the table below for the respective periods. The Company did not have a warrant liability at December31, 2017 as the result of a change in accounting principal during the period as discussed in Note 3.
During the year ended December 31, 2016 the Company recorded approximately $0.8 million of derivative loss related to an increase in the fair value of the derivative liability related to the Sentient Loan. The derivative liability was recorded at fair value at June 10, 2016, the date of the conversion of the remaining note (see Note 10), based primarily on a valuation performed by a third party expert using a Monte Carlo simulation, which falls within Level 3 of the fair value hierarchy (see Note 13). Significant inputs to the valuation model included: 1) future variations in the Company’s stock price, and 2) the probability of entering into an equity transaction prior to the loan maturity date that would lower the conversion price. At December 31, 2017 and December 31, 2016, the Sentient Loan had been fully converted.
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) 19.Cash20.Cash flow information
The following table reconciles net loss for the period to cash used in operations: | | | | | | | | | | Year Ended December 31, | | | | 2017 | | 2016 | | | | (in thousands) | | Cash flows from operating activities: | | | | | | | | Net loss | | $ | (3,892) | | $ | (10,659) | | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | Depreciation and amortization | | | 952 | | | 1,548 | | Accretion of asset retirement obligation | | | 196 | | | 193 | | Write off of loss contingency, net | | | — | | | (212) | | Asset write off | | | — | | | 24 | | Gain on reduction of asset retirement obligation | | | (56) | | | — | | Gain on sale of assets | | | (608) | | | (1,791) | | Amortization of deferred loan costs | | | — | | | 57 | | Warrant liability fair market adjustment | | | — | | | 1,688 | | Derivative liability fair market adjustment | | | — | | | 778 | | Accretion of loan discount | | | — | | | 372 | | Loss on debt extinguishment | | | — | | | 1,653 | | Stock compensation | | | 296 | | | 593 | | Changes in operating assets and liabilities: | | | | | | | | Decrease in trade accounts receivable | | | 683 | | | 166 | | Increase in prepaid expenses and other assets | | | (142) | | | (152) | | Decrease in inventories | | | 3 | | | 85 | | (Increase) decrease in value added tax recoverable, net | | | (149) | | | 346 | | Increase in accrued interest payable net of amounts capitalized | | | — | | | 85 | | Increase (decrease) in deferred revenue | | | 892 | | | (500) | | Decrease in reclamation liability | | | (8) | | | (11) | | Increase (decrease) in accounts payable and accrued liabilities | | | 226 | | | (450) | | Decrease in deferred leasehold payments | | | (23) | | | (18) | | Net cash used in operating activities | | $ | (1,630) | | $ | (6,205) | |
| | | | | | | | | | Year Ended December 31, | | | | 2019 | | 2018 | | | | (in thousands) | | Cash flows from operating activities: | | | | | | | | Net loss | | $ | (5,386) | | $ | (1,945) | | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | Depreciation and amortization | | | 1,098 | | | 1,171 | | Accretion of asset retirement obligation | | | 225 | | | 163 | | Loss (gain) on trading securities | | | 217 | | | (92) | | Asset write off | | | 19 | | | 13 | | Gain on reduction of asset retirement obligation | | | (63) | | | — | | Gain on sale of assets | | | (3,144) | | | (5,144) | | Stock compensation | | | 782 | | | 226 | | Changes in operating assets and liabilities from continuing operations: | | | | | | | | Decrease (increase) in lease receivable | | | 33 | | | (167) | | (Increase) decrease in prepaid expenses and other assets | | | (37) | | | 549 | | (Increase) decrease in inventories | | | (2) | | | 13 | | Increase in derivative at fair value | | | (254) | | | — | | Increase in other long term assets | | | (562) | | | (432) | | (Decrease) increase in reclamation liability | | | (5) | | | 24 | | Increase in accounts payable and accrued liabilities | | | 514 | | | 236 | | Decrease in deferred revenue | | | (128) | | | (292) | | Increase in other current liabilities | | | 1,811 | | | — | | Increase (decrease) in other long term liabilities | | | 484 | | | (34) | | Other | | | 3 | | | — | | Net cash used in operating activities | | $ | (4,395) | | $ | (5,711) | |
The Company did not make any cash payments for interest or income taxes during the years ended December 31, 20172019 and 2016.2018. Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) 20.Commitments21.Commitments and Contingencies
Leases and Purchase Commitments The Company has non-cancelable operating lease commitments as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | El Quevar mining concessions (estimated) | | $ | 93 | | $ | 93 | | $ | 93 | | $ | 93 | | $ | 93 | | $ | — | | | $ | 30 | | $ | 30 | | $ | 30 | | $ | 30 | | $ | 30 | | $ | — | | Velardeña mining concessions (estimated) | | $ | 70 | | $ | 70 | | $ | 70 | | $ | 70 | | $ | 70 | | $ | — | | | $ | 23 | | $ | 23 | | $ | 23 | | $ | 23 | | $ | 23 | | $ | — | | Office space | | $ | 293 | | $ | 274 | | $ | — | | $ | — | | $ | — | | $ | — | | | $ | 161 | | $ | 166 | | $ | 158 | | $ | 151 | | $ | 110 | | $ | 9 | |
The Company is required to make payments to the Argentine government to maintain its rights to the El Quevar mining concessions. The Company has made such payments totaling approximately $111,000$36,000 and $116,000$57,000 for the years ended December 31, 20172019 and 2016,2018, respectively. The Company is required to pay concession holding fees to the Mexican government to maintain its rights to the Velardeña Properties mining concessions. During the years ended December 31, 20172019 and 20162018 the Company made such payments totaling approximately $69,000$78,000 and $74,000$78,000 respectively and annual payments under its surface rightrights agreement with the local ejido of approximately $25,000.$58,000 and $51,000 respectively. The Company has office leases for its corporate headquarters in Golden, Colorado, as well as for its Velardeña Properties offices in Mexico, and exploration offices in Mexico and Argentina. The lease for the corporate headquarters office space was renegotiated and extended during the first quarter 2014.2019 and now expires in January 2025. The new lease reflects an approximately 46%45% reduction in space and an approximately 44%45% reduction in cost beginning Marchthat began on April 1, 2014. The new lease expires November 30, 2019. Payments associated with the corporate headquarters lease were recorded to rent expense by the Company in the amounts of $226,000$183,000 and $224,000$237,000 for the years ended December 31, 20172019 and 2016,2018, respectively. The lease for the Mexican offices was renegotiated and extended during the fourth quarter 2019 and now expires in October 2023. Payments associated with the Mexican office lease were recorded to rent expense by the Company in the amounts of $50,000 and $45,000 for the years ended December 31, 2019 and 2018, respectively. The lease for the Argentina office was renegotiated and extended during the fourth quarter 2019 and now expires in November 2022. Payments associated with the Argentina office lease were recorded to rent expense by the Company in the amounts of $8,000 and $10,000 for the years ended December 31, 2019 and 2018, respectively. The Company cannot currently estimate the life of the Velardeña Properties or the El Quevar project. The table above assumes that no annual maintenance payments will be made more than five years after December 31, 2017.2019. If the Company continues mining and processing or evaluations of restart at the Velardeña Properties beyond five years, the Company expects that it would make annual maintenance payments of approximately $70,000$23,000 per year for the life of the Velardeña mine. If the Company continues to evaluate development opportunities at the El Quevar project, the Company expects that it would make annual maintenance payments of approximately $93,000$30,000 per year for the life of the El Quevar mine. Payments associated with other exploration concessions the Company owns are not included because the Company has not completed exploration work on these concessions. Exploration success is historically low and the Company has the right to terminate the payments and release the concessions at any time. Contingencies
The Company has recorded only nil amounts to loss contingencies at December 31, 2016, as discussed in Note 12. No loss contingencies were recorded at December 31, 2017.
Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) 21.Contingencies
No loss contingencies were recorded at December 31, 2019 and December 31, 2018. 22.Foreign Currency The Company conducts exploration and mining activities primarily in Mexico and Argentina, and gains and losses on foreign currency transactions are related to those activities. The Company’s functional currency is the U.S. dollar but certain transactions are conducted in the local currencies resulting in foreign currency transaction gains or losses. 22.Segment23.Segment Information
The Company’s sole activity is the mining, construction and exploration of mineral properties containing precious metals. The Company’s reportable segments are based upon the Company’s revenue producing activities and cash consuming activities. The Company reports two segments, one for its Velardeña Properties in Mexico and the other comprised of non-revenue producing activities including exploration, construction and general and administrative activities. Intercompany revenue and expense amounts have been eliminated within each segment in order to report on the basis that management uses internally for evaluating segment performance. The financial information relating to the Company’s segments is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exploration, El | | | | | | | | | | | | | | | | | | | | | Exploration, El | | | | | | | | | | | | | | | | | | | | | | Quevar, | | | | | | | | | | | | | | | | | | | | | Quevar, | | | | | | | | | | | | | | | | Costs | | Depreciation, | | Velardeña and | | | | | | | | | | | | | | | Costs | | Depreciation, | | Velardeña and | | | | | | | | | | | | | | | | Applicable | | Depletion and | | Administrative | | Pre-Tax | | | | | Capital | | | | | | Applicable | | Depletion and | | Administrative | | Pre-Tax | | | | | Capital | | The Year ended December 31, 2017 | | Revenue | | to Sales | | Amortization | | Expense | | (Income)/Loss | | Total Assets | | Expenditures | | | The Year ended December 31, 2019 | | | Revenue | | to Sales | | Amortization | | Expense | | (Income)/Loss | | Total Assets | | Expenditures | | | | | | | | | | | | | (in thousands) | | | | | | | | | | | | | | | | | | | | | (in thousands) | | | | | | | | | | | Velardeña Properties | | $ | 6,691 | | $ | 2,189 | | $ | 584 | | $ | 2,089 | | $ | (3,330) | | $ | 6,406 | | $ | 79 | | | $ | 7,730 | | $ | 2,377 | | $ | 796 | | $ | 2,538 | | $ | (4,301) | | $ | 8,069 | | $ | 11 | | Corporate, Exploration & Other | | | — | | | — | | | 368 | | | 6,925 | | | 7,209 | | | 6,671 | | | 2 | | | | — | | | — | | | 302 | | | 8,993 | | | 9,652 | | | 5,288 | | | 27 | | | | $ | 6,691 | | $ | 2,189 | | $ | 952 | | $ | 9,014 | | $ | 3,879 | | $ | 13,077 | | $ | 81 | | | $ | 7,730 | | $ | 2,377 | | $ | 1,098 | | $ | 11,531 | | $ | 5,351 | | $ | 13,357 | | $ | 38 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Year ended December 31, 2016 | | | | | | | | | | | | | | | | | | | | | | | | The Year ended December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | Velardeña Properties | | $ | 6,400 | | $ | 2,046 | | $ | 1,116 | | $ | 2,544 | | $ | (2,167) | | $ | 7,821 | | $ | 35 | | | $ | 7,217 | | $ | 2,289 | | $ | 816 | | $ | 2,362 | | $ | (1,320) | | $ | 5,699 | | $ | 79 | | Corporate, Exploration & Other | | | — | | | — | | | 432 | | | 7,588 | | | 12,826 | | | 6,187 | | | 15 | | | | — | | | — | | | 355 | | | 8,057 | | | 3,252 | | | 6,945 | | | 73 | | | | $ | 6,400 | | $ | 2,046 | | $ | 1,548 | | $ | 10,132 | | $ | 10,659 | | $ | 14,008 | | $ | 50 | | | $ | 7,217 | | $ | 2,289 | | $ | 1,171 | | $ | 10,419 | | $ | 1,932 | | $ | 12,644 | | $ | 152 | |
All of the revenue for the two years presented was from the Company's Velardeña Properties in Mexico (see Note 16)18) and was all attributable to the lease of the oxide plant. 23.Related24.Related Party Transactions
The following sets forth information regarding transactions between the Company (and its subsidiaries) and its officers, directors and significant stockholders. Sale of Equipment:
In August 2016, the Company sold certain mining equipment to Minera Indé, an indirect subsidiary of Sentient, for $687,000 (see Note 8), in a transaction approved by the Company’s Audit Committee and Board of Directors. At December 31, 2017 Sentient holds approximately 45% of the Company’s 91.9 million shares of issued and outstanding common stock. The equipment sold was excess equipment held at the Company’s Velardeña Properties that the Company did not expect to use. The Company used a third party consultant with experience in the used mining equipment market in Mexico to determine a fair value. The Company believes the price paid was at least equal to the fair market value of the
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GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
equipment had it been sold through auction or in the open market. The Company received 10% of the sales price at the closing of the sale in August 2016, with the remainder, plus interest on the unpaid balance at an annual rate of 10%, due in February 2017. At December 31, 2016 the Company had recorded a receivable of $643,000 related to the sale, including accrued interest, included in “Related party receivable” in the accompanying Consolidated Balance Sheets.
With the approval of a Special Committee of the Company’s Board of Directors, the Company and Minera Indé amended the original equipment sale on March 31, 2017 to include the sale of an additional piece of excess equipment for $185,000 and extend the time for payment relating to the original equipment sale. Upon execution of the amendment the Company received an additional payment of $100,000. The remaining principal and interest balance, plus additional interest on the unpaid balance at an annual rate of 10%, was amended to be due in August 2017. The Company recorded a gain of $105,000 on the sale of the additional equipment, included in “Other operating income” in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss, equal to the gross proceeds less the remaining basis in the equipment. On May 2, 2017, the Company received approximately $750,000 from Minera Indé as payment in full for the remaining balance due related to the equipment sale, including interest through that date. At December 31, 2017, no amounts were due to the Company related to the mining equipment sale to Minera Indé.
Administrative Services: Beginning in August 2016, the Company began providing limited accounting and other administrative services to Minera Indé, an indirect subsidiary of Sentient. The services are provided locally in Mexico by the administrative staff at the Company’s Velardeña Properties. The Company charges Minera Indé $15,000 per month for the services, which Table of Contents GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Expressed in United States dollars) provides reimbursement to the Company for its costs incurred plus a small profit margin. Amounts received under the arrangement reduce costs incurred for the care and maintenance of the Velardeña Properties and allows the Company to maintain a larger more experienced staff at the Velardeña Properties to support the oxide plant lease and potential future mining or processing activities. The Company’s Board of Directors and Audit Committee approved the agreement. For each of the yearyears ended December 31, 20172019 and the period ended December 31, 20162018 the Company charged Minera Indé approximately $180,000 and $83,000, respectively for services, offsetting costs that are recorded in “Velardeña shutdown and care and maintenance” in the Consolidated Statements of Operations and Comprehensive Loss. 24.Subsequent Event
In August 2016, the Company, through its wholly owned Mexican subsidiary, entered into an earn-in agreement with a 100% owned Mexican subsidiary of Electrum related to the Company’s Celaya exploration property in Mexico. (See Note 8 for further details on the terms of the earn-in agreement.) In February 2018, the Company and Electrum amended the Celaya earn-in agreement to permit Electrum to earn, at its option, an additional 20% interest in the Celaya project in exchange for a $1.0 million payment. Electrum can now increase its total interest in the project to 80% by contributing 100% of the $2.5 million of expenditures required in the second three-year earn-in period as specified under the earn-in agreement. The Company will recognize a gain of $1.0 million from the amendment in the first quarter 2018.
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