mill with a Merrill-Crowe precipitation circuit and flotation circuit located adjacent to our Chicago mine. In July 2015, we leased the oxide plant to Minera Hecla, S.A. de C.V. (“Hecla”), a Mexican corporation and wholly-owned subsidiary of Hecla Mining Company, to process its own material through the plant. The lease with Hecla has since been extended through December 31, 2020. We continue to evaluate and search for other oxide and sulfide feed sources, focusing on sources within haulage distance of our sulfide and oxide mills at the Velardeña Properties. The recent rise in precious metals prices, the advancement of alternative processing technologies in the industry, and the results of our testing activities prompted us to pursue the preparation of an updated Preliminary Economic Assessment of our Velardeña project. In April 2020 we announced positive results from the updated PEA (as more fully described herein under “Velardeña - Mine Plan and Metallurgy”).
El Quevar Project.We continue to advance our El Quevar silver project in Salta Province, Argentina. On April 9, 2020, we entered into the Earn-In Agreement with Barrick pursuant to which Barrick has the option to earn a 70% interest in the El Quevar project (as more fully described herein under “El Quevar – Title and Ownership Rights”).
Exploration Focus. We are focused on evaluating and searching for mining opportunities in North America with high precious metal grades and low development costs with near term prospects of mining, and particularly properties within reasonable haulage distances of our Velardeña processing plants. We are also continuing our exploration efforts on selected properties in our portfolio of approximately 12 exploration properties located primarily in Mexico. During the last two years, we have continued to focus on the Santa Maria mine west of Hildalgo de Parral, Chihuahua, and in October 2018 we completed a second preliminary economic assessment (the “Santa Maria PEA”) on the project. Our Rodeo
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property west of the Velardeña Properties also remains an interesting asset and we have received confirmation of good gold and silver metallurgical recoveries for milled material in initial test work. Additionally, new discoveries of high-grade silver-gold assays at the claims in the Yoquivo District of Chihauhua, Mexico have led us to consider a drill program in 2019. During 2019 we plan to focus our exploration efforts primarily at our El Quevar silver project and on exploration and evaluation activities at Yoquivo, Navegantes and several new properties in Mexico, recently acquired through staking. We expect our expenditures for the exploration program in 2019 to be approximately $ 3.3 million, subject to the availability of sufficient funds.Nevada and Argentina.
Experienced Management Team. We are led by a team of mining professionals with approximately 60 years of combined experience in exploration, project development, and operations management, primarily in the Americas. Our executive officers have held senior positions at various large mining companies including, among others, Cyprus Amax Minerals Company, INCO Limited, Meridian Gold Company, Barrick Gold Exploration and Noranda Exploration.
El QuevarRodeo Property
Location, Access and AccessFacilities
Our El Quevar silverRodeo project is located approximately 2 kilometers east of the town of Rodeo in the San Antonio de los Cobres municipality, Salta Province, in the altiplano regionDurango State, Mexico. The city of northwestern Argentina, approximately 300Torreón is located 189 kilometers by road northwestto the east of the project and the city of Salta,Durango is located 157 kilometers by road to the capital citysouth. The property can be reached via gravel roads from the town of Rodeo. Basic amenities are available in the town of Rodeo. Facilities onsite at the Rodeo project will include fuel storage, a maintenance area, portable warehouses, mobile offices and other essential services and support units. No processing facilities will be located on site. We have obtained rights to extract water from the Nazas River which is within a few kilometers of the province. Theproject. There is a power line that crosses the property and services the nearby villages however, we anticipate relying on generators to provide power for the minimal infrastructure required at the mine site.
We began mining at the Rodeo project in late December 2020.Our mine plan for the Rodeo project contemplates the processing of mined material at our Velardeña oxide mill, which is also accessible by a 300 kilometer dirt and gravellocated approximately 115 kilometers via road from the city of CalamaRodeo project. We began processing mined material from the Rodeo project in northern Chile. The small village of Pocitos, located about 20 kilometersJanuary 2021. Pursuant to the westmine plan, wetruck mined material to the plant using a commercial trucking contractor. Our Velardeña oxide plant is a typical agitated leach plant that is rated to handle up to 550 tonnes per day of El Quevar,throughput. The plant is equipped with a modern doré refinery, and the nearest settlement.attached tailings facility recently underwent an expansion which is expected to be sufficient for the tailings that would be produced from operations at Rodeo. We have establishedbegun installation of a camp approximately 10 kilometers westnew regrind mill circuit at the plant specifically to process the harder mined material coming from the Rodeo property. The circuit, which will allow for increased throughput of material and the increased recovery of gold, is expected to be operational by the end of the project to house project workers. A high tension power line is located approximately 40 kilometers from the site, and a high pressure gas line devoted to the mining industry and subsidized by the Salta government is located within four kilometers of the El Quevar camp.first quarter 2021.
The El Quevar project is located near Nevado Peak with altitudes at the concessions ranging from 3,800 to 6,130 meters above sea level. The climate of the area is high mountain desert, with some precipitation in summer (such as snow) and little snow in winter.
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The following map shows the location of the El QuevarRodeo project.
Property History
Mining activity inExploration and aroundinformal mining of the El Quevar projectRodeo property dates back at least 80over 25 years. Between 1930Prior to 1994, two prospects, called the “Los Murcielagos” gold-silver-lead-copper and 1950, there was lead and silver extraction of mineralized materials from small workings“Francisco Marquez” gold-copper prospects, were documented in the area, but we have no mining recordsvicinity of the Los Murcielagos arroyo on the Rodeo property. Little information is available on these historic prospects other than gold- and silver-bearing mineralization was apparently extracted from short adits that period. The first organizedare visible from surface. In the early 1990’s, exploration activitieswork, including geological mapping and drilling, on the property occurredwas carried out by La Cuesta International Inc. and Monarch Resources de Mexico, S.A. de C.V. The property was acquired by Canplats Resource Corporation in 2003, and it conducted a geochemical sampling program and multiple drilling programs during the 1970s, although no datamid-2000s. Canplats was acquired by Goldcorp Inc. in 2010 and the rights to the Rodeo concessions came to be held in Camino Minerals Corporation (“Camino”), a wholly-owned subsidiary of Goldcorp. In 2010, Camino issued a technical report on the property. In 2011, Camino conducted a 6,238-meter drilling program to investigate the extension of the known mineralization to the north and south of the main mineralized zone of the property, as well as its depth. In 2014, Camino relinquished its right to acquire the Rodeo concessions and the property reverted to La Cuesta. We acquired the Rodeo concessions from that period remains. Over the last 30 years, several companies have carried out exploration activityLa Cuesta International Inc. in the area, including BHP Billiton, Industrias Peñoles, Mansfield Minerals and Hochschild Mining Group, consisting primarily of local sampling with some limited drilling programs.2015.
Title and Ownership Rights
According to Argentine law, mineral resources are subject to regulation in the provinces where the resources are located. Each province has the authority to grant mining exploration permits and mining exploitation concession rights to applicants. The Federal Congress has enacted the National Mining Code and other substantive mining legislation, which is applicable throughout Argentina; however, each province has the authority to regulate the procedural aspects of the National Mining Code and to organize the enforcement authority within its own territory.
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In the province of Salta, where the El Quevar project is located, all mining concessions are granted by a judge in the Salta Mining Court. The El Quevar project is comprised of exploitation concessions. Exploitation concessions are subject to a canon payment fee (maintenance fee) which is paid in advance twice a year (before June 30th and December 31st of each calendar year). Each time a new mining concession is granted, concession holders are exempt from the canon payment fee for a period of three years from the concession grant date. However, this exemption does not apply to the grant of vacant exploitation concessions; only to the grant of new mining concessions.
The El QuevarRodeo project is currently comprisedconsists of 31 miningtwo mineral concessions that we hold directly. In total, the El Quevar project encompassestotaling approximately 57,0001,866 hectares. The area“Rodeo” concession, totaling 521 hectares, is held under a lease agreement dated May 18, 2015 pursuant to which we are required to make advanced royalty payments of most$40,000 per year to La Cuesta International, S.A. de C.V., a wholly-owned subsidiary of our exploration activities at El Quevar is within the concessions that are owned by Silex Argentina S.A., our wholly-owned subsidiary.
La Cuesta International Inc (“La Cuesta”). We are required to pay a 1%2% net smelter return royalty onfrom production to La Cuesta. After $5 million has been paid to La Cuesta under the value of all minerals extracted fromroyalty agreement, the El Quevar II concession androyalty payment
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will reduce to a 1% net smelter return royalty on one-half ofreturn. The mineralized material that has been identified to date and which forms the minerals extracted frombasis for the Castor concession to the third party from whom we acquired these concessions. We can purchase one half of the royalty for $1 million in the first two years of production. The Yaxtché depositPreliminary Economic Assessment described below is located primarily on the CastorRodeo concession.
The “Rodeo 2” concession, totaling approximately 1,345 hectares, was purchased from Rojo Resources, S.A. de C.V. under a purchase agreement dated July 22, 2015. Royalty payments of 2% of net smelter returns on material produced from Rodeo 2 are also due to La Cuesta.
We mayare also be required to pay a 3%0.5% net smelter return royalty to the Salta Province based onMexican federal government from all production at the net smelter value of minerals extracted from any of our concessions less costs of processing. To maintain all of the El Quevar concessions, we paid canon payment fees to the Argentine government of approximately $111,000 and $57,000 in 2017 and 2018, respectively. In 2019 we expect to pay approximately $60,000. Rodeo property.
The following El QuevarRodeo property mine concessions are identified below by name and file number in the Salta ProvinceFederal government Public Registry of Mines.Mining.
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Rodeo |
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We are required to pay annual concession holding fees to the Mexican government to maintain our rights to the Rodeo mining concessions. In 2020, we made such payments totaling approximately $31,000 and expect to pay approximately $34,000 in 2021. Similar to our Velardeña Properties, the Rodeo property is subject to the Mexican ejido system requiring us to contract with the local communities, or ejidos, surrounding the property to access mineral claims needed in connection with our mining and exploration activities. The Rodeo deposit is located on a private ranch and is not a part of the ejido system. We have a surface use agreement with the private ranch owner that allows us to operate on the property. The surface rights at El Quevar are controlled byuse agreement requires us to make annual payments of approximately $70,000 to the Salta Province. There are no private properties withinranch owner. We also have an agreement with the concession area. To date, no issues involving surface rights have impacted the project. Although we have unrestrictedlocal ejidos to allow access to the property that we believe will be sufficient to conduct our facilities, weproposed mining activities. The local ejidos do not have been granted easementsa direct interest in the mineral claims and payments under the agreement are expected to further protect our access rights.be less than $25,000 per year.
Geology and Mineralization
The geologyRodeo concession lies on the eastern boundary of the El Quevar project is characterizedSierra Madre Occidental. The Rodeo fault system consists of three major parallel structures and wall-rock fracture systems that are the principal feeder conduits for a high-level, gold-silver epithermal mineral system. These major vein and breccia-filled structures appear to be feeder conduits responsible for the 1 kilometer by silver-rich veins4 kilometer area of silicified, clay-altered and disseminations in Tertiary volcanicgold-anomalous rocks that form a resistant north northwest-trending ridge. All three of the structures are partwide, laterally and longitudinally persistent, well-developed feeder vein swarms with high-level, locally banded chalcedonic quartz veins, stockworks and silicified breccias. In the area of an eroded stratovolcano. Silver mineralizationprincipal interest, the structures are strongly veined, silicified, brecciated, and mineralized for over 4 kilometers, and the shear fault zones and hydrothermal system can be traced for 8 kilometers along strike on the property. Individual feeder vein and breccia systems are up to 60 meters thick. Flexures in the vein swarms and/or structural intersections provide brecciation and open conduits for intense, episodic fluid flow and silica deposition with the potential for ore-grade concentrations of precious metals, especially gold.
The immediate Rodeo deposit area is approximately 300 meters along strike and 200 meters wide and extends to a depth of 200 meters below surface. The deposit strikes at El Quevar330° and dips to the northeast with various vein phases dipping from subvertical to 30°. The deposit is entirely hosted within a broad, generally east-west-trending structural zoneTertiary Rodeo volcanics that are strongly silicified and occurs as a series of north-dipping parallel sheeted vein zones, brecciasbrecciated. The deposit is bound to the east by the Rodeo fault. Along strike to the north and mineralized faults situated within an envelope of pervasively silicified brecciated volcanic rocks. There are at least three sub-parallel structures that extend for an aggregate length of approximately 6.5 kilometers. Several volcanic domes (small intrusive bodies) have been identified andsouth, the mineralization is also found in breccias associated withoffset slightly by near vertical faulting; mineralization does not terminate at these domes, especially wherefaults but the intensity of the trend is either diminished or has yet to be located.
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they are intersected by the structures. The silver mineralization at the Yaxtché zone is of epithermal origin. The cross-cutting nature of the mineralization, the assemblage of sulfide and alteration minerals, and the presence of open spaces with euhedral minerals, all point to an origin at shallow to moderate depths (a few hundred meters below surface) from hydrothermal solutions.
2017 Mineralized Material Estimate
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During 2012, we releasedJanuary 2017, Tetra Tech, Inc. completed an estimate of mineralized material at our El Quevarthe Rodeo deposit, prepared pursuant to Canada National Instrument 43-101. The estimate was prepared using a block model rotated to fit the deposit strike. Two different estimates were prepared based on alternative operating scenarios. The first operating scenario, which contemplates transportation of the mined material to the Velardeña oxide mill, is shown below. The alternative operating scenario would require the construction of a processing facility on-site, which we do not currently believe is attractive.
The following table shows the estimated mineralized material.
Cutoff AuEq g/t | Tonnes (M) | Au g/t | Ag g/t |
0.83 | 0.4 | 3.3 | 11 |
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(1) | Cutoff grade and Au equivalent calculated using metal prices of $1,220 and $17 per troy ounce of Au and Ag, recoveries of 77% and 90% Au and Ag. |
(2) | The mineralized material estimate has been pit shell constrained using the Lerch Grossman algorithm with inputs of $7.50 mining, $10 trucking, and $20 processing costs per tonne. A breakeven cutoff including trucking and processing costs per block was applied to a block model within the optimized shell. |
See “Cautionary Statement Regarding Mineralized Material” above.
Mine Plan and Metallurgy
In April 2020 we announced the completion of a Preliminary Economic Assessment for the project. This estimate assumed mining of oxide material fromThe PEA calls for an open pit onmining operation with material transported to our Velardeña oxide plant. In August 2020, we completed a 35-hole 1400-meter drilling program to further verify the east endcontinuity of the Yaxtché deposit and sulfide material from both the open pit and an underground mine on the western portionhigh-grade core of the Yaxtché deposit. The estimate was based onresults of this program enabled us to finalize the initial start-up mine plan and also provided further metallurgical data in order to confirm recovery assumptions and enable the appropriate setup of the oxide plant. Results from the drilling program were slightly better than the assumptions that were used in the PEA.
The PEA utilized metallurgical results from 270 core drill holes.
Ininitial test work conducted in 2017, Amec Foster Wheeler E&C Services, Inc., a Wood Group PLC company (“Wood”) undertook an analysiswhich confirmed good gold and re-modelingsilver metallurgical recoveries for milled material. Bottle roll cyanide leach testing of the data utilizedhigh-grade samples conducted in 2017 resulted in gold extractions of 80 to 86 percent. Silver extractions ranged from 72 to 76 percent for all tests. Initial test work also indicated that the material is not suitable for gold and silver recovery by heap leaching. The results of metallurgical testing conducted during 2020 using samples obtained in the prior mineralized material estimate using updated geologic controlsrecently completed drilling program revealed the need for an additional regrind circuit in the oxide plant and a modeling method that optimizes grade. This resultedfiner grind size to attain recoveries projected in an updated mineralized material estimate completed in February 2018.the PEA. In the 2020 metallurgical testing, gold extractions averaged approximately 85 percent assuming a grind size of 80 percent passing 325 mesh. The Wood estimate assumes mining would occur solely underground and would be optimized to maximize potential silver grades. Accordingneed for a regrind circuit due to the Wood estimate, sulfide mineralizedharder characteristics of the Rodeo mined material was anticipated in the Yaxtché zone, at a cut-off gradePEA and the estimated $600,000 capital cost of 250 grams per tonne silver,the regrind circuit has already been included in the total estimated $1.5 million of capital, pre-production drilling and using a three-year average silver price of $16.62 per ounce, was 2.6 million tonnes at an average silver grade of 487 grams per tonne.other assessment activities, initial mining costs, working capital and other start-up related costs reflected in the PEA.
For further detail regarding mineralized material, see “CAUTIONARY STATEMENT REGARDING MINERALIZED MATERIAL”.
Certain Laws Affecting Mining in Mexico
Exploration
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Our current and Advancement of El Quevar
The Yaxtché deposit is the primary target currently identifiedproposed operations at the El Quevar project. In September 2018, we completed the El Quevar PEA, which confirmed the potential for a profitable mining operation at Yaxtché with an estimated 5 million ounces annual silver production. The El Quevar PEA contemplates a six-year underground mining operation using pre-existing and new underground development at a mine production rate of 1,200 tonnes per day using a post-pillar cut-and-fill mining method, delivering 2.45 million tonnes of diluted sulfide mineralized material at an average grade of 409 g/t silver. We have completed environmental baseline studies, and a further environmental impact assessment process would be required to support the permits necessary for construction and mining. If the El QuevarRodeo project proceeds to development and construction, we would be required to obtain numerous additional permits from national, provincial and municipal authorities in Argentina.
We spent approximately $1.3 million and $0.8 million at our El Quevar project on holding and maintenance costs in 2018 and 2017, respectively. The additional spending in 2018 was primarily related to the costs of preparing the technical reports and preparing for exploration drilling. From the inception of our exploration activities in 2004 through December 31, 2018 we have spent approximately $77.9 million on exploration and related activities at El Quevar, including amounts spent by our predecessor, Apex Silver Mines Limited. In 2019 we expect to spend approximately $1.3 million at our El Quevar project to fund ongoing exploration and evaluation activities, care and maintenance and property holding costs.
We have evaluated plans for further exploration drilling to increase the size of high grade silver resources near the Yaxtché deposit. 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. During 2019, subject to the availabilitya variety of sufficient funds, we plan to drill about fifteen core holes forlaws affecting mining operations in Mexico. For a totaldiscussion of 3,000 meters to test extensions of mineralized material at Yaxtché, offsets to existing promising drill intercepts,these laws, see “Business and new drill targets based on reinterpreted IP (induced polarization) geophysics.
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Properties – Velardeña Properties -Certain Laws Affecting Mining in Mexico”.
Taxes
For a discussion of the taxes that apply generally to mining projects in Mexico, see “Business and Properties – Velardeña Properties –Taxes in Mexico”.
Recent Activities and Operating Plans
For a discussion of recent activities and projected operating parameters, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – 2020 Highlights – Rodeo Property” below.
Velardeña Properties
Location, Access and Facilities
The Velardeña Properties are comprised of two underground mines and two processing plants within the Velardeña mining district, which is located in the municipality of Cuencamé, in the northeast quadrant of the State of Durango, Mexico, approximately 65 kilometers southwest of the city of Torreón, Coahuila and approximately 140 kilometers northeast of the city of Durango, which is the capital of the State of Durango. The mines are reached by a seven kilometer road from the village of Velardeña which is reached by highway from Torreón and Durango. The Velardeña mining district is situated in a temperate hot, semi-arid region.
Of the two underground mines comprising the Velardeña Properties, the Velardeña mine includes five different major vein systems including the Terneras, Roca Negra, San Mateo, Santa Juana and San Juanes systems. During 2015, we mined from the San Mateo, Terneras and Roca Negra vein systems as well as the Santa Juana vein system to augment grades as mining and processing rates ramped up.
We own a 300 tonne300-tonne per day flotation sulfide mill situated near the town of Velardeña. The mill includes three flotation circuits in which we can process sulfide material to make lead, zinc and pyrite concentrates. We also own a conventional 550 tonne550-tonne per day cyanide leach oxide mill with a Merrill-Crowe precipitation circuit and flotation circuit located adjacent to our Chicago mine. In July 2015, we leased the oxide plant to Minera Hecla S.A. de C.V. (“Hecla”), a Mexican corporation and wholly-owned subsidiary of Hecla Mining Company, to process its own material through the plant. See “-Velardeña Properties Activities” below.plant (the “Hecla Lease”). The leaseHecla Lease was subsequently extended and ultimately terminated in accordance with Hecla has since been extended through December 31,its terms on November 30, 2020. We continue to evaluate and search for other oxide and sulfide feed sources, focusing on sources within haulage distance of our sulfide and oxide mills at the Velardeña Properties.
Prior to shutting down production at the Velardeña mines in 2015, we trucked material from the Velardeña mines to the sulfide plant. In January 2012 we completed a tailings pond expansion at the sulfide plant, which is fully permitted and has capacity to treat tailings for approximately four additional years at the average processing rate of 285 tonnes per day. At the oxide plant, Hecla is required to either leave unused at the end of the lease term an agreed amount of capacity in the tailings facility, or construct an additional expansion at its cost.
Power for all of the mines and plants is provided through substations connected to the national grid.
Water is provided for all of the mines by wells located in the valley adjacent to the Velardeña Properties. In Mexico, water concessions are granted by the National Commission of Water (“CNA”). Currently no new water concessions are being granted by the CNA; however, companies can acquire water concessions through purchase or lease from current concession holders. We hold title to three wells located near the sulfide plant and hold certificates of registration to three wells located near the oxide plant. We are licensed to pump water from all six wells up to a permitted amount. We are currently pumpingrequired to make annual payments to the CNA to maintain our rights to these wells. In 2020 we made such payments totaling approximately $7,000 and expect to pay approximately $12,000 in 2021. We are required to pay a nominal additional fee to the CNA each year if we use too much water from the three wells associated with the oxide plant which is more than sufficient for Hecla’s processing operations.a particular well or alternatively if we do not use a minimum amount of water from a particular well.
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The following map shows the location of the Velardeña Properties (other than the El Mogote Fraccion concession, which is located south of the identified properties).Properties.
Property History
Exploration and mining in the Velardeña district extendsextended back to at least the late 1500s or early 1600s, with large scale mining beginning in 1888 with the Velardeña Mining and Smelter Company. In 1902, the mining properties were acquired by ASARCO, who mined the property until 1926 when the mines were closed. For the next 35 years, the mines were operated from time to time by small companies and local miners. The property was nationalized in 1961, and in 1968 the sulfide processing plant was built by the Mexican government. In 1994, William Resources acquired the concessions comprising the Velardeña Properties. In 1997, ECU Gold (the predecessor to ECU Silver Mining Inc.) purchased from William Resources the subsidiaries that owned the concessions and the oxidesulfide processing plant. The sulfideoxide processing plant was acquired in 2004. In 2011, we acquired ECU Silver Mining Inc.
Title and Ownership Rights
We hold the concessions comprising the Velardeña Properties through our wholly-owned Mexican subsidiary Minera William S.A. de C.V. At present, a total of 3028 mineral concessions comprise the Velardeña Properties. The Velardeña Properties concessions encompass approximately 895316 hectares. The mineral concessions vary in size, and the concessions comprising each mineral property are contiguous within each of the Velardeña and Chicago properties. We are required to
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pay annual concession holding fees to the Mexican government to maintain our rights to the Velardeña mining concessions. In 2018,2020, we made such payments totaling approximately $78,000$21,000 and expect to pay approximately $80,000$23,000 in 2019.2021. We also own the surface rights to 144 hectares that contains the oxide plant, tailings area and access to the Chicago mine, along with surface lands that may be required for potential plant expansions.
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The Velardeña Properties are in part subject to the Mexican ejido system requiring us to contract with the local communities, or ejidos, surrounding our properties to obtain surface access rights needed in connection with our mining and exploration activities. We currently have contracts with two ejidos to secure surface rights for our Velardeña Properties with a total annual cost of approximately $35,000. We have a ten-year contract with the Velardeña ejido, which provides surface rights to certain roads and other infrastructure at the Velardeña Properties through 2021, and a 25-year contract with the Vista Hermosa ejido, which provides exploration access and access rights for roads and utilities for our Velardeña Properties until 2038.
The following Velardeña Properties exploitation concessions are identified below by name and number in the Federal government Public Registry of Mining.
Mine/Area | |
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| Name of Exploitation | | Concession | ||
Velardeña | | AMPL. DEL ÁGUILA MEXICANA | | 85580 | |
| | ÁGUILA MEXICANA | | 168290 | |
| | LA CUBANA | | 168291 | |
| | TORNASOL | | 168292 | |
| | SAN MATEO NUEVO | | 171981 | |
| | SAN MATEO | | 171982 | |
| | RECUERDO | | 171983 | |
| | SAN LUIS | | 171984 | |
| | LA NUEVA ESPERANZA | | 171985 | |
| | LA PEQUEÑA | | 171988 | |
| | BUEN RETIRO | | 172014 | |
| | UNIFICACIÓN SAN JUAN EVANGELISTA | | 172737 | |
| | UNIFICACIÓN VIBORILLAS | | 185900 | |
| | BUENAVENTURA No. 3 | | 188507 | |
| | EL PÁJARO AZÚL | | 188508 | |
| | BUENAVENTURA 2 | | 191305 | |
| | BUENAVENTURA | | 192126 | |
| | LOS DOS AMIGOS | | 193481 | |
| | VIBORILLAS NO. 2 | | 211544 | |
| | KELLY | | 218681 | |
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Chicago | | SANTA TERESA | | 171326 | |
| | SAN JUAN | | 171332 | |
| | LOS MUERTOS | | 171986 | |
| | EL GAMBUSINO | | 171987 | |
| | AMPLIACIÓN SAN JUAN | | 183883 | |
| | MUÑEQUITA | | 196313 | |
| | SAN AGUSTÍN | | 210764 | |
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| LA CRUZ | | 189474 | ||
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We hold water concessions in wells that provide water for the Velardeña Properties. In Mexico water concessions are granted by the National Commission of Water (“CNA”). Currently no new water concessions are being granted by the CNA; however, companies can acquire water concessions through purchase or lease from current concession holders. We hold title to three wells located near the sulfide plant and hold certificates of registration to three wells located near the oxide plant. We are licensed to pump water from all six wells up to a permitted amount. We are required to make annual payments to the CNA to maintain our rights to these wells. In 2018 we made such payments totaling approximately $25,000 and expect to pay approximately the same amount in 2019. We are required to pay a fine to the CNA each year if we use too much water from a particular well or alternatively if we do not use a minimum amount of water from a particular well. During 2018 we did not incur any over usage or under usage fines.
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Geology and Mineralization
The Velardeña district is located at the easternmost limit of the Sierra Madre Occidental on the boundary between the Sierra Madre Oriental and the Mesa Central sub-provinces. Both of these terrains are underlain by Paleozoic and possiblyprobably Precambrian basement rocks.
The regional geology is characterized by a thick sequence of limestone and minor calcareous clastic sediments of Cretaceous age, intruded by Tertiary plutons of acidic to intermediate composition. During the Laramide Orogeny, the sediments were folded into symmetrical anticlines and synclines that were modified into a series of asymmetrical overturned folds by a later stage of compression.
A series of younger Tertiary stocks have intruded the older Cretaceous limestone over a distance of approximately 15 kilometers along a northeast to southwest trend. The various mineral deposits of the Velardeña mining district occur along the northeast southwest axis and are spatially associated with the intrusions and their related alteration.
An important northwest-southeast fracture system is associated with these intrusions and, in many cases, acts as the main focus of mineralization. The Velardeña Properties are underlain by a thick sequence of limestone that corresponds to rocks of the Aurora and Cuesta del Cura formations of Lower Cretaceous age.
Several types of Tertiary intrusive rocks are present in the Velardeña district. The largest of these rocksintrusives outcrops on the western flank of the Sierra San Lorenzo and underlies a portion of the Velardeña Properties. It is referred to as the Terneras pluton and forms a northeast oriented, slightly elongated body, considered to represent a diorite or monzodiorite that outcrops over a distance of about 2.5 kilometers. The adjacent limestone has been altered by contact metamorphism (exoskarn), and locally the intrusive has been metamorphosed (endoskarn).
The following is a description of the individual geological characteristics and mineralization found on each of the properties comprising the Velardeña and Chicago mines.
Velardeña Mine
The Santa Juana, Terneras, San Juanes and San Mateo vein deposits on the Velardeña property are hosted by Aurora Formation limestone, the Terneras intrusion and related skarn. The limestone is intruded by a series of multiphase diorite or monzodiorite stocks (Terneras intrusion) and dikes of Tertiary age that outcrop over a strike length of approximately 2.5 kilometers.
Two main vein systems are present on the Velardeña property. The first is a northwest striking system as found in the Santa Juana deposit, while the second is east-west trending and is present in the Santa Juana, Terneras, San Juanes and San Mateo deposits.
In the Santa Juana deposit, vein trends are steeply northeast dipping and northwest trending. The Terneras, San Juanes and San Mateo veins all strike east-west and dip steeply north. The most extensive of these is the Terneras vein, which was mined in the past over a strike length of 1,100 meters. All of these veins are observed to have extensive strike lengths and vertical continuity for hundreds of meters. The mineralogy of the east west system is somewhat different in that it contains less arsenic than the northwest Santa Juana veins.
Mineralization in the deposits located at the Velardeña mine belongsoccurs primarily toin epithermal calcite quartzquartz-calcite veins with associated lead, zinc, silver, gold and copper mineralization,minerals including gold hosted mostly in arsenopyrite and pyrite, typical of the polymetallic vein deposits of northern Mexico. The veins are usually thin, normally in the 0.2 meter to 0.5 meter range, but consistent along strike and down dip. Coxcomb and rhythmically banded textures are common.
1917
Chicago Mine
On the Chicago property, the oldest rocks outcropping are Cretaceous limestone of the Aurora Formation which are highly folded. This limestone is locally metamorphosed by the intrusion of the Tertiary dioritic stocks and dykes. The general geology of the Chicago property is very similar to the geology of the Velardeña property. The Chicago veins strike northeast and dip steeply southeast. Chicago ore tends to be higher in lead and zinc than the Santa Juana ore. Vein widths at Chicago are variable and tend to be narrower than at the Santa Juana deposit, especially in the skarn host.
20142020 Technical Report
During the firstsecond quarter of 2015,2020, the engineering firm of Tetra Tech, Inc. (“Tetra Tech”) completed a preliminary economic assessment (PEA) of the Velardeña Properties. The PEA included an updated estimate of mineralized material, at the Velardeña Properties,which is set forth in the following table:table below:
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| Silver |
| Gold |
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| (Ag) |
| (Au) |
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| Grade |
| Grade |
| Lead |
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| Tonnes |
| (Grams |
| (Grams |
| (Pb) |
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|
|
| (in |
| per |
| per |
| Grade |
| Zinc (Zn) |
|
Mineralized Material |
| thousands) |
| tonne) |
| tonne) |
| % |
| Grade % |
|
Mineralized Material at December 31, 2016 |
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Velardeña Mine |
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|
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|
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|
|
|
|
Oxide and mixed |
| 572 |
| 295 |
| 4.1 |
| 1.34 |
| 1.07 |
|
Sulfide |
| 1,032 |
| 274 |
| 3.9 |
| 1.11 |
| 1.42 |
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Chicago Mine |
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|
Oxide and mixed |
| 91 |
| 208 |
| 3.2 |
| 3.77 |
| 2.8 |
|
Sulfide |
| 98 |
| 165 |
| 2.8 |
| 2.97 |
| 3.49 |
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Total Mineralized Material at December 31, 2016 |
| 1,793 |
| 272 |
| 3.8 |
| 1.42 |
| 1.49 |
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| | | | Silver | | Gold | | | | |
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| | | | (Ag) | | (Au) | | | | |
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| | | | Grade | | Grade | | Lead | | |
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| | Tonnes | | (Grams | | (Grams | | (Pb) | | |
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| | (in | | per | | per | | Grade | | Zinc (Zn) |
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Mineralized Material | | thousands) | | tonne) | | tonne) | | % | | Grade % |
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Mineralized Material at May 8, 2020 | | | | | | | | | | | |
Velardeña & Chicago Mines | | | | | | | | | | | |
Oxide |
| 436 |
| 253 |
| 5.1 |
| 1.71 |
| 1.49 | |
Sulfide |
| 915 |
| 333 |
| 4.8 |
| 1.46 |
| 1.92 | |
Total Mineralized Material |
| 1,351 |
| 307 |
| 4.9 |
| 1.54 |
| 1.78 | |
Note: Results may not tie precisely due to rounding.
The Tetra Techabove mineralized material estimate assumed a silver price of $25 per troy ounce, a gold price of $1,446 per troy ounce, andwas based on a cutoff grade of a net smelter return (“NSR”) of $100$125 per tonne.
Thetonne and the following table shows the commodity prices and metallurgical recoveries used to determine the cutoff grade.
assumed prices:
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| Sulfide |
| Oxide |
| Mixed |
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| Metallurgical |
| Metallurgical |
| Metallurgical |
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| Recovery |
| Recovery |
| Recovery |
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Metal |
| Metal Prices* |
| % |
| % |
| % |
| |
Silver |
| $ | 25 (oz) |
| 89 |
| 68 |
| 50 |
|
Gold |
| $ | 1,446 (oz) |
| 68 |
| 71 |
| 29 |
|
Lead |
| $ | 0.96 (lb) |
| 83 |
| — |
| 25 |
|
Zinc |
| $ | 0.91 (lb) |
| 83 |
| — |
| 37 |
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| | | | |
| | | | |
| | | | |
| | | | |
Metal | | Metal Prices* | | |
Silver | | $ | 16.30 (oz) | |
Gold | | $ | 1,305 (oz) | |
Lead | | $ | 0.99 (lb) | |
Zinc | | $ | 1.27 (lb) | |
* Amounts represent three-year trailing average prices.as of December 2019.
The cutoff grade of $100$125 NSR per tonne of mineralized material was determined by addingassessing the estimated average costs of mining, ($53 per tonne), processing ($27 per tonne) and general and administration, ($20 per tonne).as well as metallurgical recoveries, including sulfide metallurgical recoveries of 67%, 90%, 72% and 77% for gold, silver, lead and zinc respectively. The average cost estimates are the same for both the Velardeña and Chicago mines. The NSR value of mineralized material was determined for each type of mineralized material (sulfide, mixed, and oxide) by multiplying a fractional factor that
20
represents an estimated combination of metallurgical recovery, treatment charges, penalties and payment terms by the unit value of each metal and then multiplying by the expected amount of that metal in each block of inventoried material.
The following table shows the reduction in mineralized material reported in the Tetra Tech report that resulted from extraction and processing of mineralized material in 2015. As a result of the shutdown of mining and processing in November 2015, there are no results for 2016, 2017 or 2018.
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| Silver |
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| Gold |
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| (Ag) |
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| (Au) |
|
|
| Grade |
| Contained |
| Lead |
| Contained |
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| Contained |
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|
|
| Grade |
| Contained |
| (Grams |
| Silver (Ag) |
| (Pb) |
| Lead (Pb) |
| Zinc |
| Zinc (Zn) |
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|
| Tonnes |
| (Grams |
| Gold (Au) |
| per |
| oz. |
| Grade |
| lbs. |
| (Zn) |
| lbs. |
|
Mineralized Material |
| (in thousands) |
| per tonne) |
| oz. |
| tonne) |
| (in thousands) |
| % |
| (in thousands) |
| Grade % |
| (in thousands) |
|
Mineralized Material at December 31, 2017 |
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|
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|
|
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|
|
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|
|
|
|
|
|
Velardeña Mine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxide and mixed |
| 572 |
| 4.1 |
| 74,780 |
| 295 |
| 5,425 |
| 1.34 |
| 16,898 |
| 1.07 |
| 13,493 |
|
Sulfide |
| 1,032 |
| 3.9 |
| 127,741 |
| 274 |
| 9,101 |
| 1.11 |
| 25,254 |
| 1.42 |
| 32.307 |
|
Chicago Mine |
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|
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|
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|
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|
|
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|
|
|
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|
|
Oxide and mixed |
| 91 |
| 3.2 |
| 9,362 |
| 208 |
| 609 |
| 3.77 |
| 7,563 |
| 2.8 |
| 5,617 |
|
Sulfide |
| 98 |
| 2.8 |
| 8,822 |
| 165 |
| 520 |
| 2.97 |
| 6,417 |
| 3.49 |
| 7,540 |
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|
Total Mineralized Material at December 31, 2017 |
| 1,793 |
| 3.8 |
| 220,406 |
| 272 |
| 15,655 |
| 1.42 |
| 56,132 |
| 1.49 |
| 58,958 |
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|
2018 Extraction |
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Velardeña Mine |
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|
Oxide and mixed |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Sulfide |
| 76 |
| 2.6 |
| 6,371 |
| 156 |
| 383 |
| 0.8 |
| 1,343 |
| 1.09 |
| 1,839 |
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Chicago Mine |
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|
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|
Oxide and mixed |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Sulfide |
| 5 |
| 1.9 |
| 310 |
| 117 |
| 19 |
| 2 |
| 220 |
| 2.82 |
| 311 |
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|
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|
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|
Total Tonnes Extracted in 2018 |
| 81 |
| 2.6 |
| 6,681 |
| 154 |
| 401 |
| 0.87 |
| 1,564 |
| 1.2 |
| 2,150 |
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|
|
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|
Metal loss adjustments during 2018 |
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Velardeña Mine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxide and mixed |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Sulfide |
| — |
| — |
| (3,063) |
| — |
| (290) |
| — |
| (522) |
| — |
| (547) |
|
Chicago Mine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxide and mixed |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Sulfide |
| — |
| — |
| (140) |
| — |
| (8) |
| — |
| (107) |
| — |
| (74) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tonnes Extracted in 2018 |
| — |
| — |
| (3,203) |
| — |
| (297) |
| — |
| (629) |
| — |
| (621) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineralized Material at December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Velardeña Mine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxide and mixed |
| 572 |
| 4.1 |
| 74,780 |
| 295 |
| 5,425 |
| 1.34 |
| 16,898 |
| 1.07 |
| 13,493 |
|
Sulfide |
| 956 |
| 3.9 |
| 118,308 |
| 274 |
| 8,429 |
| 1.11 |
| 23,389 |
| 1.42 |
| 29,921 |
|
Chicago Mine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxide and mixed |
| 91 |
| 3.2 |
| 9,362 |
| 208 |
| 609 |
| 3.77 |
| 7,563 |
| 2.8 |
| 5,617 |
|
Sulfide |
| 93 |
| 2.8 |
| 8,372 |
| 165 |
| 493 |
| 2.97 |
| 6,089 |
| 3.49 |
| 7,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mineralized Material at December 31, 2018 |
| 1,712 |
| 3.8 |
| 210,522 |
| 272 |
| 14,956 |
| 1.43 |
| 53,940 |
| 1.49 |
| 56,187 |
|
Note: Results may not tie precisely due to rounding. Additionally, silver ounces, zinc pounds and leads pounds are rounded to the nearest thousand and gold ounces are rounded to the nearest ounce and tonnes. The variance in rounding different commodities and units is for convenience and does not reflect any differences in the level of accuracy of the calculated mineralized material estimate.
For further detail regarding mineralized material, see “CAUTIONARY STATEMENT REGARDING MINERALIZED MATERIAL”.
21
Velardeña Properties Activities
In 2018 we incurred approximately $1.9 millionThe recent rise in expenses relatedprecious metals prices, the advancement of alternative processing technologies in the industry, and the results of our testing activities prompted us to shut down costs and maintenance atpursue the preparation of an updated Preliminary Economic Assessment of our Velardeña Properties as a resultproject. In April 2020 we announced positive results from the updated PEA. The updated PEA was prepared to incorporate new and updated elements of the suspension of miningproject database, mine plan and processing activitiesplan, most notably the inclusion of bio-oxidation treatment of gold-bearing pyrite concentrates. In late 2019, we obtained successful results from testing Velardeña gold concentrate material using Finnish firm Outotec’s “BIOX” process, a sustainable technology that was developed to pre-treat refractory ores and concentrates ahead of conventional cyanide leaching. The
18
gold in Novemberthese types of mineralized materials, such as those found at Velardeña, is encapsulated in pyrite and arsenopyrite which prevents the gold from being successfully cyanide leached. BIOX utilizes bacteria to oxidize these sulfide minerals, thereby exposing the gold for subsequent cyanide leaching and increasing overall gold recoveries. The 2019 BIOX testing of Velardeña material achieved gold recoveries of 92% from the pyrite-arsenopyrite concentrate, compared to sub-30% gold recoveries realized when the Velardeña Properties last operated in 2015. We retained a core group of employees, most assigned to operate the oxide plant that is leased to a third party and not affected by the shutdown. The retained employees also include an exploration group and an operations and administrative groupDuring 2021, we plan to continue to optimize the mine plan and processing details in preparation for future test-mining and processing in advance our plans in Mexico, oversee corporate compliance activities,of establishing a definite schedule for restarting commercial production at the Velardeña mines and to maintain and safeguard the longer term valueinstallation of the bio-oxidation circuit. No development decision has been made regarding a potential restart of the Velardeña assets.
In July 2015 we entered into a leasing agreement with Heclamines, however, discussions are in progress regarding the potential to lease our Velardeña oxide plant for an initial term of 18 months beginning July 1, 2015. The lease agreement contained several lease extension options,restart mining and flotation processing in the third quarter 2016, 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,late 2021 or early 2022 while preserving flexibility for future tailings expansions. The tailings expansion has since been completed. The parties agreed that Hecla would either leave unused at the endawaiting design and possible construction of the lease term an agreed amount of capacity in the expanded tailings facility, or construct an additional expansion at its cost. In connection with their agreement regarding tailings impoundment expansions, the parties agreed that Hecla had the right to extend the lease 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.bio-oxidation facility.
On August 2, 2017, we 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 October 2018, Hecla exercised its option and extended the lease to December 31, 2020. 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 has the right to terminate the lease during the Extension Period for any reason with 120 days’ notice. Hecla will also have 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 its 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, 2018, Hecla processed approximately 142,000 tonnes of material through the oxide plant, resulting in total revenues to us of approximately $7.2 million, comprised of approximately $4.9 million for direct plant charges and fixed fees and approximately $2.3 million for other net reimbursable costs related to the services we provide under the lease. The $2.3 million of reimbursable costs are also reported as plant lease costs, resulting in net operating margin of approximately $4.9 million for the year ended December 31, 2018. We expect Hecla to continue to process material near the intended approximately 400 tonnes per day rate during 2019, which would generate cash payments to us, net of reimbursable costs, of approximately $4.6 million during 2019. However, because Hecla has the right to terminate the lease on 120 days’ notice, there is no assurance that these amounts will be received.
Mining and Processing
Aside from some minor test mining and crushing activities, there were no mining or processing activities, other than the Hecla lease,Lease, at our Velardeña Properties in 20172019 or 20182020 as a result of the shutdown of the mining and sulfide processing activities in November 2015. WeCurrently, we expect to incur approximately $0.4$0.2 million in quarterly holding costs for as long as mining and sulfide processing activities remain suspended.
Environmental Matters and Permitting
We hold environmental licenses and environmental impact assessments that allow us to run our mines, plants and tailing facilities at our Velardeña Properties. We are required to update our environmental licenses and environmental impact assessments for expansion of or modification to any of the existing two processing plants. The construction of new
22
infrastructure beyond the current plant facilities also would require additional permitting, which could include environmental impact assessments and land use permits.
Certain Laws Affecting Mining in Mexico
Mexico, officially the United Mexican States, is a federal constitutional republic in North America and bordered by the United States of America, Belize and Guatemala. Mexico is a federal democratic republic with 31 states and Mexico City. Each state has its own constitution and its citizens elect a governor, as well as representatives, to their respective state congresses. The President of Mexico is the head of the executive federal government. Executive power is exercised by the President, while legislative power is vested in the two chambers of the Congress of the Union. The three constitutional powers are the Judiciary, the Executive and the Legislature which are independent of each other.
Legislation Affecting Mining
The Mining Law, originally published in 1992 and amended in 1996, 2005, 2006 and 2014, is the primary legislation governing mining activities in Mexico. Other significant legislation applicable to mining in Mexico includes the regulations to the Mining Law, the Federal Law of Waters, the Federal LabourLabor Law, the Federal Law of Fire Arms and Explosives, the General Law on Ecological Balance and Environmental Protection and regulations, the Federal Law of Duties and the Federal Law on Metrology and Standards.
The Concession System
Under Mexican law, mineral deposits are property of the Mexican republic, and a mining concession, granted by the executive branch of the federal government, is required for the exploration, exploitation and processing of mineral deposits. Mining concessions may only be granted to Mexican individuals domiciled in Mexico or companies incorporated and validly existing under the laws of Mexico. Mexican companies that have foreign shareholders must register with the National Registry of Foreign Investments and renew their registration on an annual basis. Mining concessions grant rights to explore and exploit mineral deposits but do not grant surface rights over the land where the concession is located. Mining
19
concession holders are required to negotiate surface access with the land owner or holder (e.g., agrarian communities) or, should such negotiations prove unsuccessful, file an application with the corresponding administrative authority (Ministry of Economy or Ministry of Agrarian-Territorial-Urban Development) to obtain an easement, temporary occupancy, or expropriation of the land, as the case may be. An application for a concession must be filed with the Mining Agency or Mining Delegation located closest to the area to which the application relates.
Mining concessions have a term of 50 years from the date on which title is recorded in the Public Registry of Mining. Holders of mining concessions are required to comply with various obligations, including the payment of certain mining duties based on the number of hectares of the concession and the number of years the concession has been in effect. Failure to pay the mining duties can lead to cancellation of the relevant concession. Holders of mining concessions are also obliged to carry out and prove assessment works in accordance with the terms and conditions set forth in the Mining Law and its regulations. The regulations to the Mining Law establish minimum amounts that must be spent or invested on mining activities. A report must be filed in May of each year regarding the assessment works carried out during the preceding year. The mining authorities may impose a fine on the mining concession holder if one or more proof of assessment work reports is not timely filed.
Pursuant to amendments to the federal corporate income tax law, effective January 2014, additional duties are imposed on mining concession holders; see “—Taxes in Mexico”.
Environmental Legislation
Mining projects in Mexico are subject to Mexican federal, state and municipal environmental laws and regulations for the protection of the environment. The principal legislation applicable to mining projects in Mexico is the federal
23
General Law of Ecological Balance and Environmental Protection, which is enforced by the Federal Bureau of Environmental Protection, commonly known as “PROFEPA”. PROFEPA is the federal entity in charge of carrying out environmental inspections and negotiating compliance agreements. Voluntary environmental audits, coordinated through PROFEPA, are encouraged under the federal General Law of Ecological Balance and Environmental Protection. PROFEPA monitors compliance with environmental legislation and enforces Mexican environmental laws, regulations and official standards. If warranted, PROFEPA may initiate administrative proceedings against companies that violate environmental laws, which proceedings may result in the temporary or permanent closure of non-complying facilities, the revocation of operating licenses and/or other sanctions or fines. According to the Federal Criminal Code, PROFEPA must inform the relevant governmental authorities of any environmental crimes that are committed by a mining company in Mexico.
Concession holders under the exploration stage may submit themselves to comply with the Mexican Official Norm: NOM-120-SEMARNAT-1997, which provides, among other things, that mining exploration activities to be carried out within certain areas must be conducted in accordance with the environmental standards set forth in NOM-120-SEMARNAT-1997; otherwise, concession holders are required to file a preventive report or an environmental impact study prior to the commencement of the exploration, exploitation and processing of mineral resources. An environmental impact study is required for exploitation and processing of mineral resources activities.
In 2014 Mexico developed an energy policy applicable to private investment companies whereby new mining concessions are now subject to prior approval from the Ministry of Energy. Current mining concessions forming the Velardeña Properties are not subject to or affected by this approval requirement, but any new mining concessions acquired will be subject to this additional approval.
Taxes in Mexico
Mexico has a federal corporate income tax rate of 30%, and there are no state taxes on corporate net income. In determining their corporate income tax, entities are allowed to subtract from gross income various deductions permitted by law, and they are allowed a ten-year carry-forward of net operating losses. Pursuant to amendments to the federal tax
20
laws effective January 1, 2014, a 10% withholding tax is charged on dividends distributed to shareholders, regardless of the tax residence of the recipient, out of after tax profits. However, in the case of nonresident shareholders the limitations and tax rates provided in the treaties to avoid double taxation will prevail. A foreign resident company is subject to income tax if it has a permanent establishment in Mexico. In general, a permanent establishment is a place of business where the activities of an enterprise are totally or partially carried out and includes, among others, offices, branches and mining sites.
Under the 2014 amendments to the federal corporate income tax law, titleholders of mining concessions are required to pay an annual special duty of 7.5% of their mining related profits. Titleholders of mining concessions also are required to pay a 0.5% special mining duty, or royalty, on an annual basis, on revenues obtained from the sale of silver, gold and platinum. Both the 7.5% annual special duty and the 0.5% duty are due at the end of March each year. The special duty of 7.5% is generally applicable to earnings before income tax, depreciation, depletion, amortization, and interest. In calculating the special duty of 7.5%, there are no deductions related to depreciable costs from operational fixed assets, but exploration and prospecting depreciable costs are deductible when incurred. Both duties are tax deductible for income tax purposes.
Mexico has several taxes in addition to income tax that are relevant to most business operations, including (i) the Value Added Tax (“VAT”); (ii) import duties; (iii) various payroll taxes; and (iv) statutorily entitled employee profit sharing (“PTU”). In addition, annual mining concession fees are charged by the government.
VAT in Mexico is charged upon alienation of goods, performance of independent services, grant of temporary use or exploitation of goods, or import of goods or services that occur within Mexico’s borders, at a rate of 16%. There is no VAT in the case of export of goods or services or for the sale of gold, jewelry, and gold metalwork with a minimum gold content of 80%, excluding retail sale to the general public. The sale of mining concessions is subject to VAT as
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concessions are not considered to be land. VAT paid by a business enterprise on its purchases and expenses may usually be credited against its liability for VAT collected from customers on its own sales. This creditable VAT may also be directly refunded, but under new regulations beginning in January 2019, the creditable VAT can no longer offset other Mexican federal taxes.
Import duties apply for goods and services entering the country, unless specifically exempted due to a free trade agreement or registered under specific programs like IMMEX, under which we are currently registered.IMMEX. Payroll taxes are payable in most states including Durango and Coahuila, and social security, housing and pension contributions must be made to the federal government when paying salaries.
Employees of Mexico entities are statutorily entitled to a portion of the employer’s pre-tax profits, called PTU. The rate of profit sharing is currently 10% of the employer’s taxable income as defined by the Income Tax law. A taxpayer may reduce its income tax base by an amount equal to the PTU. Certain companies are exempt from paying PTU, which include companies in the extractive industry (principally the mining industry) during the period of exploration.
El Quevar
Location and Access
Our El Quevar silver project is located in the San Antonio de los Cobres municipality, Salta Province, in the altiplano region of northwestern Argentina, approximately 300 kilometers by road northwest of the city of Salta, the capital city of the province. The project is also accessible by a 300-kilometer dirt and gravel road from the city of Calama in northern Chile. The small village of Pocitos, located about 20 kilometers to the west of El Quevar, is the nearest settlement. We have established a camp approximately 10 kilometers west of the project to house project workers. A high-tension power line is located approximately 40 kilometers from the site, and a high-pressure gas line devoted to the mining industry and subsidized by the Salta government is located within four kilometers of the El Quevar camp.
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The El Quevar project is located near Nevado Peak with altitudes at the concessions ranging from 3,800 to 6,130 meters above sea level. The climate of the area is high mountain desert, with some precipitation in summer (such as snow) and little snow in winter.
The following map shows the location of the El Quevar project.
Property History
Mining activity in and around the El Quevar project dates back at least 80 years. Between 1930 and 1950, there was lead and silver extraction of mineralized materials from small workings in the area, but we have no mining records from that period. The first organized exploration activities on the property occurred during the 1970s, although no data from that period remains. Over the last 30 years, several companies have carried out exploration activity in the area, including BHP Billiton, Industrias Peñoles, Mansfield Minerals and Hochschild Mining Group, consisting primarily of local sampling with some limited drilling programs.
Title and Ownership Rights
According to Argentine law, mineral resources are subject to regulation in the provinces where the resources are located. Each province has the authority to grant mining exploration permits and mining exploitation concession rights to applicants. The Federal Congress has enacted the National Mining Code and other substantive mining legislation, which is applicable throughout Argentina; however, each province has the authority to regulate the procedural aspects of the National Mining Code and to organize the enforcement authority within its own territory.
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In the province of Salta, where the El Quevar project is located, all mining concessions are granted by a judge in the Salta Mining Court. The El Quevar project is comprised of exploitation concessions. Exploitation concessions are subject to a canon payment fee (maintenance fee) which is paid in advance twice a year (before June 30th and December 31st of each calendar year). Each time a new mining concession is granted, concession holders are exempt from the canon payment fee for a period of three years from the concession grant date. However, this exemption does not apply to the grant of vacant exploitation concessions; only to the grant of new mining concessions.
The El Quevar project is currently comprised of 31 mining concessions that we hold directly. In total, the El Quevar project encompasses approximately 57,000 hectares. The area of most of our exploration activities at El Quevar is within the concessions that are owned by Silex Argentina S.A., our wholly-owned subsidiary.
We are required to pay a 1% net smelter return royalty on the value of all minerals extracted from the El Quevar II concession and a 1% net smelter return royalty on one-half of the minerals extracted from the Castor concession to the third party from whom we acquired these concessions. We can purchase one half of the royalty for $1 million in the first two years of production. The Yaxtché deposit is located primarily on the Castor concession. We may also be required to pay a 3% royalty to the Salta Province based on the net smelter value of minerals extracted from any of our concessions less costs of processing. To maintain all of the El Quevar concessions, we paid canon payment fees to the Argentine government of approximately $36,000 and $22,000 in 2019 and 2020, respectively. In 2021 we expect to pay approximately $15,000.
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The following El Quevar mine concessions are identified below by name and file number in the Salta Province Registry of Mines.
Name of Mine Concession | | Concession | |
Quevar II | | 17114 | |
Quirincolo I | | 18036 | |
Quirincolo II | | 18037 | |
Castor | | 3902 | |
Vince | | 1578 | |
Armonia | | 1542 | |
Quespejahuar | | 12222 | |
Toro I | | 18332 | |
Quevar Primera | | 19534 | |
Quevar Novena | | 20215 | |
Quevar Decimo Tercera | | 20501 | |
Quevar Tercera | | 19557 | |
Quevar Vigesimo Tercero | | 21043 | |
Quevar 10 | | 20219 | |
Quevar Vigesimo Primera | | 20997 | |
Quevar Vigesimo Septima | | 22403 | |
Quevar IV | | 19558 | |
Quevar Vigesimo Cuarto | | 21044 | |
Quevar 11 | | 20240 | |
Quevar Quinta | | 19617 | |
Quevar 12 | | 20360 | |
Quevar Decima Quinta | | 20445 | |
Quevar Sexta | | 19992 | |
Quevar 19 | | 20706 | |
Quevar Vigesimo Sexta | | 22087 | |
Quevar Vigesimo Segundo | | 21042 | |
Quevar Séptima | | 20319 | |
Quevar Veinteava | | 20988 | |
Mariana | | 15190 | |
Arjona II | | 18080 | |
Quevar Vigesimo Quinto | | 21054 | |
The surface rights at El Quevar are controlled by the Salta Province. There are no private properties within the concession area. To date, no issues involving surface rights have impacted the project. Although we have unrestricted access to our facilities, we have been granted easements to further protect our access rights.
Barrick Earn-In Agreement
In April 2020, we entered into the Earn-In Agreement with Barrick, pursuant to which Barrick has acquired an option (the “Option”) to earn a 70% interest in the Company’s El Quevar project located in the Salta Province of Argentina.
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Pursuant to the terms of the Earn-In Agreement, in order to earn an undivided 70% interest in the El Quevar project, Barrick must: (A) incur a total of $10 million in work expenditures over a total of eight years ($0.5 million per year in years one and two, $1.0 million per year in years three, four and five, and $2.0 million per year in years six, seven and eight); (B) deliver to the Company a National Instrument 43-101 compliant pre-feasibility study pursuant to the parameters set forth in the Earn-In Agreement; and (C) deliver a written notice to exercise the Option to us within the term of the Earn-In Agreement. Barrick may withdraw from the Earn-In Agreement at any time after spending a minimum of $1.0 million in work expenditures and upon providing us with 30 days’ notice.
We will form a new entity (“NewCo”) that will hold the El Quevar properties. Upon satisfaction of the earn-in conditions and exercise of the Option, NewCo will be 70% owned by Barrick and 30% owned by us. Funding of NewCo will be based on Barrick’s and our respective ownership, and industry standard dilution mechanisms will apply in the case of funding shortfalls by either shareholder.
During the earn-in period, originally scheduled from April 9, 2020 to April 9, 2028, in addition to the exploration spending, Barrick will fund the holding costs of the property, which will qualify as work expenditures. Barrick will reimburse us for expenses related to maintaining the exploration camp which will initially be run by us under a service agreement, which will also qualify as work expenditures. Through December 31, 2020, approximately $0.4 million of expenses incurred by us were reimbursable under the Earn-In Agreement.
Due to the COVID-19 pandemic and related legal restrictions on mining exploration in Salta, Argentina, Barrick declared a force majeure event under the Earn-In Agreement. As a result of the force majeure event, the earn-in period and other applicable deadlines in the Earn-In Agreement were extended by 119 days. The force majeure event is no longer in effect and Barrick has commenced activities at the site.
Geology and Mineralization
The geology of the El Quevar project is characterized by silver-rich veins and disseminations in Tertiary volcanic rocks that are part of an eroded stratovolcano. Silver mineralization at El Quevar is hosted within a broad, generally east-west-trending structural zone and occurs as a series of north-dipping parallel sheeted vein zones, breccias and mineralized faults situated within an envelope of pervasively silicified brecciated volcanic rocks. There are at least three sub-parallel structures that extend for an aggregate length of approximately 6.5 kilometers. Several volcanic domes (small intrusive bodies) have been identified and mineralization is also found in breccias associated with these domes, especially where they are intersected by the structures. The silver mineralization at the Yaxtché zone is of epithermal origin. The cross-cutting nature of the mineralization, the assemblage of sulfide and alteration minerals, and the presence of open spaces with euhedral minerals, all point to an origin at shallow to moderate depths (a few hundred meters below surface) from hydrothermal solutions.
Mineralized Material Estimate
During 2012, we released an estimate of mineralized material at our El Quevar project. This estimate assumed mining of oxide material from an open pit on the east end of the Yaxtché deposit and sulfide material from both the open pit and an underground mine on the western portion of the Yaxtché deposit. The estimate was based on results from 270 core drill holes.
In 2017, Wood Group USA, Inc. (formerly known as Amec Foster Wheeler E&C Services, Inc.) (“Wood”) undertook an analysis and re-modeling of data utilized in a 2012 mineralized material estimate based on results from 270 core drill holes from the Yaxtché deposit. The Wood estimate, which we announced in February 2018, used updated geologic controls and a modeling method that optimized silver grade assuming mining would occur solely underground.
In September 2018, we completed a PEA prepared pursuant to NI 43-101 that used the February 2018 revised estimate of mineralized material for the Yaxtché deposit as a basis. The PEA contemplates a six-year underground mining
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operation using pre-existing and new underground development at a mine production rate of 1,200 tonnes per day using a post-pillar cut-and-fill mining method that will deliver 2.45 million tonnes of diluted sulfide material at an average grade of 409 g/t silver. As contemplated in the PEA, the mined material would be processed using a conventional single product flotation mill that would produce a silver-rich bulk concentrate suitable for sale.
For further detail regarding mineralized material, see “CAUTIONARY STATEMENT REGARDING MINERALIZED MATERIAL”.
Exploration Properties
In addition to Rodeo, Velardeña and El Quevar, we currently control a portfolio of approximately 12 exploration properties located primarily in certain traditional precious metals producing regions of Mexico.Mexico, Nevada and Argentina. We do not consider any of our exploration properties to be individually material, including those noted below.
In 20192021 we plan to focus our exploration efforts primarily on explorationevaluating and evaluation activities at El Quevar, Yoquivo, Navegantes and other properties, primarilysearching for mining opportunities in North America.America with near term prospects of mining. We are also focused on continuing our exploration efforts on selected properties in our portfolio. During 20192021 we expect our expenditures for the exploration program to total approximately $2.0$0.4 million, with approximately $0.3$0.2 million in property holding costs in Mexico, $0.1 million in holding costs in Nevada and approximately $0.5$1.2 million in administrative and general reconnaissance costs in Mexico.
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In August 2014, we entered intoYoquivo
The Yoquivo property was acquired in 2017 and with the 2019 additional acquisition of a claim internal to the exterior boundary the project consists of 1,975 hectares in 7 claims that cover an epithermal vein district hosted in Tertiary andesitic volcanic rocks that is exposed in an erosional window through Oligocene rhyolite on the eastern margin of the Sierra Madre Occidental of northern Mexico. The property is 200 km SW of Chihuahua city in the state of Chihuahua, Mexico. Surface rock sampling done in 2018 demonstrated gold and silver values of potential economic interest in several of the veins in the district. We have an option agreement giving usto purchase the right to acquire for $1.2 million the Santa Maria mine, a privately held property comprised of a single mining claim of 18 hectares west of Hildalgo de Parral, Chihuahua State, Mexico. Since 2015, we have completed test mining and processing of approximately 7,100 dry tonnes from the Santa Maria mine, with average grades of 338 gpt silver and 0.8 gpt gold. In March 2017, a preliminary economic assessment (PEA) was completed on our behalf by the engineering firm Tetra Tech, prepared pursuant to Canadian National Instrument 43-101, based on an updated estimate of mineralized material. The PEA presented a base case assessment of developing Santa Maria’s mineral deposit. In September 2018, Tetra Tech completed a second PEA for the Santa Maria project that incorporates data accumulated since March 2017, including an additional 77 hectares of mineral tenure acquired in August 2017 that covers the on-strike and downdip extensions of the Santa Maria vein systems. The new PEA also incorporates information from a 22-hole, 4,800-meter drilling program begun in August 2017 and completed in April 2018. Including the latest drill program, we have drilled 9,900 meters in 59 holes since acquiring the property. Surface mapping and sampling has also identified additional high-grade veins on the adjacent eastern extension of the Santa Maria property and new veins to the north located outside of the mineralized material area as defined in the March 2017 PEA.
The September 2018 PEA shows improvement in projected cash flow, metal production and profitability compared to the previous study. The PEA estimates a 4.2-year underground mining operation using pre-existing and new underground development at an average mine production rate of 218 tonnes per day, using a combination of cut-and-fill and sublevel stoping. It is currently envisioned that both mixed and sulfide materials will undergo toll-milling at a local third-party facility with sulfide flotation circuits. Oxide material will be cyanide leached at the same toll-milling facility. In the PEA, Santa Maria is estimated to deliver 150,000 tonnes of diluted sulfide material to the mill at an average grade of 378 g/t silver equivalent (“AgEq”, calculated by combining Ag and Au values where one g/t of Au equals 74 g/t of Ag),
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116,000 tonnes of diluted oxide material at an average grade of 428 g/t AgEq and 42,000 tonnes of diluted mixed material at an average grade of 278 g/t tonne AgEq.
We have the right to acquire 100% of the Santa Maria property under two separate option agreements representing the totalsix concessions that comprise the Yoquivo property for additional payments of $1.0 million, payable through April 2022. The first option agreement, covering concessions we acquired in August 2014, requires an additional approximately $0.4 million be paid to acquire a 100% interest in the concessions related to that option by continuing to make minimum payments of $0.2 million in 2019 and, $0.2 million in 2020. 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 acquired in August 2017, requires an additional $0.6 million be paid to acquire a 100% interest in the concessions related to that option by making additional payments of $0.2 million in each of the years 2019 through 2021.
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We acquired the Rodeo and Rodeo 2 claims comprising 1,866 hectares 80 kilometers west of the Velardeña Properties in Durango, Mexico where previous exploration by other companies has identified a gold-bearing epithermal system exposed at the surface. During 2016, we completed a 2,080 meter core drilling program at the Rodeo property at a cost of approximately $0.4 million. The results from the program show a gold and silver bearing epithermal vein and breccia system with encouraging gold and silver values over an approximate 50 to 70 meter true width. The system is exposed at the top of a northwesterly striking ridge and dips steeply to the northeast over about one kilometer of strike length.
During January 2017, Tetra Tech completed an estimate of mineralized material at the Rodeo deposit, prepared pursuant to Canadian National Instrument 43-101, based on two different operating scenarios. The first operating scenario reflects a smaller amount of higher grade material and estimated mineralized material of 0.4 million tonnes containing 3.3 gpt gold and 11 gpt silver. This scenario provides a potentially shorter time to processing with lower capital costs since we already own the mill, located within trucking distance of the Rodeo property. The second operating scenario reflects a larger amount of lower grade material and estimated mineralized material of 3.6 million tonnes containing 0.8 gpt gold and 12 gpt silver. The second mineralized material estimate envisions a standalone heap leach operation, depending on leachability of the material and development and operating costs. 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 expire December 31, 2020.
In initial test work conducted in 2017, we received confirmation of good gold and silver metallurgical recoveries for milled material in initial test work. 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 early 2020.
Yoquivo
In October 2017 we acquired the right to purchase claims covering the Yoquivo District, Ocampo Municipality, Chihuahua, Mexico 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. We have the right to purchase six claims totaling 1,906 hectares for payment of $0.5$0.75 million over four years plus outstanding claim taxes totaling approximately $0.1 million. No cash paymentssubject to the owner are due until the second anniversary of the agreement. The owner retains a 2% net smelter returnto 3% NSR royalty on production, capped at $2.0$2.8 million.
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In October 2018 we announced high-grade silver-gold assays from the Yoquivo project. Multiple silver-gold bearing epithermal veins were mapped and sampled, with the two most important veins being the San Francisco and Pertenencia veins. A new vein, the La Nina vein, was discovered in the northwest of the property where it splits off from the main San Francisco vein. We are focusing exploration effortsTwo other veins, the Esperanza and El Dolar veins have been identified and sampled. Based on sampling and mapping we have identified the most attractive targets on the Pertenencia vein, which appearsproperty and have permits in hand to be more silver-rich compared toinitiate the San Francisco vein. Sampling of the Pertenencia vein is still in progress as is surface work in preparation for identifying the best drill targets. We expect to beginprogram. In September 2020 we began a 3,400-meter, 15-hole drill program in 2019 to test the most promising portions of the veins. A permitWe completed the drill program in December 2020 and identified four separate vein systems in which surface sampling has returned grades up to 4,050 g/t silver and 27.7 g/t gold from surface. We announced the drill results in January 2021, which identified four veins with potentially economic gold-silver grades, including a newly discovered vein without previous historic mining within the district scale property holdings. We plan to follow with a second phase drill program, which could start in the the second quarter 2021.
Santa Maria
On July 14, 2020, we entered into a binding letter of intent with Fabled Silver Gold Corp., formerly known as Fabled Copper Corp. (“Fabled”), for drilling has been obtained.a potential transaction pursuant to which Fabled would acquire our option to earn a 100% interest in the Santa Maria mining claims located in Chihuahua, Mexico (the “Option”). Entry into a definitive agreement regarding the Option was subject to a number of contingencies. On December 4, 2020, the Company entered into a definitive option agreement (the “Option Agreement”) to sell its Option to Fabled. The period to exercise the Option (the “Exercise Period”) expires on December 4, 2022, unless extended by the parties under the terms of the Option Agreement. As consideration for the Option, Fabled (i) paid $0.5 million in cash to the Company and issued to the
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Company one million shares of Fabled’s common stock; (ii) will pay $1.5 million in cash to the Company on the one year anniversary date following the closing of the Option Agreement; (iii) will pay $2.0 million in cash to the Company on the two year anniversary date following the closing of the Option Agreement; and (iv) upon exercise of the Option, will grant the Company a 1% net smelter return royalty on the Maria, Martia III, Maria II Frac. I, Santa Maria and Punto Com concessions (the “Concessions”). Pursuant to the Option Agreement, during the Exercise Period, Fabled is obligated to pay to each of the owners of the Concessions (the “Owners”) any remaining required payments due to the Owners pursuant to the various underlying option agreements between the Owners and the Company, and to make all payments and perform all other requirements needed to maintain the Concessions in good standing. Should Fabled not complete its obligations described herein, the Santa Maria mining claims will revert to the Company and the Company will be entitled to keep anypayments made by Fabled under the terms of the Option Agreement.
Navegantes
In November 2018,We have the right to acquire 100% of the Santa Maria property under two separate option agreements representing the total concessions that comprise the property for additional payments of $0.2 million, payable through August 2021. The first option agreement covers concessions we acquired in August 2014 and required a final payment of approximately $0.1 million in November 2020. The second option agreement covers concessions acquired in August 2017 and requires an additional approximately $0.2 million be paid in 2021.
Sand Canyon
During the Navegantessecond 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 large system of epithermal veins with potential for gold and silver deposits. We hold an option to earn a 60% interest in the Sand Canyon project by spending $2.5 million in exploration expenses over four years, with guaranteed minimum expenditures of $0.5 million in year one. To continue to earn interest in the project, 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 two, by the end of the second year. We paid $25,000 cash and $50,000 in reimbursed exploration expenditures to acquire the option and $35,000 cash in 2020 on the first anniversary of the agreement, and will make staged payments of a total additional $100,000 ($50,000 in 2021 and $50,000 in 2022) over the next two anniversaries of the agreement.
We completed surface exploration activities on the project in southern Chihuahua state, Mexico. Recentlate 2019, including mapping and geochemical sampling to identify drill targets. Based on this work and after securing drill permits, we initiated a drill program in the first quarter 2020. In March 2020 we completed the initial drill program of approximately 1,800 meters in 4 diamond drill holes. The drill holes were placed to target surface geochemical and underground sampling have returned high-grade silver values from a series ofgeophysical anomalies associated with epithermal silver-base metal veins outcroppingveining observed in outcrops. Drill holes tested the two principal epithermal vein target areas on the property.property, the DeLong Canyon target and the Sand Canyon target. The project consistsdrill hole collared to test the DeLong Canyon target did not encounter any veins or significant anomalous geochemical values. Interpretation shows that a fault offset likely caused the drill hole to miss the vein system as projected from surface. The three drill holes collared to test the veins and anomalies in the Sand Canyon target area all intersected narrow vein and breccia structures with low anomalous values of six concessions totaling 521 hectaresAg, As, Sb, and is located approximately 60km northwestMo. No potentially economic concentrations of precious metals were encountered in any of the San Francisco del Oro-Santa Barbara District where our Santa Maria project is located.
Farm-outs, Royalties and Other Dispositions
Exploration properties that we choose not to advance are evaluatedfour drill holes. Plans for joint venture, sale of all or a partial interest and royalty potential. We currently have minority ownership interests and/or royalties in or have disposedfurther testing of the following properties that were once partmineralized system are being considered. In the first year of our exploration portfolio:
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at Sand Canyon and through December 31, 2020, we spent $1.8 million toward the $2.5 million earn-in requirement, fulfilling the first and second year minimum expenditures and the minimum drill commitment.
Executive Officers of Golden Minerals
Name | | Age | | Position |
Warren M. Rehn | |
| | President and Chief Executive Officer |
Robert P. Vogels | |
| | Senior Vice President and Chief Financial Officer |
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Warren M. Rehn. Mr. Rehn was appointed President of our company in May 2015 and appointed Chief Executive Officer and director in September 2015. Mr. Rehn previously served as Senior Vice President, Exploration and Chief Geologist since December 2012 and served as Vice President, Exploration and Chief Geologist since February 2012. From
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2007 until February 2012, Mr. Rehn held various positions at Barrick Gold Exploration, Inc., serving most recently as Chief Exploration Geologist for the Bald Mountain and Ruby Hill mining units. From 2005 until 2007, Mr. Rehn was a consulting geologist for Gerson Lehman Group, which provides consulting services to various industries, including geology and mining. Mr. Rehn served as a Consulting Senior Geologist at Placer Dome Exploration, Inc. in 2004 and as an independent consulting geologist throughout the Americas from 1994 until 2003. He served as a Senior Geologist at Noranda Exploration, Inc. from 1988 until 1994. Mr. Rehn holds an M.S. in Geology from the Colorado School of Mines and a B.S. in Geological Engineering from the University of Idaho.
Robert P. Vogels. Mr. Vogels was named Senior Vice President and Chief Financial Officer in March 2009. Mr. Vogels served as Controller of Apex Silver from January 2005 to March 2009 and was named Vice President in January 2006. Prior to joining Apex Silver, Mr. Vogels served as corporate controller for Meridian Gold Company from January 2004 until December 2004. He served as the controller of INCO Limited’s Goro project in New Caledonia from October 2002 to January 2004. Prior to joining INCO, Mr. Vogels worked from 1985 through October 2002 for Cyprus Amax Minerals Company, which was acquired in 1999 by Phelps Dodge Corp. During that time, he served in several capacities, including as the controller for its El Abra copper mine in Chile from 1997 until March 2002. Mr. Vogels began his career in public accounting as a CPA. He holds a B.Sc. in accounting and an MBA degree from Colorado State University.
Board of Directors of Golden Minerals
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Committee Membership
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Metals Market Overview
We are an emerging precious metals exploration company with silver and gold mining properties in Mexico and a large advanced exploration silver project in Argentina. Descriptions of the markets for these metals are provided below.
Silver Market
Silver has traditionally served as a medium of exchange, much like gold. Silver’s strength, malleability, ductility, thermal and electrical conductivity, sensitivity to light and ability to endure extreme changes in temperature combine to make it a widely used industrial metal. While silver continues to be used as a form of investment and a financial asset, the principal uses of silver are industrial, primarily in electrical and electronic components, photography, jewelry, silverware, batteries, computer chips, electrical contacts, and high technology printing. Silver’s anti-bacterial properties also make it valuable for use in medicine and in water purification. Additionally, the use of silver in the photovoltaic and solar panel industries is growing rapidly, and new uses of silver are being developed in connection with the use of superconductive wire and radio frequency identification devices.
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Most silver product is obtained from mining in which silver is not the principal or primary product. The Silver Institute, an international silver industry association, noted that for 20142018 only around 31%26% of output came from so-called primary silver mines, where silver is the main source of revenue.
The following table sets forth for the periods indicated on the London Fix high and low silver fixes in U.S. dollars per troy ounce. On February 26, 2019,12, 2021, the closing price of silver was $15.83$27.07 per troy ounce.
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Year |
| High |
| Low |
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2011 |
| $ | 48.70 |
| $ | 26.16 |
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2012 |
| $ | 37.23 |
| $ | 26.67 |
| | $ | 37.23 | | $ | 26.67 | |
2013 |
| $ | 32.23 |
| $ | 18.61 |
| | $ | 32.23 | | $ | 18.61 | |
2014 |
| $ | 22.05 |
| $ | 15.28 |
| | $ | 22.05 | | $ | 15.28 | |
2015 |
| $ | 18.23 |
| $ | 13.71 |
| | $ | 18.23 | | $ | 13.71 | |
2016 |
| $ | 20.71 |
| $ | 13.58 |
| | $ | 20.71 | | $ | 13.58 | |
2017 |
| $ | 18.56 |
| $ | 15.22 |
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2018 |
| $ | 17.52 |
| $ | 14.13 |
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2019* |
| $ | 16.08 |
| $ | 15.26 |
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2017 | | $ | 18.56 | | $ | 15.22 | |
2018 | | $ | 17.52 | | $ | 14.13 | |
2019 | | $ | 19.31 | | $ | 14.38 | |
2020 | | $ | 28.89 | | $ | 12.01 | |
2021* | | $ | 29.59 | | $ | 24.87 | |
* | Through February 12, 2021. |
*Through February 26, 2019.
Gold Market
Gold has two main categories of use: fabrication and investment. Fabricated gold has a variety of end uses, including jewelry, electronics, dentistry, industrial and decorative uses, medals, medallions and official coins. Gold investors buy gold bullion, official coins and jewelry. The supply of gold consists of a combination of production from mining and the draw-down of existing stocks of gold held by governments, financial institutions, industrial organizations and private individuals.
The following table sets forth for the periods indicated on the London Fix PM high and low gold fixes in U.S. dollars per troy ounce. On February 26, 2019,12, 2021, the closing price of gold was $1,325$1,816 per troy ounce.
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Year |
| High |
| Low |
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| High |
| Low |
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2011 |
| $ | 1,895 |
| $ | 1,319 |
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2012 |
| $ | 1,792 |
| $ | 1,540 |
| | $ | 1,792 | | $ | 1,540 | |
2013 |
| $ | 1,694 |
| $ | 1,192 |
| | $ | 1,694 | | $ | 1,192 | |
2014 |
| $ | 1,385 |
| $ | 1,142 |
| | $ | 1,385 | | $ | 1,142 | |
2015 |
| $ | 1,296 |
| $ | 1,049 |
| | $ | 1,296 | | $ | 1,049 | |
2016 |
| $ | 1,366 |
| $ | 1,077 |
| | $ | 1,366 | | $ | 1,077 | |
2017 |
| $ | 1,346 |
| $ | 1,151 |
| | $ | 1,346 | | $ | 1,151 | |
2018 |
| $ | 1,355 |
| $ | 1,178 |
| | $ | 1,355 | | $ | 1,178 | |
2019* |
| $ | 1,344 |
| $ | 1,280 |
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2019 | | $ | 1,546 | | $ | 1,270 | | |||||||
2020 | | $ | 1,672 | | $ | 1,527 | | |||||||
2021* | | $ | 1,943 | | $ | 1,786 | | |||||||
* Through February 26, 2019.12, 2021.
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Employees
Employees
We currently have 178192 employees, including seven[seven] in Golden, approximately 164174 in Torreón, Mexico, or atprimarily involved with the Velardeña Properties (including approximately 90 assigned to the oxide plant which is leased to a third party), sixRodeo operation, and 11 in Argentina, primarily in connection with the El Quevar project, and one in Peru.project.
Competition
There is aggressive competition within the mining industry for the acquisition of a limited number of mineral resource opportunities, and many of the mining companies with which we compete have greater financial and technical resources than we do. Accordingly, these competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, as well as on exploration and advancement of their mineral properties. We also compete with other mining companies for the acquisition and retention of skilled mining engineers, mine and processing plant operators and mechanics, geologists, geophysicists and other experienced technical personnel. Our competitive position depends upon our ability to successfully and economically advance new and existing silver and gold properties. Failure to achieve and
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maintain a competitive position could adversely impact our ability to obtain the financing necessary for us to advance our mineral properties.
Available Information
We make available, free of charge through our website at www.goldenminerals.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Information on our website is not incorporated into this annual report on Form 10-K and is not a part of this report. Additionally, the public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
Investors in Golden Minerals should consider carefully, in addition to the other information contained in, or incorporated by reference into, this annual report on Form 10-K, the following risk factors:
Risk Factors related to our Financial Circumstances
We are an exploration stage company and do not have historically incurred operating losses and operating cash flow deficits and we expect to incur operating losses and operating cash flow deficits through 2019; our potential profitability in the foreseeable future would depend on our ability to identify, acquire and mine properties to generate sufficient revenues to fund our continuing activities.a long-term source of revenue.
We have a history of operating losses and have not successfully produced revenue from mining operations since 2015. Although we expect our Rodeo project to generate revenue and free cash flow commencing in 2021, that project is short-lived and is not expected to generate significant cash flow beyond 2023. We are evaluating other potential mining activities, including a potential restart of production at the Velardeña Properties. However, we do not currently have any mining activities scheduled to commence after the termination of production at the Rodeo property.
If we are unable to generate revenue from another mining property, we will continue to incur operating losses unless and until such time as our Velardeña Properties, our El Quevar project, or another of our exploration properties, generates sufficient revenuebe dependent on future external financing to fund our continuing businesscorporate expenses and exploration and development activities. Although we have leased the oxide plant at the Velardeña Properties to a subsidiary of Hecla Mining Company, the cash that we expect will be generated from that lease will not be sufficient to fund all of our continuing business activities as currently conducted. In addition, the oxide plant lease may terminate sooner or produce less revenue than we anticipate. There is no assurance that we will develop additional sources of revenue.
In addition, the potential profitability of mining and processing at any of our properties would be based on a number of assumptions. For example, profitability would depend on metal prices, costs of materials and supplies, costs at the mines and processing plants and the amounts and timing of expenditures, including expenditures to maintain our
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Velardeña Properties, our El Quevar project and to continue exploration at other exploration properties, and potential strategic acquisitions or other transactions, in addition to other factors, many of which are andsuch financing will be beyond our control.available on acceptable terms or at all. See “Risk Factors – We cannot be certain we will be ablemay not have access to sufficient future capital.”
We may not have access to sufficient future capital.
Although the Rodeo property is expected to generate sufficient revenue from any source to achieve profitability and eliminate operatingfree cash flow deficits, orthrough 2023, we expect to cease to require additional funding.
We will require additional external financing to fund our continuing business activities in the future.
As of December 31, 2018 we had approximately $3.3 million in cash and cash equivalents. With anticipated costs during 2019, including exploration expenditures, care and maintenance costs at the Velardeña Properties, exploration and evaluation expenditures and property holding costs at the El Quevar project, andactivities. Additional capital would be required to fund general and administrative expenses, offset by anticipatedcosts if our revenue from the lease of the oxide plant of $4.6 million, we expect our current cash and cash equivalent balance will be approximately zero by the end of 2019, unless weflow projections for Rodeo are successful in raisingnot realized. Moreover, additional capital or selling certain exploration assets. Even with these anticipated revenues throughout 2019, our cash balancemay be required in 2019 will not be sufficientorder to provide adequate cash reserves in the event of an unexpected termination of the Hecla lease, variations from anticipated care and maintenance costs at the Velardeña Properties and costs for continued exploration, project assessment and development atcontinue to advance our other exploration properties, requiring us to seek additional funding from equity or debt or from monetization of non-core assets.projects.
We do not have a credit, off-take or other commercial financing arrangement in place that would finance our general and administrative costs and other working capital needs to fund our continuing business activities in the future, and we believe that securing credit for these purposes maywould be difficult given our limited history and the continuing volatility in global credit and commodity markets.challenging. In addition, commercial financing arrangements may not be available on favorable terms or on terms that would not further restrict our flexibility and ongoing ability to meet our cash requirements over a reasonable period of time. Access to public financing has been negatively impacted by the volatility in the credit markets and metals prices, which may affect our ability to obtain equity or debt financing in the future and, if obtained, to do so on favorable terms. We also may not be able to obtain funding by monetizing additional non-core exploration or other assets at an acceptable price.
Although we may be able to access public equity markets, including through issuances under out At the Market Offering Program with H.C. Wainwright & Co. (“ATM Program”) or the committed equity program with Lincoln Park
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Capital that we entered into in May 2018 (the “LPC Program”), significant equity issuances may be dilutive to our existing stockholders.
We cannot assure you that we will be able to obtain financing to fund our general and administrative costs and other working capital needs to fund our continuing business activities in the future on favorable terms or at all.
AlthoughRisk Factors related to our Mining and Processing Activities
We have not established proven or probable mineral reserves at our only producing property, the Rodeo project.
We have not established proven or probable reserves, as defined by the SEC under Industry Guide 7 or Canadian securities regulators, at the Rodeo mine. In order to establish proven reserves under SEC Industry Guide 7, we maywould be ablerequired to access public equity markets, including through issuances under our At-the-Market programprepare a final, “bankable” feasibility study. Due to the size of the Rodeo deposit and the relatively short anticipated mine life, we entereddo not believe it is necessary to incur the expense and delay involved in preparing a bankable feasibility study in order to bring the Rodeo project into in December 2016 (the “ATM Program”) orproduction. As a result, despite the committed equity program with Lincoln Park Capitalfact that we entered intohave undertaken confirmatory drilling to provide additional certainty regarding the Rodeo deposit, there is an increased uncertainty and risk that may result in May 2018 (the “LPC Program”), significant issuances under those programseconomic and technical failure which may be heavily dilutive to existing shareholders.
Hecla may terminateadversely impact our future profitability. Our production and after-tax cash flow estimates at the oxide plant lease.
In July 2015 we entered into a leasing agreement with a wholly-owned subsidiary of Hecla Mining Company to lease our Velardeña oxide plant for an initial term of 18 months beginning July 1, 2015. The lease agreement contained several lease extension options, which Hecla exercised, extending the current lease term through December 31, 2020. Hecla is responsible for ongoing operation and maintenance of the oxide plant and during the year ended December 31, 2018, Hecla's mining and processing activities resulted in a net margin of $4.9 million for us. The lease may terminate sooner than the end of 2020 if Hecla experiences mining problems or delays at its nearbyRodeo mine if there are disputes between Hecla and us, or for other reasons. Hecla has the right to terminate the lease on 120 days’ notice. Moreover, the lease payment from Hecla is based in part on the amountmineralized material estimate. Therefore, because the estimate does not constitute proven reserves under SEC Industry Guide 7, the production and after-tax cash flow estimates which are derived therefrom are inherently more uncertain than would otherwise be the case if the Rodeo mine were supported by a bankable feasibility study and estimate of ore processedproven reserves established in accordance with Industry Guide 7.
Our ability to achieve the cash flow and profitability predicted at the plant,Rodeo mine will be affected by changes in prices of silver and wegold.
We estimate approximately $9.0 million to $10.5 million in after-tax cash flow from the Rodeo mine during 2021. This estimate is based on an average silver price of $25.00 per ounce and an average gold price of $1,800 throughout 2021. Our ability to achieve our revenue and cash flow forecast is dependent, in large part, on the market prices of silver and gold. The market prices for these metals are volatile and are affected by numerous factors beyond our control, including (i) global or regional consumption patterns; (ii) supply of and demand for silver and gold on a worldwide basis; (iii) speculative and hedging activities; (iv) expectations for inflation; (v) political and economic conditions; (vi) supply of, and demand for, consumables required for extraction and processing of metals, and (vii) general economic conditions worldwide. We have no control over their production.ability to influence the price of silver and gold.
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cash flow and profitability at the Rodeo mine are inherently subject to uncertainty.
OneOur decision to commence production at the Rodeo mine was based on a Preliminary Economic Assessment that was completed in April 2020, as well as subsequent drilling and metallurgical work. In making the decision to commence mining, we made certain assumptions regarding operating and capital costs and project economic returns. These estimates of our stockholders owns a significant percentage of our common stockaverage cash operating costs are based upon, among other things (i) anticipated tonnage, grades and could block decisions or transactions that could be beneficial to other stockholders.
One of our stockholders, Sentient, owns approximately 44%metallurgical characteristics of the Company's outstanding common stock. With this levelore to be mined and processed; (ii) anticipated recovery rates of ownership, Sentient could exert significant control over us, including over the election of directors, changes in the size or the composition of the board of directors, and mergerssilver and other business combinations involvingmetals from the Company. Through greater controlore; (iii) cash operating costs of the board of directorscomparable facilities and increased voting power, including the potentialequipment; and (iv) anticipated climatic conditions. Actual cash operating costs, production and economic returns may differ significantly from those anticipated by our studies and estimates.
We are party to prevent a quorum at stockholders meetings, Sentient could control certain decisions, including decisions regarding qualification and appointment of officers, operations of the business including acquisition or disposition of our assets or purchases and sales of mining or exploration properties, dividend policy, and access to capital (including borrowing from third-party lenders and the issuance of equity or debt securities). Sentient’s large share ownership will also make it difficult, if not impossible, for us to enter into a change of control transaction that may otherwise be beneficial for our other shareholders.
If we commence mining in Mexico, we will likely enter into a collective bargaining agreement with a union in Mexico that, together with labor and employment regulations, could adversely affect our mining activities and financial condition.
As is the case at our Velardeña Properties, mine31
Mine employees in Mexico are typically represented by a union, and our relationship with our employees is, and we expect in the future will be, governed in part by collective bargaining agreements. Any collective bargaining agreement that we enter into with a union is likely to restrict our mining flexibility in and impose additional costs on our mining activities. In addition, relations between us and our employees in Mexico may be affected by changes in regulations or labor union requirements regarding labor relations that may be introduced by the Mexican authorities or by labor unions. Changes in legislation or in the relationship between us and our employees may have a material adverse effect on our mining activities and financial condition.
We may not mine the Veolardeña Properties again.
In mid-November 2015, we shut down the mines and sulfide processing plant at our Velardeña Properties and placed them on care and maintenance. Commencing mining again is subject to numerous risks and uncertainties, including:
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Based on these risks and uncertainties, there can be no assurance that we will restart mining activities at the Velardeña Properties.
Our ability to successfully conduct mining and processing activities resulting in long-term cash flow and profitability will be affected by changes in prices of silver, gold and other metals.
Our ability to successfully conduct mining and processing activities in Mexico, Argentina or other countries, to establish reserves and advance our exploration properties, and to become profitable in the future, as well as our long-term viability, depend, in large part, on the market prices of silver, gold, zinc, copper and other metals. The market prices for these metals are volatile and are affected by numerous factors beyond our control, including:
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The declines in silver and gold prices in recent years have had a significant impact on our mining activities, resulting in a shutdown of mining at our Velardeña Properties in 2015, and negatively affect mining opportunities at our other properties. Additionally, future weakness in the global economy could increase volatility in metals prices or depress metals prices, which could also affect our mining and processing plans at our Velardeña Properties or make it uneconomic for us to engage in mining or exploration activities. Volatility or sustained price declines may also adversely affect our ability to build or continue our business.
If products areProducts processed from our Velardeña PropertiesRodeo project or other mines in the future they could contain higher than expected contaminants, thereby negatively impacting our financial condition.
In 2015 we processed mined material to make gold and silver bearing lead, zinc and pyrite concentrates. Concentrate treatmentTreatment charges paid to smelters and refineries include penalties for certain elements, including arsenic and antimony that exceed contract limits. InIf the future, if we process material mined from our Velardeña Properties or other mines, any such concentrates could includeRodeo project includes higher than expected contaminants, whichthis would result in higher treatment expenses and penalty charges that could increase our costs and negatively impact our business, financial condition and results of operations. This could occur due to unexpected variations in the occurrence of these elements in the material mined, problems that occur during blending of material from various locations in the mine prior to processing and other unanticipated events.
The El Quevar project,Mining and processing activities are dependent on the availability of sufficient water supplies to support our mining activities.
Processing activities at the Velardeña Properties require significant amounts of water. At the Velardeña Properties, our ability to have sufficient water is dependent on our ability to maintain our water rights and claims. Water is provided for all of the mines comprising our otherVelardeña Properties by wells located in the valley adjacent to the Velardeña Properties. We hold title to three wells located near the sulfide plant and hold certificates of registration to three wells located near the oxide plant. We are licensed to pump water from all six wells up to a permitted amount. We are currently using water from the three wells associated with the oxide plant and from two of the three wells associated with the sulfide plant. We are required to make annual payments to the Mexican government to maintain our rights to these wells. We are required to pay a fine to the Mexican Government each year if we use too much water from a particular well or alternatively if we do not use a minimum amount of water from a particular well. In addition to these fines, the Mexican Government reserves the right to cancel our title to the wells for abuse of these rules.
We believe we currently have a sufficient amount of water for our expected processing activities at the plant. However, if we began processing material through both the sulfide and oxide plants in the future, we may face shortages in our water supply, and therefore will need to obtain water from outside sources at higher costs. The loss of some or all water rights for any of our wells, in whole or in part, or shortages of water to which we have rights would require us to seek water from outside sources at higher costs and could require us to curtail or shut down mining and processing in the future. Laws and regulations may be introduced in the future which could limit our access to sufficient water resources in mining activities, thus adversely affecting our business.
There are significant hazards involved in possible future underground mining and processing activities at our Velardeña Properties, not all of which would be fully covered by insurance.
While we are not currently conducting mining operations at the Velardeña Properties, we are evaluating a potential restart of production. Because the Velardeña mines are underground, potential mining activities, as well as the conduct of our exploration programs that frequently require rehabilitation of and drilling in underground mine workings, are subject to numerous risks and hazards inherent in underground mines. These risks include, for example, unforeseen environmental hazards, industrial accidents, unusual or unexpected geological formations, formation pressures, cave-ins, underground fires or floods, power outages, seismic activity, rock bursts, accidents relating to historical workings, landslides and periodic interruptions due to inclement or hazardous weather conditions. These occurrences could result in
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damage to, or destruction of, mineral properties or processing facilities, personal injury or death, environmental damage, reduced extraction and processing and delays in mining, asset write-downs, monetary losses and possible legal liability. Although we maintain insurance against risks inherent in the conduct of our business in amounts that we consider reasonable, this insurance contains exclusions and limitations on coverage, and will not cover all potential risks associated with mining and exploration activities, and related liabilities might exceed policy limits. As a result of any or all of the forgoing, we could incur significant liabilities and costs that could adversely affect our results of operation and financial condition.
Risk Factors related to our Exploration and Development Activities
Our exploration properties may not contain mineral reserves.
We are considered an exploration stage company under SEC Industry Guide 7, and none of the properties at the El Quevar project, our Velardeña Properties, or any of our other properties have been shown to contain proven or probable mineral reserves.reserves as defined under Industry Guide 7. Expenditures made in mining at the Velardeña Properties or the exploration and advancement of our El Quevar project or other properties may not result in positive cash flow or in discoveries of commercially recoverable quantities of ore. Most exploration projects do not result in the discovery of commercially mineable ore deposits, and we cannot assure you that any mineral deposit we identify will qualify as an orebody that can be legally and economically exploited or that any particular level of recovery from discovered mineralization will in fact be realized.
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During 2012, weOur mineralized material estimates are inherently imprecise.
We have released an estimateestimates of mineralized material at ourthe Rodeo project, the El Quevar project and in 2018 Wood Group completed an analysis and re-modeling of the data utilized in the prior mineralized material estimate. Tetra Tech completed technical reports on our Velardeña Properties and our Santa Maria and Rodeo properties, which indicated the presence of mineralized material.Properties. Mineralized material figures based on estimates made by geologists are inherently imprecise and depend on geological interpretation and statistical inferences drawn from drilling and sampling that may prove to be unreliable or inaccurate. We cannot assure you that these estimates are accurate, or that proven and probable mineral reserves will be identified at the El Quevar project, the Velardeña Properties, the Santa Maria and Rodeo properties, or any of our other properties. Eveneven if the presence of reserves is established at a project,estimates are accurate, the economic viability of the project may not justify exploitation. We have spent significant
The exploration of our mineral properties is highly speculative in nature, involves substantial expenditures and is frequently non-productive.
Mineral exploration is highly speculative in nature and frequently results in no or very little return on amounts oninvested to evaluate a particular property. Substantial expenditures are required to (i) establish the evaluationexistence of El Quevar priora potential ore body through drilling and metallurgical and other testing techniques; (ii) determine metal content and metallurgical recovery processes to establishingprocess metal from the ore; (iii) determine the feasibility of mine development and production; and (iv) construct, renovate or expand mining and processing facilities. If we discover a deposit or ore at a property, it usually takes several years from the initial phases of exploration until production is possible, if at all. During this time, the economic viabilityfeasibility of a project may change because of increased costs, lower metal prices or other factors. As a result of these uncertainties, our exploration programs may not result in the identification of proven and probable reserves in sufficient quantities to justify developing a particular property.
We may not mine the Velardeña Properties again.
In mid-November 2015, we shut down the mines and sulfide processing plant at our Velardeña Properties and placed them on care and maintenance. Commencing mining again is subject to numerous risks and uncertainties, including:
Estimatescan achieve sustainable cash positive results at current and future metals prices;
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Based on these risks and uncertainties, there can be affected by factors such as governmental regulations and requirements, fluctuations in metals prices or costsno assurance that we will restart mining activities at the Velardeña Properties.
Most of essential materials or supplies, environmental factors, unforeseen technical difficulties and unusual or unexpected geological formations. In addition, the grades of ore or material ultimately mined may differ from that indicated by drilling results, sampling, feasibility studies or technical reports. Short-term factors relating to reserves, such as the need for orderly development of ore bodies or the processing of new or different grades, may also have an adverse effect on mining and on the results of operations. Silver, gold or other minerals recovered in small-scale laboratory tests may not be duplicated in large-scale tests under on-site processing conditions.
The Velardeña Properties, the El Quevar project and our other properties are subject to foreign environmental laws and regulations which could materially adversely affect our business.
We have conductedare conducting mining activities in Mexico and conduct mineral exploration activities primarily in Mexico. Mexico and Argentina, where the El Quevar project is located,Argentina. Both jurisdictions have laws and regulations that control the exploration and mining of mineral properties and their effects on the environment, including air and water quality, mine reclamation, waste generation, handling and disposal, the protection of different species of flora and fauna and the preservation of lands. These laws and regulations require us to acquire permits and other authorizations for conducting certain activities. In many countries, there is relatively new comprehensive environmental legislation, and the permitting and authorization process may not be established or predictable. We may not be able to acquire necessary permits or authorizations on a timely basis, if at all. Delays in acquiring any permit or authorization could increase the cost of our projects and could suspend or delay the commencement of extraction and processing of mineralized material.
Our Rodeo and Velardeña Propertiesproperties are subject to regulation by SEMARNAT, the environmental protection agency of Mexico. In order to permit new facilities at or expand existing facilities, regulations require that an environmental impact statement, known in Mexico as a Manifestación de Impacto Ambiental (the “Manifestación”), be prepared by a third-party contractor for submission to SEMARNAT. Studies required to support the Manifestación include a detailed analysis of soil, water, vegetation, wildlife, cultural resources and socio-economic impacts. The Manifestación is then published on SEMARNAT’s web page and in its official gazette in a national and local newspaper. The Manifestación is discussed at various open hearings, including hearings in the local communities, at which third parties may voice their views. We would be required to provide proof of local community support of the Manifestación as a condition to final approval. We may not be able to obtain community support of future projects.
Environmental legislation in Mexico is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for companies and their officers, directors and employees. For example, in January 2011, Article 180 of the Mexican Federal General Law of Ecological Balance and Environmental Protection was amended. Among other things, this amendment extended the term during which an individual or entity having a legitimate interest may contest administrative acts, including environmental authorizations, permits or concessions granted, without the need to demonstrate the actual existence of harm to the environment, natural resources, flora, fauna or human health, making it sufficient to argue that harm may be caused. Further, the amendment permits the contesting party to
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challenge a Manifestación through a variety of administrative or court procedures. As a result of the amendment, more legal actions supported or sponsored by non-governmental groups interested in halting projects may be filed against companies operating in all industrial sectors, including the mining sector. Mexican operations are also subject to the environmental agreements entered into by Mexico, the United States and Canada in connection with the North American Free Trade Agreement. Further, in August 2011, certain amendments to the Civil Federal Procedures Code of Mexico (“CFPC”) were published in the Official Daily of the Federation. The amendments establish three categories of collective actions by which 30 or more people claiming injury resulting from, among other things, environmental harm, will be deemed to have a sufficient and legitimate interest in seeking, through a civil procedure, restitution, economic compensation or suspension of the activities from which the alleged injury derived. These amendments to the CFPC may result in more litigation by plaintiffs seeking remedies for alleged environmental harms, including suspension of the activities alleged to cause harm. Future changes in environmental regulation in the jurisdictions where theour Rodeo and Velardeña Propertiesproperties are located may adversely affect our business, make our business prohibitively expensive, or prohibit it altogether.
Environmental legislation in many other countries, in addition to Mexico, is evolving in a manner that will likely require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. We cannot predict what environmental legislation or regulations will be enacted or adopted in the future or how future laws and regulations will be administered or interpreted. For example, in September 2010, the Argentine National Congress passed legislation which prohibits mining activity in glacial and surrounding areas. Although we do not currently anticipate that this legislation will impact the El Quevar project, the legislation provides an example of the evolving environmental legislation in the areas in which we operate. Compliance with more stringent laws and regulations,
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as well as potentially more vigorous enforcement policies or regulatory agencies or stricter interpretation of existing laws, may (i) necessitate significant capital outlays, (ii) cause us to delay, terminate or otherwise change our intended activities with respect to one or more projects, or (iii) materially adversely affect our future exploration activities.
Many of our properties are located in areas of prior mining activity and we may encounter legacy environmental damage.
The Velardeña Properties and many of our exploration properties are located in historic mining districts where prior owners, including ECU in the case of the Velardeña Properties, may have caused environmental damage that may not be known to us or to theapplicable regulators. At the Velardeña Properties and in most other cases, we have not sought completeconducted comprehensive environmental analyses of our mineral properties. We have not conducted comprehensive reviews of the environmental laws and regulations in every jurisdiction in which we own or control mineral properties. Insurance fully covering many environmental risks (including potential liability for pollution or other hazards as a result of disposal of waste products occurring from exploration and mining) is not generally available. To the extent environmental hazards may exist on the properties in which we currently hold interests, or may hold interests in the future, that are unknown to us at present and that have been caused by us, or previous owners or operators, or that may have occurred naturally, and to the extent we are subject to environmental requirements or liabilities, the cost of compliance with these requirements and satisfaction of these liabilities could have a material adverse effect on our financial condition and results of operations. If we are unable to fully fund the cost of remediation of any environmental condition, we may be required to suspend activities or enter into interim compliance measures pending completion of the required remediation.
In addition,
Climate change and climate change legislation or regulations could impact our business.
We are subject to risks associated with climate change which could seriously harm our results of operations and increase our costs and expenses. The occurrence of severe adverse weather conditions, including increased temperatures, hail, droughts, fires or floods, may have a potentially devastating impact on our operations. Adverse weather may result in physical damage to our operations, instability of our infrastructure and equipment, washed-out roads to our projects, and alter the supply of water and electricity to our mining sites and oxide plant. Increased temperatures may also decrease worker productivity at our projects and raise cooling costs. Should the impacts of climate change be material in nature or occur for lengthy periods of time, our financial condition or results of operations would be adversely affected.
U.S. or international legislative or regulatory action intended to address concerns about climate changeensure the protection of the environment are constantly changing and greenhouse gas emissionsevolving in a manner expected to result in stricter standards and enforcement, larger fines and liability, and potentially increased capital expenditures and operating costs. While we will continue to monitor and assess any new policies, legislation or regulations regarding such matters, we currently believe that the impact of such legislation on our business will not be significant.
Most of our exploration properties, including our Rodeo and Velardeña properties, are located in Mexico and are subject to various levels of political, economic, legal, social and other risks.
Our Rodeo and Velardeña properties are located in Mexico, and, as such, are exposed to various levels of political, economic, legal and other risks and uncertainties, including local acts of violence, such as violence from drug cartels; military repression; extreme fluctuations in currency exchange rates; high rates of inflation; labor unrest; the risks of war or civil unrest; expropriation and nationalization; renegotiation or nullification of existing concessions, licenses, permits and contracts; illegal mining; acts of political corruption; changes in taxation policies; restrictions on foreign exchange and repatriation; and changing political conditions, currency controls and governmental regulations that favor or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction.
In the past, Mexico has been subject to political instability, changes and uncertainties, which have resulted in changes to existing governmental regulations affecting mineral exploration and mining activities. Mexico’s status as a
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developing country may make it more difficult for us to obtain any required funding for our Rodeo project, Velardeña Properties or other projects in Mexico in the future.
Our Mexican properties are subject to a variety of governmental regulations governing health and worker safety, employment standards, waste disposal, protection of historic and archaeological sites, mine development, protection of endangered and protected species, purchase, storage and use of explosives and other matters. Specifically, our activities related to the Rodeo and Velardeña properties are subject to regulation by SEMARNAT, the Comisión Nacional del Agua, which regulates water rights, and Mexican mining laws. Mexican regulators have broad authority to shut down and levy fines against facilities that do not comply with regulations or standards.
Our Rodeo and Velardeña properties and mineral exploration activities in Mexico may be adversely affected in varying degrees by changing government regulations relating to the mining industry or shifts in political conditions that increase the costs related to our mining and exploration activities or the maintenance of our properties. For example, 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 Rodeo and Velardeña properties if we have mining-related profits or significant revenues in the future.
Changes, if any, in mining or investment policies, changes or increases in the legal rights of indigenous populations or in the difficulty or expense of obtaining rights from them that are necessary for our Rodeo or Velardeña properties or shifts in political attitude may adversely affect our business and financial condition. Our mining and exploration activities may be affected in varying degrees by government regulations with respect to restrictions on extraction, price controls, export controls, currency remittance, income and other taxes, expropriation of property, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. Restart of mining or use of both the oxide and sulfide plant may also require us to assure the availability of adequate supplies of water and power, which could be affected by government policy and competing businesses in the area. The occurrence of these various factors and uncertainties cannot be accurately predicted and could have an adverse effect on our mining and exploration activities and financial condition.
Future changes in applicable laws and regulations or changes in their enforcement or regulatory interpretation could negatively impact current or planned exploration or mining activities at our Rodeo or Velardeña properties or in respect of any of our other projects in Mexico or projects with which we become involved in Mexico. Any failure to comply with applicable laws and regulations, even if inadvertent, could result in the interruption of mining and exploration or material fines, penalties or other liabilities.
Our El Quevar exploration property is located in Argentina and is subject to various levels of political, economic, legal, social and other risks.
Our El Quevar exploration property is located in Argentina and, as such, is exposed to various levels of political, economic, legal, social and other risks and uncertainties, including high interest rates; abrupt changes in currency values; high levels of inflation; stability and competitiveness of the Argentine peso against foreign currencies; wage and price controls; regulations to import equipment and other necessities relevant for operations; changes in governmental economic (including export duties and import regulations) or tax policies; and political and social tensions.
The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative gross domestic product growth, high and variable levels of inflation and currency depreciation and devaluation. Financial and securities markets in Argentina, and the Argentine economy, are influenced by economic and market conditions in other markets worldwide. The Argentine government has often changed monetary, taxation, credit, tariff and other policies to influence the course of Argentina’s economy, and taken other actions which do, or may be perceived to weaken the nation’s economy especially as it relates to foreign investors and the overall investment climate.
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The Argentine government has not only historically exercised significant influence over the country’s economy, but the country’s legal and regulatory frameworks have at times suffered radical changes due to political influence and significant political uncertainties as well. For example, in April 2014, there were nationwide strikes that paralyzed the Argentine economy, shutting down air, train and bus traffic, closing businesses and ports, emptying classrooms, shutting down non-emergency hospital attention and leaving trash uncollected. This is consistent with past periods of significant economic unrest and social and political turmoil. Future government policies to preempt, or in response to, social unrest may include expropriation, nationalization, forced renegotiation or modification of existing contracts, suspension of the enforcement of creditors’ rights, new taxation policies, including royalty and tax increases and retroactive tax claims, and changes in laws and policies affecting foreign trade and investment. Such policies could destabilize the country and adversely and materially affect the economy, and thereby our business.
Title to the Rodeo project, Velardeña Properties and our other properties and rights may be defective or may be challenged.
Our policy is to seek to confirm the validity of our rights to, title to, or contract rights with respect to, each mineral property in which we have a material interest. However, we cannot guarantee that title to our properties will not be challenged. Title insurance is not available for our mineral properties, and our ability to ensure that we have obtained secure rights to individual mineral properties or mining concessions may be severely constrained. Accordingly, the Rodeo project, Velardeña Properties and our other mineral properties may be subject to prior unregistered agreements, transfers or claims,
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and title may be affected by, among other things, undetected defects. In addition, we may be unable to conduct activities on our properties as permitted or to enforce our rights with respect to our properties, and the title to our mineral properties may also be impacted by state action. We have not conducted surveys of all of the exploration properties in which we hold direct or indirect interests and, therefore, the precise area and location of these exploration properties may be in doubt.
In most of the countries in which we operate, failure to comply with applicable laws and regulations relating to mineral right applications and tenure could result in loss, reduction or expropriation of entitlements, or the imposition of additional local or foreign parties as joint venture partners. Any such loss, reduction or imposition of partners could have a material adverse effect on our financial condition, results of operations and prospects.
Under the laws of Mexico, mineral resources belong to the state, and government concessions are required to explore for or exploit mineral reserves. Mineral rights derive from concessions granted, on a discretionary basis, by the Ministry of Economy, pursuant to the Mexican mining law and regulations thereunder. We hold title to the Rodeo project, Velardeña Properties and our other properties in Mexico through these government concessions, but there is no assurance that title to the concessions comprising the Rodeo project, Velardeña Properties and other properties will not be challenged or impaired. The Rodeo project, Velardeña Properties and other properties may be subject to prior unregistered agreements, interests or native land claims, and title may be affected by undetected defects. There could be valid challenges to the title of any of the claims comprising the Rodeo project, Velardeña Properties that, if successful, could impair mining with respect to such properties in the future. A defect could result in our losing all or a portion of our right, title, and interest in and to the properties to which the title defect relates.
Our Rodeo project mining concessions, Velardeña Properties mining concessions and our other mining concessions in Mexico may be terminated if our obligations to maintain the concessions in good standing are not satisfied, including obligations to explore or exploit the relevant concession, to pay any relevant fees, to comply with all environmental and safety standards, to provide information to the Ministry of Economy and to allow inspections by the Ministry of Economy. In addition to termination, failure to make timely concession maintenance payments and otherwise comply strictly with applicable laws, regulations and local practices relating to mineral right applications and tenure could result in reduction or expropriation of entitlements. Additionally, in 2014, new mining concessions became subject to additional review and approval by the Mexico Ministry of Energy.Energy, and in recent years the federal government has been reluctant to issue new mining concessions at all.
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Mining concessions in Mexico give exclusive exploration and exploitation rights to the minerals located in the concessions but do not include surface rights to the real property, which requires that we negotiate the necessary agreements with surface landowners. Many of our mining properties are subject to the Mexican ejido system requiring us to contract with the local communities surrounding the properties in order to obtain surface rights to land needed in connection with our mining exploration activities. In connection with our Velardeña Properties, we have contracts with two ejidos to secure surface rights with a total annual cost of approximately $25,000. The first contract is a ten-year contract with the Velardeña ejido, which provides surface rights to certain roads and other infrastructure at the Velardeña Properties through 2021. The second contract is a 25-year contract with the Vista Hermosa ejido signed in March 2013, which provides exploration access and access rights for roads and utilities for our Velardeña Properties. Similar to our Velardeña Properties, the Rodeo project is subject to the Mexican ejido system. We believe, although we cannot be certain, that our agreement with the local ejidos to allow access to the property will be sufficient to conduct our proposed mining activities. We also have a separate surface rights agreement in place with a local private landowner that allows us to conduct mining operations on the two concessions that make up the Rodeo property. Our inability to maintain and periodically renew or expand these surface rights on favorable terms or otherwise could have a material adverse effect on our business and financial condition.
Mining and processing activities are dependent on the availability of sufficient water supplies to support our mining activities.
Mining and processing at the Velardeña Properties, as at most mines, requires significant amounts of water. At the Velardeña Properties, our ability to have sufficient water is dependent on our ability to maintain our water rights and claims. Water is provided for all of the mines comprising our Velardeña Properties by wells located in the valley adjacent to the Velardeña Properties. We hold title to three wells located near the sulfide plant and hold certificates of registration
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to three wells located near the oxide plant. We are licensed to pump water from all six wells up to a permitted amount. We are currently using water from the three wells associated with the oxide plant and from two of the three wells associated with the sulfide plant. We are required to make annual payments to the Mexican government to maintain our rights to these wells. We are required to pay a fine to the Mexican Government each year if we use too much water from a particular well or alternatively if we do not use a minimum amount of water from a particular well. In addition to these fines, the Mexican Government reserves the right to cancel our title to the wells for abuse of these rules.
We currently have a sufficient amount of water for the third-party processing activities at the oxide plant. However, if we began processing material from both the sulfide and oxide plants in the future, we may face shortages in our water supply, and therefore will need to obtain water from outside sources at higher costs. The loss of some or all water rights for any of our wells, in whole or in part, or shortages of water to which we have rights would require us to seek water from outside sources at higher costs and could require us to curtail or shut down mining and processing in the future. Laws and regulations may be introduced in the future which could limit our access to sufficient water resources in mining activities, thus adversely affecting our business.
There are significant hazards involved in underground mining and processing activities at our Velardeña Properties, not all of which are fully covered by insurance. To the extent we must pay the costs associated with such risks, our business may be negatively affected.
The mining and processing of the underground mines at our Velardeña Properties, as well as the conduct of our exploration programs that frequently require rehabilitation of and drilling in underground mine workings, are subject to numerous risks and hazards, including, but not limited to, environmental hazards, industrial accidents, encountering unusual or unexpected geological formations, formation pressures, cave-ins, underground fires or floods, power outages, labor disruptions, seismic activity, rock bursts, accidents relating to historical workings, landslides and periodic interruptions due to inclement or hazardous weather conditions. These occurrences could result in damage to, or destruction of, mineral properties or processing facilities, personal injury or death, environmental damage, reduced extraction and processing and delays in mining, asset write-downs, monetary losses and possible legal liability. Although we maintain insurance against risks inherent in the conduct of our business in amounts that we consider reasonable, this insurance contains, as in the case of our Velardeña Properties, exclusions and limitations on coverage, and will not cover all potential risks associated with mining and exploration activities, and related liabilities might exceed policy limits. As a result of any or all of the forgoing, particularly if the facilities are older, we could incur significant liabilities and costs that could adversely affect our results of operation and financial condition.
Our Velardeña Properties and most of our exploration properties are located in Mexico and are subject to various levels of political, economic, legal and other risks.
Our Velardeña Properties are located in Mexico, and, as such, are exposed to various levels of political, economic, legal and other risks and uncertainties, including local acts of violence, such as violence from drug cartels; military repression; extreme fluctuations in currency exchange rates; high rates of inflation; labor unrest; the risks of war or civil unrest; expropriation and nationalization; renegotiation or nullification of existing concessions, licenses, permits and contracts; illegal mining; acts of political corruption; changes in taxation policies; restrictions on foreign exchange and repatriation; and changing political conditions (including potential instability if the United States withdraws from or renegotiates the North American Free Trade Agreement), currency controls and governmental regulations that favor or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Furthermore, given the uncertainties surrounding the policies of the new US Administration, the political relationship between the United States and Mexico may deteriorate, creating further political risk of doing business in Mexico.
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In the past, Mexico has been subject to political instability, changes and uncertainties, which have resulted in changes to existing governmental regulations affecting mineral exploration and mining activities. Mexico’s status as a developing country may make it more difficult for us to obtain any required funding for our Velardeña Properties or other projects in Mexico in the future.
Our Mexican properties are subject to a variety of governmental regulations governing health and worker safety, employment standards, waste disposal, protection of historic and archaeological sites, mine development, protection of endangered and protected species, purchase, storage and use of explosives and other matters. Specifically, our activities related to the Velardeña Properties are subject to regulation by SEMARNAT, the Comisión Nacional del Agua, which regulates water rights, and Mexican mining laws. Mexican regulators have broad authority to shut down and levy fines against facilities that do not comply with regulations or standards.
Our Velardeña Properties and mineral exploration activities in Mexico may be adversely affected in varying degrees by changing government regulations relating to the mining industry or shifts in political conditions that increase the costs related to our mining and exploration activities or the maintenance of our properties. For example, 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.
Changes, if any, in mining or investment policies, changes or increases in the legal rights of indigenous populations or in the difficulty or expense of obtaining rights from them that are necessary for our Velardeña Properties or shifts in political attitude may adversely affect our business and financial condition. Our mining and exploration activities may be affected in varying degrees by government regulations with respect to restrictions on extraction, price controls, export controls, currency remittance, income and other taxes, expropriation of property, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. Restart of mining or use of both the oxide and sulfide plant may also require us to assure the availability of adequate supplies of water and power, which could be affected by government policy and competing businesses in the area. The occurrence of these various factors and uncertainties cannot be accurately predicted and could have an adverse effect on our mining and exploration activities and financial condition.
Future changes in applicable laws and regulations or changes in their enforcement or regulatory interpretation could negatively impact current or planned exploration or mining activities at our Velardeña Properties or in respect of any of our other projects in Mexico or projects with which we become involved in Mexico. Any failure to comply with applicable laws and regulations, even if inadvertent, could result in the interruption of mining and exploration or material fines, penalties or other liabilities.
Most of our costs are subject to exchange control policies, the effects of inflation and currency fluctuations between the U.S. dollar and the Mexican peso.
Our revenue and external funding are primarily denominated in U.S. dollars. However, certain mining, processing, maintenance and exploration costs at the Rodeo and Velardeña Propertiesproperties and most of our exploration properties are denominated principally in Mexican pesos. These costs principally include electricity, labor, water, maintenance, local contractors and fuel. When inflation in Mexico increases without a corresponding devaluation of the Mexican peso, our financial position, results of operations and cash flows could be adversely affected. The annual average inflation rate in Mexico was 4.8%approximately 3.2% in 2018, 6.0 %2020, 3.6% in 20172019, and 2.8%4.9% in 2016.2018. At the same time, the peso has been subject to significant fluctuation, which may not have been proportionate to the inflation rate and may not be proportionate to the inflation rate in the future. The value of the peso decreased by 4.7% in 2018,2020, increased by 5.0%3.6% in 2017,2019, and decreased by 19%0.5% in 2016.2018. In addition, fluctuations
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in currency exchange rates may have a significant impact on our financial results. There can be no assurance that the Mexican government will maintain its current policies with regard to the peso or that the peso's value will not fluctuate significantly in the future. We cannot assure you that currency fluctuations, inflation and exchange control policies will not have an adverse impact on our financial condition, results of operations, earnings and cash flows.
If we are unable to obtain all of our required governmental permits or obtain property rights on favorable terms or at all, our business could be negatively impacted.
Future mining and current processing at our Rodeo and Velardeña Properties,properties, the continued evaluation of the El Quevar project and other exploration activities will require additional permits from various governmental authorities. Our business is and will continue to be governed by laws and regulations governing mining, exploration, prospecting, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety, mining royalties and other matters. We may also be required to obtain certain property rights to access or use our properties. Obtaining or renewing licenses and permits, and acquiring property rights, can be complex and time-consuming processes. There can be no assurance that we will be able to acquire all required licenses, permits or property rights on reasonable terms or in a timely manner, or at all, and that such terms will not be adversely changed, that required extensions will be granted, or that the issuance of such licenses, permits or property rights will not be challenged by third parties. Delays in obtaining or a failure to obtain any licenses, permits or property rights or any required extensions; challenges to the issuance of licenses, permits or property rights, whether successful or unsuccessful; changes to the terms of licenses, permits or property rights; or a failure to comply with the terms of any licenses, permits or property rights that have been obtained could have a material adverse effect on our business by delaying, preventing or making future mining and processing at our Rodeo or Velardeña Propertiesproperties and other continued processing activities economically unfeasible. U.S. or international legislative or regulatory action to address concerns about climate change and greenhouse gas emissions could also negatively impact our business. While we will continue to monitor and assess any new policies, legislation or regulations regarding such matters, we currently believe that the impact of such legislation on our business will not be significant.
We depend on the services of key executives.
Our business strategy is based on leveraging the experience and skill of our management team. We are dependent on the services of key executives, including Warren Rehn and Robert Vogels. Due to our relatively small size, the loss of any of these persons or our inability to attract and retain additional highly skilled employees may have a material adverse effect on our business and our ability to manage and succeed in our mining and exploration activities.
The exploration of our mineral properties is highly speculative in nature, involves substantial expenditures and is frequently non-productive.
Mineral exploration is highly speculative in nature and is frequently non-productive. Substantial expenditures are required to:
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If we discover a deposit or ore at a property, it usually takes several years from the initial phases of exploration until production is possible. During this time, the economic feasibility of a project may change because of increased costs, lower metal prices or other factors. As a result of these uncertainties, we may not successfully acquire additional mineral
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rights, or our exploration programs may not result in proven and probable reserves at all or in sufficient quantities to justify developing the El Quevar project or any of our exploration properties.
The decisions about future advancement of exploration projects may be based on feasibility studies, which derive estimates of mineral reserves, operating costs and project economic returns. Estimates of economic returns are based, in part, on assumptions about future metal prices and estimates of average cash operating costs based upon, among other things:
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Actual cash operating costs, production and economic returns may differ significantly from those anticipated by our studies and estimates.
Lack of infrastructure could forestall or prevent further exploration and advancement.
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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.
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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:
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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 requirerequired 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
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impact on the annual costs applicable to theour Rodeo and Velardeña Propertiesproperties 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 20172019 and 2018,2020, our annual canon fees payable to the Argentine government was $113,000$36,000 and $57,000$22,000 respectively, and we expect to pay approximately $60,000$15,000 in 2019.2021.
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.
Risk Factors related to our Common Stock
One of our stockholders owns a significant percentage of our common stock and could block decisions or transactions that could be beneficial to other stockholders.
One of our stockholders, The Sentient Group, through the Sentient executive funds (“Sentient”), owns approximately 24% of our outstanding common stock. With this level of ownership, Sentient could exert significant control over us, including over the election of directors, changes in the size or the composition of the board of directors, and mergers and other business combinations involving us. Through greater control of the board of directors and increased voting power, including the potential to prevent a quorum at stockholders meetings, Sentient could control certain decisions, including decisions regarding qualification and appointment of officers, operations of the business including acquisition or disposition of our assets or purchases and sales of mining or exploration properties, dividend policy, and access to capital (including borrowing from third-party lenders and the issuance of equity or debt securities). Sentient’s large share ownership will also make it difficult, if not impossible, for us to enter into a change of control transaction that may otherwise be beneficial for our other shareholders.
The existence of a significant number of warrants may have a negative effect on the market price of our common stock.
As of December 31, 2020, we had 16,728,846 warrants outstanding with a weighted average exercise price per share of $0.38. 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.
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 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 were 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 became 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 intended to regain compliance with Section 1003(a)(iii) of the Company Guide by February 19, 2021. On January 14, 2021, we received notice from the NYSE American that we had resolved the continued listing deficiency with respect to Section
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1003(a)(iii) of the Company Guide and had regained compliance with all of the NYSE American continued listing requirements.
If we are unable to remain in compliance with the NYSE American continued listing requirements, our common stock may be suspended from trading on and/or delisted from the NYSE American. 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. 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.
General Risk Factors
Our operations may be further disrupted, and our financial results may be adversely affected by the novel coronavirus (COVID-19) pandemic.
The December 2019 novel strain of coronavirus known as COVID-19, which was declared a pandemic by the World Health Organization in March 2020, poses a risk to our business and operations. If a significant portion of our workforce becomes unable to work or travel to our operations due to illness or state or federal government restrictions (including travel restrictions and “shelter-in-place” and similar orders restricting certain activities that may be issued or extended by authorities), we may be forced to reduce or suspend exploration activities and/or development projects which may impact liquidity and financial results. For example, in compliance with a directive of the Mexican Federal Government to suspend all non-essential activities, including mining, in response to the COVID-19 pandemic, we suspended processing activities at the Velardeña Properties in the State of Durango, Mexico, during portions of April and May 2020. If the Mexican Federal Government were to resuspend non-essential activities, including mining, this may significantly lower the revenue we expect to receive from production at our Rodeo property.
To the extent the COVID-19 pandemic adversely affects our business and financial results as discussed above, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to our operation and indebtedness and financing. Because of the highly uncertain and dynamic nature of events relating to the COVID-19 pandemic, it is not currently possible to estimate the impact of the pandemic on our business. However, these effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely.
We depend on the services of key executives.
Our business strategy is based on leveraging the experience and skill of our management team. We are dependent on the services of key executives, including Warren Rehn and Robert Vogels. If one or both of these executives were to
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cease serving the company in their role, we would need to immediately undertake a search for a replacement. During any such interim period, our ability to continue achieving our business objectives would be impaired.
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.
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
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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 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 our common stock in separate transactions, including pursuant to the Hecla Share Issuance (as defined herein), our ATM Program, the May 2016 financing, the conversion of the Sentient Senior Secured Convertible Note (the “Sentient Note”) and the May 2018 issuances under the LPC Program. 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 5,517,696 shares (771,696 share increase) and the exercise price was reduced from the original $1.21 per share to $0.85 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.
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. 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.
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.
ITEM 1B: UNRESOLVED STAFF COMMENTSCOMMENTS
None.
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ITEM 3: LEGAL PROCEEDINGSPROCEEDINGS
None.
ITEM 4: MINE SAFETY DISCLOSURESDISCLOSURES
Not applicable.
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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. Our common stock is also listed on the Toronto Stock Exchange, also referred to as the “TSX”, and trades under the symbol “AUMN”.
As of February 27, 2019,12, 2021, we had 185156 record holders of our common stock of record based upon the stockholders list provided by our transfer agent, Computershare Trust Company, N.A.
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Dividends
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 DATADATA
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.
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Statement of Operations: |
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Revenue |
| $ | 7,217 |
| $ | 6,691 |
| $ | 6,400 |
| $ | 8,071 |
| $ | 235 |
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Net Loss(1) |
| $ | (1,945) |
| $ | (3,892) |
| $ | (10,659) |
| $ | (25,383) |
| $ | (18,823) |
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Net Loss per common share |
| $ | (0.02) |
| $ | (0.04) |
| $ | (0.13) |
| $ | (0.48) |
| $ | (0.41) |
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Total assets |
| $ | 12,644 |
| $ | 13,077 |
| $ | 14,008 |
| $ | 17,001 |
| $ | 41,258 |
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| $ | 3,000 |
| $ | 3,138 |
| $ | 4,398 |
| $ | 2,840 |
| $ | 4,334 |
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| $ | — |
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ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOPERATIONS
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, 2018,2020, our only sources of income were revenues from the lease of our Velardeña oxide plant and sales of non-core assets, and a tax refund received by an Argentine subsidiary.assets. We incurred net operating losses for the years ended December 31, 20182020 and 2017.2019.
We remainare primarily focused on evaluation activitiesoperations at the Rodeo property as well as further studies of a restart plan for Velardeña, including use of bio-oxidation to improve the payable gold recovery. We are also focused on (i) advancing our El Quevar exploration property in Argentina through the Earn-in Agreement with Barrick and on evaluating(ii) continuing to evaluate and searchingsearch for mining opportunities in North America (including Mexico) with near term prospectsprospectus of mining, includingand particularly for properties within reasonable haulage distances of our processing plants at the Velardeña processing plants. Properties. We are also focused and are continuing our exploration effortsreviewing strategic opportunities, focusing primarily on selecteddevelopment or operating properties in North America, including Mexico.
2020 Highlights
COVID-19 uncertainties
We undertook several initiatives in response to the COVID-19 pandemic and will continue to implement most of these initiatives in 2021 until it is considered safe to alter or remove these practices. We followed, and continue to follow, World Health Organization protocols and local government rules and recommendations at all of our portfolioprojects and corporate offices. Office employees are working remotely wherever possible. In compliance with a directive of the Mexican Federal Government to suspend all non-essential activities, including mining, in response to the COVID-19 pandemic, we suspended mining activities at our Velardeña Properties (Durango State, Mexico) during portions of April and May 2020. Activities at the Velardeña Properties, including processing of Hecla material at the oxide mill, continued uninterrupted since the temporary shutdown.
To provide greater financial flexibility at the onset of the COVID-19 pandemic, on March 30, 2020, we entered into a short-term loan agreement (the “Loan Agreement”) with Sentient Global Resources Fund IV , L.P., a Cayman Islands exempted limited partnership (“Sentient”), pursuant to which Sentient granted to us an unsecured loan in an amount equal
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to $1.0 million (the “Sentient Loan”). Sentient is a private equity fund, and together with certain other Sentient equity funds, Sentient is our largest stockholder, and at the time of the loan held approximately 38% of our outstanding common stock. The Sentient Loan bore interest at a rate of 10% per annum and the loan was due in full, together with accrued interest and any other amount outstanding under the Loan Agreement, on December 31, 2020. On August 12, exploration properties located primarily2020, we repaid in Mexico.full all outstanding borrowings under, and terminated, the Loan Agreement, with no prepayment penalty.
2018 Highlights
El Quevar
In 2017, Amec Foster Wheeler E&C Services, Inc., a Wood Group PLC company (“Wood”) undertook an analysis and re-modeling of data utilized in a 2012 mineralized material estimate for our El Quevar project, located in the Salta Province of Argentina, which was based on results from 270 core drill holes and assumed mining of oxide material from an open pit on the east end of the Yaxtché deposit and sulfide material from both the open pit and an underground mine on the western portion of the Yaxtché deposit. The Wood estimate, which the Company announced in February 2018, used updated geologic controls and a modeling method that optimized silver grade assuming mining would occur solely underground. Accordingaddition to the Wood estimate, sulfide mineralized material in the Yaxtché deposit, at a cut-off grade of 250 grams per tonne (“g/t”) silver and using a three-year average silver price of $16.62 per ounce, was 2.6 million tonnes at an average silver grade of 487 g/t.
In September 2018,Sentient Loan, we completed a preliminary economic assessment (“PEA”) that used the revised estimate of mineralized material for the Yaxtché deposit as a basis. The PEA contemplates a six-year underground mining operation using pre-existing and new underground development at a mine production rate of 1,200 tonnes per day using a post-pillar cut-and-fill mining method that will deliver 2.45 million tonnes of diluted sulfide material at an average grade of 409 g/t silver. As contemplated in the PEA, the mined material would be processed using a conventional single product flotation mill that would produce a silver-rich bulk concentrate suitable for sale.
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. In the first quarter 2019, we plan to initiate 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. 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 development.
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Velardeña Oxide Plant Lease Agreement
On October 1, 2018, a wholly-owned subsidiary of Hecla Mining Company (together “Hecla”) exercised its option, pursuant toalso reached an agreement entered intoin April 2020 with us in August 2017,Compañía Minera Autlán S.A.B. de C.V. (“Autlán”) to extend the leasetime to repay the then remaining $0.8 million related to the $1.5 million refundable deposit received for the proposed sale of our Velardeña Properties and other assets in June 2019 through December 2020. The deposit was related to the proposed sale of our Velardeña Properties and other assets to Autlán in June 2019, which was subsequently terminated. During August 2020, we paid the remaining refundable deposit plus accrued interest in full.
Rodeo Property
As a result of our decision to commence mining operations at our Rodeo project, we now consider the Rodeo property to be one of our material properties, along with the Velardeña Properties and the El Quevar project. Further information about our Rodeo project is set forth in Items 1 and 2 above.
In November 2020 we received the final necessary permits for us to commence mining at the Rodeo project from SEMARNAT, the environmental protection agency in Mexico. We began mining activities at the Rodeo property during December 2020, with processing of mined material at our Velardeña oxide plant until December 31, 2020. Hecla hasbeginning in January 2021. We pored our first doré bar at the rightend of January 2021.
We have completed the hiring of additional key mine and plant supervision to terminate the lease for any reason with 120 days’ notice. Hecla will also have 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 usesupport the oxide plant operating workforce, which was already in place following the termination of the Hecla Lease on November 30, 2020. We entered into a contract mining agreement in December 2020 with a regional contractor to perform mine excavation work. We will continue to provide overall mine management and engineering, which includes in-pit technicians who will determine whether material is suitable for our own purposes before December 31, 2020.
Hecla is responsibleprocess or placement on the waste dump. In January 2021, we entered into an agreement with another regional contractor for ongoing operation and maintenancehaulage of mined material to the oxide plant. Our assay lab, located in Velardeña, Durango, Mexico will be used for the project’s assaying requirements.
We are installing a new regrind mill circuit at the plant specifically designed to process the harder mined material coming from the Rodeo property, with completion expected by the end of February 2021 at a total cost of approximately $0.6 million. The new circuit, which will allow for the maximum recovery of gold, will allow daily throughput in the oxide plant to increase to approximately 450 tonnes per day, following a ramp-up period we expect to complete by the end of the first quarter 2021. Mine life is estimated at approximately ten quarters (2.5 years) at currently estimated throughput levels.
Assays from early processing at the oxide plant indicate the doré produced should be comprised of approximately 10 to 15 percent gold and 65 to 75 percent silver and be of a quality that is readily marketable and saleable to refineries located either in Mexico or internationally, consistent with standard commercial terms. We entered into a refining agreement with a third party in February 2021 and expect to begin export shipments of doré to the U.S. as soon as the appropriate export documentation and permits are in place, which is expected to occur prior to the end of the first quarter 2021.
During the year ended December 31, 2018,2020, we spent approximately $0.9 million on exploration and other pre-production costs and $0.3 million of capital expenditures in preparation for the processing of Rodeo material. We expect to spend an additional approximately $0.4 million in the first quarter 2021 to complete the installation of the new regrind mill circuit.
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If we are successful in the ramp-up of processing the mined material from Rodeo to estimated levels by the end of the first quarter 2021, we anticipate total tonnes processed for the full year 2021 will be approximately 125,000 to 135,000, resulting in payable production of approximately 12,000 to 14,000 ounces of gold and 25,000 to 30,000 ounces of silver. Using an assumed gold price of $1,800/oz and an assumed silver price of $25.00/oz (the London Fix PM prices on December 31, 2020, as reported by Kitco, were $1,888 and $26.49 for gold and silver, respectively), estimated after-tax cash flow for the full year 2021 from production at the Rodeo operation, net of capital expenditures and working capital, is estimated at approximately $9.0 million to $10.5 million.
The estimates shown above are preliminary in nature and are based primarily on the assumptions described in the PEA, adjusted slightly to reflect the results of the recently completed drilling program and metallurgical testing and the proposed contract mining and hauling contracts (as noted above). Actual results from production at Rodeo may vary significantly based upon, among other things, unanticipated variations in grade, unexpected challenges associated with our proposed mining plan, volatility in commodity prices, variations in expected recoveries, increases in projected operating or capital costs or delays in commencement of or interruptions in production. See “Risk Factors – Risk Factors related to our Mining and Processing Activities.”
Velardeña Oxide Plant Lease Agreement
During the year ended December 31, 2020, Hecla processed approximately 142,000120,000 tonnes of material through the oxide plant, resulting in total revenues to us of approximately $7.2$5.6 million, comprised of approximately $4.9$3.6 million for direct plant charges and fixed fees and approximately $2.3$2.0 million for other net reimbursable costs related to the services we provide under the lease. During the term of the lease, Hecla was responsible for the ongoing operation and maintenance of the oxide plant. The $2.3$2.0 million of reimbursable costs are also reported as plant lease costs, resulting in net operating margin of approximately $4.9$3.6 million for the year ended December 31, 2018. We expect2020.
On July 7, 2020, in accordance with the terms of the Third Amendment to the Hecla to continueLease, the Company received notification from Hecla terminating the Hecla Lease effective November 30, 2020. Hecla continued to process material near the intendedat approximately 400 tonnes per day rate during 2019, which would generate a net operating margin to us, net of reimbursable costs, of approximately $4.6 million during the full year 2019. However, because Heclaremainder of the agreement through November 30, 2020.
Velardeña PEA
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, mining dilution and metallurgical challenges rendered operations unprofitable. We elected to preserve the asset for future use, and since that time we have evaluated and tested various mining methods and processing alternatives that could enable sustainable profitable operations.
The recent rise in precious metals prices, the advancement of alternative processing technologies in the industry, and the results of our testing activities prompted us to pursue the preparation of an updated preliminary economic assessment (PEA). On April 2, 2020 we announced positive results from the updated PEA (as more fully described above in Items 1 and 2: “Velardeña Properties - Velardeña Properties Activities”). In the coming months, we plan to continue to optimize the mine plan and processing details in preparation for future test-mining and processing in advance of establishing a definite schedule for restarting commercial production at the Velardeña mines and the installation of the bio-oxidation circuit. No development decision has been made regarding a potential restart of the rightVelardeña mines.
El Quevar
On April 9, 2020, we entered into the Earn-In Agreement with Barrick, pursuant to terminatewhich Barrick has acquired an option to earn a 70% interest in the lease with 120 days’ notice, there is no assurance that these amounts will continue through 2019 or beyond.Company’s El Quevar project located in the Salta Province of Argentina. For a discussion of the Earn-In Agreement, see “Items 1 and 2: Business and Properties – El Quevar – Barrick Earn-In Agreement” above.
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Yoquivo
Celaya Farm-out
In September 2018, our wholly owned Mexican subsidiary entered into2020 we began a second and final amendment to an earn-in agreement with a 100% owned Mexican subsidiary of Electrum Group LLC, a privately owned company (together “Electrum”), related to the farm-out of our Celaya exploration property in Mexico. Pursuant to the second amendment, Electrum acquired 100% of our remaining interest in the Celaya project in exchange for a payment of $3.0 million, as 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 Celaya earn-in agreement with Electrum commenced in August 2016 when 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 initially earned the right to acquire an undivided 60% interest in a joint venture company to be formed to hold the Celaya project by 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 the subsequent amendments to the agreement, we would have been allowed to maintain a 40% interest in the Celaya project, following the initial earn-in period, by contributing our pro-rata share of an additional $2.5 million in exploration or development expenditures incurred over a second three-year period.
In February 2018, we amended the Celaya earn-in agreement to permit Electrum to earn, at its option, an incremental 20% interest in the Celaya project in exchange for a payment of $1.0 million. Following the amendment, Electrum could 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 entering into the Assignment Agreement, we could have maintained our 20% participating interest or our interest could ultimately have been converted into a carried 10% net profits interest if we elected not to participate as a joint venture owner.
We have previously expensed all of our costs associated with the Celaya property and accordingly recognized a gain of $1.0 million from the execution of the first amendment to the agreement and $3.0 million upon execution of the Assignment Agreement, for the nine month period ended September 30, 2018, included in “Other operating income, net” in the accompanying Consolidated Statements of Operations and Comprehensive Loss.
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Santa Maria
Since 2015, we have completed test mining and processing of 7,100 dry tonnes from the Santa Maria mine west of Hildalgo de Parral, Chihuahua, with average grades 338 g/t silver and 0.8 g/t gold. In March 2017, a PEA was completed on our behalf by the engineering firm Tetra Tech, prepared pursuant to Canadian National Instrument 43-101, based on an updated estimate of mineralized material. The PEA presented a base case assessment of developing Santa Maria’s mineral deposit. In September 2018, Tetra Tech completed a second PEA for the Santa Maria project that incorporates data accumulated since March 2017, including an additional 77 hectares of mineral tenure acquired in August 2017 that covers the on-strike and downdip extensions of the Santa Maria vein systems. The new PEA also incorporates information from a 22-hole, 4,800-meter drilling program begun in August 2017 and completed in April 2018. Including the latest3,400-meter, 15-hole drill program we have drilled 9,900 meters in 59 holes since acquiring the property. Surface mapping and sampling has also identified additional high-grade veins on the adjacent eastern extension of the Santa Maria property and on new veins to the north located outside of the mineralized material area as defined in the March 2017 PEA.
The September 2018 PEA shows improvement in projected cash flow, metal production and profitability compared to the previous study. The PEA estimates a 4.2-year underground mining operation using pre-existing and new underground development at an average mine production rate of 218 tonnes per day, using a combination of cut-and-fill and sublevel stoping. It is currently envisioned that both mixed and sulfide materials will undergo toll-milling at a local third-party facility with sulfide flotation circuits. Oxide material will be cyanide leached at the same toll-milling facility. In the PEA, Santa Maria is estimated to deliver 150k tonnes of diluted sulfide material to the mill at an average grade of 378 g/t silver equivalent (“AgEq”, calculated by combining Ag and Au values where one g/t of Au equals 74 g/t of Ag), 116k tonnes of diluted oxide material at an average grade of 428 g/t AgEq and 42k tonnes of diluted mixed material at an average grade of 278 g/t AgEq.
We have the right to acquire 100% of the Santa Maria property under two separate option agreements representing the total concessions that comprise the property for additional payments of $1.0 million, payable through April 2022. The first option agreement covers concessions we acquired in August 2014 and requires an additional approximately $0.4 million be paid by continuing to make minimum payments of $0.2 million in 2019 and $0.2 million in 2020. 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 covers concessions recently acquired in August 2017 and requires an additional approximately $0.6 million be paid by making additional payments of $0.2 million in each of the years 2019 through 2021.
Zacatecas
In April 2016, we entered into an option agreement, which was later amended in February 2018, under which Santacruz Silver Mining Ltd. (“Santacruz”) has acquired our interest in the Zacatecas Properties for a series of payments totaling approximately $1.5 million. Payments of $249,000, $225,000 and $212,000 were paid to us during the first, second and third quarters of 2018, respectively. The final payment of $13,000 was received by us in October 2018.
We had previously expensed all of the costs associated with the Zacatecas Properties. We recognized income, equal to the cash payments made, evenly over the period covered by each payment. We have recognized approximately $748,000 of income under the agreement for the year ended December 31, 2018, included in “Other operating income, net” in the accompanying Consolidated Statements of Operations and Comprehensive Loss. At December 31, 2018, there were no further performance obligations and we had taken all steps necessary for Santacruz to take title to the properties.
Other Exploration - Yoquivo
The Yoquivo property was acquired in 2017 and consists of 1,907 hectares in 6 claims that cover an epithermal vein district hosted in Tertiary andesitic volcanic rocks that is exposed in an erosional window through Oligocene rhyolite
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on the eastern margin of the Sierra Madre Occidental of northern Mexico. The property is 200 km SW of Chihuahua city in the state of Chihuahua, Mexico. Recent surface rock sampling has demonstrated gold and silver values of potential economic interest in several of the veins in the district. We have an option to purchase the six concessions that comprise the Yoquivo property for payments totaling $0.5 million over four years subject to a 2% NSR royalty on production, capped at $2 million.
In October 2018 we announced high-grade silver-gold assays from the Yoquivo project. Multiple silver-gold bearing epithermal veins were mapped and sampled, with the two most important veins being the San Francisco and Pertenencia veins. A new vein, the La Nina vein, was discovered in the northwest of the property where it splits off from the main San Francisco vein. We are focusing exploration efforts on the Pertenencia vein, which appears to be more silver-rich compared to the San Francisco vein. Sampling of the Pertenencia vein is still in progress as is surface work in preparation for identifying the best drill targets. We expect to begin a drill program in 2019 to test the most promising portions of certain veins in the veins. A permitYoquivo property in Chihuahua, Mexico. We completed the drill program in December 2020 and identified four separate vein systems in which surface sampling has returned grades up to 4,050 g/t silver and 27.7 g/t gold from surface. Complete results from the drill program were announced in our press release dated January 27, 2021. Of substantial interest is the discovery of a new vein parallel to and east of the Pertenencia vein. While the other principal veins have been partially mined from surface to the water table (up to 130 meters) in the case of San Francisco and Pertenencia, and over a much less extensive vertical interval in the case of El Dolar and Esperanza, the new vein is unmined from surface. We are planning a second phase drill program, which could start in the second quarter 2021.
For a further discussion of the Yoquivo property, see “Items 1 and 2: Business and Properties – Exploration Properties – Yoquivo” above.
Santa Maria
In December 2020, we entered into an Option Agreement with Fabled Silver Gold Corp. pursuant to which Fabled will have the right to acquire our interest in the Santa Maria mining claims in Chihuahua, Mexico. For a further discussion of the Santa Maria property and this Option Agreement, see “Items 1 and 2: Business and Properties – Exploration Properties – Santa Maria” above.
Sand Canyon
We have an earn-in agreement with Golden Gryphon Explorations for drilling has been obtained.the Sand Canyon project located in northwestern Nevada. We completed surface exploration activities in late 2019 and completed an initial drill program of approximately 1,800 meters in March 2020. No potentially economic concentrations of precious metals were encountered in any of the four drill holes. Plans for further testing of the mineralized system are being considered. In the first year of exploration at Sand Canyon and through December 31, 2020, we spent $1.8 million toward the $2.5 million earn-in requirement, fulfilling the first and second year minimum expenditures and the minimum drill commitment.
Registered directFor a further discussion of the Sand Canyon property, see “Items 1 and 2: Business and Properties – Exploration Properties – Sand Canyon” above.
Public offering
On July 21, 2020, we entered into an Amended and Restated Underwriting Agreement (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC as representative of the underwriters named in Schedule I thereto (the “Underwriters”), providing for the issuance and sale by us in a firm commitment offering (the “Offering”) of 17,857,143 shares of common stock at a price to the public of $0.42 per share (the “Offering Shares”). In addition, we granted the Underwriters an option to purchase, agreementat the public offering price per share of common stock, up to an additional 2,678,571 shares of common stock, exercisable for 30 days from the date of the Underwriting Agreement (the “Option Shares”). The Offering Shares and commitment purchase agreementOption Shares were registered pursuant to our registration statement on Form S-3 (File No. 333-220461), and registration rights agreementa prospectus supplement thereto filed with the Securities and Exchange Commission. On July 24, 2020, the Underwriters acquired the Offering Shares and the full amount of the Option Shares from us. After the underwriting discount of 6% and total offering expenses of approximately $155,000 we received net proceeds of approximately $8.0 million from the sale of the Offering Shares and the Option Shares. We intend to use the proceeds from the Offering for working capital requirements and general corporate purposes.
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2020 Offering and private placement transaction
On May 9, 2018April 20, 2020, we entered into a registered directsecurities purchase agreement (the “Registered Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”) pursuant to which LPC purchased 3,153,808certain institutional investors providing for the issuance and sale of 15,000,000 shares of our common stock at a price of $0.4122$0.20 per share, and in a concurrent private placement transaction, the closing priceissuance of 11,250,000 warrants, ultimately consisting of 7,500,000 series A warrants and 3,750,000 series B warrants, to purchase up to 11,250,000 shares of our common stock at an exercise price of $0.30 per share, for aggregate gross proceeds of $3.0 million. The securities purchase agreement granted the institutional investors the right to collectively participate in up to 50% of any future offerings of securities by the Company on the NYSE American on May 8, 2018, for an aggregate purchasesame terms as other investors, other than certain “exempt issuances” and “permitted sales” as defined therein, until April 22, 2021.
Each Warrant is exercisable six months from April 22, 2020, the date of issuance, and has a term expiring five years after such initial exercise date. The Warrants contain so-called full-ratchet anti-dilution provisions which may be triggered upon any future issuance by the Company of shares of its common stock or common stock equivalents at a per share price below the then-exercise price of $1.3 million. On the same day, we also 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 sell up to an additional $10.0 million of our common stock to LPC,Warrant, subject to certain limitations and conditions contained in the Commitment Purchase Agreement.
Subjectexceptions; provided, however, that with respect to the termsSeries B warrants, the adjusted exercise price will not be less than $0.26.
Warrant exercises
During the fourth quarter 2020, 5,000,000 of the Commitment Purchase Agreement, we will controlseries A warrants and 3,500,000 of the timing and amount of any future sale of common stock to LPC. LPC has no right to require any sales by us underseries B warrants associated with the Commitment Purchase Agreement but is obligated to make purchasesApril 2020 offering were exercised at our 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 us and the purchasea price of the shares will be based on the prevailing market prices$0.30 per share resulting in proceeds of our shares at the time of each sale to LPC. LPC has agreed not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of our shares of common stock. We have the right to terminate the Commitment Purchase Agreement at any time, at our discretion, without any cost or penalty.
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.$2.6 million. Subsequent to December 31, 20182020, 1,400,000 of the series A warrants associated with the April 2020 offering were exercised at a price of $0.30 per share resulting in proceeds of $420,000. Also, subsequent to December 31, 2020, 1,500,000 of the series B warrants and 200,000 of the Series A warrants associated with the May 2016 offering were exercised at a price of $0.35 per share resulting in proceeds of $595,000.
At the Market Offering
Subsequent to December 31, 2020 we sold an aggregate of approximately 745,0001,856,960 common shares under the Commitment Purchase AgreementATM Program at an average price of $0.31$0.97 per common share for totalgross proceeds of approximately $230,000$1.8 million during the year to dateyear-to-date period ended February 27, 2019. 17, 2021. We paid a 2% cash commission on the gross proceeds in the amount of approximately $37,000 and incurred additional accounting, legal, and regulatory costs of approximately $6,000.
Results of Operations
For the results of operations discussed below, we compare the results of operations for the year ended December 31, 20182020 to the results of operations for the year ended December 31, 2017.2019.
Revenue from oxide plant lease. We recorded revenue of $7.2$5.6 million and $6.7$7.7 million for the years ended December 31, 20182020 and 20172019 respectively, from the lease of our Velardeña oxide plant to Hecla. The decrease in revenue during 2020 is primarily related to a reduction in the per tonne processing fees during the first six months of 2020 relating to the Third Amendment to the Hecla Lease as discussed in Note 17 in the accompanying financial statements. In addition, during 2020 we experienced a temporary shutdown of operations during portions of April and May related to COVID-19 restrictions mandated by the Mexican government. Also, Hecla terminated the Lease Agreement in accordance with the terms of the Third Amendment one month early, effective November 30, 2020.
Oxide plant lease costs. During the years ended December 31, 20182020 and 20172019 we recorded $2.3$2.0 and $2.2$2.4 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.
The decrease in oxide plant lease costs during 2020 is primarily related to a temporary shutdown of operations during portions of April and May related to
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the Third Amendment one month early, effective November 30, 2020.
Exploration Expense. Our exploration expense, including work at the Santa MariaRodeo, Sand Canyon, Yoquivo and other properties, property holding costs and allocated administrative expenses, totaled $3.9$5.0 million for the year ended December 31, 2018.2020. 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. 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. Exploration expenses were higherThe increase in the year ended December 31, 2018 comparedexploration expense during 2020 is primarily related to the prior period due to increased exploration and mining activities at our Santa Maria and other Mexico properties.Rodeo project, which comprised approximately $0.9 million of the total, in preparation for the commencement of processing mined material from Rodeo beginning in January 2021.
Velardeña shutdown and care and maintenance costs. We recorded $1.9$1.2 million and $1.6$1.8 million for the years ended December 31, 20182020 and 2017,2019, 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 higher care and maintenance costs in 20182019 are related to increased maintenance.maintenance costs.
El Quevar Project Expense. As discussed above, during April 2020, we entered into the Earn-In Agreement with Barrick, pursuant to which Barrick has acquired an option to earn a 70% interest in the El Quevar project. During the earn in period Barrick has and will continue to reimburse us for certain holding and maintenance costs related to the project. During the year ended December 31, 20182020, we incurred $1.3recorded an expense of approximately $0.6 million primarily related to exploration, holding and evaluation costs for the Yaxtché deposit at ourthe El Quevar project, in Argentina.net of costs reimbursed. During the year ended December 31, 20172019 we recorded an expense of approximately $0.8$2.0 million primarily related to exploration, holding and evaluation costs for the Yaxtché deposit at ourthe El Quevar projectproject. The decrease in Argentina. The additional spending in 2018 wascosts for 2020 are primarily related to the reimbursement of costs of preparingby Barrick and an increase in costs during 2019 related to a drilling program conducted during the technical reports and preparing for exploration drilling.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 $3.4$3.7 million for the year ended December 31, 20182020 compared to $3.5$3.6 million for the year ended December 31, 2017.2019. Administrative expenses, including costs associated with being a public company, are incurred primarily by our corporate activities in support of the Rodeo project, Velardeña Properties, El Quevar project and our exploration portfolio. The $3.4$3.7 million of administrative expenses we incurred during 20182020 is comprised of $1.6$1.4 million of employee compensation and directors’ fees, $0.9$1.3 million of professional fees, and $0.9 million of insurance, travel expenses, rents, utilities and other office costs. The $3.5 million of administrative expenses we incurred during 2017 is comprised of $1.6 million of employee compensation and directors’ fees, $0.8 million of professional fees and $1.1$1.0 million of insurance, rents, travel expenses, utilities and other office costs. The $3.6 million of administrative expenses we incurred during 2019 is comprised of $1.5 million of employee compensation and directors’ fees, $1.2 million of professional fees and $0.9 million of insurance, rents, travel expenses, utilities and other office costs.
Stock based compensation. During the year ended December 31, 20182020 we incurred expense related to stock-based compensation in the amount of $0.2$0.9 million compared to $0.3$0.8 million for the year ended December 31, 2017.2019. 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 2018 and 2017 stock-based compensation amounts include a $0.1 million reduction of expense and $0.1 million of expense, respectively, related to KELTIP grants made to two officers and the related fair value adjustments to the KELTIP liability (see Note 15 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, 20182020 and 20172019, 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 $5.1 milliononly a nominal amount of other operating income for the year ended December 31, 2018,2020, consisting of $4.0 million related to an option payment and the ultimate sale of our Celaya property, $0.7 million from payments received on our Zacatecas Properties and $0.4 million related to the sale of two non-strategic Mexican subsidiaries.surplus equipment. We recorded other operating income of $2.1$3.2 million for the year ended December 31, 2017, including $1.02019, consisting of $3.0 million for the sale of net gains recorded on the sales of certain fixed assetsMogotes and non-strategic explorationPistachon properties in Mexico and a $1.1$0.2 million VAT tax refundfor the sale of surplus equipment in Argentina.Argentina and property in Peru.
48
Depreciation, depletion and amortization. During the year ended December 31, 20182020 we incurred depreciation, depletion and amortization expense of $1.2$1.0 million compared to $1.0$1.1 million for the year ended December 31, 2017. The increase in depreciation, depletion and amortization expense during the 2018 period is primarily the result of increased depreciation at our Velardeña Properties.2019.
49
Interest and Other Income,expense, net. During the year ended December 31, 2018 we We recorded approximately $0.1 million of interest and other income primarily related to mark-to-market gains on short-term investments. Duringexpense, net for the year ended December 31, 2017 we2020 primarily related to interest incurred on the repayment of the Autlán advanced payment and the financing of certain insurance premiums. We recorded only a nominal amount$0.2 million of interest and other income. expense, net for the year ended December 31, 2019 primarily related to the sale of common stock we owned in a junior mining company.
Gain (Loss) on Foreign Currency. We recorded a $0.1 million foreign currency loss infor each of the years ended December 31, 20182020 and 2017.2019. 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 no tax expense or benefit for the year ended December 31, 2018. We recorded $13,000a nil amount of income tax expense for the yearyears ended December 31, 20172020 and 2019 related to a Mexican subsidiary.
Liquidity and Capital Resources
At December 31, 2018,2020, our aggregate cash and cash equivalents totaled $3.3$9.7 million, equalcompared to the $3.3$4.6 million in similar assets held at December 31, 2017.2019. The December 31, 20182020 balance is due in part from the following expenditures and cash inflows for the year ended December 31, 2018.2020. Expenditures totaled $10.8$13.6 million from the following:
| $ |
| $ |
| $ |
| $1.3 million related to repayment of the Autlán deposit, including interest; |
● | $ |
| ● | $3.7 million in general and administrative expenses; and |
| $0.3 million in Canadian income tax payments (as discussed in Note 15 in the accompanying financial statements), $0.4 million related to |
The foregoing expenditures were offset by cash inflows of $10.8$18.7 million from the following:
| ● | $8.0 million, net of transaction costs, related to a public offering in July 2020 (as further described above); |
| ● | $2.7 million, net of transaction costs, related to an equity offering and private placement in April 2020 (as further described above); |
49
| $0.9 million, net of transaction costs, related to a private placement transaction involving Barrick in April 2020 (as further described above); |
● | $ |
| $ |
| $ |
| $ |
|
|
In addition to the $3.3$9.7 million cash balance at December 31, 2018, we2020, in January and February 2021 an additional $1.0 million was received from the exercise of warrants issued in prior offerings and $1.8 million was received from the sale of shares under the ATM Program (as further described above). We also expect to receive approximately $4.6$10.5 million to $12.0 million in net operating margin from the leaseRodeo property (defined as revenues less costs of the oxide plantsales) during the next twelve-month periodtwelve months ending December 31, 2019. In addition, subsequent to2021, assuming an average gold and silver price during that period of $1,800 and $25.00 oz respectively (the London Fix PM prices on December 31, 2018 we received approximately $0.22020, as reported by Kitco, were $1,888 and $26.49 for gold and silver, respectively). Our forecasted cash inflows during the twelve months ending December 31, 2021 do not include the anticipated second installment of $1.5 million from the sale of the Santa Maria property to Fabled, scheduled to be paid in December 2021, as discussed above. At this time, given the uncertainties associated with the eventual outcome of exploration activities at Santa Maria initiated by Fabled, and the associated timing of the start-up of operations at Santa Maria, we are not currently including the additional installment in our common stockliquidity analysis.
50
under the LPC Program. Our currently budgetedforecasted expenditures during the twelve months ending December 31, 2019 are2021, apart from Rodeo cost of sales already included in our forecast of net operating margin, total approximately $10.0 million as follows:
| Approximately |
| Approximately $0.5 million on capital expenditures related to the Rodeo operation; |
● | Approximately |
| Approximately |
| Approximately |
| ● | Approximately $1.2 million related to an increase in working capital primarily related to increased inventories and receivables at the Rodeo property. |
If we spend the amounts described above, we would end 2019 with aOur forecasted cash balanceresources of approximately zero. However, we do not intend$23.5 to allow our$25.0 million, which includes cash balance to drop below acceptable levels. Therefore, during 2019 we intend to take appropriate actions, which may include saleson hand at December 31, 2020, cash already received from the exercise of certainwarrants and the sale of our nonstrategic exploration assets, reductions to our currently budgeted level of spending, and/or raising additional equity capital through salesshares under the ATM Program LPC Program or otherwise.
subsequent to December 31, 2020, and the forecasted net operating margin from the Rodeo property, are greater than our forecasted expenditures of approximately $10.0 million. The actual net operating margin received from the Rodeo property could be negatively impacted if further interruptions due to COVID-19 occur in Mexico. The actual amount of cash receipts that
50
we receive during the period from the Rodeo operation may also vary significantly from the amounts specified above due to, among other things: (i) unanticipated variations in grade, (ii) unexpected challenges associated with our proposed mining plan, (iii) decreases in commodity prices below those used in calculating the estimates shown above, (iv) variations in expected recoveries, (v) increases in operating costs above those used in calculating the estimates shown above, or the(vi) interruptions in production at Rodeo. The actual amount of cash expenditures that we incur during the year ended 2019 and the projected cash balance attwelve-month period ending December 31, 20192021 may vary significantly from the amounts specified above and will depend on a number of factors, including variations fromin the anticipated care and maintenance costs at the Velardeña Properties or at El Quevar, and costs for continued exploration, project assessment, and development at our other exploration properties, including El Quevar. Moreover, revenues from the oxide plant lease may beproperties. Likewise, if cash expenditures are greater than anticipated or if cash receipts are less than anticipated, which would require furtherwe may need to take certain actions on our part in order to maintain sufficient cash balances at year end. over the next twelve months, including drawing down current cash balances, additional asset dispositions or raising additional equity capital through sales under the ATM Program, the LPC Program or otherwise.
The condensed 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. The underlying value and recoverability of the amounts shown as property, plant and equipment in our condensed 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 and processing 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 operationsmining and processing activities or securing additional funding in the future on terms acceptable to us or at all. We believe the continuing cash flowon hand, anticipated positive net operating margins from the lease ofRodeo operation, the oxide plant,potential use of the ATM Program and the 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 condensed consolidated financial statements for the period ended December 31, 2018.2020.
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.
Income Recognition
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time relating to the receipt of periodic payments as the Company satisfies its performance obligation.
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
51
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”)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.
Functional Currency
Our revenue and external funding are primarily denominated in U.S. dollars. Additionally, substantially all of our significant expenditures are made with reference to U.S. dollars. Accordingly, the Company and its subsidiaries use the U.S. dollar as their functional and reporting currency.
Table of Contractual Obligation
The following table summarizes our contractual obligations at December 31, 2018:2020:
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|
|
|
|
|
|
|
|
|
|
|
|
| More |
|
|
|
|
| Less Than |
| 1 - 3 |
| 3 - 5 |
| Than |
|
Contractual Obligations |
| Total |
| 1 Year |
| Years |
| Years |
| 5 Years |
|
|
| (in thousands of $) |
| ||||||||
Operating leases(1) |
| 1,024 |
| 224 |
| 317 |
| 329 |
| 154 |
|
El Quevar and Velardeña concession payments(2) |
| 700 |
| 140 |
| 280 |
| 280 |
| — | (3) |
| | | | | | | | | | | |
|
| |
| |
| |
| |
| More |
|
| | | | Less Than | | 1 - 3 | | 3 - 5 | | Than |
|
Contractual Obligations | | Total | | 1 Year | | Years | | Years | | 5 Years |
|
|
| (in thousands of $) | | ||||||||
Office leases (1) |
| 594 |
| 166 |
| 309 |
| 119 |
| — | |
El Quevar, Velardeña and Rodeo mining concession and surface rights payments (2) |
| 1,070 |
| 214 |
| 428 |
| 428 |
| — | (3) |
(1) | The |
(2) | In |
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(3) | We cannot currently estimate the life of the Velardeña Properties, the Rodeo property or the El Quevar project. This table assumes that no annual maintenance payments will be made more than five years after December 31, |
52
| concessions beyond five years, we expect that we would make annual maintenance payments of approximately |
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.
53
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKRISK
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, 2018,2020, 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 DATADATA
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.
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ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREDISCLOSURE
None.
ITEM 9A: CONTROLS AND PROCEDURESPROCEDURES
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, 2018.2020.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2018,2020, 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.
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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, 2018.2020. 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, 2018,2020, 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, 2018period 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 INFORMATIONINFORMATION
None.
5455
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
For Information regarding our executive officers,board of directors, 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 20192021 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 COMPENSATIONCOMPENSATION
Incorporated by reference from the information in our proxy statement for the 20192021 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 MATTERSMATTERS
Incorporated by reference from the information in our proxy statement for the 20192021 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 INDEPENDENCEINDEPENDENCE
Incorporated by reference from the information in our proxy statement for the 20192021 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 SERVICESSERVICES
Incorporated by reference from the information in our proxy statement for the 20192021 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.
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PART ITable of Contents
V
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULESSCHEDULES
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 |
(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. |
5657
Exhibit | | Description | |
| |
| |
3.1 | |||
| Amended and Restated Certificate of Incorporation of Golden Minerals Company.(2) | ||
| | | |
3.2 | | ||
| | | |
3.3 | | ||
| | | |
3.4 | | ||
| | | |
4.1 | | ||
| | ||
4.2 | |||
| |||
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4.3 | | ||
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4.4 | | ||
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4.5 | | ||
| | | |
4.6 | | ||
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4.7 | | ||
| | | |
10.1 | | ||
| | | |
10.2 | | ||
| | | |
10.3 | | ||
| | | |
10.4 | | Golden Minerals Company Amended and Restated 2009 Equity Incentive Plan.(6) | |
| | | |
10.5 | | Form of Restricted Stock Award Agreement Pursuant to the 2009 Equity Incentive Plan.(7) | |
| | | |
10.6 | | Non-Employee Directors Deferred Compensation and Equity Award Plan.(7) | |
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| | | |
10.8 | | ||
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10.9 | | ||
| | ||
10.10 | |||
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10.11 | | Golden Minerals Company 2013 Key Employee Long-Term Incentive Plan.(10) | |
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10.12 | | ||
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10.13 | | ||
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10.14 | | ||
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10.15 | | ||
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10.16 | | ||
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10.17 | | ||
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10.18 | |||
| |||
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10.19 | |||
| Form of Unit Agreement Pursuant to the 2013 Key Employee Long-Term Incentive Plan. | ||
| | | |
10.20 | | At the Market Offering Agreement, dated as of December 20, 2016, between Golden Minerals Company and H.C. Wainwright & Co., LLC,as amended by the Amendment dated November 23, | |
| | | |
5859
10.21 | ||||
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10.22 | | |||
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10.23 | | |||
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10.24 | | |||
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10.25 | | |||
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10.26 | | |||
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10.27 | | |||
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10.28 | | |||
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10.29 | | |||
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10.30 | | |||
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10.31 | | |||
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10.32 | | |||
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21.1 | ||||
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23.1 | ||||
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23.2 | | |||
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23.3 | | |||
| | | ||
60
31.1 | | ||
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31.2 | | ||
| | | |
32.1 | | ||
| | | |
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* | |
59
| | | |
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 Current Report on Form 8-K filed July 20, 2015. |
| (13) |
|
|
| Incorporated by reference to our Current Report on Form 8-K filed on February 18, 2016. |
| (14) |
| Incorporated by reference to our Current Report on Form 8-K filed on May 6, 2016. |
61
| (15) |
| Incorporated by reference to our Current Report on Form 8-K filed on May 20, 2016. |
| (16) |
| Incorporated by reference to our Current Report on Form 8-K filed on June 14, 2016. |
| (17) |
|
|
| Incorporated by reference to our Quarterly Report on Form 10-Q filed August 11, 2016. |
| (18) |
| Incorporated by reference to our Quarterly Report on Form 10-Q filed on November 3, 2016. |
| (19) |
| Incorporated by reference to our Current Report on Form 8-K filed on December 20, 2016. |
| (20) |
| Incorporated by reference to our Current Report on Form 8-K filed on August 3, 2017 |
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| (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 |
| (24) | Incorporated by reference to our Annual Report on Form 10-K filed on February 27, 2020. |
| (25) | Incorporated by reference to our Quarterly Report on Form 10-Q filed on August 7, 2019. |
| (26) | Incorporated by reference to our Current Report on Form 8-K filed on July 19, 2019. |
| (27) | Incorporated by reference to our Current report on Form 8-K filed on April 2, 2020. |
| (28) | Incorporated by reference to our Current Report on Form 8-K filed on April 23, 2020. |
| (29) | Incorporated by reference to our Quarterly Report on Form 10-Q filed on May 6, 2020. |
| (30) | Incorporated by reference to our Current Report on Form 8-K filed on July 20, 2020. |
| (31) | Incorporated by reference to our Current Report on Form 8-K filed on December 10, 2020. |
| (32) | Incorporated by reference to our Current Report on Form 8-K filed on July 24, 2020. |
| (33) | Incorporated by reference to our Current Report on Form 8-K filed on December 11, 2020. |
* Filed herewith.
** Furnished herewith.
6162
SIGNATURETable of Contents
S
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: February | 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 | | February |
Warren M. Rehn | | (Principal Executive Officer) | | |
| | | | |
/s/ ROBERT P. VOGELS | | Senior Vice President and Chief Financial Officer | | February |
Robert P. Vogels | | (Principal Financial and Accounting Officer) | | |
| | | | |
/s/ JEFFREY G. CLEVENGER | | Chairman of the Board of Directors | | February |
Jeffrey G. Clevenger | | | | |
| | | | |
/s/ W. DURAND EPPLER | | Director | | February |
W. Durand Eppler | | | | |
| | | | |
/s/ KEVIN R. MORANO | | Director | | February |
Kevin R. Morano | | | | |
| | | | |
/s/ TERRY M. PALMER | | Director | | February |
Terry M. Palmer | | | | |
| | | | |
/s/ ANDREW N. PULLAR | | Director | | February |
Andrew N. Pullar | | | | |
| | | | |
/s/ DAVID H. WATKINS | | Director | | February |
David H. Watkins | | | | |
6263
GOLDEN MINERALS COMPANY
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX
| ||
| | Page |
|
| |
| | |
Consolidated Balance Sheets at December 31, | | F-4 |
| | |
| F-5 | |
| | |
| F-6 | |
| | |
| F-7 | |
| | |
| F-8 |
F-1
Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT PUBLIC ACCOUNTING FIRM
To the ShareholdersStockholders and Board of Directors of
Golden Minerals Company
Golden, Colorado
Opinion on the Financial Statements
OPINION ON THE CONSOLIDATED FINANCIAL STATEMENTS
We have audited the accompanying consolidated balance sheet of Golden Minerals Company (the “Company”) as of December 31, 2017, and the related consolidated statements of operations and comprehensive loss, changes in equity and cash flows, for the year ended December 31, 2017, and the related notes (collectively referred to as the “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, 2017, and the results of its operations and its cash flows for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
BASIS FOR OPINION
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
/s/ EKS&H LLLP
March 1, 2018
Denver, Colorado
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Golden Minerals Company
Golden, Colorado
OPINION ON THE CONSOLIDATED FINANCIAL STATEMENTS
We have audited the accompanying balance sheets of Golden Minerals Company (the “Company”) as of December 31, 2018,2020 and 2019, the related consolidated statements of operations, and comprehensive loss, changes in equity, and cash flows for each of the yearyears in the two-year period ended December 31, 2018,2020, and the related notes (collectively referred to as the “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, 2018,2020 and 2019, and the results of its operations and its cash flows for each of the yearyears in the two-year period ended December 31, 20182020, in conformity with accounting principles generally accepted in the United States of America.
BASIS FOR OPINIONBasis for Opinion
The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audit.audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“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 auditaudits 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 auditaudits 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 auditaudits 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 audit providesaudits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.
Evaluation of Property and Equipment Impairment Triggering Events – Refer to Note 3 to the financial statements
Critical Audit Matter Description
The Company’s gross property, plant and equipment balance was approximately $34.0 million, and related accumulated depreciation and amortization was approximately $28.4 million as of December 31, 2020. The Company’s
F-2
determination of whether or not a triggering event for impairment occurs requires significant management judgment. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the asset or group of assets may not be recoverable. Management evaluates various qualitative factors in determining whether or not events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. The factors considered include, among others, significant changes in estimates of forecasted gold and silver prices; the Company’s market capitalization in comparison to the junior mining silver and gold sector; and management’s intent to hold and develop exploration properties.
We identified the evaluation of property and equipment impairment triggering events as a critical audit matter due to management using estimates, that include, among others, assumptions about forecasted gold and silver prices, Company performance, and management’s intent to hold and develop exploration properties, in determining whether a triggering event occurred. Performing audit procedures and evaluating audit evidence related to these estimates and judgments required a high degree of auditor judgment and effort.
How the Critical Audit Matter Was Addressed in the Audit
| ● | ||
| ||
We | ||
| ||
| process for identifying and evaluating potential impairment triggers and related significant assumptions and judgments. |
| ● | We evaluated the Company’s analysis of potential triggering events and evaluated significant assumptions and judgments used in the Company’s assessment. Specifically, we compared forecasted gold and silver prices and the Company’s market capitalization to available market information; as well as gained an understanding and obtained evidence of the Company’s intent to hold and develop their exploration properties. |
/s/ Plante & Moran, PLLC
We have served as the Company’s auditor since 2013.
Denver, Colorado
February 18, 2021
F-3
GOLDEN MINERALS COMPANY
(Expressed in United States dollars)
| | | | | | | | |||||||
| | December 31, | | December 31, | | |||||||||
|
| 2020 |
| 2019 |
| |||||||||
|
|
|
|
|
|
|
| |||||||
|
| December 31, |
| December 31, |
| |||||||||
|
| 2018 |
| 2017 |
| |||||||||
|
| (in thousands, except share data) |
| |||||||||||
| | (in thousands, except share data) |
| |||||||||||
Assets |
|
|
|
|
|
|
| | | | | | | |
Current assets |
|
|
|
|
|
|
| | | | | | | |
Cash and cash equivalents (Note 5) |
| $ | 3,293 |
| $ | 3,250 |
| | $ | 9,704 | | $ | 4,593 | |
Short-term investments (Note 5) |
|
| 330 |
|
| 238 |
| | | 79 | | | — | |
Lease receivables |
|
| 481 |
|
| 314 |
| |
| 72 | |
| 448 | |
Inventories, net (Note 7) |
|
| 229 |
|
| 242 |
| |
| 284 | |
| 231 | |
Value added tax receivable, net (Note 8) |
|
| 14 |
|
| 148 |
| |||||||
Derivative at fair value (Note 8) | | | — | | | 254 | | |||||||
Value added tax receivable, net | |
| 45 | |
| — | | |||||||
Prepaid expenses and other assets (Note 6) |
|
| 1,188 |
|
| 745 |
| | | 1,130 | | | 669 | |
Total current assets |
|
| 5,535 |
|
| 4,937 |
| |
| 11,314 | |
| 6,195 | |
Property, plant and equipment, net (Note 9) |
|
| 7,109 |
|
| 8,140 |
| |
| 5,520 | |
| 6,031 | |
Other long term assets (Note 10) | |
| 1,472 | |
| 1,131 | | |||||||
Total assets |
| $ | 12,644 |
| $ | 13,077 |
| | $ | 18,306 | | $ | 13,357 | |
|
|
|
|
|
|
|
| |||||||
| | | | | | | | |||||||
Liabilities and Equity |
|
|
|
|
|
|
| | | | | | | |
Current liabilities |
|
|
|
|
|
|
| | | | | | | |
Accounts payable and other accrued liabilities (Note 10) |
| $ | 1,702 |
| $ | 1,556 |
| |||||||
Deferred revenue, current (Note 16) |
|
| 293 |
|
| 293 |
| |||||||
Other current liabilities (Note 10) |
|
| 12 |
|
| 9 |
| |||||||
Accounts payable and other accrued liabilities (Note 11) | | $ | 1,318 | | $ | 2,127 | | |||||||
Deferred revenue, current (Note 17) | | | 535 | | | 472 | | |||||||
Other current liabilities (Note 13) | |
| 667 | |
| 1,824 | | |||||||
Total current liabilities |
|
| 2,007 |
|
| 1,858 |
| |
| 2,520 | |
| 4,423 | |
Asset retirement and reclamation liabilities (Note 11) |
|
| 2,683 |
|
| 2,495 |
| |||||||
Deferred revenue, non-current (Note 16) |
|
| 307 |
|
| 600 |
| |||||||
Other long term liabilities |
|
| 10 |
|
| 43 |
| |||||||
Asset retirement and reclamation liabilities (Note 12) | |
| 3,166 | |
| 2,839 | | |||||||
Other long term liabilities (Note 13) | |
| 648 | |
| 494 | | |||||||
Total liabilities |
|
| 5,007 |
|
| 4,996 |
| |
| 6,334 | |
| 7,756 | |
|
|
|
|
|
|
|
| |||||||
Commitments and contingencies (Note 19) |
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
| |||||||
Equity (Note 15) |
|
|
|
|
|
|
| |||||||
Common stock, $.01 par value, 200,000,000 shares authorized; 95,620,796 and 91,929,709 shares issued and outstanding respectively |
|
| 955 |
|
| 919 |
| |||||||
| | | | | | | | |||||||
Commitments and contingencies (Note 20) | | | | | | | | |||||||
| | | | | | | | |||||||
Equity (Note 16) | | | | | | | | |||||||
Common stock, $.01 par value, 200,000,000 shares authorized; 157,512,652 and 106,734,279 shares issued and outstanding respectively | |
| 1,575 | |
| 1,067 | | |||||||
Additional paid in capital |
|
| 517,806 |
|
| 516,284 |
| |
| 536,263 | |
| 521,314 | |
Accumulated deficit |
|
| (511,124) |
|
| (509,082) |
| |
| (525,866) | |
| (516,780) | |
Accumulated other comprehensive loss |
|
| — |
|
| (40) |
| |||||||
Shareholders' equity |
|
| 7,637 |
|
| 8,081 |
| |
| 11,972 | |
| 5,601 | |
Total liabilities and equity |
| $ | 12,644 |
| $ | 13,077 |
| | $ | 18,306 | | $ | 13,357 | |
The accompanying notes form an integral part of these consolidated financial statements.
F-4
GOLDEN MINERALS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSOPERATIONS
(Expressed in United States dollars)
|
|
|
|
|
|
|
|
|
| The Year Ended December 31, |
| ||||
|
|
|
|
|
|
|
|
|
| 2018 |
| 2017 |
| ||
|
| (in thousands except per share data) |
| ||||
Revenue: |
|
|
|
|
|
|
|
Oxide plant lease (Note 16) |
| $ | 7,217 |
| $ | 6,691 |
|
Costs and expenses: |
|
|
|
|
|
|
|
Oxide plant lease costs (Note 16) |
|
| (2,289) |
|
| (2,189) |
|
Exploration expense |
|
| (3,909) |
|
| (3,091) |
|
El Quevar project expense |
|
| (1,266) |
|
| (822) |
|
Velardeña shutdown and care and maintenance costs |
|
| (1,889) |
|
| (1,589) |
|
Administrative expense |
|
| (3,355) |
|
| (3,512) |
|
Stock based compensation |
|
| (226) |
|
| (296) |
|
Reclamation expense |
|
| (210) |
|
| (196) |
|
Other operating income, net (Notes 8 and 9) |
|
| 5,138 |
|
| 2,093 |
|
Depreciation and amortization |
|
| (1,171) |
|
| (952) |
|
Total costs and expenses |
|
| (9,177) |
|
| (10,554) |
|
Income (loss) from operations |
|
| (1,960) |
|
| (3,863) |
|
Other income and (expense): |
|
|
|
|
|
|
|
Interest and other (expense) income, net (Note 17) |
|
| 112 |
|
| 37 |
|
Loss on foreign currency |
|
| (84) |
|
| (53) |
|
Total other income (loss) |
|
| 28 |
|
| (16) |
|
Income (loss) from operations before income taxes |
|
| (1,932) |
|
| (3,879) |
|
Income tax |
|
| (13) |
|
| (13) |
|
Net income (loss) |
| $ | (1,945) |
| $ | (3,892) |
|
Comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
Unrealized gain (loss) on securities (Note 5) |
|
| — |
|
| (95) |
|
Comprehensive income (loss), net of tax: |
| $ | (1,945) |
| $ | (3,987) |
|
Net income (loss) per common share — basic |
|
|
|
|
|
|
|
Loss |
| $ | (0.02) |
| $ | (0.04) |
|
Weighted average Common Stock outstanding - basic (1) |
|
| 94,003,165 |
|
| 90,468,606 |
|
| | | | | | |
| | Year Ended December 31, | ||||
|
| 2020 |
| 2019 | ||
| | (in thousands, except per share data) | ||||
Revenue: | | | | | | |
Oxide plant lease (Note 17) | | $ | 5,637 | | $ | 7,730 |
Total revenue | | | 5,637 | | | 7,730 |
Costs and expenses: | | | | | | |
Oxide plant lease costs (Note 17) | | | (1,988) | | | (2,377) |
Exploration expense | |
| (4,954) | |
| (4,109) |
El Quevar project expense | |
| (618) | |
| (2,011) |
Velardeña care and maintenance costs | |
| (1,163) | |
| (1,797) |
Administrative expense | |
| (3,651) | |
| (3,614) |
Stock based compensation | |
| (859) | |
| (782) |
Reclamation expense | |
| (249) | |
| (228) |
Other operating (expense) income, net | |
| 7 | |
| 3,238 |
Depreciation and amortization | |
| (962) | |
| (1,098) |
Total costs and expenses | |
| (14,437) | |
| (12,778) |
Loss from operations | |
| (8,800) | |
| (5,048) |
Other expense: | | | | | | |
Interest and other expense, net (Note 18) | |
| (132) | |
| (201) |
Loss on foreign currency | |
| (106) | |
| (102) |
Total other loss | | | (238) | | | (303) |
Loss from operations before income taxes | |
| (9,038) | |
| (5,351) |
Income taxes (Note 15) | | | (48) | | | (35) |
Net loss | | $ | (9,086) | | $ | (5,386) |
Net loss per common share — basic | | | | | | |
Loss | | $ | (0.07) | | $ | (0.05) |
Weighted average Common Stock outstanding - basic (1) | |
| 131,774,120 | |
| 101,058,219 |
(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.
F-5
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, 2016 |
| 89,020,041 |
| $ | 889 |
| $ | 495,455 |
| $ | (488,037) |
| $ | 55 |
| $ | 8,362 |
|
Cumulative adjustment related to change in accounting principle (Note 4) |
| — |
|
| — |
|
| 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 4) |
| — |
|
| — |
|
| 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 |
|
Cumulative adjustment related to change in accounting principle (Note 4) |
| — |
|
| — |
|
| — |
|
| (89) |
|
| 40 |
|
| (49) |
|
Adjusted balance at January 1, 2018 |
| 91,929,709 |
| $ | 919 |
| $ | 516,284 |
| $ | (509,171) |
| $ | — |
| $ | 8,032 |
|
Stock compensation accrued and shares issued for vested stock awards |
| 537,279 |
|
| 4 |
|
| 312 |
|
| — |
|
| — |
|
| 316 |
|
Registered direct purchase agreement, net (Note 15) |
| 3,153,808 |
|
| 32 |
|
| 1,202 |
|
| — |
|
| — |
|
| 1,234 |
|
Deemed dividend on warrants (Note 4) |
| — |
|
| — |
|
| 8 |
|
| (8) |
|
| — |
|
| — |
|
Net loss |
| — |
|
| — |
|
| — |
|
| (1,945) |
|
| — |
|
| (1,945) |
|
Balance, December 31, 2018 |
| 95,620,796 |
| $ | 955 |
| $ | 517,806 |
| $ | (511,124) |
| $ | — |
| $ | 7,637 |
|
The accompanying notes form an integral part of these consolidated financial statements.
F-6
GOLDEN MINERALS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWSFLOWS
(Expressed in United States dollars)
| | | | | | | | |||||||
| | Year Ended December 31, | | |||||||||||
|
| 2020 |
| 2019 |
| |||||||||
|
|
|
|
|
|
|
| |||||||
|
| Year Ended |
| |||||||||||
|
| December 31, |
| |||||||||||
|
| 2018 |
| 2017 |
| |||||||||
|
| (in thousands) |
| |||||||||||
| | (in thousands) |
| |||||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
| | | | | | | |
Net cash used in operating activities (Note 18) |
| $ | (5,711) |
| $ | (1,630) |
| |||||||
Net cash used in operating activities (Note 19) | | $ | (9,484) | | $ | (4,395) | | |||||||
Cash flows from investing activities: |
|
|
|
|
|
|
| | | | | | | |
Proceeds from sale of assets |
|
| 5,097 |
|
| 762 |
| |
| 525 | |
| 3,144 | |
Acquisition of short-term investments | | | (59) | | | 113 | | |||||||
Acquisitions of property, plant and equipment |
|
| (152) |
|
| (81) |
| |
| (470) | |
| (38) | |
Net cash from investing activities |
| $ | 4,945 |
| $ | 681 |
| |||||||
Net cash (used in) provided by investing activities | | $ | (4) | | $ | 3,219 | | |||||||
Cash flows from financing activities: |
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|
|
|
|
|
| | | | | | | |
Proceeds from issuance of common stock, net of issuance costs |
|
| 809 |
|
| 1,611 |
| |
| 14,599 | |
| 2,476 | |
Proceeds from related party loan (Note 23) | | | 1,000 | | | — | | |||||||
Payment of related party loan (Note 23) | | | (1,000) | | | — | | |||||||
Net cash from financing activities |
| $ | 809 |
| $ | 1,611 |
| | $ | 14,599 | | $ | 2,476 | |
Net increase in cash and cash equivalents |
|
| 43 |
|
| 662 |
| |||||||
Net Increase in cash and cash equivalents | |
| 5,111 | |
| 1,300 | | |||||||
Cash and cash equivalents, beginning of period |
|
| 3,250 |
|
| 2,588 |
| |
| 4,593 | |
| 3,293 | |
Cash and cash equivalents, end of period |
| $ | 3,293 |
| $ | 3,250 |
| | $ | 9,704 | | $ | 4,593 | |
The accompanying notes form an integral part of these consolidated financial statements.
F-7
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
| 1. | Nature of Operations |
The Company is a mining company, holding a 100% interest in the Rodeo property in Durango State, Mexico, a 100% 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”). During November 2015, a 100% interest in the El Quevar advanced exploration silver property in the province of Salta, Argentina, which is subject to the terms of the April 9, 2020 earn-in agreement (the “Earn-in Agreement”) pursuant to which Barrick Gold Corporation (“Barrick”) has the option to earn a 70% interest in the El Quevar project (see Note 16), and a diversified portfolio of precious metals and other mineral exploration properties located primarily in or near historical precious metals producing regions of Argentina, Nevada and Mexico. The Rodeo property, Velardeña Properties and the El Quevar advanced exploration property are the Company’s only material properties.
The Company suspendedis primarily focused on mining operations at the Rodeo property as well as further studies of a restart plan for Velardeña, including use of bio-oxidation to improve the payable gold recovery. The Company is also focused on (i) advancing our El Quevar exploration property in Argentina through the Earn-in Agreement with Barrick and (ii) continuing to evaluate and search for mining opportunities in North America (including Mexico) with near term prospects of mining, and sulfideparticularly for properties with reasonable haulage distances of our processing plants at the Velardeña Properties. The Company is also reviewing strategic opportunities, focusing primarily on development or operating properties in North America, including Mexico.
The Company began mining activities at its Velardeña Propertiesthe Rodeo property during December 2020. All associated costs were expensed as incurred and are included in order to conserveExploration costs in 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 costsaccompanying Consolidated Statements 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 has placed the mine and sulfide processing plant on care and maintenance to enable a re-start of either the mine or mill when mining and processing plans and metals prices support a cash positive outlook.Operations. The Company incurred approximately $1.9 million and $1.6$0.2 million in care and maintenancesuch costs for years endedduring December 30, 2018 and December 31, 2017, respectively. On an ongoing basis, the Company expects to incur approximately $0.4 million in quarterly care and maintenance costs while mining and processing remain suspended.2020.
The Company has retainedmaintains 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 iswas previously leased to a subsidiary of Hecla Mining Company (“Hecla”) and not affected by(see Note 17). The employees at the shutdown. The retained employeesVelardeña Properties also include an exploration group and an operations and administrative group to continue to advance the Company’s plans in Mexico, overseeincluding the start-up of mining and processing activities for the Rodeo property, and to provide oversight for corporate compliance activities as well as maintaining and to maintain and safeguardsafeguarding the longer termlonger-term value of the Velardeña Properties assets.
The Velardeña oxide plant began processing material for Hecla in mid-December 2015,Company incurred approximately $1.2 million and the Company recorded net operating margin under the lease of approximately $4.9$1.7 million in 2018. On March 24, 2017, Hecla exercised its right to extendcare and maintenance costs for 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 thanended December 31, 2020 in exchange for a $1.0 million cash payment and the purchaseDecember 31, 2019, respectively. Processing of $1.0 million, or approximately 1.8 million shares ofRodeo mined material at the Company’s common stock, issued at par at a price of $0.55 per share, based on an undiscounted 30-day volume weighted average stock price (see Note 15). On October 1, 2018, Hecla exercised this option to extend the lease through December 31, 2020. Hecla has the right to terminate the lease with 120 days’ notice.
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 propertyProperties began 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.January 2021.
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 Rodeo property and the Velardeña Properties for mine construction activity, as well as operating costs associated with the mill facilities, and for items that do not have a readily identifiable market value apart from the mineralized material, have
F-8
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
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
F-8
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
of the product. The term “mineralized material” as used herein, although permissible under SEC Industry Guide 7, does not indicate “reserves” by SEC standards. The Company cannot be certain that any deposits at the Velardeña Properties or any other exploration propertyof its properties will ever be confirmed or converted into SEC Industry Guide 7 compliant “reserves”.
At December 31, 2018, the Company’s aggregate cash and cash equivalents totaled $3.3 million, equal to the $3.3 million in similar assets held at December 31, 2017. The December 31, 2018 balance is due in part from the following expenditures and cash inflows for the year ended December 31, 2018. Expenditures totaled $10.8 million from the following:
2. |
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The foregoing expenditures were offset by cash inflows of $10.8 million from the following:
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In addition to the $3.3 million cash balance at December 31, 2018, the Company expects to receive approximately $4.6 million in net operating margin from the lease of the oxide plant during the next twelve-month period ending December 31, 2019. In addition, subsequent to December 31, 2018 the Company received approximately $0.2 million
F-9
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
from the sale of our common stock under the LPC Program. The Company’s currently budgeted expenditures during the twelve months ending December 31, 2019 are as follows:
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If the Company spends the amounts described above, it would end 2019 with a cash balance of approximately zero. However, the Company does not intend to allow its cash balance to drop below acceptable levels. Therefore, duringthird quarter 2019, the Company intendsbecame aware that it had failed to take appropriate actions, which may include salestimely file withholding tax returns and pay taxes that were due at the end of certain2017 and 2018 relating to return of capital distributions made to the Company by one of the Company’s nonstrategic exploration assets, reductionswholly-owned subsidiaries (see Note 15). 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 Company’s currently budgeted levelaccompanying Condensed Consolidated Statements of spending, and/or raising additional equity capital through sales under the ATM Program, LPC Program or otherwise.Changes in Equity.
The actual amountCompany evaluated the materiality of cash that we receive or the expenditureserror described above from a qualitative and quantitative perspective. Based on such evaluation, the Company concluded that the Company incurs during the year ended 2019 and the projected cash balance at December 31, 2019 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 Companys’ other exploration properties, including El Quevar. Moreover, revenues from the oxide plant lease maycorrection would not be less than anticipated, which would require further actionsmaterial to any individual prior period, nor did it have an effect on the Company’s part in order to maintain sufficient cash balances at year end.
The consolidatedtrend of 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 inresults, taking into account the normal course of business. However, the Company’s continuing long-term operations are dependent upon its ability to secure sufficient funding and to generate future profitable operations. The underlying value and recoverabilityrequirements of the amounts shown as property, plant and equipmentSEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Company’s consolidated financial statements are dependent on its 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.2019 Financial Statements (“SAB 108”).
3. | Summary of Significant Accounting Policies |
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 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, 2018.
3.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
F-10
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
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; depreciation, depletion and amortization calculations; environmental reclamation and closure obligations; 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.Basisa.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.
F-9
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
b.Translationb.Translation of foreign currencies
SubstantiallyThe Company’s revenue and external funding are primarily denominated in U.S. dollars. Additionally, substantially all of the Company’s significant expenditures and sales are made inwith reference to U.S. dollars. Accordingly, the Company and its subsidiaries use the U.S. dollar as their functional and reporting currency.
c.Cashc.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.Inventoriesd.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.
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 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.Operations.
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 any of the Company’s properties. As such, during the periods prior to November 20162015 when the Company suspended mining and processing activities, the
F-11
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
Company expensed costs as incurred related to extraction of mineralized material at the 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,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.
F-10
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
As discussed above, the Company does not have any properties with proven or probable 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, 20172020 and 2018,2019, and determined that no impairment was required.
g.Assetg.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 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)12).
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
F-12
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
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.Revenue Recognitionh.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 606 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 606842 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)17).
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
F-11
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
service period for each separately vesting portion of the award (see Note 15)16). 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 4).
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, 20182020 and 2017,2019, 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 year ended December 31, 2017 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).
As the result of afirst quarter 2018 change in accounting principle, discussed in Note 4, the Company now recordsadopted ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”), which amended its accounting treatment for the changes inrecognition, measurement, presentation and disclosure of certain financial assets. ASU 2016-01 requires equity investments that have a readily determinable fair values of equity investmentsvalue to be measured at fair value through net income. Accordingly,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 amounts were recorded to Comprehensive Income (Loss)longer be an available-for-sale classification (with changes in fair value reported in other comprehensive income) for the year ended December 31, 2018. equity securities with readily determinable fair values.
F-13
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
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.
F-12
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
The Company classifies income tax related interest and penalties as income tax expense.
m.Recentlyo.Recently Adopted Standards
During the first quarter 20182020 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 4).
During the first quarter 2018 the Company adopted 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 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 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). The adoption of ASU 2016-08 during the first quarter 2018, did not result in a material impact on its consolidated financial position or results of operations or the requirement for retrospective reporting.
During the first quarter 2018 the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) which was issued by the Financial Accounting Standards Board (“FASB”) in May 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 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 adopting ASU 2014 (see Note 4).
In July 2017, the Financial Accounting Standards Board (“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
F-14
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception” (“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 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 would be classified as 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. ASU 2017-11 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. The Company early adopted ASU 2017-11 during the interim period ended September 30, 2017 (see Note 4).
In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), which simplifies several aspects 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, 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 not have a material impact on the Company’s consolidated financial position or results of operation.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes: Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The adoption of ASU 2015-17 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.
In July 2015, the FASB issued ASU No. 2015-11, “Inventory, Simplifying 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.
n.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 principleprincipal credit risk is related to its Lease Receivables the Company does not expect the adoption of this update todid not result in a material impact on itsthe Company’s consolidated financial position or results of operations.
In February 2016,During the FASB issuedfirst quarter 2019 the Company adopted ASU 2016-02, “Leases” (“ASU 2016-02”) and ASU No. 2018-11 “Leases (Topic 842)” (“ASU 2018-11”), which will require 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
F-15
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
statement. For a lessor, the accounting applied is largely unchanged from previous guidance. The new rules will be effective for the Company in 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 onThe Company has elected the numbermodified retrospective method of years remaining under such lease agreements the right-of-use assets and lease liabilitiesadopting ASU 2016-02 (see Note 4).
p.Recently Issued Pronouncements
There were no new accounting pronouncements issued during 2020 that would affect the Company would record under ASU 2016-2 could be material. Inor have a material impact on its consolidated financial position or results of operations.
4. | Change in Accounting Principle |
Leases
Effective January 1, 2019 the Company extendedadopted ASU 2016-02 and ASU 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 office lease at its corporate headquarterspattern 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. Lease paymentsand 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 practical 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 negligible 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 has included its right of use assets for base rentthe office leases described above in “Other long-term assets” (Note 10) and common area maintenance are estimated to be approximately $0.9M from January 2019 throughits office lease liabilities in “Other liabilities”, short term and long term (Note 13), in the Company’s Consolidated Balance Sheets for the periods ended December 2024.31, 2020 and 2019.
F-13
4. ChangeGOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in Accounting PrincipleUnited States dollars)
Warrant Liability
In 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”). 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 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 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 September 2012 and 2014 warrants (see Note 15) include anti-dilution provisions characterized as down round features and were previously 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 $1.5 million as of September 30, 2017 and reported a warrant derivative loss of $0.4 million for the nine months ended September 30, 2017 relating to the September 2012 and 2014 warrants prior to the change in accounting principle.
In addition, forFor 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 year ending on or prior to December 31, 20162019 the Company would have reduced its “Accumulated deficit” as reported on its 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 $3,000 related to triggering events. DuringNo triggering events occurred during the year ending December 31, 2018 the Company reduced its accumulated deficit by approximately $8,000 related to triggering events.
F-16
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
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 during the interim period ended September 30, 2017 and recorded a cumulative-effect adjustment stemming from a change in accounting principle in its financial statements measured retrospectively to the beginning of 2017. The cumulative effect adjustment appears at the beginning of 2017 in the Company’s Consolidated Statement of Changes in Equity. The results of operations for the Company for the three months ended March 31, 2017 reflect application of the change in accounting principle from the beginning of 2017. As noted above, the Company had previously reported a warrant derivative gain of $0.4 million during the nine-month period ending September 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.
Other Income Related to the Sale of Exploration Properties
During the first quarter 2018 the Company adopted 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 requires, in certain instances, that transactions covered by ASC Topic 610, “Other Income” (“Topic 610”) follow the recognition, measurement and disclosure guidelines established by ASU 2014-09. The Company generally follows the guidance of Topic 610 with respect to the recognition 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 9). 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 has recognized retrospectively the cumulative effect of initially adopting ASU 2014-09 by recording a negative adjustment to retained earnings of $49,000 at the beginning of 2018, included in the Company’s Consolidated Statement of Changes in Equity, and recording $49,000 in “Other operating income, net” in the accompanying Consolidated Statements of Operations and Comprehensive Loss for the period ended December 31, 2018. See Note 9 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.2020.
5. | Cash and Cash Equivalents and Short-Term Investments |
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
F-17
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
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 and Comprehensive Loss for the period ended December 31, 2018.
5.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.
The following tables summarize the Company's short-term investments at December 31, 20182020:
| | | | | | | | | | |
|
| | |
| Estimated |
| Carrying |
| ||
December 31, 2020 | | Cost | | Fair Value | | Value |
| |||
| | | (in thousands) | | ||||||
Investments: | | | | | | | | | | |
Short-term: | | | | | | | | | | |
Trading securities | | $ | 59 | | $ | 79 | | $ | 79 | |
Total trading securities | |
| 59 | |
| 79 | |
| 79 | |
Total short term | | $ | 59 | | $ | 79 | | $ | 79 | |
| | | | | | | | | | |
The short-term investments at December 31, 2020, consist of 1,000,000 common shares of Fabled Silver Gold Corp., formerly known as Fabled Copper Corp. (“Fabled”), a junior mining company that entered into an option agreement with the Company to acquire the Company’s option to earn a 100% interest in the Santa Maria mining claims located in Chihuahua, Mexico (see Note 9). The 1,000,000 common shares were issued to the Company as partial consideration per the terms of the option agreement.
The Company previously owned 7,500,000 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
F-14
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
property in Mexico. 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 2017:other income (expense), net” in the accompanying Consolidated Statements of Operations. The Company had no short-term investments at December 31, 2019.
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| Carrying |
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December 31, 2018 |
| Cost |
| Fair Value |
| Value |
| |||
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| (in thousands) |
| ||||||
Investments: |
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Short-term: |
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|
Trading securities |
| $ | 275 |
| $ | 330 |
| $ | 330 |
|
Total trading securities |
|
| 275 |
|
| 330 |
|
| 330 |
|
Total short term |
| $ | 275 |
| $ | 330 |
| $ | 330 |
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December 31, 2017 |
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Investments: |
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Short-term: |
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Available for sale common stock |
| $ | 275 |
| $ | 238 |
| $ | 238 |
|
Total available for sale common stock |
|
| 275 |
|
| 238 |
|
| 238 |
|
Total short term |
| $ | 275 |
| $ | 238 |
| $ | 238 |
|
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.
6. | Prepaid Expenses and Other Assets |
F-18
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
6.Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist of the following:
| | | | | | | | |||||||
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| December 31, |
| December 31, | ||||||||||
| | 2020 |
| 2019 | | |||||||||
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| December 31, |
| December 31, | ||||||||||
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| 2018 |
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| 2017 |
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| (in thousands) |
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| | (in thousands) |
| |||||||||||
Prepaid insurance |
| $ | 358 |
| $ | 362 |
| | $ | 571 | | $ | 494 | |
Deferred offering costs |
|
| 569 |
|
| 137 |
| |||||||
Recoupable deposits and other |
|
| 261 |
|
| 246 |
| |
| 559 | |
| 175 | |
|
| $ | 1,188 |
| $ | 745 |
| |||||||
| | $ | 1,130 | | $ | 669 | | |||||||
The deferred offering costs are
Recoupable deposits and other includes $0.2 million related to a recoupable deposit paid to a contractor engaged in mining activities at the ATM Program andRodeo property (see Note 10). The deposit will be credited towards costs charged by the LPC Program, discussed in detail in Note 15.
7.Inventoriesmining contractor evenly over the first four months of 2021.
7. | Inventories |
Inventories at the Velardeña Properties were as follows:
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| December 31, |
| December 31, |
| ||
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| 2018 |
| 2017 |
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| ||||
Material and supplies |
| $ | 229 |
| $ | 242 |
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|
| $ | 229 |
| $ | 242 |
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| | | | | | | |
| | December 31, | | December 31, |
| ||
|
| 2020 |
| 2019 |
| ||
| | (in thousands) | | ||||
Material and supplies | | $ | 284 | | $ | 231 | |
| | $ | 284 | | $ | 231 | |
The material and supplies inventory at December 31, 20182020 and 20172019 are related to the Velardeña Properties and are reduced by a $0.2 million obsolescence reserve.
8.Value added tax receivable
The Company has recorded value added tax (“VAT”) paid in Mexico and related to the Velardeña Properties as a recoverable asset. Mexico law allows for VAT payments to be recovered from VAT collected from the sale of products or rendering of services. At December 31, 2018, the Company has also recorded approximately $30,000 of VAT receivable as a reduction to VAT payable in Mexico, which appears in “Accounts payable and other accrued liabilities” on the 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 collectability of the taxes the Company had recorded a full valuation allowance against the VAT receivable at the time the taxes were paid. The Company reported the $1.1 million of VAT refunds received during the year ended December 31, 2017 in “Other operating income” on the Consolidated Statements of Operations and Comprehensive Loss. In February 2018, the Company received an additional approximately $138,000 of VAT refunds. At December 31, 2017, the Company reversed $138,000 of the valuation allowance and recorded a VAT receivable of $138,000 with a corresponding gain in “Other operating income” on the 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 against the remaining VAT refund claims.
F-19F-15
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
8. | Derivative at Fair Value |
On December 3, 2019 the Company entered into an amendment to the Velardeña oxide plant lease agreement (the “Hecla Lease”) with Minera Hecla, S.A. de C.V. (“Hecla”), a Mexican corporation and wholly-owned subsidiary of Hecla Mining Company, 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 17, 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 determined that the potential for the Company to receive an additional $11.00 variable per tonne fee if certain conditions relating to the silver price and delivered ore head grades are met does not qualify for the “clearly and closely related” exception, and as a result, the potential additional $11.00 variable per tonne fee constitutes a derivative that must be valued and accounted for apart from the host lease contract. Per the guidance of ASC 842, the Company has also paid VAT in Mexicodetermined that the amendment to the Hecla Lease constituted a modification that must be accounted for as wella new lease commencing on December 2, 2019, the date the amendment was agreed upon by both parties, and expiring on December 31, 2020. The Company is treating the fair value of the derivative received at the time of the modification to the lease agreement as other countries, primarilyan upfront lease payment that will be amortized over the remaining life of the lease on a straight line basis (see Note 14 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 “Derivativeat fair value” asset and “Deferred Revenue” of approximately $194,000 on the Consolidated Balance Sheet related to exploration projects, which has been chargedthe amended Hecla Lease. At December 31, 2019 the Company recognized additional “Revenue - plant lease” on the Company’s Consolidated Statements of Operations and an increase to expense as incurred becausethe derivative of approximately $59,000 related to the change in the fair value of the uncertaintyderivative between the December 2, 2019 amendment date and December 31, 2019. The Company also recognized approximately $15,000 “Revenue - plant lease” on the Company’s Consolidated Statements of recoverability.Operations related to the amortization of the deferred revenue.
9.Property, PlantFor the year ended December 31, 2020 the Company recognized a reduction of $254,000 to “Revenue - plant lease” on the Company’s Condensed Consolidated Statements of Operations related to the change in the fair value of the derivative between December 31, 2019 and Equipmentthe termination of the Hecla Lease on November 30, 2020 (see Note 17). During the year ended December 31, 2020, the Company also recognized approximately $180,000 “Revenue - plant lease” on the Company’s Condensed Consolidated Statements of Operations related to the amortization of deferred revenue.
At December 31, 2019 the Company recognized additional “Revenue - plant lease” on the Company’s Consolidated Statements of Operations and an increase to the derivative of approximately $59,000 related to the change in the fair value of the derivative between the December 2, 2019 amendment date and December 31, 2019. The Company also recognized approximately $15,000 “Revenue - plant lease” on the Company’s Consolidated Statements of Operations related to the amortization of the deferred revenue.
F-16
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
9. | Property, Plant and Equipment |
Property, plant and equipment, net
The components of property, plant, and equipment, net were as follows:
| | | | | | | | |||||||
| | December 31, | | December 31, | | |||||||||
|
| 2020 |
| 2019 |
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| December 31, |
| December 31, |
| |||||||||
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| 2018 |
| 2017 |
| |||||||||
|
| (in thousands) |
| |||||||||||
| | (in thousands) |
| |||||||||||
Mineral properties |
| $ | 9,353 |
| $ | 9,352 |
| | $ | 9,353 | | $ | 9,353 | |
Exploration properties |
|
| 2,518 |
|
| 2,518 |
| | | 2,418 | | | 2,518 | |
Royalty properties |
|
| 200 |
|
| 200 |
| |
| 200 | |
| 200 | |
Buildings |
|
| 4,278 |
|
| 4,246 |
| |
| 3,755 | |
| 3,755 | |
Mining equipment and machinery |
|
| 16,024 |
|
| 15,989 |
| |
| 16,135 | |
| 16,049 | |
Other furniture and equipment |
|
| 888 |
|
| 958 |
| |
| 890 | |
| 884 | |
Construction in progress | | | 259 | | | — | | |||||||
Asset retirement cost |
|
| 866 |
|
| 865 |
| |
| 948 | |
| 866 | |
|
|
| 34,127 |
|
| 34,128 |
| |||||||
| |
| 33,958 | |
| 33,625 | | |||||||
Less: Accumulated depreciation and amortization |
|
| (27,018) |
|
| (25,988) |
| |
| (28,438) | |
| (27,594) | |
|
| $ | 7,109 |
| $ | 8,140 |
| |||||||
| | $ | 5,520 | | $ | 6,031 | | |||||||
Equipment RelatedConstruction in Progress
Construction in progress is related to upgrades being made at the Oxide Plant Lease
Certain assets of the Company areVelardeña Properties processing plant related to the leaseprocessing of the VelardeñRodeo mined material.
Sale of Santa Maria Property
On July 14, 2020, we entered into a oxide plantbinding letter of intent with Fabled Silver Gold Corp., formerly known as Fabled Copper Corp. (“Fabled”), for a potential transaction pursuant to Hecla (see Note 1)which Fabled would acquire the Company’s option to earn a 100% interest in the Santa Maria mining claims (“Santa Maria Properties”) located in Chihuahua, Mexico (the “Option”). Entry into a definitive agreement regarding the Option was subject to a number of contingencies.
On December 4, 2020, the Company entered into a definitive option agreement (the “Option Agreement”) to sell its Option to Fabled. The net book valueperiod to exercise the Option (the “Exercise Period”) expires on December 4, 2022, unless extended by the parties under the terms of the equipment involved in the lease was $0.8 million and $1.2 millionOption Agreement. As consideration for the years ended December 31, 2018 and December 31, 2017, respectively.
Minera Indé Equipment Sale
In August 2016,Option Agreement, Fabled (i) paid $500,000 in cash to the Company sold certain mining equipment consisting of two haul trucks, two scoop trams and a compressorissued to Minera Indé, an indirect subsidiary of The Sentient Group (“Sentient”), for $687,000 (see Note 22). The equipment sold was excess equipment held at the Company’s Velardeña Properties that the Company did not expect1,000,000 shares of Fabled’s common stock; (ii) will pay $1,500,000 in cash to use. Thethe Company received $69,000 or 10% ofon the sales price atone year anniversary date following the closing of the sale,Option Agreement; (iii) will pay $2,000,000 in cash to the Company on the two year anniversary date following the closing of the Option Agreement; and (iv) upon exercise of the Option Agreement, will grant the Company a 1% net smelter return royalty on the Maria, Martia III, Maria II Frac. I, Santa Maria and Punto Com concessions (the “Concessions”). Pursuant to the Option Agreement, during the Exercise Period, Fabled is obligated to pay to each of the owners of the Concessions (the “Owners”) any remaining required payments due to the Owners pursuant to the various underlying option agreements between the Owners and the Company, and to make all payments and perform all other requirements needed to maintain the Concessions in good standing. Should Fabled not complete its obligations described above, the Santa Maria mining claims will revert to the Company and the Company will be entitled to keep any payments made by Fabled under the terms of the Option Agreement.
F-17
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
Fabled has the right to terminate the Option Agreement at any time, and the Option Agreement could be terminated, at the Company’s option, if Fabled fails to make subsequent payments when due. If the Option Agreement is terminated, the Santa Maria Properties will revert back to the full ownership and control of the Company and any payments that have been made by Fabled will be nonrefundable. Upon receipt of each cash payment, the Option Agreement imposes a performance obligation on the Company to provide Fabled an exclusive right to the Santa Maria Properties to conduct exploration and mining activities during the period from receipt of the payment until the due date of the next required payment. Accordingly, the Company has determined that its performance obligation for each option payment received is satisfied over time.
The Company has previously expensed all of its costs associated with the remaining $618,000 plus interestSanta Maria Properties. Because of Fabled’s ability to terminate the Option Agreement at any time, and the associated uncertainty relating to future payments, the Company only recognizes income, equal to the cash payments made and fair value of stock issued, evenly over the period covered by each payment. The Company has recognized approximately $23,000 of income under the Option Agreement for the period ended December 31, 2020, included in “Other operating income, net” in the accompanying Consolidated Statements of Operations. The Company has also recorded deferred revenue of approximately $535,000 at December 31, 2020 representing its unearned performance obligation related to the Option Agreement, included in “Deferred revenue” as reported in the accompanying Consolidated Balance Sheets.
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 unpaid balance at an annual rate of 10% due in February 2017. Withdate the approval of a Special Committeeproperties were sold, all of the Company’s Board of Directors, the Companyrights 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 paymentobligations relating to the original equipment sale. Upon execution of the amendmentproperties were transferred and the Company received an additional payment of $100,000. The remaining principal and interest balance, plus additional interest onhad no further performance obligations under the unpaid balance at an annual rate of 10%, was amended to be due in August 2017.sale agreement. The Company recordedhad previously expensed all costs associated with the Mogotes and Pistachon properties and accordingly recognized a gain of $105,000 on the sale of the additional equipment,$3.0 million included in “Other operating income, net” in the accompanying 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 dueyear ended December 31, 2019.
10. | Other Long-Term Assets |
Other long-term assets at December 31, 2020 and December 31, 2019 consist of the following:
| | | | | | | |
|
| December 31, |
| December 31, | |||
| | 2020 | | 2019 | | ||
| | (in thousands) |
| ||||
Deferred offering costs | | $ | 479 | | $ | 511 | |
Right of use assets | |
| 993 | |
| 620 | |
| | $ | 1,472 | | $ | 1,131 | |
The deferred offering costs are associated with the LPC Program and ATM Agreement (see Note 16).
The right of use assets include approximately $0.5 million related to thecertain office leases and $0.5 million related to a mining equipment sale, including interest through that date.lease at our Rodeo property.
F-20F-18
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
Celaya Farm-out
In August 2016,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 throughwill 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 wholly owned 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.
In December 2020, the Company’s wholly-owned subsidiary, Minera de Cordilleras S. de R.L. de C.V., entered into an earn-in agreement with a 100% owned Mexican subsidiary of Electrum Group, LLC, a privately owned company (together “Electrum”Triturados del Guadiana, S.A de C.V. (“Trigusa”), related towhereby Trigusa will carry out mining activities at 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 inRodeo property. Per the first yearterms of the mining agreement, reduced by certain costs Electrum previously incurred onTrigusa will provide services for the property since December 2015 in its ongoing surface exploration program. Electrum initially earned27-month period ending March 31, 2023, with the right to acquirepotential for an undivided 60% interest in a joint venture company to be formed to hold the Celaya project by incurring exploration expenditures totaling at least $2.5 million during the initial first three yearsextension of the agreement. Electrum would serve as managertime upon mutual agreement of the joint venture. Prior to subsequent amendments to the agreement, the Company would have been allowed to maintain a 40% interest in the Celaya project, following the initial 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 incremental 20% interest in the Celaya project in exchange for a payment of $1.0 million. Following the amendment, Electrum could 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 entering into a second and final amendment of the agreement, the Company could have maintained its 20% participating interest, or its interest could ultimately have been converted into a carried 10% net profits interest if the Company elected 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.
both parties. The Company has previously expensed all its costs associated withdetermined that the Celaya propertymining agreement contains an embedded lease, relating to the mining equipment provided by Trigusa, per the guidance of ASU 2016-02 and accordingly recognized gainsTopic 842. The Company did not elect the practical expedient permitting the combination of $1.0 million from the executionlease and non lease components of the first amendment tomining agreement. The Company recorded a right of use asset and a lease liability of approximately $420,000 based on the agreement and $3.0 million upon executionnet present value of the Assignment Agreement, duringfuture lease payments discounted at 7.0%, which represents the year endedCompany’s incremental borrowing rate.
The lease liabilities noted above have been included in “Other liabilities”, short term and long term (Note 13), in the Company’s Consolidated Balance Sheets at December 31, 2018, with the amounts included in “Other operating income, net” in the accompanying Consolidated Statements of Operations and Comprehensive Loss.2020.
Zacatecas Farm-out
11. | Accounts Payable and Other Accrued Liabilities |
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, second 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 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.
F-21
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
The Company has previously expensed all its costs associated with the Zacatecas Properties. The Company recognized income, 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.
.
10.Accounts Payable and Other Accrued Liabilities
The Company’s accounts payable and other accrued liabilities consist of the following:
| | | | | | | | |||||||
| | December 31, | | December 31, | | |||||||||
| | 2020 | | 2019 |
| |||||||||
|
|
|
|
|
|
|
| |||||||
|
| December 31, |
| December 31, |
| |||||||||
|
| 2018 |
| 2017 |
| |||||||||
|
| (in thousands) |
| |||||||||||
| | (in thousands) |
| |||||||||||
Accounts payable and accruals |
| $ | 358 |
| $ | 310 |
| | $ | 472 | | $ | 710 | |
Accrued employee compensation and benefits |
|
| 1,344 |
|
| 1,246 |
| | | 846 | | | 724 | |
|
| $ | 1,702 |
| $ | 1,556 |
| |||||||
Value added tax payable | | | — | | | 401 | | |||||||
Income taxes payable | |
| — | |
| 292 | | |||||||
| | $ | 1,318 | | $ | 2,127 | | |||||||
December 31, 20182020
Accounts payable and accruals at December 31, 20182020 are primarily related to amounts due to contractors and suppliers in the amounts of $0.2$0.3 million related to the Company’s Velardeña Propertiesand Rodeo properties and $0.2 million related to exploration and corporate administrative activities. In the case
F-19
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
Accrued employee compensation and benefits at December 31, 20182020 consist of $0.2$0.3 million of accrued vacation payable and $0.4$0.5 million related to withholding taxes and benefits payable. Included in the $1.3$0.8 million of accrued employee compensation and benefits is $0.6 million related to activities at the Velardeña Properties and $0.4 million related to the Company’s 2013 Key Employee Long-Term Incentive Plan (the “KELTIP”) (see Note 15).Rodeo Properties.
December 31, 20172019
Accounts payable and accruals at December 31, 20172019 are primarily related to amounts due to contractors and suppliers in the amounts of $0.1$0.3 million related to the Company’s Velardeña Properties and $0.2$0.3 million related to corporate adminis trativeadministrative and exploration activities. In the case of the Velardeña Properties, approximately $0.1 million is related to a net VAT payable.
Accrued employee compensation and benefits at December 31, 20172019 consist of $0.2 million of accrued vacation payable and $0.6$0.5 million related to withholding taxes and benefits payable. Included in the $1.2$0.7 million of accrued employee compensation and benefits is $0.3$0.5 million related to activities at the Velardeña PropertiesProperties.
The VAT payable is primarily related to VAT collected on the sale of the Mogotes and $0.4 millionPistachon properties in Mexico, completed in December 2019 with such amount being remitted to the Mexican government in January 2020. The Company has recorded VAT paid in Mexico and related to the KELTIPVelardeña 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 income taxes payable are related to certain Canadian taxes due on capital distributions the Company received from its Canadian subsidiary (see Note 15).
12. | Asset Retirement and Reclamation Liabilities |
F-22
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
11.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.
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 yearyears ended December 31, 20182020 and 2019 the Company recognized approximately $0.2 million of accretion expense and approximately $2,000 of amortization expense related to the ARC.each year.
The following table summarizes activity in the Velardeña Properties ARO:
| | | | | | | | |||||||
| | Year Ended |
| |||||||||||
| | December 31, | | |||||||||||
|
| 2020 |
| 2019 |
| |||||||||
|
|
|
|
|
|
|
| |||||||
|
| Year Ended |
| |||||||||||
|
| December 31, |
| |||||||||||
|
| 2018 |
| 2017 |
| |||||||||
|
| (in thousands) |
| |||||||||||
| | (in thousands) |
| |||||||||||
Beginning balance |
| $ | 2,448 |
| $ | 2,380 |
| | $ | 2,825 | | $ | 2,660 | |
|
|
|
|
|
|
|
| |||||||
| | | | | | | | |||||||
Changes in estimates, and other |
|
| 2 |
|
| (128) |
| |
| 82 | |
| (60) | |
Accretion expense |
|
| 210 |
|
| 196 |
| |
| 249 | |
| 225 | |
Ending balance |
| $ | 2,660 |
| $ | 2,448 |
| | $ | 3,156 | | $ | 2,825 | |
F-20
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
The decreasechange in estimate of the ARO recorded during the year ended December 31, 2017 isboth periods are 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 Consolidated Balance Sheets at December 31, 20182020 and December 31, 20172019 includes a nominal amount of reclamation liability related to activities at the El Quevar project in Argentina.
13. | Other Liabilities |
12.OtherOther Current Liabilities
The Company recorded nominal amounts offollowing table sets forth the Company’s other current liabilities at December 31, 20182020 and 2019:
| | | | | | |
| | December 31, | | December 31, | ||
|
| 2020 | | 2019 | ||
| | (in thousands) | ||||
Autlán refundable deposit | | $ | — | | $ | 1,251 |
Premium financing | | | 390 | | | 455 |
Office lease liability | |
| 138 | |
| 118 |
Mining equipment lease liability | | | 139 | | | — |
| | $ | 667 | | $ | 1,824 |
The premium financing at December 31, 2017.2020 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 2020, the Company financed $110,000 of its premium for general liability insurance. The amountspremium was payable in twelve equal payments at an interest rate of 5.74% per annum. At December 31, 2020, the remaining balance, plus accrued interest, was approximately $23,000. In December 2020 the Company financed approximately $406,000 of its premium for directors and officers insurance. The premium is payable in eight equal payments at an interest rate of 5.74% per annum. At December 31, 2020 the remaining balance, plus accrued interest, was approximately $363,000.
The 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 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 10).
The mining equipment lease liability is related to equipment used by the contract miner at our Rodeo property (see Note 10).
The Autlán refundable deposit at December 31, 2019 reflects the remaining principal plus interest liability related to the deposit received for the proposed sale of the Company’s Velardeña Properties and other mineral concessions to Compañía Minera Autlán S.A.B. de C.V. (“Autlán”) in June 2019. On September 11, 2019, the Company announced that
F-21
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
Autlán exercised its right to terminate the agreement for the purchase of the properties. As a result of termination of the agreement, the Company was required to repay the original $1.5 million refundable deposit amount by making monthly payments of $257,000, commencing on December 9, 2019, until the deposit amount was repaid with interest at approximately 11% per annum. On April 7, 2020, the Company and Autlán agreed to reduce the monthly payments to $81,000 and the interest rate applicable to the unpaid repayment amount was increased from 11% per annum to 12% per annum, effective on April 9, 2020, with the remaining balance due in full by December 2020. During August 2020, the Company repaid Autlán the remaining $1.5 million refundable deposit, plus approximately $66,000 of interest, in full. The Company recorded approximately $55,000 of interest expense for the year ended December 31, 2020 related to the Autlán refundable deposit.
Other Long-Term Liabilities
Other long-term liabilities of $0.6 million for the period ended December 31, 2020 consist of $0.3 million related to a mining equipment lease liability at our Rodeo property and $0.3 million related to lease liabilities for office space at the Company’s principal headquarters in Golden Colorado and in Mexico and Argentina (see Note 10).
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 office lease. principal headquarters in Golden, Colorado and in Mexico and Argentina (see Note 10).
14. | Fair Value Measurements |
13.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.
F-23
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
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.
F-22
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in 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, 20182020 and 20172019 by respective level of the fair value hierarchy:
| | | | | | | | | | | | | | |||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| |||||||||||||||||
|
| (in thousands) |
| |||||||||||||||||||||||
At December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| | (in thousands) |
| |||||||||||||||||||||||
At December 31, 2020 | | | | | | | | | | | | | | |||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Cash and cash equivalents |
| $ | 3,293 |
| $ | — |
| $ | — |
| $ | 3,293 |
| | $ | 9,704 | | $ | — | | $ | — | | $ | 9,704 | |
Lease receivables |
|
| 481 |
|
| — |
|
| — |
|
| 481 |
| |||||||||||||
Short-term investments |
|
| 330 |
|
| — |
|
| — |
|
| 330 |
| |
| 79 | |
| — | |
| — | |
| 79 | |
|
| $ | 4,104 |
| $ | — |
| $ | — |
| $ | 4,104 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
At December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| | $ | 9,783 | | $ | — | | $ | — | | $ | 9,783 | | |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
At December 31, 2019 | | | | | | | | | | | | | | |||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Cash and cash equivalents |
| $ | 3,250 |
| $ | — |
| $ | — |
| $ | 3,250 |
| | $ | 4,593 | | $ | — | | $ | — | | $ | 4,593 | |
Lease receivables |
|
| 314 |
|
| — |
|
| — |
|
| 314 |
| |||||||||||||
Short-term investments |
|
| 238 |
|
| — |
|
| — |
|
| 238 |
| |||||||||||||
|
| $ | 3,802 |
| $ | — |
| $ | — |
| $ | 3,802 |
| |||||||||||||
Derivative at fair value | |
| — | |
| — | |
| 254 | |
| 254 | | |||||||||||||
| | $ | 4,593 | | $ | — | | $ | 254 | | $ | 4,847 | | |||||||||||||
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 of the fair value hierarchy and are related to the oxide plant lease per the terms of the lease rates established in the plant lease agreement.
The Company’s short-term investments consist of the 1,000,000 shares of common stock in Golden Tagof Fabled and are classified within Level 1 of the fair value hierarchy (see Note 5)9)
At December 31, 20182019, the Company had recorded a “Derivative at Fair Value” asset on the Consolidated Balance Sheets related to the amendment to the Hecla Lease (see Notes 8 and 201717). The Company has determined that the portion of the variable lease payment that is based on the average price of silver and the average grade of material processed during a given month represents an embedded derivative (see Note 8). The Company assesses the fair value of the derivative at the end of each reporting period, with changes in the value recorded as an increase or decrease to “Oxide Plant Revenue” on the Company’s Consolidated Statements of Operations. The derivative asset was recorded at fair value as of December 2, 2019, the effective date of the amendment to the Hecla Lease, and 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 valuation model primarily takes into consideration 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 Hecla Lease terminated effective November 30, 2020, and the remaining derivative was recorded as a decrease to “Oxide Plant Revenue” on the Company’s Consolidated Statements of Operations. The Company did not have any other derivatives measured at fair value at December 31, 2020.
F-23
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
At December 31, 2020 the Company did not have any financial assets or liabilities classified within Level 2 or Level 3 of the fair value hierarchy. At December 31, 2019 the Company did not have any financial assets or liabilities classified within Level 2 of the fair value hierarchy.
Non-recurring Fair Value Measurements
There were no non-recurring fair value measurements at December 31, 20182020 or December 31, 2017.2019.
F-24
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
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, 20182020 and December 31, 2017.2019.
15. | Income Taxes |
14.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, | ||||||||||
| | 2020 | | 2019 | ||||||||
|
| 2018 |
| 2017 | ||||||||
CURRENT TAXES: |
| (in thousands) | | (in thousands) | ||||||||
United States |
| $ | — |
| $ | — | | $ | — | | $ | — |
Other Countries |
|
| 13 |
|
| 13 | |
| 48 | |
| 35 |
|
| $ | 13 |
| $ | 13 | ||||||
| | $ | 48 | | $ | 35 | ||||||
DEFERRED TAXES: |
|
|
|
|
|
| | | | | | |
United States |
| $ | — |
| $ | — | | $ | — | | $ | — |
Other Countries |
|
| — |
|
| — | |
| — | |
| — |
|
| $ | — |
| $ | — | ||||||
| | $ | — | | $ | — | ||||||
Total income tax provision |
| $ | 13 |
| $ | 13 | | $ | 48 | | $ | 35 |
Income (loss) from operations before income taxes by country consists of the following:
| | | | | | | | |||||||
| | For the Year Ended December 31, | | |||||||||||
|
| 2020 |
| 2019 |
| |||||||||
|
|
|
|
|
|
|
| |||||||
|
| For the Year Ended December 31, |
| |||||||||||
|
| 2018 |
| 2017 |
| |||||||||
|
| (in thousands) |
| |||||||||||
| | (in thousands) |
| |||||||||||
United States |
| $ | (1,930) |
| $ | (7,197) |
| | $ | (9,056) | | $ | (7,373) | |
Other Countries |
|
| (2) |
|
| 3,318 |
| |
| 18 | |
| 2,022 | |
|
| $ | (1,932) |
| $ | (3,879) |
| |||||||
| | $ | (9,038) | | $ | (5,351) | | |||||||
The Company recorded $13,000$48,000 and $13,000$35,000 of current tax expense for the years ended December 31, 20182020 and December 31, 2017,2019, respectively, stemming primarily from taxable income of a subsidiary in Mexico. No deferred taxes were recorded in 20182020 or 2017,2019, 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.
F-25F-24
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, |
| |||||||||||
|
| 2020 |
| 2019 |
| |||||||||
|
|
|
|
|
|
|
| |||||||
|
| For Year Ended December 31, |
| |||||||||||
|
| 2018 |
| 2017 |
| |||||||||
|
| (in thousands) |
| |||||||||||
Tax expense (benefit) at US rate of 21% |
| $ | (406) |
| $ | (1,319) |
| |||||||
| | (in thousands) |
| |||||||||||
Tax expense (benefit) at U.S. rate of 21% | | $ | (1,898) | | $ | (1,124) | | |||||||
Other adjustments: |
|
|
|
|
|
|
| | | | | | | |
Rate differential of other jurisdictions |
|
| 67 |
|
| (70) |
| |
| 46 | |
| 292 | |
Effects of foreign earnings |
|
| (455) |
|
| 310 |
| |
| (1,021) | |
| (937) | |
Change in valuation allowance |
|
| (16,142) |
|
| 33,975 |
| |
| 7,246 | |
| (78) | |
Provision to tax return true-ups |
|
| (2,012) |
|
| (33,720) |
| | | (478) | | | (24) | |
Exchange rate changes on deferred tax assets |
|
| 5,891 |
|
| (8,444) |
| | | (4,050) | | | 1,340 | |
Effect of a change in tax rates |
|
| — |
|
| 11,516 |
| |||||||
Tax loss on sale of subsidiary |
|
| — |
|
| (1,693) |
| |||||||
GILTI inclusion | | | — | | | 537 | | |||||||
Inflation adjustment on net operating losses |
|
| (550) |
|
| (2,491) |
| | | (547) | | | (1,183) | |
Expired net operating losses |
|
| 13,669 |
|
| 1,931 |
| | | 753 | | | 1,138 | |
Other |
|
| (49) |
|
| 18 |
| |
| (3) | |
| 74 | |
Income tax provision |
| $ | 13 |
| $ | 13 |
| | $ | 48 | | $ | 35 | |
The components of the deferred tax assets and deferred tax liabilities are as follows:
| | | | | | | | |||||||
| | For the year ended |
| |||||||||||
| | December 31, |
| |||||||||||
|
| 2020 |
| 2019 |
| |||||||||
|
|
|
|
|
|
|
| |||||||
|
| For the year ended |
| |||||||||||
|
| December 31, |
| |||||||||||
|
| 2018 |
| 2017 |
| |||||||||
|
| (in thousands) |
| |||||||||||
| | (in thousands) |
| |||||||||||
Deferred tax assets: |
|
|
|
|
|
|
| | | | | | | |
Net operating loss carryforwards |
| $ | 117,665 |
| $ | 131,866 |
| | $ | 119,109 | | $ | 112,553 | |
Stock-based compensation |
|
| 593 |
|
| 517 |
| |
| 747 | |
| 671 | |
Property, plant and equipment |
|
| 3,284 |
|
| 4,307 |
| |
| 3,287 | |
| 2,940 | |
Other |
|
| 2,809 |
|
| 3,274 |
| |
| 3,364 | |
| 2,985 | |
|
|
| 124,351 |
|
| 139,964 |
| |||||||
| |
| 126,507 | |
| 119,149 | | |||||||
Less: Valuation allowance |
|
| (123,652) |
|
| (139,795) |
| |
| (125,528) | |
| (118,283) | |
Total deferred tax assets |
|
| 699 |
|
| 169 |
| |
| 979 | |
| 866 | |
|
|
|
|
|
|
|
| |||||||
| | | | | | | | |||||||
Deferred tax liabilities: |
|
|
|
|
|
|
| | | | | | | |
Property, plant and equipment |
|
| (699) |
|
| (169) |
| |
| (778) | |
| (686) | |
Other | |
| (201) | |
| (180) | | |||||||
Total deferred tax liabilities |
|
| (699) |
|
| (169) |
| |
| (979) | |
| (866) | |
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, 20182020 and December 31, 20172019 was zero.
AtDuring 2019, one of the end of 2017 a new U.S. tax law was enacted, lowering the U.S. corporate tax rate beginning in 2018Company’s foreign subsidiaries had significant taxable income prior to 21% from the top rate of 35%. The tax rate changenet operating loss carryovers, which resulted in a reductionGlobal Intangible Low Tax Income (GILTI) inclusion of approximately $2.6M. The GILTI income was fully offset by the Company’s current U.S. deferredincome tax assets by $10.2 million. The Company’s deferred tax assets are currently completely offset by a valuation allowance so the reductionlosses. There was no GILTI income inclusion in 2020.
F-26F-25
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
in U.S. deferred tax assets had no impact on the Company’s financial statements for the year ended December 31, 2017. In addition, the new tax law imposed a transition tax on the accumulated earnings and profits of controlled foreign corporations (“CFC’s). None of the Company’s CFCs currently have accumulated earnings and profits and therefore the Company had no transition tax liability. No other provisions of the new tax law had a material impact on the Company’s financial statements for the period ended December 31, 2017.
At December 31, 20182020 the Company had net operating loss carryforwards in the U.S. and in certain non-U.S. jurisdictions totaling $434.9$463.5 million. Of these, $79.8$75.7 million is related to the Velardeña Properties in Mexico and expires in future years through 2028, $12.52030, $13.0 million is related to other Mexico exploration activities expiring in future years through 2028, $89.62030, $98.2 million exists in Spain and has no expiration date, and $179.7$194.0 million exists in other non-U.S. countries, which will expire in future years through 2035.2037. In the U.S. there are $73.3$82.6 million of net operating loss carryforwards which have no expiration.
The valuation allowance offsetting the net deferred tax assets of the Company of $123.7$125.5 million and $139.8$118.3 million at December 31, 20182020 and 2017,2019, 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 2). 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, 2020 or December 31, 2019, due to their offset by net deferred tax benefits, as described below.
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
F-26
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
as of December 31, 20182020 and 20172019 are completely offset by net deferred tax benefits and therefore do not appear on the Consolidated Balance Sheet.
| | | | | | | | |||||||
| | The Year Ended December 31, |
| |||||||||||
| | 2020 | | 2019 |
| |||||||||
|
|
|
|
|
|
|
| |||||||
|
| The Year Ended December 31, |
| |||||||||||
|
| 2018 |
| 2017 |
| |||||||||
|
| (in thousands) |
| |||||||||||
| | (in thousands) |
| |||||||||||
Gross unrecognized tax benefits at beginning of period |
| $ | 586 |
| $ | 740 |
| | $ | 269 | | $ | 373 | |
Increases for tax positions taken during prior years |
|
| — |
|
| — |
| |
| — | |
| — | |
Decreases relating to settlements with taxing authorities |
|
| — |
|
| — |
| |
| — | |
| — | |
Reductions due to lapse of statute of limitations |
|
| (213) |
|
| (154) |
| |
| (20) | |
| (104) | |
Gross unrecognized tax benefits at end of period |
| $ | 373 |
| $ | 586 |
| | $ | 249 | | $ | 269 | |
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, 20182020 or 2017,2019, and there were no interest and penalties recognized in the statement of
F-27
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
financial position as of December 31, 20182020 and 2017.2019. The Company classifies income tax related interest and penalties as income tax expense.
F-27
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
16. | Equity |
Public offering
On July 21, 2020, the Company entered into an Amended and Restated Underwriting Agreement (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC as representative of the underwriters named in Schedule I thereto (the “Underwriters”), providing for the issuance and sale by the Company in a firm commitment offering (the “Offering”) of 17,857,143 shares of common stock at a price to the public of $0.42 per share (the “Offering Shares”). In addition, the Company granted the Underwriters an option to purchase, at the public offering price per share of common stock, up to an additional 2,678,571 shares of common stock, exercisable for 30 days from the date of the Underwriting Agreement (the “Option Shares”). The Offering Shares and Option Shares were registered pursuant to the Company’s registration statement on Form S-3 (File No. 333-220461), and a prospectus supplement thereto filed with the Securities and Exchange Commission. On July 24, 2020, the Underwriters acquired the Offering Shares and the full amount of the Option Shares from the Company. After the underwriting discount of 6% and total offering expenses of approximately $155,000 the company received net proceeds of approximately $8.0 million from the sale of the Offering Shares and the Option Shares.
2020 offering and private placement transaction
On April 20, 2020, the Company entered into a securities purchase agreement with certain institutional investors providing for the issuance and sale of 15,000,000 shares of the Company’s common stock at a price of $0.20 per share, and in a concurrent private placement transaction, the issuance of an aggregate of 11,250,000 warrants, ultimately consisting of 7,500,000 series A warrants and 3,750,000 series B warrants (each a “Warrant” and collectively, the “Warrants”), to purchase up to 11,250,000 shares of our common stock at an exercise price of $0.30 per share, for aggregate gross proceeds of $3.0 million (the “Offering”). The securities purchase agreement granted the institutional investors the right to collectively participate in up to 50% of any future offerings of securities by the Company on the same terms as other investors, other than certain “exempt issuances” and “permitted sales” as defined in the securities purchase agreement, until April 22, 2021.
Each Warrant is exercisable six months from the date of issuance on April 22, 2020 and has a term expiring five years after such initial exercise date. The Warrants contain so-called full-ratchet anti-dilution provisions which may be triggered upon any future issuance by the Company of shares of its common stock or common stock equivalents at a per share price below the then-exercise price of the Warrant, subject to certain exceptions; provided, however, that with respect to the Series B warrants, the adjusted exercise price will not be less than $0.26.
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 $334,000, including listing fees, legal and other costs, and the placement agent fee of six percent of aggregate gross proceeds, however, a reduced fee was accepted with respect to one investor. All such costs were recorded as a reduction to “Additional paid in capital” on the Condensed Consolidated Balance Sheets. Using the Black Scholes model, and assuming no triggering events take place to reduce the exercise price of the warrants, the fair value of the combined Series A and Series B warrants issued was approximately $1.9 million on April 22, 2020, the date of issuance of the warrants. The Black Scholes inputs included the closing stock price on April 22, 2020 (the date of issuance of the warrants) of $0.24, the exercise price and exercise period of the warrants, the Company’s applicable volatility rate for the period of the Warrants of 95%, and the applicable risk-free rate of 0.41%.
F-28
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
Subscription agreement
In connection with the Earn-In Agreement, the Company and Barrick entered into the Subscription Agreement dated as of April 9, 2020 pursuant to which Barrick purchased 4,719,207 shares of the Company’s common stock at a purchase price of $0.2119 per share in a private placement transaction. The 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) of the Act and/or Regulation D promulgated thereunder. The net proceeds of the Subscription Agreement of approximately $0.9 million were recorded in equity and appear as a separate line item in the Condensed Consolidated Statements of Changes in Equi15.Equityty.
2019 offering and private placement transaction
On July 17, 2019, the Company entered into an agreement with certain institutional investors providing for the issuance and sale of 8,653,846 shares of the Company’s 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 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 exercisable until November 2021 at an exercise price of $0.75 per share. In connection with the Offering, the Company 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 B warrant became exercisable on January 17, 2020 and 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%.
Registered direct purchase agreement and commitment purchase agreement and registration rights agreement
On May 9, 2018 the Company 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 the Company’s common stock at a price of $0.4122 per share, the closing price of the Company’s common stock on the 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
F-29
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
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 Company’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 2018.2018, which is currently set to expire in May 2021.
On June 7, 2018, pursuant to the terms of the 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 cause 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 toDuring the Commitment Purchase Agreement,year ended December 31, 2020 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 LPC Program. The total costs for the LPC 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 “Prepaid expenses and other 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 sale900,000 shares of common stock pursuant to the Registered Purchase Agreement. Subsequent to December 31, 2018 the Company sold an aggregate of approximately 745,000 common sharesLPC under the Commitment Purchase Agreement at an average sales price per share of $0.31 per common share for totalapproximately $0.27, resulting in net proceeds of approximately $230,000 during the year to date period ended February 27, 2019.
F-28
Table$216,000. In addition, approximately $24,000 of Contents
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(ExpressedCommitment Purchase Agreement costs were amortized, resulting in United States dollars)
Cancellationa remaining balance of Treasury Shares
Pursuant to the terms$352,000 of an agreement between the Company and ECU, relating to the merger of the two companies on September 2, 2011, ECU shareholders had the right to receive 0.05 shares of the Company’s common stock for each share 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 125,739 shares of the Company, were returned to treasury and canceled.
Consideration Shares
On August 2, 2017, the Company granted Hecla an option to extend the oxide plant lease for an additional period of up to two years (see Note 16). As partial consideration for the option Hecla purchased $1.0 million, or approximately 1.8 million shares, of the Company’s common stock (the “Consideration Shares”), issued at a price of $0.55 per share, which was the undiscounted 30-day volume weighted average stock price. The Consideration Shares were offered and sold without registration under the Securities Act of 1933, as amended (the “Act”)deferred LPC Program costs, recorded in reliance“Other long-term assets” on the exemptions provided by Section 4(a)(2) of the Act and/or Regulation D promulgated thereunder. Under the terms of the Option Agreement (defined in Note 16), the Company agreed to register with the SEC the resale of the Consideration Shares. A resale registration statement with the SEC became effective in September 2017. 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 theCondensed Consolidated Balance Sheets atas of December 31, 2017.2020.
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 as of December 31, 2019.
There are currently 12.2 million shares remaining available for issuance under the LPC Program.
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. On November 23, 2018 the Company entered into a second amendment of the ATM Agreement extending the agreement until the earlier of December 20, 2020, or the date that the ATM Agreement is terminated in accordance with the terms therein. On December 11, 2020 the Company entered into a third amendment of the ATM Agreement further extending the agreement so that it will remain in full force and effect until such time as the ATM Agreement is terminated in accordance with certain other terms therein or upon mutual agreement by the parties, and to reflect a new registration statement on Form S-3 (No. 333-249218).
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
F-30
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
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, 2018 and December 31, 2018, respectively, unamortized costs totaling $136,000 appear on the accompanying Consolidated Balance Sheets as “Prepaid expense and other assets.”
The Company did not sell any stock under the ATM Program duringDuring the year ended December 31, 2018. Subsequent to December 31, 20182020, the Company sold an aggregate of approximately 34,000823,452 shares of common sharesstock under the
F-29
Table ATM Agreement at an average price of Contents$0.28 per share of common stock for net proceeds of approximately $223,000. In addition, approximately $8,000 of deferred ATM Program costs were amortized, resulting in a remaining balance of $127,000 of deferred ATM Program costs, recorded in “Other long-term assets” on the Condensed Consolidated Balance Sheets as of December 31, 2020.
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
Commitment PurchaseDuring the year ended December 31, 2019, 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 sharestock for total proceeds of approximately $11,000 during$11,000. In addition, approximately $1,000 of deferred ATM Program costs were amortized, resulting in a remaining balance of $135,000 of deferred ATM Program costs, recorded in “Other long-term assets” on the year to date period ended February 27, 2019. During the year endedCondensed Consolidated Balance Sheets as of December 31, 2018 the Company incurred approximately $15,000 in additional accounting, legal, and regulatory costs associated with the ATM Program that were included in “General and administrative costs” in the Consolidated Statement of Operations and Comprehensive Loss.2020.
During the year endedSubsequent to December 31, 20172020 the Company sold an aggregate of approximately 1,024,0001,856,960 common shares under the ATM Program at an average price of $0.70$0.97 per common share for gross proceeds of approximately $720,000.$1.8 million during the year-to-date period ended February 17, 2021. The Company paid a 2% cash commissions and other nominal transaction fees to Wainwright totaling approximately $16,000 or 2.2% ofcommission on the gross proceeds and amortized approximately $23,000 of deferred accounting, legal and regulatory costs resulting in a netthe amount of approximately $682,000 that has been recorded as equity in the Consolidated Balance Sheets. During the year ended December 31, 2017 the Company also$37,000 and incurred approximately $34,000 in additional accounting, legal, and regulatory costs associated withof approximately $6,000.
There is currently approximately $2.2 million remaining available for issuance under the ATM Program that were included in “General and administrative costs” in the Consolidated Statement of Operations and Comprehensive Loss.based on a prospectus supplement filed with SEC on December 11, 2020.
Equity Incentive Plans
Under the Company’s Amended and Restated 2009 Equity Incentive Plan (the “Equity Plan”) 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, 20182020 and 20172019 and changes during the years then ended:
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
| The Year Ended December 31, |
| |||||||||||||||||||
|
| 2018 |
| 2017 |
| |||||||||||||||||
|
|
|
| Weighted |
|
|
| Weighted |
| |||||||||||||
|
|
|
| Average Grant |
|
|
| Average |
| |||||||||||||
|
|
|
| Date Fair |
|
|
| Grant Date |
| |||||||||||||
|
| Number of |
| Value Per |
| Number of |
| Fair Value |
| |||||||||||||
| | | | | | | | | | | | |||||||||||
| | The Year Ended December 31, |
| |||||||||||||||||||
| | 2020 | | 2019 |
| |||||||||||||||||
|
| |
| Weighted |
| |
| Weighted |
| |||||||||||||
| | | | Average Grant | | | | Average |
| |||||||||||||
| | | | Date Fair | | | | Grant Date |
| |||||||||||||
| | 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 |
| 203,334 |
| $ | 0.55 |
| 100,000 |
| $ | 0.63 |
| |||||||||||
Outstanding at December 31, 2019 | | 318,003 | | $ | 0.30 | | 340,001 | | $ | 0.45 | | |||||||||||
Granted during the period |
| 280,000 |
|
| 0.37 |
| 200,000 |
|
| 0.53 |
|
| 300,000 | |
| 0.42 |
| 312,000 | |
| 0.26 | |
Restrictions lifted during the period |
| (143,333) |
|
| 0.44 |
| (96,666) |
|
| 0.60 |
|
| (394,001) | |
| 0.36 |
| (333,998) | |
| 0.41 | |
Forfeited during the period |
| — |
|
| — |
| — |
|
| — |
|
| — | |
| — |
| — | |
| — | |
Outstanding at end of period |
| 340,001 |
| $ | 0.45 |
| 203,334 |
| $ | 0.55 |
| |||||||||||
Outstanding December 31, 2020 | | 224,002 | | $ | 0.36 | | 318,003 | | $ | 0.30 | | |||||||||||
F-31
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
During the year ended December 31, 20182020 the Company recognized approximately $0.1 million of compensation expense related to the restricted stock grants. The Company expects to recognize additional compensation expense related to these awards of approximately $0.1 million over the next 2418 months. During the year ended December 31, 2018, 280,0002020, 300,000 shares were granted to sixseven employees, with one thirdone-third of the 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 the vesting of one thirdone-third of the shares granted in 2018,2020, restrictions were lifted on 50,000the normal vesting of 214,001 shares granted to seven employees in prior years. Also, during the period, the Company lifted restrictions on 80,000 restricted shares and recognized additional compensation expense of $23,000 related to the resignation of an employee in a prior year.during the period.
During the year ended December 31, 20172019 the Company recognized approximately $0.1 million of compensation expense related to the restricted stock grants. During the year ended December 31, 2017, 200,0002019, 312,000 shares were granted to two employees, with 50,000104,000 shares of one grant vesting on the grant date and the remaining shares vesting equally on the
F-30
GOLDEN MINERALS COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Expressed in United States dollars)
first and second anniversaries of the grant date. The remaining grant vests ratably over three years. In addition, during 2017,2019, restrictions were lifted on 46,666229,998 shares granted to threefive employees 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, 20182020 and 20172019 and changes during the years then ended:
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| The Year Ended December 31, |
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| 2018 |
| 2017 |
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| Weighted |
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| Weighted |
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| Average |
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| Average |
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| Exercise |
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| Exercise |
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| Number of |
| Price Per |
| Number of |
| Price Per |
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| | The Year Ended December 31, |
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| | 2020 | | 2019 |
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| Weighted |
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| Weighted |
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| | | | Average | | | | Average |
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| | | | Exercise | | | | Exercise |
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| | Number of | | Price Per | | Number of | | Price Per |
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Equity Plan Options |
| Shares |
| Share |
| Shares |
| Share |
| | Shares | | Share | | Shares | | Share |
| ||||
Outstanding at beginning of period |
| 40,310 |
| $ | 8.05 |
| 95,810 |
| $ | 8.02 |
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Outstanding at December 31, 2019 | | 30,310 | | $ | 8.06 | | 30,310 | | $ | 8.06 | | |||||||||||
Granted during the period |
| — |
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| — |
| — |
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| — |
|
| — | |
| — |
| — | |
| — | |
Forfeited or expired during period |
| (10,000) |
| $ | 8.00 |
| (55,500) |
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| 8.00 |
|
| (30,310) | | $ | 8.06 |
| — | | | — | |
Exercised during period |
| — |
|
| — |
| — |
|
| — |
| | — | |
| — | | — | |
| — | |
Outstanding at end of period |
| 30,310 |
| $ | 8.06 |
| 40,310 |
| $ | 8.05 |
| |||||||||||
Outstanding December 31, 2020 | | — | | $ | — | | 30,310 | | $ | 8.06 | | |||||||||||
Exercisable at end of period |
| 30,310 |
| $ | 8.06 |
| 40,310 |
| $ | 8.05 |
|
| — | | $ | — |
| 30,310 | | $ | 8.06 | |
Granted and vested |
| 30,310 |
| $ | 8.06 |
| 40,310 |
| $ | 8.05 |
|
| — | | $ | — |
| 30,310 | | $ | 8.06 | |
As of December 31, 2020, all of the prior stock options granted had expired. The Company does not expect to record any additional expense related to these options.
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 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.
F-32