SCHEDULE 14A INFORMATION
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GOLDEN QUEEN MINING CO. LTD.
(Name of Registrant as Specified In Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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NOTICE OF ANNUAL GENERAL
MEETING
OF SHAREHOLDERS
&
MANAGEMENT INFORMATION CIRCULAR
GOLDEN QUEEN MINING CO. LTD.
MEETING TO BE HELD ON JUNE 2, 2016
CORPORATE OFFICE
2300 – 1066 West Hastings Street
Vancouver, BC V6E 3X2
Website:www.goldenqueen.com
Chairman’s Letter to Shareholders
Dear Fellow Shareholder,
I am
On behalf of the Board of Directors and management of Golden Queen Mining Co. Ltd., we are pleased to invite you to Golden Queen’s 2015attend the Company’s Annual Meeting of Shareholders. The meeting will be held on Thursday, June 2, 2016 at the Pan Pacific Hotel, Oceanview Suite 7, 999 Pan Pacific Way, Vancouver, BC.
Please read this
The attached Management Information Circular as it contains important information about the meeting, who is eligible to vote, how to vote, the nominated directors, our governance practices, and compensation of ourthe Company’s executives and directors.
2014
2015 was a momentous year for Golden Queen. AfterAs a result of almost three decades of effort, the Soledad Mountain gold and silver mining project is under constructionnow in production. We will provide a corporate presentation at the meeting, and on trackyou will have the opportunity to start commissioning in late 2015. By far, the greatest achievement of 2014 was the completion of a joint venture financingmeet and ask questions of the Soledad Mountain Project, which injected a gross $110 millionBoard of equity capital in exchange for a 50% interest in the Project. Golden Queen’s 50% JV partner at Soledad Mountain is an entity called Gauss, which is owned 67.5% by Leucadia National CorporationDirectors and 32.5% by my family.members of senior management.
The Soledad Mountain project has raced forward. Working with experienced, local contractors wherever possible, we have completed all earthmoving projects on site. As I write this letter in April 2015, we have completed the workshop-warehouse and assay laboratory and have started taking delivery of our Komatsu mining equipment fleet. One of our major reasons for choosing a Komatsu fleet is that the Komatsu dealer in the south-western United States has committed to build a maintenance facility in Mojave, which both promises good service for Golden Queen and expands the economic benefit to the community. That facility’s construction should track our own. We are currently pouring concrete for the crushing-screening plant and ready to begin laying the impervious heap leach pad liner. Our longest lead-time item, the high-pressure grinding roll or HPGR, was ordered in summer 2014 and should not impact construction’s critical path. Of our remaining capital costs as of April 2015, approximately 70% are now locked in under fixed-price, turn-key contracts. Most importantly, we have been assembling an outstanding, experienced team in Mojave that is excited to be part of a new operation that will have a lasting impact on the community.
To increase our mine planning confidence, we took a fresh look at our geological model of the Soledad Mountain deposit in 2014. The analysis done by an independent consulting geologist suggested that we should expect narrower vein systems than we had previously anticipated, which led to a disappointing reduction in our reported resources and reserves and an increased stripping ratio. Nevertheless, the exercise was a useful one. In mining, vein systems in an open pit scenario, careful ore from waste separation will be critical, and we expect the new interpretation to help us considerably in that effort.
The analysis also reminded us of how prospective the Soledad Mountain ore body remains. Because we have had an economic resource since the 1990’s, in recent years Golden Queen has prioritized spending shareholders’ funds on advancing the permitting process and on construction rather than on new drilling. We have completed an infill drill program in the areas we expect to mine over the next 18-24 months and will provide an update as soon as all assays have been received and the analysis and interpretation of the results have been completed.
20152016 and beyond
Without question, Golden Queen’s
Last year, we stated our mission in 2015 is to construct the Soledad Mountain project on time and on budget and to transition smoothly into production. To date,We are pleased to report that construction has been completed essentially on budget, without recourse to the funds set aside as a contingency for cost overruns, and only a few months behind schedule. On March 1st, the team on site celebrated as the first bar of gold-silver doré was poured.
By the end of 2016, we expect to have developed road access to the top of the East Pit area, being the area which should provide the bulk of the material to be mined over the next several years. At the processing plant, our hourly production levels have started out strong, and we are proceeding well.
Near term milestones will includefocused on increasing our daily runtimes and adding staff and shifts to ramp up utilization. So far agglomerate quality and leaching kinetics on the start of pre-production mining, the deliveryheap appear to be very good. This year, our primary goal at Soledad Mountain is to achieve positive operating cash flow, and installation of the HPGR during the summer, and the commissioning of the processing facilities in late 2015. While it is hard to estimate a timeline, we will also work to secure a commercial agreement with an experienced industry partner for our aggregates business.
Over
We believe that a successful new long-lived open pit gold-silver operation located in the course ofUnited States has the year, we willpotential to be going through a major transformation as we staff up from around a dozen to nearly 170 employees.rare and valuable asset in the years ahead. We are thrilled to be joined by our new colleagues, and they seem equally excited.focused on making that a reality.
2014 was the most significant year in Golden Queen’s 30 year history, and this year should see us complete our long-awaited journey into production. On behalf
The Board of the BoardDirectors and management team I thank you for your continued confidence in Golden Queen.Queen and look forward to seeing you at the meeting.
Respectfully,
Sincerely,
““Thomas M. Clay”Clay”
Thomas M. Clay
Chairman of the Board & Interim Chief Executive Officer
Caution Regarding Forward-Looking Information and “Safe Harbor” Statement
Certain statements contained in this Chairman’s letter to shareholders constitute forward-looking information and forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, Section 21E of theSecurities Exchange Act of 1934, as amended, and applicable Canadian securities legislation (collectively, “forward-looking statements”. The use of any of the words “promise”, “should”, “approximately”, “will”, “suggest”, “expect”, “believe” and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors relating to Golden Queen’s operations and business environment that are difficult to predict and beyond Golden Queen’s control. Such factors and assumptions may cause actual results or events to differ materially from those anticipated in such forward-looking statements. In particular, this Chairman’s letter to shareholders contains forward-looking statements pertaining to: (i) Golden Queen’s business strategy and focus; (ii) development and construction activities planned for the Soledad Mountain project; (iii) expectations regarding Golden Queen’s staffing levels; and (iv) expectations regarding Golden queen’s future working capital position. Golden Queen believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements included in this Chairman’s letter to shareholders should not be unduly relied upon. Golden Queen cautions that the foregoing list of important factors that may affect future results in not exhaustive. When relying on forward-looking statements to make decisions with respect to Golden Queen, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Golden Queen undertakes no obligation to update or revise any forward-looking statements, except as required by law.
Cautionary Note to U.S. Investors
Golden Queen uses Canadian Institute of Mining, Metallurgy and Petroleum definitions for the terms “proven reserves”, “probable reserves”, “measured resources”, “indicated resources” and “inferred resources”. U.S. investors are cautioned that while these terms are recognized and required by Canadian regulations, including National Instrument 43-101Standards of Disclosure for Mineral Projects (“NI 43-101”), the U.S. Securities and Exchange Commission (“SEC”) does not recognize them. Accordingly, information contained in this Chairman’s letter to shareholders contains descriptions of Golden Queen’s mineral deposits that may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the U.S. federal securities laws and the rules and regulations thereunder.
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD AT 10:00 A.M. ON JUNE 3, 20152, 2016
NOTICE IS HEREBY GIVEN thatthe 20152016 Annual General Meeting of Shareholders (the “Meeting”) of Golden Queen Mining Co. Ltd. (the “Company”) will be held at 10:00 a.m. (Pacific Standard Time) on Wednesday,Thursday, June 3, 20152, 2016 at the Pan Pacific Hotel, Gazebo 1,Oceanview Suite 7, 999 Pan Pacific Way, Vancouver, BC, V6C 3B5, for the following purposes:
1. | To receive the financial statements of the Company for its financial year ended December 31, |
2. | To elect directors to serve until the next Annual General Meeting of Shareholders or until their respective successors are elected or appointed; |
3. | To ratify the appointment of |
4. | To consider |
5. | To transact any other business which may properly come before the Meeting, or any adjournment or postponement thereof. |
The specific details of the matters proposed to be put before the Meeting are set forth in the Management Information Circular accompanying and forming part of this Notice.
The board of directors has fixed April 28, 201518, 2016 as the record date for determining shareholders entitled to receive notice of, and to vote at, the Meeting or any adjournment or postponement thereof. Only shareholders of record at the close of business on that date will be entitled to receive notice of and to vote at the Meeting.
All shareholders are invited to attend the Meeting in person, but even if you expect to be present at the Meeting, you are requested to mark, sign, date and return the enclosed proxy card as promptly as possible in the envelope provided to ensure your representation.All proxies must be received by our transfer agent not less than 48 hours, excluding Saturdays, Sundays, and holidays,before the time of the Meeting in order to be counted.The address of our transfer agent is as follows: Computershare Trust Company of Canada, Proxy Dept., 100 University Ave., 8thFloor, Toronto, ON, M5J 2Y1. Shareholders of record attending the Meeting may vote in person even if they have previously voted by proxy.
Dated at Vancouver, British Columbia, this 28th22ndday of April 2015.2016.
BY ORDER OF THE BOARD OF DIRECTORS
“H. Lutz Klingmann”H. Lutz Klingmann, President
“Thomas M. Clay” |
Thomas M. Clay, Chairman & Interim Chief Executive Officer
Important Notice Regarding the Availability of Proxy Materials for
the Company’s Annual General Meeting of Shareholders on June 2, 2016.
The Golden Queen Mining Co. Ltd. Proxy Statement and 2015 Annual Report to Shareholders
are available online atwww.goldenqueen.com
GOLDEN QUEEN MINING CO. LTD.
Vancouver, BC V6E 3X2
PROXY STATEMENT
ANNUAL GENERAL MEETING OF SHAREHOLDERS
JUNE 2, 2016
In this Proxy Statement, all references to “$” are references to United States dollars and all references to “C$” are references to Canadian dollars. As at April 28, 2015,18th, 2016, one Canadian dollar
was equal to approximately $0.8319$0.78 in United States dollars.
INFORMATION REGARDING ORGANIZATION AND CONDUCT OF MEETING
The enclosed proxy (this “Proxy Statement” or “Proxy”) is solicited by the Board of Directors (the “Board”) of Golden Queen Mining Co. Ltd., a British Columbia corporation (the "“Company"” or “Golden Queen”), for use at the Annual General Meeting of Shareholders (the “Meeting”) of Golden Queen to be held at 10:00 a.m. (Pacific Standard Time) on Wednesday,Thursday, June 3, 2015,2, 2016, at the Pan Pacific Hotel, Gazebo 1,Oceanview Suite 7, 999 Pan Pacific Way, Vancouver, BC, V6C 3B5, and at any adjournment or postponement thereof.
In this Proxy Statement, “Registered Shareholders” means shareholders whose names appear on the records of the Company as the registered holders of shares. “Beneficial Shareholders” means shareholders who do not hold shares in their own name, as further explained under “Voting by Beneficial Shareholders” below.
This Proxy Statement and the accompanying proxy card are being mailed to our shareholders on or about May 6, 2015.4, 2016. The Company is sending proxy-related materials directly to Registered Shareholders, as well as non-objecting Beneficial Shareholders under Canadian National Instrument 54-101 (“NI 54-101”). Management of the Company does not intend to pay for intermediaries to forward the proxy-related materials to objecting Beneficial Shareholders under NI 54-101. As a result, objecting Beneficial Shareholders will not receive the materials unless the objecting Beneficial Shareholder’s intermediary assumes the cost of delivery.
The cost of solicitation will be paid by the Company. The solicitation will be made primarily by mail. Proxies may also be solicited personally or by telephone by certain of the Company’s directors, officers and regular employees, who will not receive additional compensation therefore. In addition, the Company will reimburse brokerage firms, custodians, nominees and fiduciaries for their expenses in forwarding solicitation materials to non-objecting Beneficial Shareholders. The total cost of proxy solicitation, including legal fees and expenses incurred in connection with the preparation of this Proxy Statement, is estimated to be $20,000.
Our administrative offices are located at 2300 – 1066 West Hastings Street, Vancouver, BC, V6E 3X2.
Appointment of Proxyholder
The persons named as proxyholder in the accompanying Proxy (“Proxy”) or Voting Instruction Form (“VIF”) were designated by the management of the Company (“Management Proxyholder”).A shareholder desiring to appoint some other person (“Alternate Proxyholder”) to represent him or her at the Meeting may do so by inserting such other person's name in the space indicated on the Proxy or VIF, or by completing another proper form of proxy.A person appointed as an Alternate Proxyholder need not be a shareholder of the Company.
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Exercise of Discretion by Proxyholder
The proxyholder will vote for or against or withhold from voting the shares, as directed by a shareholder on the proxy, on any ballot that may be called for.In the absence of any such direction, the Management Proxyholder will vote in favour of matters described in the Proxy or VIF. In the absence of any direction as to how to vote the shares, an Alternate Proxyholder has discretion to vote them as he or she chooses.
The enclosed Proxy or VIF confers discretionary authority upon theProxyholder with respect to amendments or variations tomatters identified in the attached Notice of Meeting and other matters which may properlycome before the Meeting.At present, management of the Company knows of no such amendments, variations or other matters.
PROXY VOTING
Registered Shareholders
If you are a Registered Shareholder, you may wish to vote by proxy whether or not you attend the Meeting in person. Registered Shareholders electing to submit a proxy may do so by completing the enclosed Proxy and returning it to the Company’s transfer agent, Computershare Trust Company of Canada (“Computershare”), in accordance with the instructions on the Proxy. You should ensure that the Proxy is received by Computershare at least 48 hours (excluding Saturdays, Sundays and holidays) before the Meeting or the adjournment thereof at which the Proxy is to be used. The chairman of the Meeting may elect to exercise his discretion to accept proxies received after the due date.
Beneficial Shareholders
The following information is of significant importance to Beneficial Shareholders (shareholders who do not hold shares in their own name). Beneficial Shareholders should note that the only proxies that can be recognized and acted upon at the Meeting are those deposited by Registered Shareholders (those whose names appear on the records of the Company as the registered holders of shares).
If shares are listed in an account statement provided to a shareholder by a broker, then in almost all cases those shares will not be registered in the shareholder'sshareholder’s name on the records of the Company. Such shares will more likely be registered under the name of the shareholder's broker or an agent of that broker. In the United States, the vast majority of such shares are registered under the name of Cede & Co. as nominee for The Depository Trust Company (which acts as depositary for many U.S. brokerage firms and custodian banks), and in Canada, under the name of CDS & Co. (the registration name for The Canadian Depository for Securities Limited, which acts as nominee for many Canadian brokerage firms).
If you have consented to disclosure of your ownership information, you will receive a VIF from the Company (through Computershare). If you have declined to disclose your ownership information, you may receive a VIF from your intermediaryIntermediary if they have assumed the cost of delivering the Proxy Statement and associated meeting materials. Every intermediary has its own mailing procedures and provides its own return instructions to clients. However, most intermediaries now delegate responsibility for obtaining voting instructions from clients to Broadridge Financial Solutions, Inc. (“Broadridge”) in the United States and in Canada.
By returning the VIF in accordance with the instructions noted on it, a Beneficial Shareholder is able to instruct the Registered Shareholder (the intermediary) how to vote on behalf of the Beneficial Shareholder. VIF’s,VIFs, whether provided by the Company or by an intermediary, should be completed and returned in accordance with the specific instructions noted on the VIF. In either case, the purpose of this procedure is to permit Beneficial Shareholders to direct the voting of the shares which they beneficially own.
The VIF will name the same persons as named on the Company'sCompany’s Proxy to represent you at the Meeting. Although as a Beneficial Shareholder you may not be recognized at the Meeting for the purposes of voting shares registered in the name of your intermediary, you, or a person designated by you (who need not be a shareholder), may attend the Meeting as proxyholder for your intermediary and vote your shares in that capacity. To exercise this right to attend the Meeting or appoint a proxyholder of your own choosing, you should insert the name of the desired representative in the blank space provided in the VIF. Alternatively, you may provide other written instructions requesting that you or your desired representative attend the Meeting as proxyholder for your intermediary. The completed VIF or other written instructions must then be returned in accordance with the instructions on the VIF.
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If you receive a VIF from the Company or Broadridge, you cannot use it to vote shares directly at the Meeting – theMeeting. The VIF must be completed and returned in accordance with its instructions, well in advance of the Meeting in order to have the shares voted.
Revocation of Proxies
In addition to revocation in any other manner permitted by law, a Registered Shareholder who has given a Proxy may revoke it by:
(a) | Executing a Proxy bearing a later date or by executing a valid notice of revocation, either of the foregoing to be executed by the Registered Shareholder or the Registered Shareholder’s authorized attorney in writing, or, if the shareholder is a corporation, under its corporate seal by an officer or attorney duly authorized, and by delivering the Proxy bearing a later date to Computershare at any time up to and including the last business day that precedes the day of the Meeting or, if the Meeting is adjourned, the last business day that precedes any reconvening thereof, or to the chairman of the Meeting on the day of the Meeting or any reconvening thereof, or in any other manner provided by law, or |
(b) | Personally attending the meeting and voting the Registered Shareholders’ shares. |
A revocation of a Proxy will not affect a matter on which a vote is taken before the revocation.
Only Registered Shareholders have the right to revoke a Proxy. Beneficial Shareholders who wish to change their vote must, at least seven days before the Meeting, arrange for their respective intermediaries to revoke the Proxy on their behalf.
VOTING PROCEDURE
A quorum for the transaction of business at the Meeting is one person present at the meeting representing in person or by proxy not less than 10% of the votes eligible to cast at such meeting. Broker non-votes occur when a person holding shares through a bank or brokerage account does not provide instructions as to how his or her shares should be voted and the bank or broker does not exercise discretion to vote those shares on a particular matter. Abstentions and broker non-votes will be included in determining the presence of a quorum at the Meeting. However, an abstention or broker non-vote will not have any effect on the outcome for the election of directors.
Shares for which Proxies are properly executed and returned will be voted at the Meeting in accordance with the directions noted thereon or, in the absence of directions, will be voted "FOR"“FOR” fixing of the number of directors at five (5)four (4), “FOR”“FOR” the election of each of the nominees to the Board of Directors named on the following page, "FOR"and “FOR” the resolution to ratify the appointment of BDO CanadaPricewaterhouseCoopers LLP as independent auditors of the Company for the fiscal year ending December 31, 2015,2016, and “FOR”“FOR” the approval of the Company’s stock option plan.compensation awarded by the Company to the named executive officers. It is not expected that any matters other than those referred to in this Proxy Statement will be brought before the Meeting. If, however, other matters are properly presented, the persons named as proxies will vote in accordance with their discretion with respect to such matters.
In the United States, brokers and other intermediaries, holding shares in street name for their customers, are generally required to vote the shares in the manner directed by their customers. If their customers do not give any direction, brokers may vote the shares at their discretion on routine matters, but not on non-routine matters. All of the matters to be voted on at the Meeting are non-routine matters and brokers may not vote shares held in street name for their customers in relation to these items of business without direction from their customers.
To be effective, each matter which is submitted to a vote of shareholders, other than for the election of directors and the approval of auditors, must be approved by a majority of the votes cast by the shareholders voting in person or by proxy at the Meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS OF VOTING SECURITIES
On April 28, 201518, 2016 (the “Record Date”) there were 99,928,683 shares of our common stock (the "“Common Stock"”), issued and outstanding, each share carrying the right to one vote. Only shareholders of record at the close of business on the Record Date will be entitled to vote in person or by proxy at the Meeting or any adjournment thereof.
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To the knowledge of the directors and officers of the Company, no person or corporation beneficially owns directly or indirectly, or exercises control or direction over, more than 5% of the outstanding Common SharesStock as of April 28, 2015,18, 2016, except as described below:
Number of | Approximate % | ||
Name and Address | Shares(1) | Nature of Ownership | of Total Issued(6) |
Landon T. Clay | 18,759,736 | Sole voting and investment control | 17.0% |
Providence, RI, USA | 8,868,132(2)(3)(4)(5) | Shared voting and investment control | 8.0% |
Thomas M. Clay | 1,805,680 | Sole voting and investment control | 1.6% |
Providence, RI, USA | 6,416,863(2)(4)(5) | Shared voting and investment control | 5.8% |
Jonathan Clay | 8,422,016 | Sole voting and investment control | 7.6% |
New York, NYC, USA | 807,250(4) | Shared voting and investment control | 0.7% |
Sprott Asset Management LP | 7,130,800 | Sole voting and investment control | 6.5% |
Toronto, ON, Canada |
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Name and Address | Number of Voting Securities(1) | Nature of Ownership | Percentage of Outstanding Voting Securities | |||||
Landon T. Clay | 30,777 | Sole voting and investment control | 0.03 | % | ||||
Peterborough, NH, USA | 26,699,258 | (2) (3) (4) | Shared voting and investment control | 24.1 | % | |||
Thomas M. Clay | 1,913,650 | Sole voting and investment control | 1.7 | % | ||||
Peterborough, NH, USA | 25,354,989 | (2) (3) | Shared voting and investment control | 22..8 | % | |||
Brian James Peterborough, NH, USA | 9,651,519 | (2) (4) | Shared voting and investment control | 8.7 | % | |||
Jonathan Clay | 8,340,016 | Sole voting and investment control | 7.5 | % | ||||
Palm Beach, FL, USA | 889,250 | (5) (6) (7) | Shared voting and investment control | 0.8 | % | |||
Sprott Asset Management L.P. Toronto, ON, Canada | 7,130,800 | Sole voting and investment control | 6.4 | % |
[1] | The information relating to the above share ownership was obtained by the Company from insider reports and beneficial ownership reports on Schedule 13D filed with the SEC or available at www.sedi.ca, or from the shareholder, and includes direct and indirect holdings. |
[2] |
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|
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[ | Landon T. Clay and Thomas M. Clay have shared voting and investment control of |
[4] | Landon T. Clay and Brian James have shared voting and investment control of 1,344, 269 shares; |
[5] | Jonathan Clay and Arctic Coast have shared voting and investment control of 807,250 shares; |
[6] |
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[7] | Jonathan Clay has shared voting and investment control of 32,000 shares, |
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Except as disclosed herein, no Person has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in matters to be acted upon at the Meeting other than the election of directors and the appointment of auditors and as set out herein. For the purpose of this paragraph, “Person” shall include each person: (a) who has been a director, senior officer or insider of the Company at any time since the commencement of the Company’s last fiscal year; (b) who is a proposed nominee for election as a director of the Company; or (c) who is an associate or affiliate of a person included in subparagraphs (a) or (b).
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MATTERS TO BE ACTED UPON AT MEETING
PROPOSAL
Proposal 1: ELECTION OF DIRECTORSElection of Directors
The Board proposes to fix the number of directors of the Company at four (4) and that the following five (5)four (4) nominees be elected as directors at the Meeting, each of whom will hold office until the expiration of their term or until his or her successor shall have been duly appointed or elected and qualified: H. Lutz Klingmann, Thomas M. Clay, Bryan A. Coates, Bernard Guarnera and Guy Le Bel.
Unless otherwise instructed, it is the intention of the persons named as proxies on the accompanying proxy card to vote shares represented by properly executed proxies for the election of such nominees. Although the Board anticipates that the five (5)four (4) nominees will be available to serve as directors of Golden Queen, if any of them should be unwilling or unable to serve, it is intended that the proxies will be voted for the election of such substitute nominee or nominees as may be designated by the Board.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
The board of directors recommends a vote “FOR” THE ELECTION OF EACH NOMINEE.each nominee.
As part of its ongoing review of corporate governance policies, on March 5, 2014, the Board adopted a policy providing that in an uncontested election of directors, any nominee who receives a greater number of votes “withheld” than votes “for” will tender his or her resignation to the Chairman of the Board promptly following the shareholders’ meeting. The Board will consider the offer of resignation and will make a decision whether or not to accept it. In considering whether or not to accept the resignation, the Board will consider all relevant factors. The Board will be expected to accept the resignation except in situations where the considerations would warrant the applicable director continuing to serve on the Board. The Board will make its final decision and announce it in a press release within 90 days following the shareholders’ meeting. A director who tenders his or her resignation pursuant to this policy will not participate in any meeting of the Board at which the resignation is considered.
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The affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the Meeting and entitled to vote is required.
The following table sets out the names of the nominees, their positions and offices in the Company, principal occupations, the period of time that they have been directors of the Company, whether or not they are considered independent or non-independent, the number of shares of the Company which each beneficially owns or over which control or direction is exercised, Board/Committee membership and attendance, and other public board of directorships information:
Name, Present Office, Province/State & Country of Residence | Present Principal Occupation or Employment[1] | Security Holdings[2] | ||
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THOMAS M. CLAY Director, Providence, Rhode Island, USA | Mr. Clay’sprincipal occupation is Vice President of East Hill Management Company, LLC. He also serves as a director of Date first appointed as a Director:January 13, 2009 | Common Shares: 19,768,639 Stock Options: 107,250 Warrants: 7,500,000(4) | ||
Independent | Board/Committee Memberships | Attendance at Meetings During | Other Public Board Directorships | |||
No | Board of Directors | 5/5 (100%) | ThromboGenics NV |
5 |
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Name, Present Office, Province/State & Country of Residence | Present Principal Occupation or Employment[1] | Security Holdings[2] | ||
BRYAN A. COATES Director Saint-Lambert, Quebec, | Mr. Coatescurrently serves as President of Osisko Gold Royalties since June 2014. Prior to that, he was the Vice President, Finance and Chief Financial Officer of Osisko Mining. He was responsible for all activities related to financing, financial reporting, marketing relating to the gold industry, risk management and government relations. Mr. Coates has more than 30 years of progressive experience within the international and Canadian mining industry. Before joining Osisko, he was Chief Financial Officer of Iamgold Date first appointed as a Director:January 28, 2013 | Stock Options: | ||
Independent | Board/Committee Memberships | Attendance at Meetings During | Other Public Board Directorships | |||
Yes | Board of Directors Audit Committee Compensation Committee Nominating Committee | 5/5 (100%) 4/4 (100% 2/2 (100%) nil | Timmins Gold Corp. | |||
BERNARD GUARNERA Director Las Vegas, Nevada, USA | Mr. Guarnerahas over 40 years of experience in the global mining industry and is President of Broadlands Mineral Advisory Services Date first appointed as a Director:May 30, 2013 | Common Shares: 25,000 Stock Options: | ||
Independent | Board/Committee Memberships | Attendance at Meetings During | Other Public Board Directorships | |||
Yes | Board of Directors Audit Committee Compensation Committee Nominating Committee | 5/5 (100%) 4/4 (100%) 2/2 (100%) nil | ||||
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Name, Present Office, Province/State & Country of Residence | Present Principal Occupation or Employment[1] | Security Holdings[2] | ||
GUY LE BEL Director Repentigny, Quebec, Canada | Mr. Le Belis a merger and acquisitions, and business development consultant to Canadian mining companies and has Date first appointed as a Director:May 30, 2013 | Stock Options: | ||
Independent | Board/Committee Memberships | Attendance at Meetings During | Other Public Board Directorships | |||
Yes | Board of Directors Audit Committee Compensation Committee Nominating Committee | 5/5 (100%) 4/4 (100%) 2/2 (100%) nil | RedQuest Capital Corp. | |||
[1] | The information as to principal occupation and business or employment has been furnished by the respective nominees. |
[2] | Based upon information furnished to Golden Queen either by the directors and executive officers or from the insider reports and beneficial ownership reports filed with the SEC or available atwww.sedi.ca.These amounts include beneficial ownership of securities not currently outstanding but which are reserved for immediate issuance on exercise of options. |
[3] | Includes | |
Thomas M. Clay, Landon T. Clay |
[4] | Thomas M. Clay, Landon T. Clay and |
The Board seeks to ensure that it is composed of members whose particular experience, qualifications, attributes and skills, when taken together, will allow the Board to satisfy its oversight responsibilities effectively. The Board as a whole is responsible for identifying, screening and/or appointing persons to serve on the Board. In identifying Board candidates, it is the Board’s goals to identify persons whom it believes have appropriate expertise and experience to contribute to the oversight of a company of the Company’s nature while also allowing for other appropriate factors. The Board believes that the process in place to identify candidates and elect directors allows the most qualified candidates to be appointed independently.
The Company believes that each of the persons standing for election to the Board at the Meeting has the experience, qualifications, attributes and skills that, when taken as a whole, will enable the Board to satisfy its oversight responsibilities effectively.
The Board is responsible for overseeing management of the Company and determining the Company’s strategy and for determining whether or not a director is independent. In making this determination, the Board has adopted the definition of “independence” as set forth in NI 58-101 and NP 58-201 with the recommendation that a majority of the Board be considered “independent”. In applying this definition, the Board considers all relationships of the directors of the Company, including business, family and other relationships.
As at the date of this Proxy Statement, there are five (5)four (4) directors on the Board, H. Lutz Klingmann, Thomas M. Clay, Bryan A. Coates, Bernard Guarnera, and Guy Le Bel. Of the fivefour directors, Bryan A. Coates, Bernard Guarnera, and Guy Le Bel are considered independent. Lutz Klingmann, President and CEO of the Company, and Thomas M. Clay, Chairman of the Board areand Interim Chief Executive Officer, is not considered independent. Following the Meeting, the Board, as proposed by management in this Proxy Statement, will consist of H. Lutz Klingmann, Thomas M. Clay, Bryan A. Coates, Bernard Guarnera and Guy Le Bel.
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The Board does not have a policy regarding a Board members’ attendance at annual meetings of shareholders. Four (4)Two (2) directors attended the Company’s 20142015 annual meeting of shareholders.
Biographical Information Regarding Executive Officers
H. Lutz KlingmannThomas M. Clay - PresidentChairman and Interim Chief Executive Officer.Lutz KlingmannMr. Clay is the Vice President of East Hill Management Co., LLC and Director of the Clay Mathematics Institute and of Thrombogenics N.V. His business education was completed at Harvard College, Oxford University and Harvard Business School. Mr. Clay has been involved withserved on the Board of Directors since 2009.
Robert C. Walish, Jr. – Chief Operating Officer.Mr. Walish is the President & Chief Executive Officer of Golden Queen Mining Co. Ltd. since 2001LLC and has been instrumental inwas most recently the development and permitting processGeneral Manager of the Soledad Mountain Project. He is a former DirectorSCM Franke Operation of KGHM International, formerly QuadraFNX, located in northern Chile, where he was responsible for mining, processing and President of Minto Explorations Ltd. as well as a former director and presidentadministration of a numberfour million pound per month open-pit copper mining, heap-leach and SX-EW operation. Prior to that and over the course of mid-tiermore than 30 years, Mr. Walish worked at mines in Guyana, Arizona, Alaska, South Carolina, Montana and junior miningNevada. He received his Bachelor of Arts degree from the University of Colorado and exploration companies. He has developed six mines, fourhis Master of which were inScience degree from the southwestern United States, since mid-1981. His development and operating experience spans the globe, including Africa, Venezuela, Canada and the United States.University of Wisconsin.
AndréAndrée St-Germain - Chief Financial OfficerOfficer.Andrée St-Germain joined Golden Queen in 2013 and Corporate Secretary.Ms. St-Germain was previously anhas been involved with the financings and construction of the Project. She is a former investment banker with Dundee Capital Markets Inc. where she worked exclusively with mining companies on a variety of financings and merger and acquisitionM&A advisory assignments. She holds an Internationala Master of Business Administration degree (Honours) from Schulich School of Business (York University).
PROPOSAL
Brenda Dayton – Corporate Secretary. Ms. Dayton has served as Corporate Secretary for several mining companies on the NYSE, TSX and TSX Venture and her expertise includes governance, communications and investor relations. Prior to working in public companies, she worked in banking and insurance. She holds a Bachelor of Arts degree from the University of Calgary.
Proposal 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORSRatification of Appointment of Independent Auditors
BDO Canada
PricewaterhouseCoopers LLP (“PWC”) was appointed as Golden Queen’s independent auditors on November 13, 1996.March 31, 2016. BDO Canada LLP (“BDO”) served as Golden Queen’s independent auditors for the fiscal year ended December 31, 2014. The shareholders2015. Shareholders of the Company (the “Shareholders”) will be asked at the Meeting to vote for the appointment of BDO Canada LLPPWC as auditors of the Company until the next annual general meeting of Shareholders or until a successor is appointed, at a remuneration to be fixed by the directors.
Representatives
On March 31, 2016, Golden Queen appointed PWC as its independent registered public accountant, subject to completion of its standard client acceptance procedures. The appointment of PWC was recommended by Golden Queen’s audit committee after considering proposals from several international public accounting firms, including BDO. As a result of PWC’s appointment, Golden Queen’s engagement of BDO, Canada LLP are expected to be present atas its independent registered public accounting firm, was terminated. Attached as Appendix “B” is a copy of the Meeting, will haveForm 8-K filed with the opportunity to make a statement if they desire to do so, and are expected to be available to respond to questions from Shareholders.SEC in connection with the change of Golden Queen’s independent auditor.
See External Auditor Service Fees section for more information.
Although the appointment of BDO Canada LLPPWC is not required to be submitted to a vote of shareholders, the Board believes it appropriate as a matter of policy to request that shareholders ratify the appointment of the independent auditors for the fiscal year ending December 31, 2015.2016. The affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the Meeting and entitled to vote is required. In the event a majority of the votes cast at the meeting are not voted in favor of ratification, the adverse vote will be considered as a direction to the Board to select other independent auditors for the fiscal year ending December 31, 2016.2017.
Section 10(A)(i) of the Exchange Act prohibits the Company’s independent auditors from performing audit services for the Company as well as any services not considered to be “audit services” unless such services are pre-approved by the Audit Committee of the Board, or unless the services meet certainde minimis standards.
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Under the Company’s Audit Committee Charter, all non-audit services to be performed by the Company’s independent auditors must be approved in advance by the Audit Committee. All of the 20142015 audit related fees, and tax fees were pre-approved by the Audit Committee.
See External Auditor Service Fees section for more information.
Representatives of the former auditors, BDO Canada LLP, are expected to be present at the Meeting, will have the opportunity to make a statement if they desire to do so, and are expected to be available to respond to questions from Shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF BDO CANADAPRICE WATERHOUSE COOPERS LLP AS GOLDEN QUEEN'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2015.2016.
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PROPOSAL 3: APPROVAL OF THE COMPANY’S STOCK OPTION PLANADVISORY (NON-BINDING) VOTE ON EXECUTIVE COMPENSATION
Matters to be Approved
In accordance with the requirementsSection 951 of the Toronto Stock ExchangeDodd-Frank Wall Street Reform and Consumer Protection Act (the “Exchange”“Dodd-Frank Act”), every three (3) years after institution, all unallocated options, rights requires that Golden Queen seek a non-binding advisory vote from its shareholders to approve the compensation of our Named Executive Officers as disclosed in this proxy statement.
Golden Queen seeks to provide our executives with appropriate incentives to drive the success of our business. We strive to design programs that are performance-based and other entitlements under a security based compensation arrangement which does not have a fixed maximum number of securities issuable thereunder (commonly referredthat encourage executives to as “rolling plans” or “evergreen plans”) must be approved by a majorityfurther the overall business strategy of the an issuer’s security holders. Since the Stock Option Plan providescompany. We provide compensation that is competitive to retain high-quality executives to produce successful results for replenishment of the number of securities reserved when options or other awards are exercised, the Exchange considers the Stock Option Plan an “evergreen plan” and therefore, subject to approval every three (3) years.shareholders.
The Board adopted a 2013 stock option plan (the “Stock Option Plan” orvote on this resolution is not intended to address any specific element of compensation; rather, the “Plan”) for the benefit of the Company’s Directors, executives, employees and consultants, and Shareholders most recently approved the Stock Option Plan on May 30, 2013. The Board also adopted a house keeping amendmentvote relates to the Plan on April 27, 2015 to clarify the procedure for fixing the earlier termination datecompensation of stock options. A copy of the amendment is annexed toour Named Executive Officers, as described in this Proxy Statement as Appendix “B”. Shareholders are required to approve all unallocated options issuable pursuant to the Stock Option Plan no later than May 30, 2016. The Stock Option Plan has been established to assist the Company in the recruitment and retention of highly qualified executives, employees and eligible consultants by providing a means to reward performance, to motivate participants to achieve important corporate and personal objectives and, to align the interests of participants with the long-term interests of Shareholders. At the Meeting, Shareholders will be asked to approve all unallocated entitlements under the Stock Option Plan. The Board has approved the unallocated options under the Stock Option Plan.
As at April 28, 2015, the Company had 99,928,683Common Shares issued and outstanding and a maximum of 7,200,000 Common Shares were available for issuance pursuant to options granted under the Stock Option Plan as at such date. As at April 28, 2015, there were 700,000options granted and outstanding under the Stock Option Plan (representing 0.7% of the Common Shares), leaving 6,500,000 Common Shares (representing 6.5% of the Common Shares) available for grant of further options. As of April 28, 2015, no stock options had been exercised under the Stock Option Plan.
If the resolution approving unallocated options, rights and entitlements under the Stock Option Plan is not approved by the Shareholders at the Meeting, then currently outstanding options will continue in full force and be unaffected, provided that certain amendments may be madeproxy statement in accordance with the Stock Option Plan. However, no new grants of options will be made pursuant to the Stock Option Plan and currently outstanding options that are subsequently cancelled or terminated will not be available to be re-granted by the Company.
Therefore, Shareholders will be asked at the Meeting to pass the following ordinary resolution, with or without variation, relating to the approval as described above. In order to be approved, the resolution must be passed by a majoritycompensation disclosure rules of the votes cast by the holders of Common Shares presentSEC. We believe that Golden Queen’s Named Executive Officer compensation programs have been effective at appropriately aligning pay and performance and in person or represented by proxy at the Meeting. Abstentionsenabling Golden Queen to attract and broker non-votes will not be counted either in favor of or againstretain very talented executives within our industry.
The vote on this proposalresolution is advisory and therefore not binding on Golden Queen, the Compensation Committee or the Board. Although the vote is non-binding, the Compensation Committee will have no effect onreview the outcomesvoting results in connection with the on-going evaluation of such proposal.Golden Queen’s compensation programs.
“BE IT RESOLVED THAT all unallocated entitlements issuable under the Stock Option Plan be hereby approved until the date that is three (3) years from the date hereof, being June 3, 2018.”
The Board has unanimously concluded that the approval of the continuation of the Stock Option Plan is in the best interest of the Company and its Shareholders, and recommends that Shareholders voteTHE BOARD RECOMMENDS SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE COMPENSATION AWARDED BY GOLDE QUEEN TO THE NAMED EXECUTIVE OFFICERS AS DESCRIBED IN FAVOR of the approval of the Stock Option Plan. The Company has been advised that the Directors and senior officers of the Company intend to vote all Common Shares held by them in favor of the approval of the Stock Option Plan.In the absence of a contrary instruction, the person(s) designated by management of the Company in the form of proxy intend to vote FOR the approval of the Stock Option Plan.THE DISCLOSURES IN THIS PROXY STATEMENT AS REQUIRED BY THE RULES OF THE SECURITIES AND EXCHANGE COMMISSION.
Summary of the Stock Option Plan
Set out below is a summary of the material terms of the Stock Option Plan.
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A copy of the Stock Option Plan was filed on SEDAR atwww.sedar.com on May 2, 2013 as a schedule to the Company’s Management Information Circular and on EDGAR atwww.sec.gov on April 30, 2013 as a schedule to the Company’s Proxy Statement. Shareholders may request additional copies by (i) mail to: 2300 – 1066 West Hastings Street, Vancouver, BC V6E 3X2 or (ii) telephone to: (778) 373-1557.
DIRECTORS AND EXECUTIVE OFFICERS
The following table contains information regarding the members and nominees of the Board of Directors and the Executive of Golden Queen as of the Record Date:
Name | Age | Position | Position Held Since | |||
Thomas M. Clay | 31 | Director | January 13, 2009 | |||
Chairman | May 30, 2013 | |||||
Interim CEO | August 10, 2015 | |||||
Bryan A. Coates | 57 | Director | January 28, 2013 | |||
Bernard Guarnera | 72 | Director | May 30, 2013 | |||
Guy Le Bel | 57 | Director | May 30, 2013 | |||
Robert C. Walish, Jr. | 63 | COO | August 10, 2015 | |||
Andrée St-Germain | 36 | CFO | September 18, 2013 | |||
Brenda Dayton | 48 | Corporate Secretary | October 1, 2015 |
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All of the officers identified above serve at the discretion of the Board of Directors and have consented to act as directors of the Company.
RELATIONSHIPS AMONG DIRECTORS OR EXECUTIVE OFFICERS
There are no family relationships among any of the existing directors or executive officers of Golden Queen.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial ownership of the Company’s Common Stock as of April 28, 201518, 2016 by:
(i) | each director of Golden Queen; |
(ii) | each of the Named Executive Officers of Golden Queen; and |
(iii) | all directors and executive officers as a group. |
Except as noted below, Golden Queen believes that the beneficial owners of the Common Stock listed below, based on information furnished by such owners, have sole voting and investment power with respect to such shares, except as noted in the footnote below the table.
Percentage of | ||
Shares | Shares | |
Name and Address of | Beneficially | Beneficially |
Beneficial Owner | Owned | Owned[5] |
H. LUTZ KLINGMANN,Director, President, Chief Executive Officer, | 979,100 | 0.9% |
West Vancouver, BC | ||
THOMAS M. CLAY,Director | 8,222,543[2][3][4] | 7.5% |
Providence, RI | ||
BRYAN A. COATES,Director | 50,000[1] | 0.05% |
Saint-Lambert, QC | ||
BERNARD GUARNERA,Director | 75,000[1] | 0.07% |
Las Vegas, NV | ||
GUY LE BEL,Director | 50,000[1] | 0.05% |
Repentigny, QC, | ||
ANDRÉE ST-GERMAIN,Chief Financial Officer and Corporate Secretary | 300,000[1] | 0.3% |
Vancouver, BC | ||
All officers and directors (6) persons | 9,676,643 | 8.8% |
Name and Address of Beneficial Owner | Shares Beneficially Owned | Percentage of Shares Beneficially Owned | ||||||
THOMAS M. CLAY,Director, Chairman & Interim Chief Executive Officer | 27,268,639 | [1][2] | 24.6 | % | ||||
BRYAN A. COATES,Director Saint-Lambert, QC | 157,500 | [1] | 0.14 | % | ||||
BERNARD GUARNERA,Director Las Vegas, NV | 182,500 | [1] | 0.16 | % | ||||
GUY LE BEL,Director Repentigny, QC | 157,500 | [1] | 0.14 | % | ||||
ROBERT C. WALISH, JR.,Chief Operating Officer Mojave, CA | nil | 0.0 | % | |||||
ANDRÉE ST-GERMAIN,Chief Financial Officer Vancouver, BC | 440,000 | [1] | 0.4 | % | ||||
BRENDA DAYTON,Corporate Secretary Vancouver, BC | nil | 0.0 | % | |||||
All officers and directors (7) persons | 28,206,139 | 25.4 | % |
[1] | These amounts include beneficial ownership of securities not currently outstanding but which are reserved for immediate issuance on exercise of options. In particular, these amounts include shares issuable upon exercise of options as follows: |
[2] | Includes | |
Thomas M. Clay, Landon T. Clay | ||
17,047,739 shares; Thomas M. Clay, Landon T. Clay and | ||
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) requires Golden Queen'sQueen’s directors, executive officers and persons who own more than 10% of a registered class of Golden Queen’s securities to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of Golden Queen. Directors, executive officers and greater than 10% shareholders are required by SEC regulation to furnish Golden Queen with copies of all Section 16(a) reports they file.
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To the Company’s knowledge, the Form 4 filed by each of Landon T. Clay and Thomas Clay on August 14, 2015 reporting the issuance of a warrant to issue 5,967,000 shares to the Landon T. Clay 2009 Irrevocable Trust and a warrant to issue 1,533,000 shares to the Clay Family 2009 Irrevocable Trust on August 6, 2015 were filed after the required filing date.
To the Company’s knowledge, based solely on a review of Forms 3 and 4, as amended, furnished to it during its most recent fiscal year, and Form 5, as amended, furnished to it with respect to such year, other than as disclosed in this Proxy Statement, the Company believes that during the year ended December 31, 2014,2015, its directors, executive officers and greater than 10% shareholders complied with all Section 16(a) filing requirements of the Securities Exchange Act of 1934.
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DIRECTORS COMPENSATION
The following table sets out the compensation provided to the members of the Board during the Company’s year ended December 31, 2014:2015:
Change in | |||||||
Pension Value | |||||||
Fees | and Non- | ||||||
Earned | Non-Equity | Qualified | |||||
or Paid | Stock | Option | Incentive Plan | Deferred | All Other | ||
in Cash | Awards | Awards | Compensation | Compensation | Compensation | Total | |
Name | ($) | ($) | ($) | ($) | Earnings | ($) | ($) |
H. Lutz Klingmann | Nil | Nil | Nil | Nil | N/A | Nil | Nil |
Thomas M. Clay | $20,000 | Nil | Nil | Nil | N/A | Nil | $20,000 |
Bryan A. Coates(1) | $37,971 | Nil | Nil | Nil | N/A | Nil | $37,971 |
Bernard Guarnera(1)(2) | $48,750 | Nil | Nil | Nil | N/A | Nil | $48,750 |
Guy Le Bel(1)(2) | $43,478 | Nil | Nil | Nil | N/A | Nil | $43,478 |
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Non- Qualified Deferred Compensation Earnings | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
H. Lutz Klingmann(1) | Nil | Nil | Nil | Nil | N/A | Nil | Nil | |||||||||||||||||||||
Thomas M. Clay | 18,750 | Nil | 35,002 | Nil | N/A | Nil | 53,752 | |||||||||||||||||||||
Bryan A. Coates | 26,995 | Nil | 35,002 | Nil | N/A | Nil | 61,997 | |||||||||||||||||||||
Bernard Guarnera | 31,876 | Nil | 35,002 | Nil | N/A | Nil | 66,878 | |||||||||||||||||||||
Guy Le Bel | 29,706 | Nil | 35,002 | Nil | N/A | Nil | 64,708 |
[1] |
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It is currently the policy of the Company to grant options to purchase Common Shares to its directors under the Company’s 2013 Stock Option Plan.
Other than as disclosed in this Proxy Statement and Management Information Circular, there are no other arrangements under which directors of the Company were compensated by the Company during the year ended December 31, 20142015 for their services in their capacity as directors and, without limiting the generality of the foregoing, no additional amounts are payable under any standard arrangements for committee participation or special assignments, except that the Articles of the Company provide that the directors are entitled to be paid reasonable traveling, hotel and other expenses incurred by them in the performance of their duties as directors. The Company’s Articles also provide that if a director is called upon to perform any professional or other services for the Company that, in the opinion of the directors, is outside of the ordinary duties of a director, such director may be paid a remuneration to be fixed by the directors and such remuneration may be either in addition to or in substitution for any other remuneration that such director may be entitled to receive.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the total compensation of Golden Queen’s president and chief executive officer, chief financial officer, and the chief operating officer (the “Named Executive Officers”) during the last three completed fiscal years for services rendered to Golden Queen in all capacities.
Nonqualified | |||||||||
Non-Equity | Deferred | ||||||||
Name and | Stock | Option | Incentive Plan | Compensation | All Other | ||||
Principal | Salary | Bonus | Awards | Awards | Compensation | Earnings | Compensation | ||
Position | Year | ($) | ($)[5] | ($) | ($)[1] | ($) | ($) | ($) | Total ($) |
Lutz | 2014 | $163,465 | $40,743 | Nil | Nil | Nil | Nil | Nil | $204,208 |
Klingmann | 2013 | $159,524 | $32,907 | Nil | Nil | Nil | Nil | $1,905 | $194,336 |
President, | 2012 | $138,885 | Nil | Nil | Nil | Nil | Nil | $2,017 | $140,902 |
CEO | |||||||||
G. Ross | 2014 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
McDonald[2] | 2013 | $21,987 | Nil | Nil | Nil | Nil | Nil | Nil | $21,987 |
Former CFO | 2012 | $29,930 | Nil | Nil | Nil | Nil | Nil | Nil | $29,930 |
Andrée St- | |||||||||
Germain[3] | 2014 | $135,817 | $167,783 | Nil | $141,181 | Nil | Nil | Nil | $444,781 |
CFO | 2013 | $47,010 | $9,402 | Nil | $161,353 | Nil | Nil | Nil | $217,765 |
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Nonqualified | |||||||||
Non-Equity | Deferred | ||||||||
Name and | Stock | Option | Incentive Plan | Compensation | All Other | ||||
Principal | Salary | Bonus | Awards | Awards | Compensation | Earnings | Compensation | ||
Position | Year | ($) | ($) | ($) | ($)[1] | ($) | ($) | ($) | Total ($) |
Laurence Morris[4] | 2014 | $129,041 | Nil | Nil | $92,490 | Nil | Nil | $33,566 | $255,097 |
COO | 2013 | $87,500 | Nil | Nil | $93,935 | Nil | Nil | Nil | $181,435 |
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Name and Principal Position | Year | Salary ($) | Bonus[7] ($) | Stock Awards ($) | Option Awards ($)[1] | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||
Lutz | 2015 | 96,284 | 41,542 | 151,428 | Nil | Nil | Nil | 62,619 | 351,873 | |||||||||||||||||||||||||
Klingmann[2] | 2014 | 163,465 | 40,743 | Nil | Nil | Nil | Nil | Nil | 204,208 | |||||||||||||||||||||||||
Former President, CEO | 2013 | 159,524 | 32,907 | Nil | Nil | Nil | Nil | 1,905 | 194,336 | |||||||||||||||||||||||||
Thomas M. | 2015 | 33,333 | Nil | Nil | Nil | Nil | Nil | Nil | 33,333 | |||||||||||||||||||||||||
Clay[3] | 2014 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||||||||||||||||||||
Chairman & Interim CEO | 2013 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||||||||||||||||||||
Robert C. | 2015 | 115,984 | 75,000 | Nil | Nil | Nil | Nil | Nil | 190,984 | |||||||||||||||||||||||||
Walish, Jr.[4] | 2014 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||||||||||||||||||||
COO | 2013 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||||||||||||||||||||
Andrée St- | 2015 | 133,572 | 30,583 | Nil | 15,195 | Nil | Nil | Nil | 179,350 | |||||||||||||||||||||||||
Germain[5] | 2014 | 135,817 | 167,783 | Nil | 141,181 | Nil | Nil | Nil | 444,781 | |||||||||||||||||||||||||
CFO | 2013 | 47,010 | 9,402 | Nil | 161,353 | Nil | Nil | Nil | 217,765 | |||||||||||||||||||||||||
Laurence | 2015 | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||||||||||||||||||||
Morris[6] | 2014 | 129,041 | Nil | Nil | 92,490 | Nil | Nil | 33,566 | 255,097 | |||||||||||||||||||||||||
Former COO | 2013 | 87,500 | Nil | Nil | 93,935 | Nil | Nil | Nil | 181,435 |
[1] | The determination of the value of option awards is based upon the Black-Scholes Option pricing model, details and assumptions of which are set out in the Company’s consolidated financial statements for the fiscal years ended December 31, 2013, December 31, 2014 and December 31, |
[2] |
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[3] | Thomas M. Clay was appointed the Interim Chief Executive Officer on August 10, 2015. |
[4] | Robert C. Walish was appointed the Chief Operating Officer on August 10, 2015 and receives compensation directly from Golden Queen Mining Company LLC, which the Company contributes 50%. |
[5] | Andrée St-Germain was appointed the Chief Financial Officer on September 18, 2013. The bonus granted to Ms. St-Germain in 2014 includes a bonus target of C$150,000 as set out in her employment contract. See note 1 for details on the option award. |
[6] | Laurence Morris was | |
[ | Bonus amounts received in 2015 for the former President & CEO and the CFO were awarded for 2014 performance. The |
OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FISCAL YEAR
The Board approves the issuance of stock options to our directors, officers, employees and consultants. Unless otherwise provided by the Board of Directors, all vested options are exercisable for a term of five (5) years from the date of grant. During the fiscal year ended December 31, 2014,2015, there were no247,500 options granted to the Named Executive Officers.
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OUTSTANDING EQUITY AWARDS AT THE MOST RECENTLY COMPLETED FISCAL YEAR
The following table sets forth the information concerning all option-based awards outstanding for each of Golden Queen’s Named Executive Officers as of December 31, 2014:
Number of | Number of | ||||
Securities | Securities | Equity Incentive Plan | |||
Underlying | Underlying | Awards; Number of | |||
Unexercised | Unexercised | Securities Underlying | Option | ||
Options | Options | Unexercised | Exercise | ||
Name and | (#) | (#) | Unearned Options | Price | Option Expiration |
Principal Position | Exercisable | Unexercisable | (#) | ($) | Date |
Lutz Klingmann | Nil | Nil | Nil | N/A | N/A |
President, CEO | |||||
Andrée St-Germain | 300,000 | Nil | Nil | $1.26 | September 18, 2018 |
CFO | |||||
Laurence Morris | 200,000 | Nil | Nil | $1.16 | November 11, 2015 |
COO[1] |
[1] Laurence Morris was appointed the Chief Operating Officer on May 22, 2013 and resigned on November 11, 2014.2015:
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Name and Principal Position | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards; Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | |||||||||||||
Thomas M. Clay Chairman, Interim CEO(1) | 107,500 | Nil | Nil | $ | 0.58 | September 8, 2020 | ||||||||||||
Andrée St-Germain | 300,000 | Nil | Nil | $ | 1.26 | September 18, 2018 | ||||||||||||
CFO | 46,666 | 93,333 | 93,333 | $ | 0.58 | September 8, 2020 |
[1] | Thomas M. Clay was appointed as Interim Chief Executive Officer on August 10, 2015. |
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets out information as of the end of the fiscal year ended December 31, 20142015 with respect to compensation plans under which equity securities of the Company are authorized for issuance. Subsequent to the year-end, 50,000 options have expired:issuance:
Number of Securities Remaining | |||
Number of Securities to | Weighted-Average | Available for Future Issuances | |
be Issued Upon Exercise | Exercise Price of | Under Equity Compensation Plan | |
of Outstanding Options, | Outstanding Options. | [Excluding Securities Reflected in | |
Warrants and Rights | Warrants and Rights | Column (a)] | |
Plan Category | (a) | (b) | (c) |
Equity Compensation | 750,000 | $1.29 | 6,450,000 |
Plans Approved by | |||
Security Holders | |||
Equity Compensation | Nil | Nil | Nil |
Plans Not Approved | |||
by Security Holders | |||
Total: | 750,000 | $1.29 | 6,450,000 |
Plan Category | Number of Securities to | Weighted-Average | Number of Securities Remaining (c) | |||||||||
Equity Compensation | 50,000 | $ | 1.16 | |||||||||
Plans Approved by | 150,000 | $ | 1.59 | 5,880,000 | ||||||||
Security Holders | 300,000 | $ | 1.26 | |||||||||
570,000 | $ | 0.58 | ||||||||||
Equity Compensation Plans Not Approved by Security Holders | Nil | Nil | Nil | |||||||||
Total: | 1,070,000 | $ | 0.94 | 5,880,000 |
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AGGREGATED STOCK OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
There were no stock options exercised by the Named Executive Officers during the Company’s fiscal year ended December 31, 2014.2015.
PENSION BENEFITS
The Company does not have a pension plan.
NON-QUALIFIED DEFERRED COMPENSATION
The Company does not have a deferred compensation plan.
TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS
The Company has entered into consulting or employment contracts with each of the Named Executive Officers as follows:
The Company entered into a consulting services agreement in 2004 with Mr. H. L. Klingmann, the President and Chief Executive Officer of the Company, which was amended in May of 2010. Under the original agreement, upon receipt by the Company of a feasibility study and a production decision made by the Company, a bonus of 150,000 common shares would be issued and upon commencement of commercial production on the Property, a bonus of 150,000 common shares would be issued. Pursuant to the amended agreement, an alternative 300,000 bonus shares would be issuable upon a change of control transaction or upon a sale of all or substantially all of the Company’s assets, having a value at or above C$1.00 per share of the Company, with a further 300,000 bonus shares being issuable in the event the change of control transaction or asset sale occurred at a value at or above C$1.50 per share. As at December 31, 2014, no commitment to issue the common shares has been recorded in connection with these arrangements. Subsequent to the year-end, the Company issued 150,000 common shares to Mr. Klingmann following the receipt by the Company of an updated feasibility study and a production decision having been made.
The Company entered into an employment contract on September 18, 2013 with Andrée St-Germain, the Chief Financial Officer and Corporate Secretary of the Company. Ms. St-Germain is entitled to an annual salary of C$150,000 and a one-time bonus target of C$150,000 to be payable as to 50% after six (6) months and 50% after twelve (12) months, subject to a performance review by the Compensation Committee. This bonus target was paid to Ms. St-Germain in 2014. Thereafter, Ms. St-Germain may be paid bonuses at the sole discretion of the Board. Pursuant to the contract, if Ms. St-Germain is terminated by the Company without cause during the first twelve (12) months of her employment, she will be entitled to six (6) months base salary being C$75,000. If Ms. St-Germain is terminated by the Company without cause after the first twelve (12) months of her employment, she will be entitled to twelve (12) months base salary being C$150,000. In the event that the employment of Ms. St-Germain is terminated by the Company or its successor without cause, or is terminated by Ms. St-Germain for good reason, in either case within six (6) months following a change of control, she will be entitled to receive a lump-sum severance payment equal to twenty-four (24) months base salary, being C$300,000, and two (2) times her annual bonus, being C$300,000. Ms. St-Germain’s contract continues indefinitely, unless and until terminated.
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The Company entered into a letter agreement dated April 28, 2013an employment contract on October 1, 2015 with Laurence MorrisBrenda Dayton pursuant to which Ms. Dayton was employed as the Chief Operating OfficerCorporate Secretary of the Company. UnderCompany effectively October 1, 2015. Her employment with the letter agreement, Mr. MorrisCompany will continue without fixed term. Her position as officer of the Company will be renewed annually subject to the approval of the Board. Ms. Dayton is entitled to an annual salary of $150,000 and a bonus of upC$110,000, subject to 200% of the base salary as determined onperiodic review at twelve (12) months and eighteen (18) months, and at the discretion of the Board.in accordance with Company practice. Pursuant to the agreement, in the event Mr. Morris’ employmentcontract, if Ms. Dayton is terminated in connection withby the Company without cause or terminated by Ms. Dayton for good reason, within six (6)6 months following an acquisitiona change of the Company by another unrelated company, then Mr. Morriscontrol, she will be entitled to receive a one-timelump-sum severance payment equal to her gross salary received from the Company in the twelve month period immediately preceding the date of written notice of termination payment of 100% of his base salary, being $150,000, and all of hisprovided by Ms. Dayton or the Company. Ms. Dayton is also entitled to participate in the Company’s stock options will vest immediately. Mr. Morris’ contract continues indefinitely, unless and until terminated. Mr. Morris submitted his resignation effective November 11, 2014.option plan.
REPORT OF CORPORATE GOVERNANCE
The Canadian Securities Administrators have adopted National Instrument 58-101Disclosure of Corporate Governance Practices (“NI 58-101”) and National Policy 58-201Corporate Governance Guidelines(“NP 58-201”) (the “Guidelines”), both of which came into force as of June 30, 2005 and effectively replaced the corporate governance guidelines and disclosure policies of the Exchange. NI 58-101 requires issuers such as the Company to disclose the corporate governance practices that they have adopted, while NP 58-201 provides guidance on corporate governance practices. In this regard, a brief description of the Company’s system of corporate governance, with reference to the items set out in NI 58-101 and NP 58-101 is set forth below.
The Board and management recognize that effective corporate governance is important to the direction and operation of the Company in a manner in which ultimately enhances shareholder value. As a result, the Company has developed and implemented, and continues to develop, implement and refine formal policies and procedures which reflect its ongoing commitment to good corporate governance. The Company believes that the corporate governance practices and procedures described below are appropriate for a company such as the Company.
Board of Directors
NP 58-201 recommends that boards of directors of reporting issuers be composed of a majority of independent directors. With three (3) of the five (5)four (4) current directors considered independent, the Board is currently composed of a majority of independent directors. Messrs. Klingmann andMr. Clay, in their roleshis role as President andInterim CEO and the Chairman of the Board respectively, areis not deemed independent. The Board holds regular meetings. Between the scheduled meetings, the Board meets as required. The independent directors met at several occasions to discuss the joint venture transaction. Management also communicates informally with directors on a regular basis, and solicits advice from directors on matters falling within their special knowledge or experience.
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Chairman of the Board
Thomas M. Clay, a non-independent director, was appointed Chairman of the Board on June 10, 2014. Mr. Clay’s primary roles as Chairman are to chair all meetings of the Board and to manage the affairs of the Board, including ensuring the Board is organized properly, functions effectively and meets its obligations and responsibilities. The Chairman’s responsibilities include, among other things, ensuring effective relations and communications among Board members.
The Company does not have a chairman that is independent or a lead independent director. Given the size of the Board, the Board believes that the presence of three (3) independent directors out of the five (5)four (4) directors currently on the Board, each of whom sits on the Board’s committees, is sufficient independent oversight of the Chairman of the Board and Chief Executive Officer. The independent directors work well together in the current Board structure and the Board does not believe that selecting an independent chairman or a lead independent director would add significant benefits to the Board oversight role.
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Director Meetings
The Board meets on a regular basis and holds additional meetings as considered appropriate to deal with the matters arising from developments in the business and affairs of the Company from time to time. During the fiscal year ended December 31, 2014,2015, the Board held five (5) regular meetings, including an in-person Board meeting held on site. In addition to the business conducted at such meetings, various other matters were discussed by phone and approved by written resolution signed by all members of the Board.
The Company does not have a policy with regard to Board member’s attendance at annual meetings of Shareholders.
Board Mandate
The Board is responsible for the overall stewardship of the Company. The Board discharges this responsibility directly and through the delegation of specific responsibilities to committees of the Board. The Board works with management to establish goals and strategies for the Company, to identify principal risks, to select and assess senior management and to review significant operational and financial matters.The Board’s mandate is available on the Company’s website atwww.goldenqueen.com.
Position Descriptions
The Board has developed written position descriptions for the Chairman of the Board, the Directors of the Board, each chair of each board committee, and for the Chief Executive Officer of the Company, which are available on the Company’s website atwww.goldenqueen.com.
Orientation and Continuing Education
The Company provides new directors with an overview of their role as a member of the Board and its Committees, and the nature and operation of the Company’s business and affairs. New directors also have the opportunity to discuss the Company’s affairs with legal counsel and with the Company’s independent auditors. New directors are also provided with opportunities to visit the mine site in Mojave and are invited to have discussions with the Company’s operating personnel. In 2014,2015, all of the directors visited the Soledad Mountain Project and had the opportunity to meet with local stakeholders.stakeholders and tour the project facilities.
The Company does not provide formal continuing education to its Board members, but does encourage them to communicate with management, independent auditors and consultants. Board members are also encouraged to participate in industry-related conferences, meetings and education events to maintain their skills and knowledge necessary to meet their obligations as directors of the Company.
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Code of Business Conduct
The Board has adopted a Code of Business Conduct (the “Code”), which is distributed to officers, management and employees of the Company. To ensure and monitor compliance with the Code, the Board has adopted a Whistle-blower Policy. A request for a waiver of any provision of the Code can be made in writing to the Audit Committee, however, such waiver must be approved by the Board. During the recently completed fiscal year, there was no conduct by an officer, by management or an employee that constituted a departure from the Code. The Board has also adopted a Code of Ethics for Senior Financial Officers. The Company’s Code of Business Conduct and Code of Ethics for Senior Financial Officers are available on the Company’s website atwww.goldenqueen.com.
If a director or senior officer has a material interest in a transaction or agreement being considered by the Company, such individual is precluded from voting on the matter and the Board considers such matter without the individual present.
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Assessments
Based upon the Company'sCompany’s size, its current stage of development and the number of individuals on the Board, the Board considers a formal process for assessing the effectiveness and contribution of the Board as a whole, its committees or individual directors to be unnecessary at this time. The Board and its committees meet on numerous occasions during each year, each director having regular opportunity to assess the Board as a whole, its committees, and other directors in relation to assessment of the competencies and skills that the Board as a whole, its committees and directors should possess. The Board will continue to evaluate its own effectiveness and the effectiveness of its committees and individual directors in such manner.
Board Leadership Structure
The Board does not have an express policy regarding the separation of the roles of the Chairman of the Board and Chief Executive Officer, as the Board believes that it is in the best interests of the Company to make that determination based on the position and direction of the Company and the membership of the Board. The Board has reviewed the Company’s current Board leadership structure. H. Lutz Klingmann has been the Company’s Chief Executive Officer since May 2009, while Thomas M. Clay has been the Company’s Chairman of the Board since May 2013.2013 and assumed the role of Interim Chief Executive Officer on August 10, 2015. In light of the composition of the Board, the Company’s size, the nature of the Company’s business, the regulatory framework under which the Company operates, the Company’s shareholder base, the Company’s peer group and other relevant factors, the Board believes that the current leadership structure is appropriate. Mr. Clay and Mr. Klingmann bringbrings complimentary attributes to the Company’s business operations and strategic plans and generally are focused on somewhat different aspects of the Company’s operations.
The Company does not have a lead independent director. Given the size of the Board, the Board believes that the presence of three (3) independent directors out of the five (5)four (4) directors currently on the Board, each of whom sits on the Board’s committees, is sufficient independent oversight of the Chairman of the Board and Chief Executive Officer. The independent directors work well together in the current Board structure and the Board does not believe that selecting a lead independent director would add significant benefits to the Board oversight role.
Also, the Board does not have a formal policy with respect to the consideration of diversity when assessing directors and director candidates, but considers diversity as part of its overall assessment of the Board’s functions and needs.
Board’s Role in Risk Oversight
The understanding, identification and management of risk are essential elements for the successful management of the Company. Management is charged with the day-to-day management of the risks the Company faces. However, the Board, directly and indirectly through its committees, is actively involved in the oversight of the Company’s risk management policies. The Board is charged with overseeing enterprise risk management, generally, and with reviewing and discussing with management the Company’s major risk exposure (whether financial, operating or otherwise) and the steps management has taken to monitor, control and manage these exposures, including the Company’s risk assessment and risk management guidelines and policies. Additionally, the Compensation Committee oversees the Company’s compensation policies generally, in part to determine whether or not they create risks that are reasonably likely to have a material adverse effect on the Company.
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Board Term Limits
The Company has not adopted term limits for the directors on the Board or other mechanisms of board renewal because the Company believes that the imposition of term limits for its directors may lead to the exclusion of potentially valuable members of the Board. While there is a benefit to adding new perspectives to the Board from time to time, there are also benefits to having continuity and directors having in-depth knowledge of the Company’s business. The Company’s Nominating Committee considers, among other factors, skills, experience, and tenure when identifying potential director nominees.
Gender Diversity
The Company has not adopted a written policy relating to the identification and nomination of women directors and the Company has not adopted a target regarding the representation of women on the Board or in executive officer positions. The Company’s Nominating Committee identifies, evaluates and recommends candidates to become members of the Board with the goal of creating a Board that, as a whole, consists of individuals with various and relevant career experience, industry knowledge and experience, and financial and other specialized experience, while taking diversity into account. The consideration of the level of representation of women on the Board and in executive officer positions is one factor among many that plays a role in the Company’s Nominating Committee’s decision-making process.
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As at the date hereof, there are no female directors on the Board and one (1) female executive officer (50%(33% of the total executive officers) of the Company.
Board’s Skills Matrix
The following table summarizes the particular areas of expertise for each member of the Board:
Director Name | Business Development | Corporate Governance | Finance | Risk Management | Capital Markets | Mining & | ||||||
Processing | ||||||||||||
Thomas M. Clay | X | X | X | X | X | |||||||
Bryan A. Coates | X | X | X | X | X | |||||||
Bernard Guarnera | X | X | X | X | X | |||||||
Guy Le Bel | X | X | X | X | X |
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee, a Compensation Committee, a Nominating Committee, and a TechnicalNominating Committee. Each of the Audit Committee, Compensation Committee, Nominating Committee, and TechnicalNominating Committee, is responsible to the full Board of Directors. The functions performed by these committees are summarized below:
Audit Committee. The Audit Committee considers the selection and retention of independent auditors and reviews the scope and results of the audit. In addition, it reviews the adequacy of internal accounting, financial and operating controls and reviews Golden Queen’s financial reporting compliance procedures. As of the Record Date, the members of the Audit Committee are Bryan A. Coates, Bernard Guarnera and Guy Le Bel, all independent directors.and Bernard Guarnera, each of whom is considered independent. Bryan A. Coates is the Chair and the “financial expert” of the Audit Committee. The Board of Directors has adopted a written charter for the Audit Committee. The Audit Committee charter is available on the Company’s website atwww.goldenqueen.com. During the fiscal year ended December 31, 2014,2015, the Audit Committee held four (4) meetings, during which all audit committee members were present.
As part of its oversight of our financial reporting process, the directors have: (1) reviewed and discussed with management our audited financial statements for the year ended December 31, 2014;2015; (2) received a report from BDO Canada LLP our independent auditors, on the communications pursuantmatters required to the applicable standards andbe discussed the sameby Statement on Auditing Standards No. 61, “Communications with BDO Canada LLP;Audit Committees”; (3) received the written disclosures and the letter from the auditors required by Public Company Accounting Oversight Board Rule 3526 regarding the independent accountant’s communications with the audit committee concerning independence, and discussed with the independent accountant the independent accountant’s independence; and (4) considered whether or not the provision of non-audit services by the auditors is compatible with maintaining their independence and has concluded that it is compatible at this time.
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Based on the foregoing review and discussions, the Audit Committee recommended to the Board that the audited financial statements should be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014,2015, filed with the SEC on March 16, 2015.30, 2016.
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Submitted by the Audit Committee.
Bryan A. Coates, Chair
Bernard Guarnera, Member
Guy Le Bel, Member
Compensation Committee. The Compensation Committee reviews and approves the compensation of Golden Queen’s senior management and officers, reviews and administers Golden Queen’s stock option plan and makes recommendations to the Board of Directors regarding such matters. As of the Record Date, the members of the Compensation Committee are Bernard Guarnera, Bryan A. Coates and Guy Le Bel, composed entirely of independent directors. The Board of Directors has adopted a written charter for the Compensation Committee. The Compensation Committee charter is available on the Company’s website atwww.goldenqueen.com. During the fiscal year ended December 31, 2014,2015, the Compensation Committee held one (1) meeting.two (2) meetings.
Nominating Committee. The Nominating Committee assists the Board in providing effective corporate governance. As of the Record Date, the members of the Nominating Committee are Bryan A. Coates, Bernard Guarnera and Guy Le Bel, composed entirely of independent directors. The Board of Directors has adopted a written charter for the Nominating Committee. The Nominating Committee charter is available on the Company’s website atwww.goldenqueen.com. The Nominating Committee does not have a policy with regards to the consideration of any director candidate recommend by shareholders of the Company and the Board is of the view that it is appropriate for the Company to not have such a policy at this time. During the fiscal year ended December 31, 2014,2015, the Nominating Committee did not hold a meeting.
Technical Committee. The Technical Committee reviews technical information on the Company’s Soledad Mountain project and makes recommendations to the Board. The Technical Committee was formed in March of 2014 and held two (2) formal meetings. The Board adopted a written charter for the Technical Committee in May 2014. As of the Record Date, the members of theThe Technical Committee are Guy Le Bel, Bernard Guarnera, and Lutz Klingmann.has been disbanded given the Company’s transition to production.
AUDIT COMMITTEE
Pursuant to National Instrument 52-110Audit Committees of the Canadian Securities Administrators, the Company is required to disclose annually in its Information Circular certain information concerning the constitution of its audit committee and its relationship with its independent auditor, as set forth in the following:
The primary function of the audit committee (the “Committee”) is to assist the board of directors in fulfilling its financial oversight responsibilities by reviewing (a) the financial reports and other financial information provided by the Company to regulatory authorities and shareholders; (b) the systems for internal corporate controls which have been established by the Board and management; and (c) overseeing the Company’s financial reporting processes generally. In meeting these responsibilities the Committee monitors the financial reporting process and internal control system; reviews and appraises the work of external auditors and provides an avenue of communication between the external auditors, senior management and the company’s Board. The Committee is also mandated to review all material related party transactions.
The Audit Committee’s Charter
The Company has adopted an Audit Committee Charter, the text of which can be found on the Company’s website atwww.goldenqueen.com.
Composition of the Audit Committee
The Committee is comprised of Bryan A. Coates, Bernard Guarnera, and Guy Le Bel. All of the Audit Committee members are independent and considered to be financially literate in that each Committee member has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can presumably be expected to be raised by the Company’s financial statements.
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Relevant Education and Experience
Bryan A. Coates currently serves as President of Osisko Gold Royalties since June 2014. Prior to that, he was the Vice President, Finance and Chief Financial Officer of Osisko Mining. He was responsible for all activities related to financing, financial reporting, marketing relating to the gold industry, risk management and government relations. Mr. Coates has more than 30 years of progressive experience within the international and Canadian mining industry. Mr. Coates hasCoateshas an understanding of the accounting principles used by the Company to prepare its financial statements.
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Bernard Guarnera has over 40 years of experience in the global mining industry and is currently President of Broadlands Mineral Advisory Services Ltd. Mr. Guarnera was the former Chairmanis a Director of the Board of Behre Dolbear Group Inc., a mining consulting firm founded in 1991. Mr. Guarnera hasGuarnerahas an understanding of the accounting principles used by the Company to prepare its financial statements.
Guy Le Bel is a merger and acquisitions, and business development consultant to Canadian mining companies and has over 30 years of international experience in strategic and financial planning. He currently servesmost recently served as Vice President Evaluations for Capstone Mining Corp. and is a Director of RedQuest Capital Corp. Mr. Le Bel has an understanding of the accounting principles used by the Company to prepare its financial statements.
Reliance on Certain Exemptions
Since the commencement of the Company’s most recently completed financial year, the Company has not relied on the exemptions contained in sections 2.4, 3.2, 3.3(2), 3.4, 3.5, 3.6, 3.8 or Part 8 of NI 52-110.
Audit Committee Oversight
Since the commencement of the Company’s most recently completed financial year, the Company’s Board has not failed to adopt a recommendation of the Audit Committee to nominate or compensate an external auditor.
Pre-Approval Policies and Procedures
The Audit Committee pre-approves the specific audit and non-audit engagement to the rendered by the Company’s independent auditor.
The Audit Committee has not adopted specific policies and procedures for the engagement of non-audit services. Subject to the requirements of NI 52-110, the engagement of non-audit services is considered by the Company’s Board, and where applicable the Audit Committee, on a case-by-case basis.
External Auditor Service Fees
The fees for services provided by BDO Canada LLP to us in each of the fiscal years ended 20132014 and 20142015 were as follows:
Fees | 2015[5] | 2014 | ||||||
Audit Fees[1] | C$ | 301,309 | C$ | 356,169 | ||||
Audit-Related Fees[2] | C$ | 18,960 | C$ | 26,371 | ||||
Tax Fees[3] | C$ | 64,670 | C$ | 94,299 | ||||
All Other Fees[4] | $ | Nil | $ | Nil | ||||
Total | C$ | 384,939 | C$ | 476,839 |
[1] “Audit Fees” include fees necessary to perform the annual audit of the Company’s consolidated financial statements. Audit Fees include fees for review of tax provisions and for accounting consultations on matters reflected in the financial statements. Audit Fees also include audit or other attest services required by legislation or regulation, such as comfort letters, consents, reviews of securities filings and statutory audits. Audit fees also include services related to the review of the Company’s quarterly financial reports. The 2015 audit fees include C$51,895 in fees related to quarterly reviews of the Company's consolidated financial statements and C$162,528 in fees related to the audit of the Company's 50%-owned subsidiary, GQM LLC. The 2014 audit fees include C$76,916 in fees related to quarterly reviews of the Company's consolidated financial statements. |
[2] “Audit-Related Fees” include services that are traditionally performed by the auditor. These audit-related services include employee benefit audits, due diligence assistance, accounting consultations on proposed transactions, internal control reviews and audit or attest services not required by legislation or regulation. |
Fees | 2014 | 2013 |
Audit Fees[1] | C$356,169 | C$184,308 |
Audit-Related Fees[2] | C$26,371 | C$6,955 |
Tax Fees[3] | C$94,299 | C$13,071 |
All Other Fees[4] | $Nil | $Nil |
Total | C$476,839 | C$204,334 |
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[1] “Audit Fees” include fees necessary to perform the annual audit of the Company’s consolidated financial statements. Audit Fees include fees for review of tax provisions and for accounting consultations on matters reflected in the financial statements. Audit Fees also include audit or other attest services required by legislation or regulation, such as comfort letters, consents, reviews of securities filings and statutory audits. Audit fees also include services related to the review of the Company’s quarterly financial reports. The 2014 audit fees include C$76,916 in fees related to quarterly reviews of the Company's consolidated financial statements and C$60,745 in fees related to the audit of the Company's 50%-owned subsidiary, GQM LLC. The 2013 audit fees include C$50,397 in fees related to quarterly reviews of the Company's consolidated financial statements.
[3] “Tax Fees” include fees for all tax services other than those included in “Audit Fees” and “Audit-Related Fees”. This category includes fees for tax compliance, tax planning and tax advice. Tax planning and tax advice includes assistance with tax audits and appeals, tax advice related to mergers and acquisitions, and requests for rulings or technical advice from tax authorities. |
[2] “Audit-Related Fees” include services that are traditionally performed by the auditor. These audit-related services include employee benefit audits, due diligence assistance, accounting consultations on proposed transactions, internal control reviews and audit or attest services not required by legislation or regulation.
[4] “All Other Fees” include all other non-audit services. |
[3] “Tax Fees” include fees for all tax services other than those included in “Audit Fees” and “Audit-Related Fees”. This category includes fees for tax compliance, tax planning and tax advice. Tax planning and tax advice includes assistance with tax audits and appeals, tax advice related to mergers and acquisitions, and requests for rulings or technical advice from tax authorities. Included in the 2013 tax fees is a credit memo of C$30,281 issued in 2014 for invoices issued in 2013.
[5] The final invoice for the Audit fees for the fiscal year 2015 has not yet been received and as such, those fees are not included within the table set out above. |
[4] “All Other Fees” include all other non-audit services.
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COMPENSATION COMMITTEE
Composition of the Compensation Committee
The members of the Compensation Committee during the year ended December 31, 20142015 were Bernard Guarnera who serves as the Committee’s Chairman, Bryan A. Coates, and Guy Le Bel. Each Compensation Committee member is an independent director.
Report on Executive Compensation and Compensation Discussion and Analysis
The Compensation Committee of the Board of Directors is responsible for reviewing and approving the remuneration of the senior management of the Company, including the President and Chief Executive Officer and the Chief Financial Officer.
The guiding philosophy of the Compensation Committee in the determination of executive compensation is ensuring that the Company is able to attract the best possible candidates for management positions, given the high level of competition for competent management in the mining industry, and to align the interests of management with those of the Company’s shareholders.
The Company’s executive compensation policies are designed to recognize and reward individual contribution, performance and level of responsibility and ensure that the compensation levels remain competitive with other precious metals development and mining companies. The key components of total compensation are base salary and incentives.
The Compensation Committee has no formal process for determining appropriate base salary ranges. Currently the Company pays compensation in the form of a base salary to its PresidentInterim Chief Executive Officer and its Chief Financial Officer. The base salary to the PresidentInterim Chief Executive Officer was based on a proposal from the President,Chief Financial Officer, which was accepted by the Company after considering his experience and expected responsibility and contribution to the Company. The base salary of the Chief Financial Officer was negotiated based on industry comparables and the Chief Financial Officer’s experience.
Stock options are granted to senior management to align the financial interests of management with the interests of shareholders of the Company and to encourage senior management to focus on strategies and results that enhance shareholder value in the longer term. The number of options to purchase Common Shares granted to each individual will depend largely on his level of responsibility and contribution to the Company’s performance.
The Compensation Committee is responsible for considering the appropriateness and effectiveness of the Company’s executive compensation policies, given prevailing circumstances. Although the shareholder vote on executive compensation, which is submitted to shareholders every three (3) years, is non-binding, the Compensation Committee will review the voting results in connection with the on-going evaluation of the Company’s compensation program.
The Compensation Committee may not delegate any of its authority to other persons.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee served as an officer or employee of the Company during the fiscal year ended December 31, 20142015 (or subsequently). No current member of the Compensation Committee formerly served as an officer of the Company, and none of the current members of the Compensation Committee have entered into a transaction with the Company in which they had a direct or indirect interest that is required to be disclosed pursuant to Item 404 of Regulation S-K.
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Compensation Committee Report
The Compensation Committee hereby reports to the Board that, in connection with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014,2015, and this Proxy Statement, we have:
reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of SEC Regulation S-K; and
· | reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of SEC Regulation S-K; and |
· | based on such review and discussion, we recommend to the Board that the Compensation Discussion and Analysis be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and this Proxy Statement on Schedule 14A. |
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Submitted by the Compensation Committee.
Bernard Guarnera, Chair
Bryan A. Coates, Member
Guy Le Bel, Member
PERFORMANCE GRAPH
The performance graph depicts the Company’s cumulative total Shareholder returns over the five (5) most recently completed financial years based on an initial investment of $100 in the Company’s Common Stock, compared to an equal investment in the S&P/TSX Global Gold Index. The Company does not currently issue dividends. The Common Stock performance as set out in the graph does not necessarily indicate future Common Stock price performance.
December 31, | December 31, | December 31 | December 31 | December 31, | |
2010 | 2011 | 2012 | 2013 | 2014 | |
Value Based on $100 Invested in GQM on December 31, 2010 | $100 | $101 | $80 | $30 | $37 |
Value Based on $100 Invested in S&P/TSX Global Gold Index on December 31, 2010 | $100 | $86 | $72 | $37 | $35 |
December 31, 2011 | December 31, 2012 | December 31, 2013 | December 31, 2014 | December 31, 2015 | ||||||||||||||||
Company | $ | 100 | $ | 79 | $ | 29 | $ | 36 | $ | 25 | ||||||||||
S&P/TSX Global Gold Index (TITTGD) | $ | 100 | $ | 84 | $ | 42 | $ | 40 | $ | 36 |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Policy regarding transactions with management and others
Pursuant to its written charter, our Audit Committee has the responsibility to review all related party transactions on an ongoing basis.
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Transactions with management and others
The following is in addition to disclosure contained elsewhere herein respecting transactions involving management.
On July 26, 2013, the Company entered into agreements to issue convertible debentures for aggregate proceeds of C$10,000,000 ($9,710,603). The convertible notes arewere unsecured and bearbore interest at 2% per annum, calculated on the outstanding principal balance, payable annually. The principal amounts of the notes arewere convertible into shares of the Company at a price of C$1.03 per share for a period of two years. IfThe Company agreed to pay the notes are not convertedlegal fees incurred by the holder priorlenders relating to the maturity date, thenthis instrument which amounted to $10,049. On July 24, 2015, the Company may convert them at the lowerrepaid its C$10.0 million ($7.7 million) convertible debenture and accrued interest of C$1.03 or the market price as at the maturity date. The market price on the maturity date will be determined based on the volume-weighted average price of the shares traded on the Toronto Stock Exchange for the five trading days preceding the maturity date. 200,000 ($153,500).A total of C$7,500,000 of the offering was subscribed for by an investment vehicle managed by Thomas M. Clay, a Director and insider of the Company.
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On January 1, 2014, the Company entered into an agreement to secure a $10,000,000 loan (the “January Loan”“January 2014 Loan”). The January 2014 Loan iswas provided by members of the Clay family, who are shareholders of the Company, including $7,500,000 to be provided by an investment vehicle managed by Thomas M. Clay, a Director and insider of the Company. The January 2014 Loan hashad a twelve-month term and bears an annual interest rate of 5%, payable on the maturity date. If the
The January 2014 Loan iswas repaid on a date that is less than 183 days before the maturity date,date. As a result, the Company will paypaid the Lenders an additional charge in the amount of 105%that is equivalent to 5% of the principal amount, plus interest on the principal amount at the rate of 5% per annum accrued to the date the January 2014 Loan iswas repaid. The January Loan wasCompany repaid in full$7,500,000 loan plus the $375,000 accrued interest and $375,000 additional charge on the maturity date from the proceeds of new loan agreements with the lenders. For more detail, see the descriptionDecember 31, 2014. The remaining balance of the December 31, 2014 transaction below.
On June 9, 2014, Golden Queen announced it had entered into an agreement with Gauss LLC (“Gauss”) to form a joint venture to developloan, $2,500,000, the accrued interest of $125,000 and operate the Project. Atadditional charge of $125,000, were paid on January 5, 2015. In total, the Company’s special meeting of shareholders held on September 9, 2014, the Company’s shareholders voted overwhelminglyCompany incurred $500,000 in support of the resolution approving the Joint Venture Transaction. The Joint Venture Transaction subsequently closed on September 15, 2014. Pursuantinterest expense and $500,000 in additional charge related to the agreement, the Company converted its wholly-owned subsidiary, Golden Queen Mining Co,, Inc. that was developing the Project, into a California limited liability company; Golden Queen Mining Company, LLC (“GQM LLC”). On closing of the Joint Venture Transaction, Gauss acquired 50% of GQM LLC in exchange for a $110 million investment. Golden Queen Mining Holdings, a newly incorporated subsidiary of Golden Queen holds the other 50% of GQM LLC. Gauss is a funding vehicle owned by entities controlled by Leucadia National Corporation (“Leucadia”) and certain members of the Clay family (the “Clay Group”), a shareholder group, which, at the time of the Joint Venture Transaction, collectively owned approximately 27% of the issued and outstanding shares of Golden Queen. Gauss is owned 67.5% by Gauss Holdings LLC (Leucadia’s investment entity) and 32.5% by Auvergne LLC (“Auvergne”, the Clay Group’s investment entity).January 2014 Loan.
In July 2014, Golden Queen Mining Co., Inc. (the predecessor of GQM LLC) entered into an agreement for a $10,000,000 short-term loan (the “Advance”) with Leucadia and Auvergne,with the Company as guarantor. Leucadia provided $6,500,000 and Auvergne provided $3,500,000 of the Advance respectively. The Advance had an interest rate of 10.0% per annum, compounded monthly. Auvergne is managed by Thomas M. Clay, a Director and insider of the Company. On closing of the Joint Venture Transaction on September 15, 2014, GQM LLC applied part of the investment of $110,000,000 to repayment of principal and accrued interest on the Advance.
On December 31, 2014 the Company also entered into an agreement with members of the Clay family to secure a $12,500,000new loan (the ““December 2014 Loan”) with the same parties for an amount of $12,500,000. The December 2014 Loan”) including approximately $9,375,000 provided by an investment vehicle managed by Thomas M. Clay. Golden Queen issued two (2) promissory notes, each was due on demand on July 1, 2015 withand bore an annual interest rate of 10.0%,10% payable quarterly onat the first business dayend of each quarter. A portionThe loan was guaranteed by GQM Holdings, and secured by a pledge of the proceedsCompany's interests in GQM Canada, GQM Canada’s interest in GQM Holdings and GQM Holdings' 50% interest in GQM LLC. The Company also incurred a financing fee to secure the loan in the amount of $1,000,000, of which, $750,000 was paid on December 31, 2014 and the remaining $250,000 was paid on January 5, 2015. The Company agreed to pay the legal fees incurred by the lenders relating to this instrument which amounted to $90,916. The total legal fees paid for the transaction were $118,695. The Company also agreed to provide the lenders with the option for certain registration rights whereby the Company would bear the costs and responsibility of registering the lenders common shares for the purposes of disposition subsequent to July 1, 2015. The Company has determined it is unlikely the registration option would be exercised and therefore has not accrued any potential costs related to the registration of the common shares. The Company has presented these transaction costs as a contra liability as substantially all of these costs were paid to the lenders.
On June 8, 2015, the Company amended the December 2014 Loan to extend the maturity to December 8, 2016 and increased the principal amount from $12,500,000 to $37,500,000 (the “June 2015 Loan”). The Company also issued 10,000,000 common share purchase warrants exercisable for a period of five years expiring June 8, 2020. The common share purchase warrants have an exercise price of $0.95. All other terms remained the same as the December 2014 Loan. The Company also incurred a financing fee to secure the loan in the amount of $1,500,000, all of which was usedpaid on June 8, 2015. The Company agreed to retirepay the January Loan, including principal, accrued interest and an additional charge, for an aggregate payment of approximately $11,000,000. Golden Queen paidlegal fees incurred by the lenders relating to this instrument which amounted to $46,408. The legal fees were expensed as the transaction met the definition of a closing fee of $1,000,000, and the balancedebt extinguishment. The terms of the proceedsregistration rights remains unchanged as does the Company’s assessment of the likelihood of the registration rights being exercised. As such, as of December Loan will be used31, 2015, no accrual has been made for expenses and general corporate purposes.the potential costs related to the registration rights.
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INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past ten years, none of the persons currently serving as executive officers and/or directors of the Company has been the subject matter of any of the following legal proceedings that are required to be disclosed pursuant to Item 401(f) of Regulation S-K including: (a) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two (2) years prior to that time; (b) any criminal convictions; (c) any order, judgment, or decree permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; (d) any finding by a court or the SEC to have violated a federal or state securities or commodities law, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud; or (e) any sanction or order of any self-regulatory organization or registered entity or equivalent exchange, association or entity. Further, no such legal proceedings are believed to be contemplated by governmental authorities against any director or executive officer.
Other than as disclosed herein, the Company is not aware of any claims, actions, proceedings or investigations pending against the Company, any director, officer or affiliate of the Company, any owner of record or beneficially of more than five percent (5%) of the Common Stock, or any associate of any such director, officer, affiliate of the Company, or security holder that, individually or in the aggregate, are material to the Company. Neither the Company nor its assets and properties is subject to any outstanding judgment, order, writ, injunction or decree that has had or would be reasonably expected to have a material adverse effect on the Company. Furthermore, the Company is not aware of any threatened lawsuits.
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To the best of our knowledge, there are no legal actions pending, threatened or contemplated against the Company or GQM LLC, other than what is noted below.
The Center for Biodiversity Petition to List the Mohave Shoulderband Snail as an Endangered Species
On January 31, 2014, the Center for Biological Diversity (the “(“CenterCBD”) filed an emergency petition (the “Petition”) with the United States Fish and Wildlife Service (“USFWS”) asking the USFWS to list the MojaveMohave Shoulderband snail as a threatened or endangered species. Citing a report published more than 80 years ago, the Petition claims that the snail exists in only three places, and that most of the snail habitat occurs on Soledad Mountain, where the Company is developing its fully permitted mining operation, known locally as the Soledad Mountain Project.
On April 22, 2014, the Company learned that the USFWS had determined that there is no emergency to justify listing the Mohave Shoulderband snail as threatened or endangered under theEndangered Species Act of 1973, as amended. The USFWS has reviewed the Petition filed by the Center and has concluded that there is no imminent threat to the snail that would cause them to believe an emergency listing is required.
Even though an emergency listing was not warranted, the USFWS is required by the Endangered Species Act to continue processing the listing petition. On April 10, 2015, the USFWS announced the commencement of a 60-day public comment period as part of its decision to study the merits of the assertions made in the Petition. As USFWS states in its notice, taking this step does not mean that a listing will be warranted at the end of the 12-month study period.
The Company worked with its environmental and legal advisors to prepare a detailed response to the petition, which was filed with the USFWS on March 31, 2014. The Company’s response is available on the Company’s website at www.goldenqueen.com.www.goldenqueen.com.
On April 22, 2014, the Company learned that the USFWS had determined that there is no emergency to justify listing the Mohave Shoulderband snail as threatened or endangered under the Endangered Species Act of 1973, as amended. The USFWS reviewed the petition filed by the CBD and concluded that there was no imminent threat to the snail that would cause them to believe an emergency listing was required.
Even though an emergency listing was not warranted, the USFWS is required by the Endangered Species Act to continue processing the listing petition. A public comment period on the petition commenced on April 10, 2015 for a period of 60 days. On September 9, 2015, the USFWS and the CBD entered into a Stipulated Settlement Agreement that established a 12 Month Finding date of April 11, 2016.
In November 2015, the Company, the USFWS, and the CBD entered into a Memorandum of Understanding under which the USFWS and the CBD agreed to defer the 12 Month Finding date to June 30, 2017, and the Company agreed not to disturb until June 30, 2017 certain points on Soledad Mountain where snails or snail shells had been identified. The Company, the USFWS, and the CBD have jointly selected a third party environmental consultant that will conduct a survey to better understand the snail’s range and distribution on Soledad Mountain before the USFWS prepares its 12 Month Finding. Surveying is anticipated to take place between the fall of 2016 and the spring of 2017.
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The Project has received all necessary regulatory approvals. The decisionongoing review by the USFWS to engage in a study does not affect the Project’s regulatory approvals or preventinterfere with the Project from moving forward.Project’s operation. The November 2015 Memorandum of Understanding caused no material adjustments to the Project’s mine plan. The Company believes that conservation of the snail can be accomplished without material adjustments to the Project’s mine plan, but if the USFWS ultimately finds that the snail is ‘endangered’ or ‘threatened’ and no agreed conservation plan is established, material adjustments to the Project’s mine plan may be required.
During the second quarter of 2014, the
National Labor Relations Board
The Company filed a complaintcharge with the National Labor Relations Board (the “NLRB”) against the Building and Construction Trades Council of Kern, Inyo, and Mono Counties (the “Union”). on May 23, 2014. The complaintcharge was in response to the action taken by the Union related to a 1997 project labor agreement (the “(“PLA”) that the Company believes is not applicable to the current Project and in any event, unenforceable under federal labor law.
The NLRB informed the Company that the NLRB’s General Counsel had found in favor of the Company in the above matter in early October 2014. The NLRB next informed the Company that the Union had decided not to sign the Settlement Agreement offered by the NLRB. The NLRB has issued a Complaint against the Union withand the matter was heard by Administrative Law Judge (“ALJ”) John McCarrick in June 2015. In December 2015 ALJ McCarrick issued his Decision finding that the PLA violates Section 8(e) of the National Labor Relations Act and is therefore unenforceable. The Union is in the process of appealing that Decision to the NLRB in the role of prosecutor. In the case the NLRB, Region 31, will be acting as a representative of the NLRB General Counsel and will be prosecuting this unfair labor practice charge against the Union.Washington, D.C.
A Field Attorney for the NLRB reported that he had his first substantive conversation with legal counsel for the Union
Complaint on December 4, 2014. The Field Attorney explored the possibility of a settlement whereby the Union would agree not to enforce the 1997 PLA. Legal counsel for the Union indicated that they were not interested in a settlement because the Unions believed that the PLA was lawful and enforceable. The Field Attorney then asked the Company’s legal counsel about the possibility of a “non-Board” settlement, meaning a settlement between the Company and the Union. Our legal counsel’s response was that we had made several attempts to settle this issue and a likelihood of a settlement at this point was low. A hearing with the NLRB originally scheduled for February 2, 2015 has now been set for June 22, 2015.Alleged Short-swing Trading Profits
We received notice that a complaint was filed on April 22, 2015 in United States District Court, District of Massachusetts seeking recovery pursuant Section 16(b) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), of alleged short-swing trading profits. The complaint was filed by Ryan T. Darby, as plaintiff, and named Landon T. Clay, a shareholder of the Company (“Clay”), and the Company as defendants, anddefendants. The plaintiff alleges that Mr. Clay realized short-swing profits in connection with transactions in Company securities within a period of six month periods. There can be no assurance thatmonths. The Company and the Plaintiff have entered into an agreement to settle the claims. Under the agreement, the Company will receive any funds as a resultagree to adopt certain changes to its existing Section 16 policies and procedures and pay legal fees of this suit. Although$185,000 to Plaintiff’s counsel. A Motion to Dismiss with prejudice the Company is only a nominal defendant in this action time and money may be required to resolve it. The Company is unable to predict the timing or outcome of this litigation. Each of Mr.has been filed. Clay and the Company believeshave, and continue to, expressly deny that either or both have committed any act or omission giving rise to any liability and/or violation of law.
In conjunction with the allegations are without meritJune 2015 Loan, as defined elsewhere herein, the Company agreed to indemnify the Clay Group and intendtheir affiliates for up to vigorously defend$350,000 in legal expenses (not damages) incurred in defense of complaints brought against the claims.lenders and their affiliates by shareholders of the Company under Section 16 of the Exchange Act. The legal fees reimbursed by the Company currently amount to $345,572, including the $185,000 in legal fees paid to the plaintiff’s counsel.
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SHAREHOLDER COMMUNICATIONS
Shareholders can send communicationswho are interested in communicating directly with members of the Board, or the Board as a group, may do so by writing directly to the individual Board member or the Board generally care of Directors by email at info@goldenqueen.comthe Corporate Secretary, GOLDEN QUEEN MINING CO. LTD., Suite 2300 – 1066 West Hastings Street, Vancouver, British Columbia, Canada, V6E 3X2. The Company’s Secretary will forward communications directly to the appropriate Board member. If the correspondence is not addressed to a particular Board member, the communication will be forwarded to a Board member to bring to the attention of the Board. The Company’s Secretary will review all communications prior to forwarding them to the appropriate Board member. The Board has requested that items unrelated to the duties and responsibilities of the Board, such as junk mail and mass mailings, business solicitations, advertisements and other commercial communications, surveys and questionnaires and resumes or throughother job inquiries, not be forwarded.
SHAREHOLDER PROPOSALS
Pursuant to the Company’s website atwww.goldenqueen.com.
PROPOSALS OF SHAREHOLDERS
Nominations andrules of the Securities Exchange Act, shareholder proposals which shareholders wishintended to be considered for inclusion in the Proxy Statement and proxy card for the 20162017 Meeting of Shareholders of the Company, and to be included in the Company’s proxy materials for the proxy materials for the 2017 annual meeting of the Shareholders of the Company, must be received by the Corporate Secretary of Golden Queen by December 1, 2015,2016, and must comply with the requirements of Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and Division 7 of Part 5 of the B.C. Business Corporations Act. After this date, any shareholder nomination or proposal will be considered untimely. The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any nomination or proposal that does not comply with these and other applicable requirements. If the Company changes the date of next year’s annual meeting by more than thirty days from the date of this year’s meeting, then the deadline is a reasonable time before the Company begins to print and mail its proxy materials.
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OTHER BUSINESS
Management is not aware of any matters to come before the Meeting other than those set forth in the Notice of Meeting. If any other matter properly comes before the Meeting, it is the intention of the person named in the proxy to vote the shares represented thereby in accordance with their best judgment on such matter.
ANNUAL REPORT ON FORM 10-K
A copy of Golden Queen’s combined annual report to shareholders and annual report on Form 10-K for the year ended December 31, 2014 accompanies this Proxy Statement and is in the form annexed to this Proxy Statement as Appendix “A”. An additional copy will be furnished without charge to beneficial shareholders or shareholders of record upon request to Investor Relations, Golden Queen Mining Co. Ltd. At 2300 - 1066 West Hastings Street, Vancouver, BC V6E 3X2.
ADDITIONAL INFORMATION
Additional information relating to the Company is available on the Company’s website atwww.goldenqueen.com, on SEDAR atwww.sedar.comand on EDGAR atwww.sec.gov. The Company will furnish to Shareholders, mayfree of charge, a hard copy of the Company’s financial statements and management’s discussion and analysis and/or a hard copy of the Company’s Annual Report on Form 10K for the fiscal year ended December 31, 2015 upon request additional copies by (i) mail to: 2300 – 1066 West Hastings Street, Vancouver, BC V6E 3X2 or (ii) telephone to: (778) 373-1557.
373-1557 or (iii) email to:info@goldenqueen.com. Financial information is provided in the Company’s comparativeannual financial statements and management’s discussion and analysis for its most recently completed financialfiscal year.
Dated at Vancouver, British Columbia,
OTHER MATERIAL FACTS
There are no other material facts to the knowledge of the Board relating to the matters for which this 28thdayCircular is issued which are not disclosed herein.
CERTIFICATE
The foregoing contains no untrue statement of April, 2015.a material fact and does not omit to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. The contents and the sending of this Circular have been approved by the Board.
BY ORDER OF THE BOARD OF DIRECTORS THIS22ND DAY OF APRIL 2016.
APPENDIX “A”
U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31,
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ 0-21777 (Commission File Number)
GOLDEN QUEEN MINING CO. LTD. (Name of registrant in its charter)
Issuer’s telephone number: Securities registered under Section 12(b) of the Exchange Act:None Securities registered under section 12(g) of the Exchange Act:Common shares without par value Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Large accelerated filer Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: Indicate the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date: DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement for the Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K, which Proxy Statement is to be filed within 120 days after the end of the registrant's fiscal year ended December 31,
Form 10-K Table of Contents
References to the “Company”, “Golden Queen”, “we”, “us”, “our” and words of similar meaning refer to Golden Queen Mining Co. Ltd. The U.S. dollar (“$") is used in this Form 10-K and quantities are reported in Imperial units with Metric units in brackets.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this Form 10-K and the documents incorporated by reference herein constitute forward-looking information and forward-looking statements within the meaning section 27A of the Securities Act of 1933 (as amended), section 21E of the Securities Exchange Act of 1934 (as amended), the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation (collectively “forward-looking statements”). The use of any of the words “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “projected”, “propose”, “should”, “believe”, “intend”, “subject to” and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements included in this Form 10-K and the documents incorporated herein by reference should not be unduly relied upon. References in this Form 10-K are to December 31, In particular, this Form 10-K and the documents incorporated herein by reference contain forward-looking statements pertaining to the following:
With respect to forward-looking statements contained in this Form 10-K and the documents incorporated by reference herein, assumptions have been made regarding, among other things:
Actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth below and elsewhere in this Form 10-K and in the documents incorporated by reference:
Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this Form 10-K and documents incorporated by reference herein are expressly qualified by this cautionary statement. Except as required under applicable securities laws, the Company does not undertake or assume any obligation to publicly update or revise any forward-looking statements. CAUTIONARY NOTE The Company uses Canadian Institute of Mining, Metallurgy and Petroleum definitions for the terms “proven reserves”, “probable reserves”, “measured resources”, “indicated resources” and “inferred resources”. U.S. investors are cautioned that while these terms are recognized and required by Canadian regulations, including National Instrument 43-101Standards of Disclosure for Mineral Projects (“NI 43-101”), the U.S. Securities and Exchange Commission (“SEC”) does not recognize them. Canadian mining disclosure standards, including NI 43-101, differ significantly from the requirements of the SEC and SEC Guide 7, and reserve and resource information contained or incorporated by reference in this Form 10-K and in the documents incorporated by reference herein may not be comparable to similar information disclosed by companies reporting under U.S. standards. In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserve”. Under United States standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SEC’s disclosure standards normally do not permit the inclusion of information concerning “measured mineral resources”, “indicated mineral resources” or “inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by U.S. standards in documents filed with the SEC. U.S. investors should also understand that “inferred mineral resources” have a great amount of uncertainty as to their existence and as to their economic and legal feasibility. It cannot be assumed that all or any part of an “inferred mineral resource” will ever be upgraded to a higher category. Under Canadian rules, estimated “inferred mineral resources” may not form the basis of pre-feasibility or feasibility studies. Investors are cautioned not to assume that all or any part of an “inferred mineral resource” exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource estimate is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as tonnage and grade without reference to unit measures. The requirements of NI 43-101 for identification of “reserves” are also not the same as those of the SEC, and reserves in compliance with NI 43-101 may not qualify as “reserves” under SEC standards. Accordingly, information contained in this Form 10-K and the documents incorporated herein by reference contain descriptions of our mineral deposits that may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the U.S. federal securities laws and the rules and regulations thereunder. SeeItem 1A. Risk Factors.
In addition, financial information in this Form 10-K and the Company’s financial statements is presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The Company’s financial statements have been prepared in accordance with U.S. GAAP, and are subject to Public Company Accounting Oversight Board (United States), (“PCAOB”)
We estimate and report our resources and we will estimate and report our reserves according to the
NI 43-101 Definitions
inferred mineral resource– an
Qualified Person
SEC Industry Guide 7 Definitions:
development stage – a development stage project is one which is undergoing preparation of mineralized material – mineralized material is material that is not included in the reserve as it does not meet all of the criteria for adequate demonstration for economic or production stage – a production stage project is actively engaged in the process of extraction and beneficiation of mineral reserves to produce a marketable metal or mineral product. reserve – a reserve is that
Additional definitions for terms currently or previously used in Advance minimum royalty - Payment made before the start of commercial production under a mining lease agreement with landholders. Ag –The chemical symbol for silver. Au –The chemical symbol for gold. Block model – The representation of geologic units using three-dimensional blocks of pre-determined sizes. CIM – Canadian Institute of Mining, Metallurgy and Cut-off grade – When determining economically viable mineral reserves, the lowest grade of mineralized material that qualifies as ore, i.e. that can be mined at a profit. Diamond drill – A type of rotary drill in which the cutting is done by abrasion rather than by percussion. The drill cuts a core of rock which is recovered in long cylindrical sections. Fault- A fracture in the earth’s crust caused by tectonic forces with displacement along the fracture. Feasibility study – A study or group of studies that determine the economic viability of a given mineral occurrence. g/t or gpt – Grams per metric tonne. Grade –A term used to assign metal value to resources and reserves, such as gram per tonne (g/t) or troy ounces per ton (oz/ton). Grades are reported both in Imperial
Gravity– A methodology using instrumentation allowing the accurate measuring of the difference between densities of various geological units in situ. Heap leaching –A process which uses dilute sodium-cyanide solutions to percolate through run-of-mine or crushed ore heaped on lined pad to dissolve gold and/or silver.
Mineral–Anaturallyformed chemical element or compound having a definite chemical composition and, usually, a characteristic crystal form. Mineralization – A natural occurrence in rocks or soil of one or more metal yielding minerals. Mineral deposit –A mineralized body, which has been intersected by a sufficient number of drill holes or by underground workings to give an estimate of grade(s) of metal(s) and thus to warrant further exploration or development. A mineral deposit does not qualify as a commercially viable mineral deposit with reserves under standards set by the U.S. Securities and Exchange Commission until a final, comprehensive, economic, technical and legal feasibility study has been completed. Mining – The process of extraction and beneficiation of mineral reserves to produce a marketable metal or mineral product. Exploration continues during the mining process and, in many cases, mineral reserves are expanded during the life of the mine operations as the exploration potential of the deposit is realized. National Instrument 43-101 orNI 43-101 – Canadian standards of disclosure for mineral projects. NSR – A net smelter returns royalty, which is customarily calculated by subtracting from gross revenues a deduction for calculated mill recoveries, transport costs of any concentrates to a smelter, treatment and refining charges, and other deductions at the smelter and multiplying that result by the prescribed rate. Open pit – Surface mining in which the ore is extracted from a pit or quarry, the geometry of the pit may vary with the characteristics of the ore body. Ore -A natural aggregate of one or more minerals which, at a specified time and place, may be mined and processed and the product(s) sold at a profit or from which some part may be profitably separated. Preliminary feasibility study and pre-feasibility study – As defined in NI 43-101, each mean a comprehensive study of the viability of a mineral project that has advanced to a stage where the mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, has been established and an effective method of mineral processing has been determined, and includes a financial analysis based on reasonable assumptions of technical, engineering, legal, operating, economic, social, and environmental factors and the evaluation of other relevant factors which are sufficient for a qualified person, acting reasonably, to determine if all or part of a mineral resource may be classified as a mineral reserve. Porphyry or porphyritic– An igneous rock characterized by visible crystals in a fine–grained matrix. Quartz – a mineral composed of silicon dioxide, SiO2 (silica). Reclamation – The process by which lands disturbed as a result of mining activity are modified to support beneficial land use.Reclamation activity may include the removal of buildings, equipment, machinery and other physical remnants of mining, closure of tailings storage facilities, leach pads and other mine features, and contouring, covering and re-vegetation of waste rock and other disturbed areas. SEC Industry Guide 7 – U.S. reporting guidelines that apply to registrants engaged or to be engaged in significant mining operations. Strike – The direction, or bearing from true north, of a vein or rock formation measured on a horizontal surface. Vein – a thin, sheet like crosscutting body of hydrothermal mineralization, principally quartz.
General Development of Business The Company was incorporated under the laws of the Province of British Columbia, Canada in November 1985 and has been exploring The Company acquired its initial interest in the As a result of the changes made in connection with the Joint Venture and the incorporation of GQM Canada, the names, place of formation and ownership of the Company’s subsidiaries and the Project as at March
The registered office of the Company is located at 1200 - 750 West Pender Street, Vancouver, BC, Canada V6C 2T8 and its executive offices are located at Significant Developments in Project Update The Company engaged Mine Development Associates (“MDA”) in late 2014 to update the Project's geological model from first principles and to provide an updated mineral resource
Major construction projects completed in 2015, include the Phase 1, stage 1 heap leach pad, the crushing-screening plant and Merrill-Crowe plant, Assay lab, workshop & warehouse, roads and access ramps, power and water supply, conveying and stacking system. The Company
Commissioning of the crushing-screening plant started in the fourth quarter of 2015 and the first gold pour occurred on March 1, 2016. Commercial production
There are a number of risks associated with the Project and readers are urged to consider these risks and possible other risks, in order to obtain an understanding of the Project (seeItem 1A. Risk Factors below).
The JV Agreement also provides for future funding requirements, if needed, and dilution of member interests on a
Following closing of the Joint Venture Transaction, Golden Queen has been treating GQM LLC as a variable interest entity (“VIE”), with Golden Queen considered to be the primary beneficiary. A VIE is an entity in which the investor, Golden Queen, holds a controlling interest, or in this case, is a primary beneficiary, that is not based on the majority of the voting rights. As a result, Golden Queen continues to reflect 100% of the financial results of GQM LLC in its consolidated financial statements, along with a non-controlling interest representing Gauss’ 50% interest in GQM LLC.
Financing– Loans On
On October 1, 2015 and January 1, 2016, the Company chose to Financial Information by Segment and Geographic Area The Company has a single reportable operating segment, and all mining operations and assets are located in the United States. SeeItem 6. Selected Financial Data,Item 7. Management’s Discussion and Analysis of Financial Conditionand Results of Operationsand the attached financial statements for all financial information. Competitive Conditions
The Company and GQM LLC compete with other mining companies in the recruitment and retention of qualified managerial and technical employees, for supplies and equipment, as well as for capital. As a result of this competition in the mining industry, some of which is with large established mining companies with substantial capabilities and with greater financial and technical resources than ours, we may be unable to effectively develop and operate the Project or obtain financing on terms we consider acceptable.
Environmental Regulation Our current and planned operations are subject to state and federal environmental laws and regulations. Those laws and regulations provide strict standards for compliance, and potentially significant fines and penalties for non-compliance. These laws address emissions, waste discharge requirements, management of hazardous substances, protection of endangered species and reclamation of lands disturbed by mining. Compliance with environmental laws and regulations requires significant time and expense, and future changes to these laws and regulations may cause material changes or delays in the development of our Project or our future activities on site. SeeEnvironmental Issues, Permits & Approvals below for a detailed description of the effects of federal, state and local environmental regulations and permitting on the Company, GQM LLC and the Project, as well asItem Employees As of March
Available Information We make available, free of charge, our annual report on Form 10-K, our quarterly reports on Form 10-Q and any amendments to those reports, on our website at
The following is a Operational Risks
Unless otherwise indicated, mineral resource and reserve figures presented in this Annual Report on Form 10-K and in our filings with securities regulatory authorities, press releases and other public statements that may be made from time to time, are based upon estimates made by independent consulting geologists and mining engineers. Estimates can be imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling, which may prove to be unreliable. We cannot assure you that the estimates are accurate or that mineralized materials from the Assumptions about silver and gold market prices are subject to great uncertainty as those prices have fluctuated widely in the past. Declines in the market prices of silver and gold may render reserves containing relatively lower grades of ore uneconomic to exploit, and the Company may be required to reduce reserve estimates, discontinue development or mining at one or more of its properties or write down assets as impaired. Should GQM LLC encounter mineralization or geologic formations at the Project different from those predicted, it may adjust its reserve estimates and alter its mining plans. Either of these alternatives may adversely affect the Company’s actual production and financial condition, results of operations and cash flow. As production at the Project proceeds, mineral resources and reserves may require The mineral resource and reserve estimates contained in this Form 10-K have been determined and valued based on assumed future prices for gold and silver, cut-off grades and operating costs that may prove to The estimates of production rates, costs and financial results contained in the 2015 feasibility study and any future guidance of production rates offered by the Company The 2015 feasibility study provides estimates and projections of future production, costs and financial results of the
There are significant financial and operational risks associated with
The financial results of GQM LLC
Any of these hazards and risks can materially and adversely affect, among other things, There are operational risks for which insurance coverage is not available at affordable rates or at all, and the occurrence of any material adverse event for which there is no insurance coverage may decrease financial performance of GQM LLC, or may impede or prevent ongoing operations GQM LLC currently maintains insurance within ranges of coverage consistent with industry practice in relation to some of these risks, but there are certain risks against which GQM LLC cannot insure, or against which GQM LLC cannot maintain insurance at affordable premiums. Insurance against environmental risks (including pollution or other hazards resulting from the disposal of waste products generated from production activities) is not generally available to GQM LLC. If subjected to environmental liabilities, the costs incurred would reduce funds available for other purposes, and GQM LLC may have to suspend operations or undertake costly interim compliance measures to address environmental issues. Any such events would be expected to have a significant detrimental impact on the value of our interest in GQM LLC and our common stock.
Silver and Silver and gold mining involves significant production and operational risks, including those related to uncertain mineral exploration success, unexpected geological or mining conditions, the difficulty of development of new deposits, unfavorable climate conditions, equipment or service failures, unavailability of or delays in installing and commissioning plants and equipment, import or customs delays and other general operating risks.
Commencement of mining can reveal mineralization or geologic formations, including higher than expected content of other minerals that can be difficult to separate from silver, which can result in unexpectedly low recovery rates. Problems may also arise due to the quality or failure of locally obtained equipment or interruptions to services (such as power, water, fuel or transport or processing capacity) or technical capital expenditure to achieve expected recoveries. Many of these production and operational risks are Land reclamation requirements for our properties may be burdensome and expensive Reclamation requirements are imposed on GQM LLC in order to minimize long term effects of land disturbance, and this includes a requirement to re-establish pre-disturbance land forms. In order to carry out reclamation obligations imposed on GQM LLC in connection with development activities, GQM LLC must allocate financial resources that might otherwise be spent on further exploration and development. GQM LLC has set up and plans to set up a provision for our reclamation obligations on the Project, as appropriate, but this provision may not be adequate. If GQM LLC is required to carry out unanticipated reclamation work, our financial position could be adversely affected. Sale of Aggregate We have not included contributions from the sale of aggregate in the 2015 feasibility study cash flow projections. However, aggregate sales over a period of thirty years are important for the Project as it will permit GQM LLC to meet its closure and reclamation requirements. If no sale of waste rock as aggregate is ever achieved, the initial mine life is expected to be reduced. The mining industry is intensely competitive As a result of competition in the mining industry, some of which is with large established mining companies with substantial capabilities and with greater financial and technical resources than ours, GQM LLC may be unable to effectively develop the Project or obtain financing on terms we consider acceptable. We compete with other mining companies in the recruitment and retention of qualified managerial and technical employees. If we are unable to successfully compete for qualified employees, GQM LLC’s production of minerals from the Project may
We are subject to significant governmental regulations, which affect our operations and costs of conducting our business
GQM LLC’s current and future operations are and will be governed by laws and regulations, including, among others, those relating to:
Companies engaged in
Existing and possible future laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation, could have a material adverse impact on GQM LLC’s business and cause increases in capital expenditures or require abandonment or delays in development of the
GQM LLC’s activities are subject to California state and federal environmental laws and regulations that may increase the costs of doing business and restrict operations GQM LLC’s current and planned operations are subject to state and federal environmental laws and regulations. Those laws and regulations provide strict standards for compliance, and potentially significant fines and penalties for non-compliance. These laws address air emissions, waste discharge requirements, management of hazardous substances, protection of endangered species and reclamation of lands disturbed by mining. Compliance with environmental laws and regulations requires significant time and expense, and future changes to these laws and regulations may cause material changes or delays in the U.S. Federal Laws: The Comprehensive Environmental, Response, Compensation, and Liability Act (CERCLA), and comparable state statutes, impose strict, joint and several liability on current and former owners and operators of sites and on persons who disposed of or arranged for the disposal of hazardous substances found at such sites. It is not uncommon for the government to file claims requiring cleanup actions, demands for reimbursement for government incurred cleanup costs, or natural resource damages, or for neighbouring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances released into the environment. The Federal Resource Conservation and Recovery Act (RCRA), and comparable state statutes, govern the disposal of solid waste and hazardous waste and authorize the imposition of substantial fines and penalties for noncompliance, as well as requirements for corrective actions. CERCLA, RCRA and comparable state statutes can impose liability for clean-up of sites and disposal of substances found on exploration, mining and processing sites long after activities on such sites have been completed. The Clean Air Act, as amended, and comparable state statutes, restrict the emission of air pollutants from many sources, including mining and processing activities. GQM LLC’s mining operations may produce air emissions, including fugitive dust and other air pollutants from stationary equipment, storage facilities and the use of mobile sources such as trucks and heavy construction equipment, which are subject to review, monitoring and/or control requirements under the Clean Air Act and comparable state air quality laws. New facilities may be required to obtain permits before work can begin, and existing facilities may be required to incur capital costs in order to remain in compliance. In addition, permitting rules may impose limitations on GQM LLC’s production levels or result in additional capital expenditures in order to comply with the rules. The Clean Air Act and comparable state statutes provide for civil, criminal and administrative penalties for unauthorized emissions of pollutants.
The Clean Water Act (CWA), and comparable state statutes, impose restrictions and controls on the discharge of pollutants into waters of the United States, or to the surface or ground waters of the state. The CWA regulates storm water runoff from mining facilities and requires a storm water discharge permit for certain activities. Such a permit requires the regulated facility to monitor and sample storm water run-off from its operations. The CWA and comparable state statutes provide for civil, criminal and administrative penalties for unauthorized discharges of pollutants and impose liability on parties responsible for those discharges for the costs of cleaning up any environmental damage caused by the release and for natural resource damages resulting from the release. Violation of these regulations and/or contamination of groundwater by mining related activities may result in fines, penalties, and remediation costs, among other sanctions and liabilities under state laws. In addition, third party claims may be filed by landowners and other parties claiming damages for alternative water supplies, property damages, and bodily injury. The Endangered Species Act and comparable state laws are designed to protect critically imperiled species from extinction as a consequence of development. GQM LLC filed a response to statements made in a petition filed on January 31, 2014 with the United States Fish and Wildlife Service (USFWS), which petition sought to list the Mojave Shoulderband snail as a threatened or endangered species (seeItem 3. Legal Proceedings in this report for additional information). In April 2014, USFWS concluded that there was no imminent threat to the snail that would cause them to believe an emergency listing was required, but that USFWS may address the petition in the future, subject to funding. Under the Endangered Species Act if the USFWS determines that the petition contains information that the species is imperiled, it then will proceed with a 90 day screening process to determine if the petition presents substantial information to support listing the subject species as endangered, and if such information exists, the USFWS has a further 12 month period to conduct a detailed assessment of the listing request to approve or deny the listing. The existence of any species listed as endangered under those laws, including as a result of the petition, on Project lands that are to be disturbed as part of the development and operation of the Project could increase the costs associated with the Project or require changes or limitations to the planned project development.
California Laws: At the state level, mining operations are also regulated by the California Department of Conservation, Office of Mine Reclamation. State law requires mine operators to hold a permit, which dictates operating controls and closure and post-closure requirements directed at protecting surface and ground water. In addition, state law requires operators to have an approved mine reclamation plan. Local ordinances require the operators to hold Conditional Use Permits. These permits mandate concurrent and post-mining reclamation of mines and require the posting of reclamation financial assurance sufficient to guarantee the cost of closure and reclamation. Any changes to these laws and regulations could have an adverse impact on our financial performance and results of operations by, for example, requiring changes to operating constraints, technical criteria, fees or financial assurance requirements. Regulations and pending legislation governing issues involving climate change could result in increased operating costs A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to various climate change interest groups and the potential impact of climate change. Legislation and increased regulation regarding climate change could impose significant costs on GQM LLC and its suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting and other costs to comply with such regulations. Given the current emotion, political significance and uncertainty around the impact of climate change and how it should be dealt with, we cannot predict how legislation and regulation will affect our financial condition and operating performance. Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by GQM LLC or other companies in our industry could harm our reputation. The potential physical impacts of climate change on our operations are highly uncertain, and may include changes in rainfall and storm patterns and intensities, water shortages and changing temperatures. These impacts may adversely impact the cost, production and financial performance of our operations.
Title to the Property may be subject to other claims, which could affect our property rights There are risks that title to the Property may be challenged or impugned. The Property is located in California and may be subject to prior unrecorded agreements or transfers and title may be affected by undetected defects. There may be valid challenges to the title to the Property which, if successful, could affect development of the Project and/or operations. This is particularly the case in respect of those portions of the Property in which GQM LLC holds its interest solely through a lease with landholders, as such interests are substantially based on contract and have been subject to a number of
GQM LLC holds a number of unpatented mining claims created and maintained in accordance with the General Mining Law of 1872 (the “General Mining Law”). Unpatented lode mining claims and millsites are unique property interests, and are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented mining claims is often uncertain. This uncertainty arises, in part, out of the federal laws and regulations under the General Mining Law. Also, unpatented mining claims may be subject to possible challenges by third parties or validity contests by the federal government. The validity of an unpatented mining claim or millsite, in terms of both its location and its maintenance, is dependent on strict compliance with a body of U.S. federal law. Should the federal government impose a royalty or additional tax burdens on the properties that lie within public lands, the resulting mining operations could be seriously impacted, depending upon the type and amount of the burden. Legislation has been proposed in the past that could significantly affect the mining industry Members of the United States Congress have repeatedly introduced bills which would supplant or alter the provisions of the United States General Mining Law. If enacted, such legislation could change the cost of holding unpatented mining claims and could significantly impact our ability to mine mineralized material on unpatented mining claims. Such bills have proposed, among other things, to either eliminate or greatly limit the right to a mineral patent and to impose a federal royalty on production from unpatented mining claims. Although we cannot predict what legislated royalties might be, the enactment of these proposed bills could adversely affect GQM LLC’s potential to mine mineralized material on unpatented mining claims. Passage of such legislation could adversely affect our financial performance. GQM LLC may incur increased construction costs if a 1997 project labor agreement is found to be enforceable The Company filed a complaint with the National Labor Relations Board (the “NLRB”) against the Building and Construction Trades Council of Kern, Inyo, and Mono Counties (the “Union”) on May 23, 2014. Refer to Item 3. Legal Proceedingsfor complete details. Financial Risks Our financial statements contain a qualification as to our ability to continue as a going concern due primarily to the need to repay or refinance our current indebtedness due in December of 2016, which is not assured Until such time as GQM LLC can economically produce and sell gold and silver from the Project and distribute cash to its members, we will continue to have no cash flow from our ownership interest in GQM LLC and will continue to incur an operating deficit. As at December 31, 2015, excluding any cash held by GQM LLC and inclusive of GQM Holdings, we had cash of approximately $6.1 million and current liabilities of approximately $37.1 million, including secured debt with a related party lender which is due in December of 2016. The ability of the Company to continue as a going concern requires that we obtain new financing to replace our current debt obligations or are able to refinance with the existing lenders. Our ability to obtain new financing is dependent on a number of factors including cash flow from operations that are distributed from GQM LLC to the Company, equity market conditions, the market for precious metals, and the willingness of other parties to lend the Company money.
The Company must meet any future cash contribution requirements if required under the terms of the JV Agreement with Gauss LLC, or face dilution of its ownership interest in the Project, which could impact our stock value and our ability to meet stock exchange listing requirements We hold a 50% interest in the Project pursuant to the terms of the JV Agreement. If in the future there are unexpected costs that require additional capital contributions from us under the terms of the JV Agreement, we will need to raise additional funds in order to maintain our 50% interest in the Project, otherwise we will have our interest diluted to below 50% which will likely have an adverse impact on the price of our common shares. In addition, to the extent our ownership interest of GQM LLC remains our sole business and asset, if we are diluted below 50% ownership we could fail to meet the listing requirements of the TSX and be delisted from the TSX and unable to list on a suitable alternate stock exchange. In such an event the market for our securities would be limited to the US over-the-counter market and related quotation services, being currently the OTCQX in the case of the Company. The anticipated impact of such a delisting will be to reduce venues for trading in our securities, a reduction in available market information, a reduction in liquidity, a decrease in analyst coverage of our securities, and a decrease in our ability for us to obtain additional financing to fund our operations. GQM LLC’s results of operations, cash flows and operating costs are highly dependent upon the market prices of silver and gold and other commodities, which are volatile and beyond the Company’s control. Silver and gold are exchange-traded commodities, and the volatility in gold and silver prices is illustrated by the following table, which sets forth, for the periods indicated (calendar year), the average annual market prices in U.S. dollars per ounce of gold and
Silver and gold prices are affected by many factors including U.S. dollar strength or weakness, prevailing interest rates and returns on other asset clauses, expectations regarding inflation, speculation, global currency values, governmental decisions regarding the disposal of precious metal stockpiles, global and regional demand and production, political and economic conditions and other factors. In addition, Exchange Traded Funds (“ETFs”), which have substantially facilitated the ability of large and small investors to buy and sell precious metals, have become significant holders of gold and silver. Factors that are generally understood to contribute to a decline in the prices of silver and gold include a strengthening of the U.S. dollar, net outflows from gold and silver ETFs, bullion sales by private and government holders and global economic conditions and/or fiscal policies that negatively impact large consumer markets. Because GQM LLC is expected to derive all of its revenues from sales of silver and gold, its results of operations and cash flows will fluctuate as the prices of these metals increase or decrease. A period of significant and sustained lower gold and silver prices would materially and adversely affect Operating costs at the Project are also affected by the price of input commodities, such as fuel, electricity, labour, chemical reagents, explosives, steel and concrete. Prices for these input commodities are volatile and can fluctuate due to conditions that are difficult to predict, including global competition for resources, currency fluctuations, consumer or industrial demand and other factors. Continued volatility in the prices of commodities and other supplies the Company purchases could lead to higher costs, which would adversely affect results of operations and cash flows. Investment Risks Holders of common shares may suffer dilution as a result of any equity financing by us in order to reduce or repay current indebtedness
We require additional capital to repay our current indebtedness, and we may be required to seek funding, including through the issuance of equity based securities. We cannot predict the size or price of any future financing to raise capital, and any issuance of common shares or other instruments convertible into equity. Any additional issuances of common shares or securities convertible into, or exercisable or exchangeable for,
We have been reflecting 100% of the financial results of GQM LLC in our consolidated financial statements based on certain assumptions of management, which assumptions, if incorrect, may require us to account for the Joint Venture differently Our financial statements are prepared on the basis that GQM LLC meets the requirements for accounting treatment as a variable interest entity with the Company being considered as the primary beneficiary. As a result, we continue to reflect 100% of the financial results of GQM LLC in our consolidated financial statements, along with a non-controlling interest held by Gauss LLC representing a 50% interest in GQM LLC. Although no individual investor holds a controlling financial interest in GQM LLC, GQM LLC is controlled by a related party group. Accordingly, one member of the group must be identified as the primary beneficiary. As the member of the related party group most closely associated with GQM LLC, Golden Queen has determined it is the primary beneficiary. Future changes in the capital or voting structure of GQM LLC could change that outcome. If this is the case, the presentation of the information in Golden Queen’s financial statements would change, which could be perceived negatively by investors, and There are differences in U.S. and Canadian practices for reporting mineral resources and reserves We generally report mineral resources and reserves in accordance with Canadian practices. These practices differ from the practices used to report resource and reserve estimates in reports and other materials filed with the SEC. It is Canadian practice to report measured, indicated and inferred mineral resources, which are generally not permitted in disclosure filed with the SEC by United States issuers. In the United States, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. United States investors are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be converted into reserves. Further, “inferred mineral resources” have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Disclosure of “contained ounces” is permitted disclosure under Canadian regulations, however, the SEC only permits issuers to report “resources” as in place, tonnage and grade without reference to unit measures. The Company’s future growth will depend upon its ability to Mines have limited lives based on proven and probable ore reserves. The Company’s ability to
We believe that we may bea “passive foreign investment company”for the We generally will be designated as a “passive foreign investment company” under the meaning of Section 1297 of the United States Internal Revenue Code of 1986, as amended (a “PFIC”) if, for a tax year, (a) 75% or more of our gross income for such year is “passive income” (generally, dividends, interest, rents, royalties, and gains from the disposition of assets producing passive income) or (b) if at least 50% or more of the value of our assets produce, or are held for the production of, passive income, based on the quarterly average of the fair market value of such assets. United States shareholders should be aware that we believe we were classified as a PFIC during our tax year ended December 31,
Two of our directors namely, Bryan A. Coates and Guy Le Bel Our directors and officers may have conflicts of interest as a result of their relationships with other companies Our directors and officers are, or may in the future be, directors, officers or shareholders of other companies that are similarly engaged in the business of acquiring, developing and exploiting natural resource properties. Consequently, there is a possibility that our directors and/or officers may be in a position of conflict in the future. Members of the Clay family own a substantial interest in Golden Queen and are represented on our board of directors, and thus may exert significant influence on our corporate affairs and actions, including those submitted to a shareholder vote Thomas M. Clay, a director of the Company is a member of the Clay Group. The Clay Group also controls Auvergne, which holds a
Members of the Clay family have also provided the Company with a loan of
Our share price may be volatile and as a result you could lose all or part of your investment In addition to volatility associated with equity markets in general, the value of your investment could decline due to the impact of any of the following factors upon the market price of our common shares:
Over the past few years, stock markets have experienced extreme price and volume fluctuations and the market prices of securities have been highly volatile. These fluctuations are often unrelated to operating performance and may adversely affect the market price of our common shares. As a result, you may be unable to resell your shares at a desired price.
Because our common shares trade at prices below $5.00 per share, and because we will not be listed on a national U.S. exchange, there are additional regulations imposed on U.S. broker-dealers trading in our shares that may make it more difficult for you to buy and resell our shares through a U.S. broker-dealer. Because of U.S. rules that apply to shares with a market price of less than $5.00 per share, known as the “penny stock rules”, investors will find it more difficult to sell their securities in the U.S. through a U.S. broker dealer. The penny stock rules will probably apply to trades in our shares. These rules in most cases require a broker-dealer to deliver a standardized risk disclosure document to a potential purchaser of the securities, along with additional information including current bid and offer quotations, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the customer’s account, and to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.
Item 1B. Unresolved Staff Comments Not applicable. Land Ownership and Mining Rights The Company acquired its initial property interests in 1985 and has since acquired additional properties in the area. GQM LLC holds directly or controls via agreement a total of 33 patented lode mining claims, A Project location map is shown in Figure 1
Figure 1
GQM LLC holds the properties either directly or under mining lease agreements with a number of individual landholders, two groups of landholders and three incorporated entities. The land required for the Project has therefore either been secured under one of the mining lease agreements or is controlled by GQM LLC through ownership of the land in fee or where GQM LLC owns or holds patented and unpatented mining claims or Fee land surrounding Section 6 is required for the construction of the ancillary facilities for a mining operation, for the construction of the heap leach pad and for construction of two pads for storing quality waste rock. The area that will be disturbed by the Project is a 912 acre block (369 hectare) within the total area of approximately 1,700 acres (689 hectares) owned, held or controlled by GQM LLC. GQM LLC also owns GQM LLC
Record of The
The basis for GQM LLC’s royalty map is now the Record of Survey and this has superseded all earlier versions of the royalty map.
Royalties GQM LLC is required to make advance minimum royalty payments under the
Property Interests Are In Good Standing A number of mining lease agreements expired in
Other mining Project Background The Project is located approximately 5 miles (8
Geology The Soledad Mountain mineral deposit is hosted in a volcanic sequence of porphyritic rhyolite, quartz latites and bedded pyroclastics that occur on a large dome-shaped feature, called Soledad Mountain, along the margins of a collapsed caldera. Higher-grade precious metals mineralization is associated with steeply dipping, epithermal veins, which occupy faults and fracture zones that cross cut the rock units and generally trend northwest. The veins are contained within siliceous envelopes of lower-grade mineralization that forms the bulk of the mineral resource. The primary rock types that occur on the Property are porphyritic rhyolite, flow-banded rhyolite, quartz latite, pyroclastics and siliceous vein material. Clay occurs in variable amounts and the rocks contain upwards of 60% silica as
Mineral Resource Estimates The Company engaged Mine Development Associates (“MDA”) to redo the Project’s geological resource model from first principles and to provide updated mineral resource estimates in 2014.
The modeling and mineral resource estimates were completed To complete the mineral resource estimates, the drill data was evaluated statistically, gold and silver mineral domains were interpreted independently on cross sections spaced at 50-ft (15 m) and 100-ft (30 m) intervals that span the extents of the presently defined deposit, and the mineral domains were refined on level plans spaced at 20-ft (6 m) intervals. The final modeled mineral domains were then coded into a 20 ft x 20 ft x 20 ft (6 m x 6 m x 6 m) block model and used to constrain the gold and silver grade estimations.
The mineral resource estimates are summarized in the table below: 2015 Mineral Resource Estimates Provided by MDA (100% Basis)
See“Cautionary note The gold-equivalent relationship The mineral resource estimates were prepared in compliance with the disclosure and reporting requirements set forth in the Canadian Securities Administrators’ NI 43-101, Companion Policy 43-101CP, and Form 43-101F1, as well as with the Canadian Institute of Mining, Metallurgy and Petroleum’s “CIM Definition Standards - For Mineral Resources and Reserves, Definitions and Guidelines” (“CIM Standards”) adopted by the CIM Council on May 10, 2014. The
Note that mineral resources that are not mineral reserves do not have demonstrated economic viability.
Mineral Reserve Estimates Norwest Corporation (“Norwest) completed the feasibility level open pit designs and scheduling for the 2015 updated feasibility study and provided the proven and probable reserve estimates shown in the table below: 2015 Mineral Reserve Estimates Provided By Norwest (100% Basis)
See“Cautionary note
The mineral reserves estimates are included in the measured and indicated mineral resource estimates set out in the table in the section Mineral Resource Estimatesabove. Detailed information on the open pit design and other information is provided in the sectionOpen Pit Designand the sections that follow on all aspects of the open pit operation. 2015 Drilling Program and Exploration Potential GQM LLC completed an infill drill program in 2015. The main objective of the infill drill program was to enhance GQM LLC's understanding of the Northwest Pit and Main Pit Phase 1 mineralization. Additional geological targets have been identified on the Property. These targets are generally peripheral The exploration work to date has focused on known fault/vein structures central to the deposit. The volcanic host The continuity of mineralization at depth remains untested.
2015 Independent Feasibility Study The Company engaged Kappes, Cassiday & Associates (“KCA”) and Norwest to prepare an updated feasibility study and economic analysis for the Project based upon current information in December 2014. The base case cash flow analysis is done on a constant United States dollar, after-tax, stand-alone Project basis. Gold and silver prices used to model the base case cash flows are $1,250.00/oz and $17.00/oz, respectively, and these The Project has an indicated after-tax internal rate of return (“IRR”) on capital employed of 28.3%. The after-tax net present value (“NPV”) is $214 million with a discount rate of 5.0% and the undiscounted, cumulative net cash flow after tax is approximately $342 million. A 5.0% discount rate is reasonable for a project at this stage and is in-line with standard industry practices. By comparison, at an 8.0% discount rate, the after-tax NPV is $160 million. The indicated contribution of gold and silver to gross revenues is 88% and 12% respectively at current gold and silver prices with an average total cash cost per ounce of gold produced, net of silver credits, of $518/oz. The Project generates positive cash flow in the first year of production and reaches cumulative positive cash flow in the fourth year of production. Cash flows remain positive each year through the mine life.
Project After-Tax NPV with Changing Metal Prices
Of note is that only 65% of the resource estimate has been included in the current mine design. Successful infill drill programs and expanding the Approved Project Boundary could
A report on the 2015 feasibility study entitled “Soledad Mountain Project Technical Report and Updated Feasibility Study” dated February 25, 2015 in the form required by NI 43-101 Feasibility Study Capital and Operating Cost Estimates The 2015
Detailed operating costs estimates were prepared with information provided by vendors of services and supplies such as diesel fuel and explosives, reagents such as cement and sodium-cyanide and operating supplies and spare parts for both the major mining equipment and support equipment and equipment in the various processing facilities. The operating cost estimates were reviewed by KCA and Norwest and confirmed as being reasonable.
The
Open Pit Operation Standard, open pit mining methods
The 2015 Feasibility Study estimated the total quantity of ore to be mined, crushed and screened and stacked on the heap leach pads
The initial mine life is projected to be 12 years.
Closure, Reclamation and Financial Assurance Closure and reclamation will be
Reclamation will proceed concurrently where feasible, but is nonetheless expected to require two years following ending of mining and all aggregate operations, and a further three years of post-closure monitoring. Monitoring will continue until the reclamation success criteria are met. Revegetation Sites have been revegetated successfully elsewhere in the California deserts,
Financial Assurances GQM LLC is required to provide the following financial assurances for the Project:
Cleanup on Site The Company has done extensive cleanup on site since 2006 at a cost of approximately $550,000 and GQM LLC is continuing Environmental, Safety and Health Policy GQM LLC has an Environmental, Safety and Health Policy and a management system to implement the Policy. The Company prepared a Cyanide Management Plan for the Project and became a signatory to the International Cyanide Management Code in 2013. The Code was developed under the auspices of the United Nations Environment Program and the International Council on Metals and the Environment. The International Cyanide Management Institute, a non-profit organization, administers the Code. Signatories to the Code commit to follow the Principles set out in Code and to follow the Standards of Practice. Companies are expected to design, construct, operate and decommission their facilities consistent with the requirements of the Code and must have their operations audited by an independent third party. Audit results are made public. To the best of our knowledge, there are no legal actions pending, threatened or contemplated against the Company or GQM LLC, other than what is noted below.
The Center for Biodiversity Petition to List the Mojave Shoulderband Snail as an Endangered Species
On January 31, 2014, the Center for Biological Diversity (“CBD”) filed an The Company worked with its environmental and legal advisors to prepare a detailed
On April 22, 2014, the Company
Even though an emergency listing was not warranted, the USFWS is required by the Endangered Species Act to continue processing the listing petition. On April 10, 2015, the USFWS announced the commencement of a 60-day public comment period as part of its decision to study the merits of the assertions made in the petition. As USFWS states in its notice, taking this step does not mean that a listing will be warranted at the end of the 12-month study period. The Project has received all necessary regulatory approvals. The decision by the USFWS
Other Legal Matters
National Labor Relations Board The Company filed a
The NLRB Complaint on Alleged Short-swing Trading Profits We received notice that a complaint was filed on April 22, 2015 in United States District Court, District of
In conjunction with the
Item 4. Mine Safety Disclosures GQM LLC is the operator of the Project, which is located in Mojave in Kern County, California. The Company and GQM LLC have no mine safety violations to report.
Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities Market and Trading Price The common shares of the Company are listed and traded on the Toronto Stock Exchange under the trading symbol “GQM”. The high and low sales prices of the common shares as traded on the Toronto Stock Exchange for the calendar periods indicated are set out in the table below. All prices are reported in Canadian dollars.
Exchange Rates The following table sets forth, for the periods indicated, certain exchange rates based on the noon buying rate in Canadian dollars. Such rates are the number of Canadian dollars per one (1) U.S. dollar quoted by the Bank of Canada. The high and low exchange rates for each month during the previous six months were as follows:
Exchange rate information (from U.S.$ to Canadian $), based on the closing rates, as at each of the years ended December 31,
As of March
The high and low sales prices of the common stock as traded on the OTCQX for the calendar periods indicated are set out in the table below. All prices are reported in U.S. dollars.
Dividends The Company has not declared dividends on its common shares since inception. Securities Authorized for Issuance Under Compensation Plans The following table sets forth information as at December 31,
Performance Graph The performance graph below shows the Company’s cumulative total return based on an initial investment of $100 in GQM common stock, as compared with the S&P/TSX Global Gold Index. The chart shows performance marks as of the last trading day during each of the last five years ended December 31.
Purchases of Equity Securities by the Company and Affiliated Purchasers Neither the Company nor an affiliated purchaser of the Company purchased common shares of the Company in the year ended December 31, Item 6. Selected Financial Data The following table summarizes certain selected consolidated financial data of the Company and should be read in conjunction withItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation and the consolidated financial statements and notes thereto (for the applicable period) appearing elsewhere in this report.
Results for the five most recent years are set out in the table below.
* - Net income (loss) for the period attributable to the Company. For more information of the assets and liabilities specific to GQM LLC, the variable interest entity, see Note 8 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation The following discussion of the operating results and financial condition of the Company should be read in conjunction with the audited, consolidated financial statements of the Company for the year ended December 31, The information in this Management Discussion and Analysis of Financial Condition and Results of Operation is prepared in accordance with U.S. generally accepted accounting principles and all amounts herein are in U.S. dollars unless otherwise noted. Results of Operation The following are the results of operation for the year ended December 31, The Company had no revenue from The Company incurred general and administrative expenses of The following significant general and administrative expenses were incurred during the year with a comparison to expenses in
The Company For the year ended December 31, 2015, the Company The amount of the Company’s derivative liability includes the convertible debentures issued in 2013 and the warrants issued in conjunction with the June 2015 Loan. The Company recorded a
Interest income of The Company recorded
* Net income (loss) for the
Summary of Quarterly Results Results for the eight most recent quarters are set out in the table below:
* - Net income (loss) for the period attributable to the Company. For the quarters illustrated in the above table, the main For fiscal 2015, the Company experienced a loss related to its derivative liabilities in the amount of $101,749 (2014 – Loss of $5,747,376) in the first quarter whereas it recorded a gain of $2,568,849 (2014 – Gain of $1,634,681) during the second quarter. The second quarter gain was however off-set by higher interest expenses and a one-time financing fee of $1,500,000 paid in connection with the June 2015 Loan. In the third quarter of 2015, the Company experienced a loss of $598,770 (2014 – Gain of $2,861,314) related to the derivative liabilities. Adding to the losses for the three months ended September 30, 2015 was the interest expense and amortization of the discount on the June 2015 loan and the convertible debenture and the interest expense related to the Komatsu loans. In the fourth quarter of 2015, the Company experienced a gain of $1,465,895 (2014 – Gain of $2,255,598) related to the derivative liabilities. This gain was partially off-set by interest expense and amortization of the discount on the June 2015 loan and the interest expense related to the Komatsu loans. For fiscal 2014, the Company experienced a significant loss related to its derivative liabilities in the amount of $5,747,376 (2013 – Gain of $611,949) in the first quarter whereas the second, third and fourth quarters of 2014 resulted in gains of $1,634,681 (2013
In general, the results of operations can vary from quarter to quarter depending upon the nature, timing and cost of activities undertaken during the quarter, whether or not the Company incurs gains or losses on foreign exchange or grants stock options, and the movements in its derivative liability. Reclamation Financial Assurance and Asset Retirement Obligation Reclamation Financial Assurance The Company In addition to the above, the Company is required to obtain and maintain financial assurance for initiating and completing corrective action and remediation of a reasonably foreseeable release from the Project’s waste management units as required by the Lahontan Regional Water Quality Control Board (the “Regional Board”). The reclamation financial assurance estimate for 2015 is $278,240 (December 31, 2014 - $Nil). Subsequent to year-end, the Company received approval to have the financial assurance amounts released and have the assurance replaced with surety bond agreements to cover the financial assurance. The Company pays a yearly premium. Asset Retirement Obligation The total asset retirement obligation The Company estimated its asset retirement obligations based on its understanding of the requirements to reclaim and clean-up its property based on its activities to date. Property Rent Payments The Company has acquired a number of mineral properties outright. It has acquired exclusive rights to explore, develop and mine other portions of the Project under various mining lease agreements with landowners. The Company is required to make property rent payments related to its mining lease agreements with landholders, in the form of advance minimum royalties. The total property rent payments for the year ended December 31, There are multiple third party landholders and
Mine Development Commitments and Contractual Obligations As of December 31, 2015, GQM LLC has entered into contracts for construction totaling approximately
See Note 12 of audited consolidated annual financial statements for further details on the GQM LLC’s contractual obligations as of December 31,
GQM LTD’s contractual obligations as of December 31, 2015 are shown in the table
Off-balance Sheet Arrangements The Company has no off-balance sheet arrangements. Stock Option Plan The Company’s current stock option plan (the “Plan”) was adopted by the Company in 2013 and approved by shareholders of the Company in 2013. The Company also adopted a house keeping amendment to the plan on April 27, 2015 to clarify the procedure for fixing the earlier termination date of stock options. The Plan provides a fixed number of 7,200,000 common shares of the Company that may be issued pursuant to the grant of stock options. The exercise price of stock options granted under the Plan shall be determined by the Company’s board of directors (the “Board”), but shall not be less than the volume-weighted, average trading price of the Company’s shares on the Toronto Stock Exchange (the “TSX”) for the five trading days immediately prior to the date of the grant. The expiry date of a stock option shall be the date so fixed by the Board subject to a maximum term of five years. The Plan provides that the expiry date of the vested portion of a stock
The Company
On September Company’s independent directors on September 4, 2013. The options are exercisable at a price of $1.59 for a period of five years from the date of grant and vest immediately. The Company granted the aggregate amount of 430,000 options on September 8, 2015 to the Company’s directors. The options are exercisable at a price of $0.58 for a period of five years from the date of grant and vest immediately. At the same time, the Company granted 140,000 options to Ms. Andrée St-Germain at an exercise price of $0.58. The amount of 46,666 options vest immediately, 46,667 options vest 12 months from the grant date, and a further 46,667 options vest 24 months from the grant date. The Company recorded stock-based compensation of $159,001 during the year ended December 31, 2015 related to the issuance of the stock options. A total of 1,070,000 (976,667 exercisable) (December 31, 2014 – 750,000 Transactions with Related Parties Consulting Fees For the year ended December 31, During the year ended December 31,
Convertible Debentures On July 26, 2013, the Company entered into agreements to issue convertible debentures for aggregate proceeds of C$10,000,000 ($9,710,603) A total of C$7,500,000 of the offering was subscribed for by an investment vehicle managed by Thomas M. Clay, a Director and insider of the Company. The Company agreed to pay the legal fees incurred by the lenders relating to this instrument which amounted to $10,049.
The conversion feature of the convertible debentures As a result, the conversion feature of the notes On The fair value of the derivative liability related to the conversion feature
The changes in the derivative liability related to the conversion feature are as follows:
The change in the convertible debentures is as follows:
During the year ended December 31, Notes Payable On January 1, 2014, the Company entered into an agreement to secure a $10,000,000 loan (the “January 2014 Loan”). The January 2014 Loan was provided by members of the Clay family, who are shareholders of the Company, including $7,500,000 provided by an investment vehicle managed by Thomas M. Clay, a Director and insider of the Company. The January 2014 Loan had a twelve-month term and an annual interest rate of 5%, payable on the maturity date.
The January 2014 Loan was repaid on a date that is less than 183 days before the maturity date. As a result, the Company paid the Lenders an additional charge in the amount that is equivalent to 5% of the principal amount, plus interest on the principal amount at the rate of 5% per annum accrued to the date the January 2014 Loan On December 31, 2014 the Company also entered into a new loan (the “December 2014 Loan”) with the same parties for an amount of $12,500,000. On June 8, 2015, the Company amended the December 2014 Loan to extend the maturity to December 8, 2016 and increased the principal amount from $12,500,000 to $37,500,000 (the “June 2015 Loan”). The Company also issued 10,000,000 common share purchase warrants exercisable for a period of five years expiring June 8, 2020. The common share purchase warrants have an exercise price of $0.95. All other terms remained the same as the December 2014 Loan. The Company also incurred a financing fee to secure the loan in the amount of $1,500,000, all of which was paid on June 8, 2015. The Company agreed to pay the legal fees incurred by the lenders relating to this instrument which amounted to $46,408. The legal fees were expensed as the transaction met the definition of a debt extinguishment. The terms of the registration rights remains unchanged as does the Company’s assessment of the likelihood of the registration rights being exercised. As such, as of December 31, 2015, no accrual has been made for the potential costs related to the registration rights.
Interest payable relating to the June 2015 Loan as at December 31, 2015 was $969,645 (December 31, 2014 - $250,000 – of which $125,000 was interest expense and $125,000 related to the additional charge for the January 2014 Loan). Share Purchase Warrants On June 8, 2015 the Company issued 10,000,000 share purchase warrants to the Clay family in connection with the June 2015 Loan. The share purchase warrants are exercisable until June 8, 2020 at an exercise price of $0.95. Included in the June 2015 Loan agreement was an anti-dilution provision. If the Company were to complete a financing at a share price lower than the exercise price of the share purchase warrants, the exercise price of the share purchase warrants would be adjusted to match the price at which the financing was completed. The share purchase warrants meet the definition of a derivative liability instrument as the exercise price is not a fixed price as described above. Therefore, the settlement feature does not meet the “fixed-for-fixed” criteria outlined in ASC 815-40-15. The fair value of the derivative liability related to the share purchase warrants as at December 31, 2015 is $2,498,269 (December 31, 2014 - $Nil). The derivative liability was calculated using an acceptable option pricing valuation model with the following assumptions:
The change in the derivative share purchase warrants is as follows:
Advance In July 2014, GQM Inc.
Amortization of Discounts and Interest Expense The following table summarizes the amortization of discounts and interest on loans and convertible debentures: .
The Company’s loans were contracted to fund significant development costs. The Company capitalizes a portion of the interest expense as it related to funds borrowed to complete development activities at the Project site.
Joint Venture Transaction
On September 15, 2014, the Company closed the Joint Venture Transaction with
Gauss is a funding vehicle owned by entities controlled by Leucadia National Corporation (NYSE: LUK) (“Leucadia”) and certain members of the Clay family, a shareholder group which collectively owned approximately 27% of the issued and outstanding shares of Golden Queen (the “Clay Group”) at the time of the transaction. Gauss is owned 70.51% by Gauss Holdings LLC (“Gauss Holdings”, Leucadia’s investment entity) and 29.49% by Auvergne LLC (“Auvergne”, the Clay Group’s investment entity). Pursuant to the transaction, Leucadia was paid a transaction fee of $2,000,000 and $275,000 was paid to Auvergne through GQM LLC in 2014. The Company has adopted an accounting policy of expensing these transaction costs. Variable Interest Entity In accordance with ASC 810-10-30, the Company has determined that GQM LLC meets the definition of a VIE and that the Company is part of a related party group that, in its entirety, would meet the definition of a primary beneficiary. Although no individual variable interest holder individually meets the definition of a primary beneficiary in the absence of the related party group, Golden Queen has determined it is considered the member of the related party group most closely associated with GQM LLC. As a result, the Company has consolidated 100% of the accounts of GQM LLC in these consolidated financial statements, while presenting a non-controlling interest portion representing the 50% interest of Gauss in GQM LLC on its balance sheet. A portion of the non-controlling interest has been presented as temporary equity on the Company’s balance sheet representing the initial value of the non-controlling interest that could potentially be redeemable by Gauss in the future. The net assets of GQM LLC as of December 31, 2015 and December 31, 2014 are as follows:
Included in the assets above, is $31,531,853 (December 31, 2014 - $83,282,403) in cash held as at December 31, 2015. The cash in GQM LLC is directed specifically to fund capital expenditures required to take the Project to production and settle GQM LLC’s obligations. The liabilities of GQM LLC do not have recourse to the general credit of the primary beneficiary except in one situation. Please refer to Note Non-Controlling Interest In accordance with ASC 810, the Company has presented Gauss’ ownership in GQM LLC as a non-controlling interest amount on the balance sheet within the equity section. However, the Amended and Restated Limited Liability Company Agreement (“LLC Agreement”) contains terms within Section 12.5 that provides for the exit from the investment in GQM LLC for an initial member whose interest in GQM LLC becomes less than 20%. Pursuant to Section 12.5, if a member becomes less than a 20% interest holder, its remaining unit interest will (ultimately) be terminated through one of three events at the non-diluted member’s option within 60 days of the diluted member’s interest dropping below 20% (the “triggering event”):
If the non-diluted member does not make an election pursuant to the above within 60 days, the diluted member may choose (a) or (b) above. If no election is made by the diluted member, option (a) is deemed to have been elected. This clause in the Joint Venture Transaction constitutes contingent redeemable equity as outlined in Accounting Series Release No. 268 (“ASR 268”) and has been classified as temporary equity. On initial recognition the amount of the temporary equity is calculated using the guidance that specifies that the initial measurement of redeemable instruments should be the carrying value. The amount allocated to temporary equity and the permanent equity on initial recognition is shown below. Temporary equity represents the amount of redeemable equity within Gauss’ ownership interest in the net assets of GQM LLC. The remaining 60% of their interest is considered permanent equity as it is not redeemable.
Subsequent to the initial transaction, the carrying value of the non-controlling interest will be adjusted for net income and loss, distributions and contributions pursuant to ASC 810-10 based on the same percentage allocation used to calculate the initial book value of temporary equity.
Dilution of Interest in Subsidiary As a result of the Joint Venture Transaction, the Company’s interest in GQM LLC was diluted from 100% to 50% and ordinarily, the Company would recognize a gain on dilution with the book value of the investment in GQM LLC increasing. However, since the transaction was with a related party and the Company retained control, the excess has not been recognized in net income but rather has been recorded in equity as an increase to APIC based on guidance provided in ASC 810-10-55-4D and -4E.
The deferred tax liability resulted from the increase in the book value over tax value of the investment in GQM LLC. Please refer to Notes 4 and 15 of the audited consolidated annual financial statements Management Agreement GQM LLC is managed by Capital Contribution Agreement Pursuant to the Standby Commitment In 2014, Golden Queen also entered into a backstop guarantee agreement with Gauss (the “Backstop Agreement”) whereby, if the Company conducts a rights offering, Gauss has agreed to purchase, upon the terms set forth in the Backstop Agreement, any common shares which have not been acquired pursuant to the exercise of rights under the Rights Offering at a purchase price to be determined but not to exceed $1.10 per common share, up to a maximum amount of $45 million in the aggregate. In consideration for entering into the Backstop Agreement, on closing of the Joint Venture, the Company paid
The Transaction Agreement and Backstop Agreement contemplated that |
Under fair value accounting, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As of December 31, 2014 the Company had embedded derivatives liabilitieswould file a registration statement in connection with the Convertible Debenturerights offering by October 15, 2014. The Company has decided not to proceed with a rights offering, and as of December 31, 2013,a result the Company had embedded derivatives liabilities in connection with the Convertible Debenture and Options and Warrants prior to modification of the exercise price currency.standby commitment has expired.
Refer also to the note on fair value of derivative liability underResults of Operations above.
Private Placement
The Company completed a private placement of Convertible Debentures in July 2013 (refer toConvertible Debentures above). Other than the foregoing, there were no private placements completed during the 2015, 2014, 2013, or 20122013 fiscal years.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash, receivables, accounts payable and accrued liabilities, and interest payable approximate fair values because of the immediate or short-term maturity of these non-level 3 financial instruments. The fair value of the short-term and long-term loans payable approximate their carrying values as the interest rates are based on the market. The market rates have remained steady for the loans payable during the past four quarters. The fair value of the notes payable approximates their carrying value and have been estimated based on discounted cash flows using interest rates being offered for similar debt instruments. The carrying amount of the notes payable are being recorded at amortized cost using the effective interest rate method.
All financial assets and financial liabilities are recorded at fair value on initial recognition. Transaction costs are expensed when they are incurred, unless they are directly attributable to the acquisition of qualifying assets, in which case they are added to the costs of those assets until such time as the assets are substantially ready for their intended use or sale.
The three levels of the fair value hierarchy are as follows:
Level 1 | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
Level 2 | Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; |
Level 3 | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
December 31, 2015 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Liabilities: | ||||||||||||||||
Share purchase warrants | $ | 2,498,269 | $ | - | $ | 2,498,269 | $ | - | ||||||||
$ | 2,498,269 | $ | - | $ | 2,498,269 | $ | - |
December 31. 2014 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Liabilities: | ||||||||||||||||
Derivative liability | $ | 1,829,770 | $ | - | $ | 1,829,770 | $ | - | ||||||||
$ | 1,829,770 | $ | - | $ | 1,829,770 | $ | - |
Under fair value accounting, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The fair value measurement of the financial instruments above use observable inputs in option price models such as the binomial and the Black-Scholes valuation models.
Please refer also to the note on fair value of derivative liability underResults of Operations above for more information.
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Liquidity and Capital Resources
The Company and GQM Holdings (100%-owned by the Company) held $8,125,242$6,055,458 in cash on December 31, 20142015 as compared to $5,030,522$8,125,242 on December 31, 2013.2014. The slight increasedecrease in cash is due to general corporate expenditures, repayment of the convertible debentures and the $12.5 million capital contribution paid to GQM LLC, partly off-set by the proceeds from the $10 million January Loan, the $12.5 million December Loan and the $5 million early distribution from GQM LLC (seeCash from Financing Activities below) mostly offset by corporate and project-related expenditures, payment of the commitment fees to Leucadia and Auvergne and repayment of $7.5 million of the January Loan (seeTransactions with Related Partiesabove).June 2015 Loan. It is expected that the cash held by the Company will fund the Company’s corporate expenses until production start in late2017. The convertible debenture was repaid on July 24, 2015 or early 2016. The only near term commitmentfor a total of $7.7 million (C$10 million), including, $153,500 (C$200,000) of accrued interest.
On October 1, 2015, the Company was to make the quarterly interest payment on the June 2015 loan. In accordance with the terms of the June 2015 loan agreement, the Company other thanchose to exercise its right to pay in kind by adding the remaining $2.5 million repaymentinterest owed on October 1st, 2015 to the principal balance of the January Loan and $175,720 in accounts payableJune 2015 loan. The principal balance of the loan was increased by $1,181,507. The principal balance of the loan as of December 31, 2014,2015 was $38,681,507. SeeSubsequent Events section for details on the January 1, 2016 interest expense.
The Company is evaluating its options, including debt and equity, to re-finance the $12.5 million December 2014June 2015 Loan which will mature in July 2015. The Company also has outstanding convertible debentures in the principal amount of C$10 million maturing and payable in July 2015, unless otherwise converted. The Company holds the right to decide whether to convert or pay back the debenture. It is not known at this time if the Company will decide the convert or to pay back the debentures.matures on December 8, 2016.
The Company’s 50%-owned subsidiary, GQM LLC, held $83,282,403$31,531,853 in cash as of December 31, 2014. The cash will be used2015 as compared to fund capital expenditures required to take the Project to production. GQM LLC has entered into contracts for construction totaling approximately $36.9 million as of December 31, 2014, of which $5.8 million had been paid as of$83,282,403 on December 31, 2014. The major commitments relate todecrease in cash is the constructionresult of the heap leach pad for $8.3 million, the construction of the conveying & stacking system for $8.2 million and work related to the Merrill-Crowe plant equipment for $7.1 million. The commitments are expected to be paid out in 2015 with the cash on hand. Theincreased capital expenditures are expected to significantly increase in the first quarter of 2015 as the Company starts fullprogressed construction. The trend will continue until the Company reaches the commissioning phase in late 2015. It is expected that the current cash on hand will fund capital expenditures until the third quarter of 2015. The remaining capital expenditures estimatedand working capital needs until the Project reaches positive cash flows in 2016.
As of December 31, 2015, GQM LLC has entered into contracts for construction totaling approximately $47.6 million of which $4.4 million remains to be between $30 millionpaid. The major commitments relate to the construction of the crushing-screening plant, the construction of the conveying and $40 million will be shared by the joint venture partners. The portionstacking system and work related to mobile mining equipment will be financed through loans with Komatsu.the Merrill-Crowe plant equipment. The Company is evaluating various financing optionsremaining commitments were paid out in early 2016. GQM LLC did not make material additional construction commitments subsequent to fund its attributable remainingDecember 31, 2015.
Remaining capital expenditures including debtof approximately $2 million, as of December 31, 2015, mostly relate to spare parts and equity.commissioning related expenses.
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Cash used in Operating Activities:
Cash used to fund operating activities, including general and administrative expenses such as legal fees, accounting, taxation and auditing fees, insurance expenses, corporate expenses, office expenses and corporate salary was $11,153,251. This also included$8,182,110 (2014 - $11,153,251) for the Joint Venture transaction fee of $2,275,000 and the commitment fee of $2,250,000 that were paid as part of the Joint Venture Transaction.year ended December 31, 2015. The increasedecrease in cash used in operating activities in 2015 is mostly due to the result of a significant increasecosts incurred in overall corporate activity. With the Company preparing the Project for production, the corporate expenses, office expenses and corporate salaries significantly increased. In addition, there were significant legal fees, corporate expenses and accounting fees2014 related to the Joint Venture Transaction that were incurred mostlyTransaction. The decrease is partially off-set by an increase in the third quarter of 2014 (referinterest expenses in 2015, as compared toProject Financing - Joint Venture Transaction above). 2014.
In July 2012, the
Cash used in Investing Activities:
The Company received notice that it had met all the remaining major conditions of the conditional use permits for development of the Project. As a result, Management made the decision to beginbegan capitalizing all development expenditures directly related to the Project (seeCash used inInvesting Activities below for further details on 2013 project expenditures). July 2012. Prior to July 2012, all Project-related expenditures were written off due to uncertainties around obtaining the necessary permits. In 2012 cash wasapprovals for proceeding with the Project.
Cash used mainlyin investing activities totaled $69,305,674 during the year ended December 31, 2015 (2014 - $21,698,945). The increase is due to the increased level of activity on site.
The development costs incurred/capitalized, by the Company totalled $68,956,621 (2014 - $21,624,355) for the ongoingyear ended December 31, 2015, which was an increase of $47,606,729 as compared to the same period in 2014. See Note 9 – Supplementary Disclosures of Cash Flow Information in the audited consolidated annual financial statements for non-cash adjustments to property, plant, equipment and mineral interests investing activities. There was a significant increase in activity on site during 2015 due to the initiation of full construction in the fourth quarter of 2014. The following is a breakdown of significant development costs incurred during the year ended December 31, 2015 as compared with the same period in 2014:
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· | $18.0 million (2014 - $6.8 million) in costs related to the construction of the crushing-screening plant. |
· | $9.1 million (2014 - $0.9 million) in costs related to the construction of the Merrill-Crowe plant. |
· | $7.6 million (2014 - $0.4 million) in costs related to the construction of the Phase 1, Stage 1 heap leach pad. |
· | $4.2 million (2014 - $Nil) in pre-production operating costs related to mining, processing and maintenance. |
· | $3.9 million (2014 - $1.6 million) related to costs to prepare the power supply for the site. |
· | $3.8 million (2014 - $3.4 million) in costs related to the construction of the conveying and stacking system. |
· | $3.7 million (2014 - $2.8 million) in engineering and consulting costs. |
· | $3.6 million (2014 - $0.2 million) paid in cash for the purchase of Komatsu mobile mining equipment. GQM LLC paid the sales tax and 10% deposit upon delivery. The remaining of the purchase costs was financed through loans with Komatsu Financial. |
· | $3.3 million (2014 - $0.8 million) in costs related to the water supply and water storage infrastructure. |
· | $1.6 million (2014 - $0.4 million) in costs related to the construction of the assay laboratory. |
· | $1.6 million (2014 - $0.3 million) in support equipment. |
· | $1.4 million (2014 - $Nil) paid in cash in sustaining capital. The Company purchased two production drills, one of which was financed with the distributor. GQM LLC paid the sales tax and 10% deposit upon delivery. |
The Company, through GQM LLC, continued construction in 2015 and commenced commissioning in late 2015. Construction was completed in early 2016 and the first gold and silver dore was poured on March 1, 2016. Construction was completed in-line with the budget.
Workshop-Warehouse: This project was completed in 2014. The workshop-warehouse was fully equipped with the necessary lubrication equipment, compressor, work-benches and a waste oil storage tank in February 2015. Construction of four offices on the floor above the warehouse was completed in March. We received approval for early occupancy of the Project. Major expenditures included consulting engineering fees, costs incurred for ongoing samplingworkshop-warehouse in April. The workshop-warehouse is fully functional and analysis of groundwater, legal fees and consulting fees incurred to prepare a NI 43-101 Technical Report.
These expenditures areis now being treated as investing activities since 2013 asused.
Assay Laboratory: The construction started in the Companyfourth quarter of 2014 and was completed during the first quarter of 2015. We received approval for early occupancy of the assay laboratory in April. The laboratory was equipped during the second quarter of 2015 and ventilation balancing, mechanical equipment installation and electrical hookups were completed in June. The laboratory was commissioned in July and is preparingnow fully operational.
Water Supply & Water Storage: The electrical installations at water well PW-1 were completed in March 2015 and water supply from the well is now fully automated. Five water storage tanks were delivered during the second quarter and the construction was completed in early 2016. The construction of the water supply infrastructure for the Project has been completed. The backup production water well (PW-4) was drilled, equipped and tested in June 2015 and the connection to the mine water supply infrastructure was completed in early 2016.
Power Supply: Construction of the site-wide power distribution system was completed during the fourth quarter of 2015. The primary sub-station was completed in November and we received full power in early December.
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Crushing-Screening Plant: The Hilfiker wall was completed in February. Construction of the footings and construction of a retaining wall in the primary crusher area was completed in April. Structural steel and equipment for production.the crushing-screening plant was delivered during the second and third quarters and assembly started shortly thereafter. The order for the high pressure grinding roll or HPGR was placed with ThyssenKrupp Industrial Solutions (USA), Inc. in the third quarter of 2014 and the HPGR was delivered to site in early August. Construction of a second Hilfiker wall in the HPGR was completed mid-July. The Primary section of the crushing-screening plant was commissioned in November. The Secondary and Tertiary (HPGR) sections of the crushing-screening were commissioned in December.
Stacking and Conveying System: Equipment and structural steel components of the conveying and stacking system were delivered during the second quarter and the assembly started shortly thereafter. This turn-key project was completed in November and commissioning commenced in December.
Heap Leach Pad Phase 1/Stage 1: The earthmoving phase of the Phase 1, Stage 1 heap-leach pad, the events pond and the solution conveying channel were completed during the first quarter. Mixing of the historical tailings and natural clay from a deposit along Mojave Tropico Road was completed in May and the mix has been used to construct the lower, impervious liner for the events pond, the solution conveying channel and for the heap leach pad. The synthetic upper liner was placed in the events pond and solution collection ditch in May and the upper synthetic liner was placed on the heap leach pad in May and June. A sub-contractor mobilized a portable crushing-screening plant to site and over-liner material was crushed and placed on the heap leach pad. The Phase 1, Stage 1 heap-leach pad turn-key project was completed in September. Pad loading of agglomerated ore was initiated in mid-December.
Merrill-Crowe Plant: Basic construction of the pump box was completed in March. Construction of the footings was completed in August and the erection of the building started shortly thereafter. The equipment was received during the third quarter of 2015 and the installation continued until early February 2016. The Merrill-Crowe plant was commissioned in late February 2016 and the first gold and silver dore was poured on March 1, 2016.
Mobile Mining equipment: GQM LLC purchased the Komatsu mobile equipment fleet through Komatsu’s local distributor, Road Machinery. GQM LLC purchased a total of 21 piece of equipment, including seven 100-ton haul truck, two articulated trucks, two water trucks, three loaders and two excavators.
Cash from Financing Activities:
Cash from financing activities totalled $23,667,451 during the year ended December 31, 2015 (2014 - proceeds of $119,229,318). The cash from financing activities was significantly higher during the year ended December 31, 2014 as compared to the same period in 2015 due to the Joint Venture Transaction.
Financing activities during the year ended December 31, 2015 include the June 2015 Loan incremental proceeds of $25,000,000 and Gauss LLC’s $12,500,000 capital contribution to GQM LLC. As described below, the $2,500,000 remaining balance of the January 2014 Loan and financing fees of $250,000 on the December 2014 Loan were paid during the first quarter of 2015. The Company also paid financing fees of $1,500,000 in conjunction with the June 2015 Loan and retired its convertible debentures on July 26, 2015 for $7,675,000.
The Company issued two convertible debentures for net proceeds of C$10,000,000 ($9,710,603) on July 26, 2013.
On January 1, 2014, the Company entered into the $10,000,000 January 2014 Loan. The January Loan had a twelve-month term and an annual interest rate of 5%, payable on the maturity date. The Company repaid $7,500,000 of the loan on December 31, 2014. The remaining balance of the loan, $2,500,000 was repaid on January 5, 2015 (seeTransactions with Related Parties above).
In July 2014, GQM Inc. (the predecessor2015. Financing fees of GQM LLC) entered into the $10,000,000 Advance with Leucadia and Auvergne, with the Company as guarantor. The Advance had an interest rate of 10% per annum, compounded monthly. The Advance and accrued interests were paid in full on September 15, 2014 with the proceeds from the JV transaction (seeTransactions with Related Parties above).
The Company formed a joint venture with Gauss in September 2014 (refer toProject Financing - Joint Venture Transaction above). Gauss acquired 50% of GQM LLC in exchange for a $110,000,000 investment. On closing of the Joint Venture Transaction, GQM LLC applied part of the investment of $110,000,000 to repayment of principal and accrued interest$250,000 on the $10,000,000 JulyDecember 2014 Advance provided by Leucadia and Auvergne (seeTransactions with Related Parties above). GQM LLCLoan were also made a $5,000,000 early distribution to each Gauss and GQ Holdco, for a total early distribution of $10,000,000.paid.
On December 31, 2014 the Company also entered into the December 2014 Loan for an amount of $12,500,000. The December Loan is due on demandmatured on July 1, 2015 and bearsbore an annual interest rate of 10% payable at the end of each quarter (seeQuarter.
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On June 8, 2015, the Company amended the December 2014 Loan to extend the maturity to December 8, 2016 and increasing the principal amount from $12,500,000 to $37,500,000. The Company also issued 10,000,000 common share purchase warrants exercisable for a period of five years expiring June 8, 2020. The common share purchase warrants have an exercise price of $0.95. All other terms remained the same as the December 2014 Loan. The Company also incurred a financing fee to secure the loan in the amount of $1,500,000, all of which was paid on June 8, 2015. The Company agreed to pay the legal fees incurred by the lenders relating to this debt instrument which amounted to $46,408. The total legal fees were expensed as the transaction met the definition of a debt extinguishment.
During the year-ended December 31, 2015 the Company made principal payments of $1,907,549 (2014 - $13,408) related to the loans payable on the mining equipment and machinery.
Please seeTransactions with Related Parties above).above for more information of the Company’s 2013, 2014 and 2015 loans.
During the 2015 fiscal year, no stock options were exercised.
During the 2014 fiscal year, options were exercised by former directors as follows:
In May 2014, 300,000 stock options were exercised by a former director and the Company issued 300,000 shares at $0.21 per share for proceeds of $63,000. |
In April 2014, 170,000 stock options were exercised by two former directors and the Company issued 170,000 shares at $0.21 per share for proceeds of $35,700. |
In February 2014, 60,000 stock options were exercised by a former director and the Company issued 60,000 shares at $0.21 per share for proceeds of $12,721. |
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The Company issued two convertible debentures for net proceeds of C$10,000,000 ($9,710,603) on July 26, 2013. See Note 8 of the Consolidated Financial Statements for more details. The proceeds of the convertible debentures will be used exclusively to advance the Project, including construction of infrastructure-related items that is now underway.
During the 2013 fiscal year, options were exercised by former directors, insiders and consultants as follows:
Second Quarter of 2013
· | 200,000 options for proceeds of $50,674 (C$52,000) |
· | 100,000 options for proceeds of $25,722 (C$26,000) |
Third Quarter of 2013
· | 20,000 options for proceeds of $5,017 (C$5,200) |
Fourth Quarter of 2013
· | 500,000 options for proceeds of $126,373 (C$130,000) |
· | 300,000 options for proceeds of $74,677 (C$78,000) |
· | 100,000 options for proceeds of $24,900 (C$26,000) |
During the 2012 fiscal year, there were no financing activities and as a result, there was no cash received or used in financing activities.
Cash used in Investing Activities:
The Company began capitalizing all development expenditures directly related to the Project in July 2012. Prior to July 2012, all Project-related expenditures were written off due to uncertainties around obtaining the necessary approvals for proceeding with the Project.
Cash used in investing activities totaled $21,712,353 during the 2014 fiscal year (2013 - $7,257,659).
The development costs incurred/capitalized, by the Company totalled $27,146,756 (2013 - $8,043,873), which was an increase of $19,102,883 as compared to 2013. See Note 9 –Supplementary Disclosures of Cash Flow Information in the Consolidated Financial Statements for non-cash adjustments to mineral property interest investing activities. There was a significant increase of activity on site in 2014 due to the initiation of the Project construction. The following is a breakdown of significant development costs in 2014 as compared with 2013:
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The Company, through GQM Inc. then GQM LLC, continued its work on the Project as described inConstruction of Infrastructureabove. Construction is advancing smoothly and has progressed to a 30% completion rate; all turn-key projects have been awarded to independent contractors.
Workshop-Warehouse: This project was completed on time and on budget in July 2014.
Water Supply & Water Storage: The construction of the basic water supply for the Project is under way. Considerable progress was also made with the electrical infrastructure required for this project.
Fuel Storage Facility: Construction of the fuel storage facility was completed in September.
Site Preparation: Site preparation of the area where the crushing-screening plant will be constructed was completed in the third quarter of 2014. The excavation of the overflow pond was completed and site grading was started in the area where the Merrill-Crowe plant will be constructed.
Crushing-Screening Plant: An order for a high-pressure grinding roll was placed with ThyssenKrupp Industrial Solutions (USA), Inc. in the third quarter.
Assay Laboratory: The contract was awarded during the third quarter of 2014 and contraction started in the fourth quarter.
Merrill-Crowe plant: The contract for the equipment was awarded during the fourth quarter of 2014.
Stacking and Conveying System: The contract was awarded during the fourth quarter of 2014 and payments totaling ~$3 million were made in December 2014.
Heap Leach Pad Phase 1/Stage 1: The contract was awarded during the fourth quarter of 2014.
EPCM (Engineering, Procurement and Construction Management): Detailed engineering work was essentially completed in 2014. Significant costs were incurred in detailed engineering for the crushing-screening plant, the stacking and conveying system and the Merrill-Crowe plant.
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Working Capital:
As at December 31, 2014,2015, the Company, had, on a consolidated basis, had current assets of $91,672,520$39,979,225 (December 31, 20132014 - $5,107,259)$91,574,405) and current liabilities of $26,562,193$47,722,334 (December 31, 20132014 - $1,521,954)$26,464,078) or working capital deficit of $65,110,327$7,743,109 (December 31, 20132014 – working capital surplus of $3,585,305)$65,110,327). The decrease in current assets from December 31, 2014 is the result of project-related expenditures, partially off-set by the proceeds from the June 2015 loan and the $12.500,000 capital contribution from Gauss LLC. The increase in working capitalcurrent liabilities is the result of the June 2015 Loan which is now included in current liabilities and an increase in mobile equipment loans at the Joint Venture Transaction (refer toLiquidity and Capital Resources above), partiallylevel. These were partly off-set by project-related expenditures.the repayment of the convertible debenture.
The Company
GQM LLC will use its cash on hand for ongoing work by GQM LLC on site (refer toConstruction of Infrastructure above),remaining capital expenditures and for detailed engineering of facilities forworking capital needs until the Project reaches positive cash flows in 2016.
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Golden Queen Mining Co. Ltd will use its cash for buying back royalty interests, for additional land purchases,general corporate expenditures such as accounting fees, legal fees, interest expense and for legal, accountingcorporate salary expenses. The Company is evaluating its options, including debt and regulatory fees.equity, to re-finance the June 2015 Loan which matures on December 8, 2016.
Refer also toOutlookbelow.
The Company is evaluating various options for financing its Joint Venture obligations and repay its debt obligations, including debt, equity and other alternatives.
Outstanding Share Data
At a special meeting of the holders of common shares of the Company held on December 17, 2013, the shareholders approved a special resolution to change the authorized share capital of the Company from 150,000,000 common shares to an unlimited number of common shares, all without par value, and no preferred shares.
On December 23, 2013, the Board of Directors of the Company passed a resolution to convert the exercise prices of granted stock options to U.S. dollars, being the functional currency of the Company for the purposes of financial reporting, in order to avoid recording a derivative liability in the Company’s financial statements.
The number of shares issued and outstanding and the fully diluted share position are set out in the table below:
*The principal amounts of the convertible debentures, being an aggregate of C$10,000,000, are convertible into shares of the Company at a price of C$1.03 per share for a period of two years. If the convertible debentures have not been converted by the holder prior to the maturity date, then either the Company or the holder may convert them at the lower of C$1.03 or the market price as at the maturity date. The market price on the maturity date will be determined based on the volume weighted average price of the shares as traded on the TSX for the five trading days preceding the maturity date.
Item | No. of Shares | |||||||||
Shares issued and outstanding on December 31, 2014 | 99,778,683 | |||||||||
Shares issued as part of management agreement | 150,000 | |||||||||
Shares issued for mineral properties | Nil | |||||||||
Shares issued pursuant to the exercise of stock options | Nil | |||||||||
Shares issued and outstanding on December 31, 2015 | 99,928,683 | Exercise Price | Expiry Date | |||||||
Shares to be issued on exercise of directors and employees stock options | 1,070,000 | $0.58 to $1.59 | From 11/11/15 to 09/08/20 | |||||||
Shares to be issued on exercise of warrants | 10,000,000 | $0.95 | 06/08/20 | |||||||
Shares to be issued as a finder’s fee (due upon commercial production) | 100,000 | Not Applicable | Not Applicable | |||||||
Fully diluted on December 31, 2015 | 111,098,683 | |||||||||
Fully diluted March 30, 2016 | 111,098,683 | |||||||||
The company has an unlimited authorized share capital |
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Outlook
The estimated capital costs, including contingency, working capital and mining equipment, are $144 million.
The net proceeds fromGQM LLC started commissioning the Joint Venture Transaction will be applied to the continued development of the Project. It is expected that the current cash on hand will fund capital expenditures until the third quarter of 2015. The remaining capital expenditures, estimated to be between $30 million and $40 million will be shared by the Joint Venture partners. The portion related to mobile mining equipment will be financed through loans with Komatsu.
The Company is evaluating various financing options, including debt and equity, to fund its attributable remaining capital expenditures. The $12.5 million December Loan will also matureprocessing facilities in Julylate 2015 and the Company will need to raise the capital required to retire the loan and accrued interest. The Company also has outstanding convertible debenturescommenced production in the principal amount of C$10 million maturing and payable in July 2015, unless otherwise converted. The Company holds the right to decide whether to convert or pay back the debenture. It is not known at this time if the Company will decide the convert or to pay back the debentures.
Construction is advancing smoothly and has progressed to a 35% completion rate; all turn-key projects have been awarded to independent contractors. The Company expect the start of commissioning byMarch 2016. GQM LLC anticipates reaching commercial production later in late 2015.2016.
Recent developments include:
Construction was completed in |
· | Leaching of stacked ore has been ongoing since early February. Initial flow rates and ore porosity have been very good; |
· | The |
· | Pad-loading continues to ramp-up toward full production; |
· | Mining of the | |
There are now |
It is not expected that GQM LLC will hedge any of its gold or silver production.
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The ability of GQM LLC to develop a mine on the Property is subject to numerous risks, certain of which are disclosed underItem 1A. Risk Factorsabove. Readers should evaluate the Company’s prospects in light of these and other risk factors.
The Company is evaluating its options, including debt and equity, to re-finance the June 2015 Loan which matures on December 8, 2016.
Mineral PropertiesInterests
In July 2012, the Company received notice that it had met all remaining major conditions of the conditional use permits for the Project. As a result, Management made the decision to begin capitalizing all development expenditures related to the Project while all other expenses not related to the development of the project continue to be expensed as incurred. Refer also to Note 3 Property, Plant, Equipment and Mineral PropertiesInterests of the Consolidated Financial Statementsaudited consolidated financial statements for a more detailed discussion.
Subsequent Events
No subsequent events have been identified up to the date of March 16, 2015,30, 2016, the date the financial statements were approved, other than denoted below.
On January 1st, 2016, the Company was to make the quarterly interest payment on the June 2015 loan. In accordance with the terms of the June 2015 loan agreement, the Company chose to exercise its right to pay in kind by adding the interest owed on January 1st, 2016 to the principal balance of the June 2015 loan. The principal balance of the loan was increased by $974,986. The principal balance of the loan moving forward will be $39,656,493 and interest will be calculated on this balance. Subsequent to December 31, 2015, GQM LLC took possession of a used crane, valued at $0.4 million. The Company made total payments, tax and a 10% down payment, of $0.06 million. The remaining $0.3 million will be financed over 48 months at an interest rate of 3.90%. In January 2016 the company entered into $2.1 million in surety bond agreements in order to release its reclamation deposits and post a portion of the financial assurance due in 2016. |
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Application of Critical Accounting Estimates
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment.
The financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below:
Inventory
Inventories include stock piles, in-process inventory, doré, and operating materials and supplies. The classification of inventory is determined by the stage at which the ore is in the production process. As at December 31, 2015, the Company had stock-piles, operating materials, supplies and spare parts. All inventories are stated at the lower of cost or market, with cost being determined using a weighted average cost method. Dore inventory includes product at the mine site. Dore inventory costs include direct labor, materials, depreciation, depletion and amortization as well as overhead costs relating to mining activities.
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Ore on Heap Leach Pad
The heap leach process extracts silver and gold by placing ore on an impermeable pad and applying a diluted cyanide solution that dissolves a portion of the contained silver and gold, which are then recovered in metallurgical processes. As at December 31, 2015, the Company had placed a small amount of ore on the heap leach pad but had not started placing leaching solution on the ore. The procedures and policies discussed below that pertain to more advanced stages will be applied once that specific process has been reached.
The Company uses several integrated steps to scientifically measure the metal content of ore placed on the leach pads. As the ore body is drilled in preparation for the blasting process, samples are taken of the drill residue which are assayed to determine estimated quantities of contained metal. The Company then processes the ore through crushing facilities where the output is weighed and sampled for assaying. The Company weighs the ore using a belt mounted weightometer to accurately measure the quantity of ore placed on the leach pad. The crushed ore is then transported to the leach pad for application of the leaching solution. As the leach solution is collected from the leach pads, it is continuously sampled for assaying. The quantity of leach solution is measured by flow meters throughout the leaching and precipitation process. After precipitation, the product is converted to doré, which is the final product produced by the mine. The inventory is stated at lower of cost or market, with cost being determined using a weighted average cost method.
The historical cost of the metal that is expected to be extracted within twelve months is classified as current and the historical cost of metals contained within the broken ore that is expected to be extracted beyond twelve months is classified as non-current. Ore on leach pad is valued based on actual production costs incurred to produce and place ore on the leach pad, less costs allocated to minerals recovered through the leach process.
The estimate of both the ultimate recovery expected over time and the quantity of metal that may be extracted relative to the time the leach process occurs requires the use of estimates, which are inherently inaccurate due to the nature of the leaching process. The quantities of metal contained in the ore are based upon actual weights and assay analysis. The rate at which the leach process extracts gold and silver from the crushed ore is based upon metallurgical test column estimates. The assumptions that will be used by the Company to measure metal content during each stage of the inventory conversion process includes estimated recovery rates based on laboratory testing and assaying. The Company will periodically review its estimates compared to actual experience and revise its estimates when appropriate. As operations begin, the Company will not have any actual experience as a basis to compare estimates to and therefore will begin comparing estimates to actual results once the Company’s actual experiences have a sufficiently predictive quality. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis.
Property, Plant, Equipment and Mineral Property and Exploration CostsInterests
Costs related to the development of our mineral reserves are capitalized whenit has been determined an ore body can be economically developed. An ore body is determined to be economically minable based on proven and probable reserves and when appropriate permits are in place. Major mine development expenditures are capitalized, including primary development costs such as costs of building access roads, heap leach pads, processing facilities, and infrastructure development.
Costs for exploration, pre-production The Company also capitalizes additional development if and when applicable, and maintenance and repairs on capitalized property, plant and equipment are charged to operations as incurred. Exploration costs include those relating to activities carried out in search of previously unidentified mineral deposits. Pre-production development activities involve costs incurred in the exploration stage that may ultimately benefit productionexpenditures that are expensed duedirectly related to the lackdevelopment of evidence of economic development, which is necessary to demonstrate future recoverability of these expenses. Secondary development costs are incurred for preparation of an ore body for production in a specific ore block, stope or work area, providing a relatively short-lived benefit only to the mine area they relate to, and not to the ore body as a whole.mine.
Drilling and related costs are either classified as exploration or secondaryadditional development as defined above, andexpenditures, are charged to operations as incurred, or capitalized, based on the following criteria:
If all of these criteria are met, drilling and related costs are capitalized. Drilling costs not meeting all of these criteria are expensed as incurred. The following factors are considered in determining whether or not the criteria listed above have been met, and capitalization of drilling costs is appropriate: