EXHIBIT 99.1
SEABRIDGE GOLD INC.
UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
AS AT MARCH 31, 2021
Page 1
SEABRIDGE GOLD INC.
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars)
(Unaudited)
March 31, | December 31, | |||||||||
Note | 2021 | 2020 | ||||||||
Assets | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | 4 | $ | 13,724 | $ | 17,528 | |||||
Short-term deposits | 4 | 19,916 | 19,905 | |||||||
Amounts receivable and prepaid expenses | 5 | 6,557 | 4,970 | |||||||
Investment in marketable securities | 6 | 3,187 | 3,826 | |||||||
43,384 | 46,229 | |||||||||
Non-current assets | ||||||||||
Investment in associate | 6 | 2,553 | 2,611 | |||||||
Convertible notes receivable | 7 | 625 | 529 | |||||||
Amounts receivable | 17 | 2,439 | - | |||||||
Property, plant and equipment | 8 | 750 | 235 | |||||||
Mineral interests | 9 | 599,390 | 591,446 | |||||||
Reclamation deposits | 12 | 6,770 | 6,767 | |||||||
612,527 | 601,588 | |||||||||
Total assets | $ | 655,911 | $ | 647,817 | ||||||
Liabilities and shareholders’ equity | ||||||||||
Current liabilities | ||||||||||
Accounts payable and accrued liabilities | 10 | $ | 5,420 | $ | 5,377 | |||||
Flow-through share premium | 13 | 2,130 | 2,276 | |||||||
Lease obligations | 11 | 89 | 41 | |||||||
Provision for reclamation liabilities | 12 | 2,500 | 2,500 | |||||||
10,139 | 10,194 | |||||||||
Non-current liabilities | ||||||||||
Deferred income tax liabilities | 17 | 18,452 | 19,034 | |||||||
Lease obligations | 11 | 241 | 207 | |||||||
Provision for reclamation liabilities | 12 | 3,786 | 3,664 | |||||||
22,479 | 22,905 | |||||||||
Total liabilities | 32,618 | 33,099 | ||||||||
Shareholders’ equity | 13 | 623,293 | 614,718 | |||||||
Total liabilities and shareholders’ equity | $ | 655,911 | $ | 647,817 |
Subsequent events (Notes 9, 13)
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
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SEABRIDGE GOLD INC.
Consolidated Statements of Operations and Comprehensive Loss
(Expressed in thousands of Canadian dollars except common share and per common share amounts)
(Unaudited)
Three months ended March 31, | ||||||||||
Note | 2021 | 2020 | ||||||||
Corporate and administrative expenses | 14 | $ | (4,757 | ) | $ | (3,867 | ) | |||
Other income - flow-through shares | 12 | 146 | 21 | |||||||
Environmental rehabilitation expense | (17 | ) | - | |||||||
Equity loss of associate | 6 | (78 | ) | (45 | ) | |||||
Unrealized gain on convertible notes receivable | 129 | - | ||||||||
Interest income | 24 | 40 | ||||||||
Finance expense and other expense | (98 | ) | 261 | |||||||
Loss before income taxes | (4,651 | ) | (3,590 | ) | ||||||
Income tax recovery | 17 | 366 | 392 | |||||||
Loss for the period | $ | (4,285 | ) | $ | (3,198 | ) | ||||
Other comprehensive income (loss) | ||||||||||
Items that will not be reclassified to net income or loss | ||||||||||
Change in fair value of marketable securities, net of income taxes | 6 | $ | (554 | ) | $ | 407 | ||||
Comprehensive loss for the period | $ | (4,839 | ) | $ | (2,791 | ) | ||||
Basic and diluted net loss per common share | 13 | $ | (0.06 | ) | $ | (0.05 | ) | |||
Basic and diluted weighted average number of common shares outstanding | 13 | 74,385,683 | 63,790,782 |
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
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SEABRIDGE GOLD INC.
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in thousands of Canadian dollars except number of shares)
(Unaudited)
Number of Shares | Share Capital | Warrants | Stock-based Compensation | Contributed Surplus | Deficit | Accumulated Other Comprehensive Gain (Loss) | Total Equity | |||||||||||||||||||||||||
As at December 31, 2020 | 74,162,286 | $ | 704,599 | $ | 3,275 | $ | 23,011 | $ | 36,089 | $ | (150,878 | ) | $ | (1,378 | ) | $ | 614,718 | |||||||||||||||
Share issuance - At-The-Market offering | 290,710 | 6,912 | - | - | - | - | - | 6,912 | ||||||||||||||||||||||||
Share issuance - options exercised | 356,268 | 7,612 | - | (3,670 | ) | - | - | - | 3,942 | |||||||||||||||||||||||
Share issuance costs | - | (498 | ) | - | - | - | - | - | (498 | ) | ||||||||||||||||||||||
Deferred tax on share issuance costs | - | 132 | - | - | - | - | - | 132 | ||||||||||||||||||||||||
Stock-based compensation | - | - | - | 2,926 | - | - | - | 2,926 | ||||||||||||||||||||||||
Expired options | - | - | - | (37 | ) | 37 | - | - | - | |||||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | (554 | ) | (554 | ) | ||||||||||||||||||||||
Net loss for the period | - | - | - | - | - | (4,285 | ) | - | (4,285 | ) | ||||||||||||||||||||||
As at March 31, 2021 | 74,809,264 | $ | 718,757 | $ | 3,275 | $ | 22,230 | $ | 36,126 | $ | (155,163 | ) | $ | (1,932 | ) | $ | 623,293 | |||||||||||||||
As at December 31, 2019 | 63,510,487 | $ | 494,857 | $ | 3,275 | $ | 18,820 | $ | 36,073 | $ | (135,936 | ) | $ | (2,066 | ) | $ | 415,023 | |||||||||||||||
Share issuance - At-The-Market offering | 382,807 | 6,874 | - | - | - | - | - | 6,874 | ||||||||||||||||||||||||
Share issuance - options exercised | 30,967 | 513 | - | (190 | ) | - | - | - | 323 | |||||||||||||||||||||||
Share issuance costs | - | (138 | ) | - | - | - | - | - | (138 | ) | ||||||||||||||||||||||
Deferred tax on share issuance costs | - | 37 | - | - | - | - | - | 37 | ||||||||||||||||||||||||
Stock-based compensation | - | - | - | 2,042 | - | - | - | 2,042 | ||||||||||||||||||||||||
Expired options | - | - | - | (16 | ) | 16 | - | - | - | |||||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | 407 | 407 | ||||||||||||||||||||||||
Net loss for the period | - | - | - | - | - | (3,198 | ) | - | (3,198 | ) | ||||||||||||||||||||||
As at March 31, 2020 | 63,924,261 | $ | 502,143 | $ | 3,275 | $ | 20,656 | $ | 36,089 | $ | (139,134 | ) | $ | (1,659 | ) | $ | 421,370 |
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
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SEABRIDGE GOLD INC.
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
(Unaudited)
Three months ended March 31, | ||||||||
2021 | 2020 | |||||||
Operating Activities | ||||||||
Net loss | $ | (4,285 | ) | $ | (3,198 | ) | ||
Adjustment for non-cash items: | ||||||||
Stock-based compensation | 2,926 | 2,042 | ||||||
Environmental rehabilitation expense | 17 | - | ||||||
Other income - flow-through shares | (146 | ) | (21 | ) | ||||
Unrealized gain on convertible notes receivable | (129 | ) | - | |||||
Income tax recovery | (366 | ) | (392 | ) | ||||
Equity loss of associate | 78 | 45 | ||||||
Finance costs | 38 | 28 | ||||||
Depreciation charge on right-of-use assets | 21 | 9 | ||||||
Adjustment for cash items: | ||||||||
Environmental rehabilitation disbursements | (71 | ) | (116 | ) | ||||
Changes in working capital items: | ||||||||
Amounts receivable and prepaid expenses | (1,587 | ) | (1,206 | ) | ||||
Accounts payable and accrued liabilities | (650 | ) | (1,017 | ) | ||||
Net cash used in operating activities | (4,154 | ) | (3,826 | ) | ||||
Investing Activities | ||||||||
Mineral interests | (7,112 | ) | (4,501 | ) | ||||
Investment in short-term deposits | (11 | ) | (4,708 | ) | ||||
Redemption of short-term deposits | - | 4,024 | ||||||
Property, plant and equipment | (436 | ) | - | |||||
Investment in associate | (20 | ) | (11 | ) | ||||
Amounts receivable | (2,439 | ) | - | |||||
Reclamation deposits | (4 | ) | (53 | ) | ||||
Other investing activities | 34 | - | ||||||
Net cash used in investing activities | (9,988 | ) | (5,249 | ) | ||||
Financing Activities | ||||||||
Share issuance net of costs | 6,415 | 6,737 | ||||||
Exercise of options | 3,942 | 323 | ||||||
Payment of lease liabilities | (19 | ) | (5 | ) | ||||
Net cash from financing activities | 10,338 | 7,055 | ||||||
Net decrease in cash and cash equivalents | (3,804 | ) | (2,020 | ) | ||||
Cash and cash equivalents, beginning of the period | 17,528 | 8,793 | ||||||
Cash and cash equivalents, end of the period | $ | 13,724 | $ | 6,773 |
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
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SEABRIDGE GOLD INC.
Notes to the condensed consolidated interim financial statements
For the three months ended March 31, 2021 and 2020
1. | Reporting entity |
Seabridge Gold Inc. is comprised of Seabridge Gold Inc. (“Seabridge” or the “Company”) and its subsidiaries (Seabridge Gold (NWT) Inc., Seabridge Gold Corp., SnipGold Corp., Seabridge Gold (Yukon) Inc. and Snowstorm Exploration LLC) and is engaged in the acquisition and exploration of gold properties located in North America. The Company was incorporated under the laws of British Columbia, Canada on September 4, 1979 and continued under the laws of Canada on October 31, 2002. Its common shares are listed on the Toronto Stock Exchange trading under the symbol “SEA” and on the New York Stock Exchange under the symbol “SA”. The Company is domiciled in Canada, the address of its registered office is 10th Floor, 595 Howe Street, Vancouver, British Columbia, Canada V6C 2T5 and the address of its corporate office is 106 Front Street East, 4th Floor, Toronto, Ontario, Canada M5A 1E1.
2. | Basis of accounting |
These unaudited condensed consolidated interim financial statements ("consolidated interim financial statements") were prepared in accordance with IAS 34, Interim Financial Reporting, using accounting policies consistent with those used by the company in preparing the annual consolidated financial statements as at and for the year ended December 31, 2020 and should be read in conjunction with the Company’s annual consolidated financial statements as at and for the year ended December 31, 2020. They do not include all of the information required for a complete set of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Company’s financial position and performance since the last annual financial statements. These interim financial statements were authorized for issue by the Company’s board of directors on May 13, 2021.
3. | Significant accounting judgments, estimates and assumptions |
The preparation of consolidated interim financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities as at the date of the consolidated interim financial statements and reported amounts of revenues and expenses during the three months ended March 31, 2021 and 2020. Estimates and assumptions are continuously evaluated and are based on management's experience and other factors, including expectations of future events which are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
4. | Cash and cash equivalents and short-term deposits |
($000s) | March 31, 2021 | December 31, 2020 | ||||||
Cash and cash equivalents | 13,724 | 17,528 | ||||||
Short-term deposits | 19,916 | 19,905 | ||||||
33,640 | 37,433 |
All of the cash and cash equivalents are held in a Canadian Schedule I bank. Short-term deposits consist of Canadian Schedule I bank guaranteed deposits and are cashable in whole or in part with interest at any time to maturity.
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5. | Amounts receivable and prepaid expenses |
($000s) | March 31, 2021 | December 31, 2020 | ||||||
HST | 2,636 | 2,793 | ||||||
Prepaid expenses and other receivables | 3,921 | 2,177 | ||||||
6,557 | 4,970 |
6. | Investments |
($000s) | January 1, 2021 | Fair value through other comprehensive income (loss) | Loss of associates | Additions |
March 31, | |||||||||||||||
Current assets: | ||||||||||||||||||||
Investment in marketable securities | 3,826 | (639 | ) | - | - | 3,187 | ||||||||||||||
Non-current assets: | ||||||||||||||||||||
Investment in associate | 2,611 | - | (78 | ) | 20 | 2,553 |
($000s) | January 1, 2020 | Fair value through other comprehensive income (loss) | Loss of associates | Additions | December 31, 2020 | |||||||||||||||
Current assets: | ||||||||||||||||||||
Investment in marketable securities | 3,032 | 794 | - | - | 3,826 | |||||||||||||||
Non-current assets: | ||||||||||||||||||||
Investment in associate | 2,361 | - | (187 | ) | 437 | 2,611 |
The Company holds common shares of several mining companies that were received as consideration for optioned mineral properties and other short-term investments, including one gold exchange traded receipt. These financial assets are recorded at fair value of $3.2 million (December 31, 2020 - $3.8 million) in the consolidated statements of financial position. At March 31, 2021, the Company revalued its holdings in its investments and recorded a fair value decrease of $0.6 million on the statement of operations and comprehensive loss.
Investment in associate relates to Paramount Gold Nevada Corp (“Paramount”). As at March 31, 2021, the Company holds a 6.92% (December 31, 2020 – 7.42%) interest in Paramount for which it accounts using the equity method on the basis that the Company has the ability to exert significant influence through its representation on Paramount’s board of directors. During the current quarter, the Company recorded its proportionate share of Paramount’s net loss of $0.08 million (March 31, 2020 – $0.05 million) within equity loss of associate on the consolidated statements of operations and comprehensive loss. As at March 31, 2021, the carrying value of the Company’s investment in Paramount was $2.6 million (December 31, 2020 - $2.6 million).
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In June 2020, the Company participated in a non-brokered registered direct offering and purchased 288,460 common shares of Paramount at US$1.04 per common share for a total of $0.4 million.
7. | Convertible Notes Receivable |
In September 2019, the Company participated in a private placement to purchase US$410,000, at face value, of secured convertible notes issued by Paramount. Each convertible note had an issue price of US$975 per US$1,000 face value with a four-year maturity. The Company purchased 410 convertible notes for a total of $0.5 million (US$399,750). The convertible notes bear interest at a rate of 7.5% per annum, payable semi-annually. At any time after the issuance of the convertible notes, the Company can convert all or any portion of the outstanding amount into common shares of Paramount at a price of US$1.00 per common share. The convertible notes receivable are recorded at fair value through profit or loss (“FVTPL”).
As at March 31, 2021 the fair value of the convertible notes receivable was $0.6 million (December 31, 2020 - $0.5 million). The fair value was determined using the binomial option pricing model using the following assumptions: risk-free rate of 0.23%, 2.5 years expected remaining life of the convertible note, volatility of 50% based on Paramount stock price volatility, forfeiture rate of nil, and dividend yield of nil.
During the current quarter, the Company received 14,236 common shares of Paramount for payment of interest on the secured convertible notes accrued between July 1, 2020 and December 31, 2020.
8. | Property, plant and equipment |
($000s) | Property & Equipment | Right-of-use assets | Total | |||||||||
Cost | ||||||||||||
As at January 1, 2020 | - | 307 | 307 | |||||||||
As at December 31, 2020 | - | 307 | 307 | |||||||||
Additions | 436 | 100 | 536 | |||||||||
As at March 31, 2021 | 436 | 407 | 843 | |||||||||
Accumulated Depreciation | ||||||||||||
As at January 1, 2020 | - | 36 | 36 | |||||||||
Depreciation | - | 36 | 36 | |||||||||
As at December 31, 2020 | - | 72 | 72 | |||||||||
Depreciation | - | 21 | 21 | |||||||||
As at March 31, 2021 | - | 93 | 93 | |||||||||
Net Book Value | ||||||||||||
As at December 31, 2020 | - | 235 | 235 | |||||||||
As at March 31, 2021 | 436 | 314 | 750 |
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9. | Mineral Interests |
Mineral interest expenditures on projects are considered as exploration and evaluation and their related costs consist of the following:
($000s) | Balance January 1, |
Acquisitions | Expenditures 2021 | Balance March 31, | ||||||||||||
KSM | 444,167 | - | 4,463 | 448,630 | ||||||||||||
Courageous Lake | 76,522 | - | 164 | 76,686 | ||||||||||||
Iskut | 37,949 | - | 494 | 38,443 | ||||||||||||
Snowstorm | 24,924 | - | 2,627 | 27,551 | ||||||||||||
3 Aces | 7,113 | - | 196 | 7,309 | ||||||||||||
Grassy Mountain | 771 | - | - | 771 | ||||||||||||
591,446 | - | 7,944 | 599,390 |
($000s) | Balance January 1, 2020 | Acquisitions 2020 | Expenditures 2020 | Balance December 31, 2020 | ||||||||||||
KSM | 296,509 | 127,530 | 20,128 | 444,167 | ||||||||||||
Courageous Lake | 75,721 | - | 801 | 76,522 | ||||||||||||
Iskut | 32,215 | - | 5,734 | 37,949 | ||||||||||||
Snowstorm | 20,455 | - | 4,469 | 24,924 | ||||||||||||
3 Aces | - | 6,564 | 549 | 7,113 | ||||||||||||
Grassy Mountain | 771 | - | - | 771 | ||||||||||||
425,671 | 134,094 | 31,681 | 591,446 |
Continued exploration of the Company’s mineral properties is subject to certain lease payments, project holding costs, rental fees and filing fees.
a) | KSM (Kerr-Sulphurets-Mitchell) |
In 2001, the Company purchased a 100% interest in contiguous claim blocks in the Skeena Mining Division, British Columbia. The vendor maintains a 1% net smelter royalty interest on the project, subject to maximum aggregate royalty payments of $4.5 million. The Company is obligated to purchase the net smelter royalty interest for the price of $4.5 million in the event that a positive feasibility study demonstrates a 10% or higher internal rate of return after tax and financing costs.
In 2011 and 2012, the Company completed agreements granting a third party an option to acquire a 2% net smelter royalty on all gold and silver production sales from KSM for a payment equal to the lesser of $160 million or US$200 million. The option is exercisable for a period of 60 days following the announcement of receipt of all material approvals and permits, full project financing and certain other conditions for the KSM Project.
In December 2020, the Company purchased the Snowfield property from Pretium Resources Inc. The Snowfield property, located in the same valley that hosts KSM's Mitchell deposit, was purchased for US$100 million ($127.5 million) in cash, a 1.5% net smelter royalty on Snowfield property production, and a conditional payment of US$20 million, payable following the earlier of (i) commencement of commercial production from Snowfield property, and (ii) announcement by the Company of a bankable feasibility study which includes production of reserves from the Snowfield property. US$15 million of the conditional payment can be credited against future royalty payments.
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b) | Courageous Lake |
In 2002, the Company purchased a 100% interest in the Courageous Lake gold project from Newmont Canada Limited and Total Resources (Canada) Limited. The Courageous Lake gold project consists of mining leases located in Northwest Territories of Canada.
c) | Iskut |
On June 21, 2016, the Company purchased 100% of the common shares of SnipGold Corp. which owns the Iskut Project, located in northwestern British Columbia.
d) | Snowstorm |
In 2017, the Company purchased 100% of the common shares of Snowstorm Exploration LLC which owns the Snowstorm Project, located in northern Nevada. On the acquisition date, the Company issued 700,000 common shares, with a fair value of $14.39 per share and 500,000 common share purchase warrants with a fair value of $6.55 per common share purchase warrant for a combined fair value of $13.3 million. The common share purchase warrants are exercisable for four years from the date of acquisition, at $15.65 per share. In addition, the Company has agreed to make a conditional cash payment of US$2.5 million if exploration activities at the Snowstorm Project result in defining a minimum of five million ounces of gold resources compliant with National Instrument 43-101 and a further cash payment of US$5.0 million on the delineation of an additional five million ounces of gold resources.
In 2019, the Company purchased the Goldstorm Project in northern Nevada from Mountain View Gold Corp.
e) | 3 Aces |
In 2020, the Company acquired a 100% interest in the 3 Aces gold project in the Yukon, Canada from Golden Predator Mining Corp. through the issuance of 300,000 common shares valued at $6.6 million. Should the project attain certain milestones, including the confirmation of a National Instrument 43-101 compliant mineral resource of 2.5 million ounces of gold and upon confirmation of an aggregate mineral resource of 5 million ounces of gold, the Company will potentially pay an additional $2.25 million.
f) | Grassy Mountain |
In 2013, the Company sold 100% of its interest in the Grassy Mountain Project with a net book value of $771,000 retained within mineral properties, related to the option to either receive, at the discretion of the Company, a 10% net profits interest royalty or a $10 million cash payment. Settlement is due four months after the later of: the day that the Company receives a feasibility study on the project; and the day that the Company is notified that permitting and bonding for the mine is in place. The current owner of the Grassy Mountain Project is Paramount who completed a feasibility study in 2020 but they have not notified the Company that permitting and bonding for the mine is in place.
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g) | Red Mountain |
Subsequent to the quarter end, the Company disposed of its residual interests in its previously owned Red Mountain project located in northwestern British Columbia, for cash proceeds of US$18 million, to Sprott Resource Streaming and Royalty.
10. | Accounts payable and accrued liabilities |
($000s) | March 31, 2021 | December 31, 2020 | ||||||
Trade payables | 1,803 | 2,466 | ||||||
Trade and other payables due to related parties | 85 | 57 | ||||||
Non-trade payables and accrued expenses (1) | 3,532 | 2,854 | ||||||
5,420 | 5,377 |
1) | During 2016, upon the completion of an audit of the application by tax authorities of the British Columbia Mineral Exploration Tax Credit (“BCMETC”) program, the Company was reassessed $3.6 million, including accrued interest, for expenditures that the tax authority has categorized as not qualifying for the BCMETC program. The Company recorded a $3.6 million provision within non-trade payables and accrued expenses on the consolidated statements of financial position as at December 31, 2016. In 2017 the Company filed an objection to the reassessment with the appeals division of the tax authorities and paid one-half of the accrued balance while the objection is reviewed. In early 2019, the Company received a decision from the appeals division that the Company’s objection was denied, and the Company filed a Notice of Appeal with the British Columbia Supreme Court. The Attorney General of Canada replied to the facts and arguments in the Company’s Notice of Appeal and stated its position that the Company’s expenditures did not qualify for the BCMETC program. As at March 31, 2021, the Company is in the discovery process with the Department of Justice and will continue to move the appeal process forward as expeditiously as possible. The Company intends to continue to fully defend its position. As at March 31, 2021, the Canada Revenue Agency (CRA) has withheld $2.0 million of HST credits due to the Company that would fully cover the residual balance, including interest, should the Company be unsuccessful in its challenge. |
11. | Lease obligations |
($000s) | March 31, 2021 | December 31, 2020 | ||||||
Opening balance | 248 | 274 | ||||||
Additions | 100 | - | ||||||
Principle repayment for the period | (18 | ) | (26 | ) | ||||
Total lease obligations | 330 | 248 | ||||||
Current portion | 89 | 41 | ||||||
Non-current portion | 241 | 207 |
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12. | Provision for reclamation liabilities |
($000s) | March 31, 2021 | December 31, 2020 | ||||||
Beginning of the period | 6,164 | 6,865 | ||||||
Disbursements | (71 | ) | (811 | ) | ||||
Environmental rehabilitation expense | 155 | - | ||||||
Accretion | 38 | 110 | ||||||
End of the period | 6,286 | 6,164 | ||||||
Provision for reclamation liabilities - current | 2,500 | 2,500 | ||||||
Provision for reclamation liabilities - long-term | 3,786 | 3,664 | ||||||
6,286 | 6,164 |
The estimate of the provision for reclamation obligations, as at March 31, 2021, was calculated using the estimated discounted cash flows of future reclamation costs of $6.3 million (December 31, 2020 - $6.2 million) and the expected timing of cash flow payments required to settle the obligations between 2021 and 2026. As at March 31, 2021, the undiscounted future cash outflows are estimated at $6.3 million (December 31, 2020 – $6.2 million) primarily over the next two years. The discount rate used to calculate the present value of the reclamation obligations was 0.2% at March 31, 2021 (0.2% - December 31, 2020). For three months ended March 31, 2021 and 2020, reclamation disbursements amounted to $0.1 million.
In 2020, the Company placed $5.2 million on deposit with a financial institution pledged as security for the Fish Habitat Offsetting Plan obligation at KSM. As at March 31, 2021, the Company has placed a total of $6.8 million (December 31, 2020 - $6.8 million) on deposit with financial institutions or with government regulators that are pledged as security against reclamation liabilities. The deposits are recorded on the consolidated statements of financial position as reclamation deposit.
13. | Shareholders’ equity |
The Company is authorized to issue an unlimited number of preferred shares and common shares with no par value. No preferred shares have been issued or were outstanding at March 31, 2021 or December 31, 2020.
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the business.
The properties in which the Company currently has an interest are in the exploration stage, as such the Company is dependent on external financing to fund its activities. In order to carry out the planned exploration and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There were no changes in the Company's approach to capital management during 2021. The Company considers its capital to be share capital, stock-based compensation, warrants, contributed surplus and deficit. The Company is not subject to externally imposed capital requirements.
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a) | Equity financings |
During the fourth quarter of 2019, the Company entered into an agreement with two securities dealers, for an At-The-Market offering program, entitling the Company, at its discretion, and from time to time, to sell up to US$40 million in value of common shares of the Company. During 2020, the Company issued 1,327,046 shares, at an average selling price of $21.94 per share, for net proceeds of $28.5 million under Company’s At-The-Market offering.
During the first quarter of 2021, the Company entered into a new agreement with two securities dealers, for an At-The-Market offering program, entitling the Company, at its discretion, and from time to time, to sell up to US$75 million in value of common shares of the Company. This program can be in effect until the Company’s current US$775 million Shelf Registration Statement expires in January 2023. During the current quarter, the Company issued 290,170 shares, at an average selling price of $23.78 per share, for net proceeds of $6.8 million under Company’s At-The-Market offering. Subsequent to the quarter end, the Company issued 275,054 shares, at an average selling price of $21.99 per share, for net proceeds of $5.9 million under Company’s At-The-Market offering.
On December 4, 2020, the Company entered into an agreement to sell, on a bought deal basis, 6,100,000 common shares of the Company, at US$17.25 per common share, for gross proceeds of US$105.0 million. As part of the agreement, the Company granted an option to the underwriters to sell up to an additional 610,000 common shares of the Company, at a price of US$17.25 per common share, for gross proceeds of US$10.5 million. The financing closed on December 9, 2020, and the underwriters fully exercised their option to purchase the additional common shares. In aggregate, 6,710,000 common shares were issued, at a price of US$17.25 per common share, for gross proceeds of US$115.7 million.
In June 2020, the Company issued 345,000 flow-through common shares at $32.94 per common share for aggregate gross proceeds of $11.4 million. The Company committed to renounce its ability to deduct qualifying exploration expenditures for the equivalent value of the gross proceeds of the flow-through financing and transfer the deductibility to the purchasers of the flow-through shares. The effective date of the renouncement was December 31, 2020. In accordance with draft legislation released on December 16, 2020 in relation to the COVID-19 pandemic, a 12-month extension has been proposed to the normal timelines in which the qualifying exploration expenditures should be incurred. At the time of issuance of the flow-through shares, $3.9 million premium was recognized as a liability on the consolidated statements of financial position. In 2020, the Company incurred $4.7 million of qualifying exploration expenditures and $1.6 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive loss. During the current quarter, the Company incurred $0.4 million of qualifying exploration expenditures and $0.1 million of the premium was recognized through other income on the consolidated statements of operations and comprehensive loss.
In April 2020, the Company closed a non-brokered private placement of 1.2 million common shares, at a price of $11.75 per common share, for gross proceeds of $14.1 million. As part of the private placement agreement, the Company granted an option to increase the size of the private placement by an additional 240,000 common shares exercisable until May 15, 2020. The 240,000 options were fully exercised on May 6, 2020 at a price of $11.75 per share, for gross proceeds of $2.8 million.
During the third quarter 2019, the Company issued 100,000 flow-through common shares at $24.64 per common share for aggregate gross proceeds of $2.5 million. The Company committed to renounce its ability to deduct qualifying exploration expenditures for the equivalent value of the gross proceeds of the flow-through financing and transfer the deductibility to the purchasers of the flow-through shares. During 2020, the Company incurred another $0.5 million of qualifying exploration expenditures and the remaining $0.1 million balance of the premium was recognized through other income on the consolidated statements of operations and comprehensive loss.
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b) | Warrants |
As part of the acquisition agreement of Snowstorm Exploration LLC in June 2017, the Company issued 500,000 common share purchase warrants exercisable for four years at $15.65 per share, which are still outstanding as at March 31, 2021.
c) | Stock options and Restricted share units |
The Company provides compensation to directors and employees in the form of stock options and Restricted Share Units (“RSU”s).
Pursuant to the Share Option Plan, the Board of Directors has the authority to grant options, and to establish the exercise price and life of the option at the time each option is granted, at a price not less than the closing price of the common shares on the Toronto Stock Exchange on the date of the grant of such option and for a period not exceeding five years. All exercised options are settled in equity.
Pursuant to the Company’s RSU Plan, the Board of Directors has the authority to grant RSUs, and to establish terms of the RSUs including the vesting criteria and the life of the RSU. The life of the RSU is not to exceed two years.
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Stock option and RSU transactions were as follows:
Options | RSUs | Total | ||||||||||||||||||||||
Number of Options | Weighted Average Exercise Price ($) | Amortized Value of options ($000s) | Number of RSUs | Amortized Value of RSUs ($000s) | Stock-based Compensation ($000s) | |||||||||||||||||||
Outstanding January 1, 2021 | 2,611,691 | 12.51 | 22,524 | 135,450 | 487 | 23,011 | ||||||||||||||||||
Granted | - | - | - | - | - | - | ||||||||||||||||||
Exercised option or vested RSU | (356,268 | ) | 11.06 | (3,670 | ) | - | - | (3,670 | ) | |||||||||||||||
Expired | (2,856 | ) | 6.30 | (37 | ) | - | - | (37 | ) | |||||||||||||||
Amortized value of stock-based compensation | - | - | - | - | 2,926 | 2,926 | ||||||||||||||||||
Outstanding at March 31, 2021 | 2,252,567 | 12.75 | 18,817 | 135,450 | 3,413 | 22,230 | ||||||||||||||||||
Exercisable at March 31, 2021 | 2,249,233 |
Options | RSUs | Total | ||||||||||||||||||||||
Number of Options | Weighted Average Exercise Price ($) | Amortized Value of options ($000s) | Number of RSUs | Amortized Value of RSUs ($000s) | Stock-based Compensation ($000s) | |||||||||||||||||||
Outstanding January 1, 2020 | 3,003,150 | 12.32 | 18,546 | 139,600 | 274 | 18,820 | ||||||||||||||||||
Granted | - | - | - | 135,450 | 487 | 487 | ||||||||||||||||||
Exercised option or vested RSU | (390,153 | ) | 11.03 | (2,246 | ) | (139,600 | ) | (2,351 | ) | (4,597 | ) | |||||||||||||
Expired | (1,309 | ) | 6.30 | (16 | ) | - | - | (16 | ) | |||||||||||||||
Amortized value of stock-based compensation | - | - | 6,240 | - | 2,077 | 8,317 | ||||||||||||||||||
Outstanding at December 31, 2020 | 2,611,691 | 12.51 | 22,524 | 135,450 | 487 | 23,011 | ||||||||||||||||||
Exercisable at December 31, 2020 | 2,608,357 |
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The outstanding share options at March 31, 2021 expire at various dates between April 2021 and June 2024. A summary of options outstanding, their remaining life and exercise prices as at March 31, 2021 is as follows:
Options Outstanding | Options Exercisable | |||||||||||
Exercise price | Number outstanding | Remaining contractual life | Number Exercisable | |||||||||
$ | 9.00 | 243,400 | 1 month | 243,400 | ||||||||
$ | 17.16 | 50,000 | 2 months | 50,000 | ||||||||
$ | 17.14 | 50,000 | 2 months | 50,000 | ||||||||
$ | 10.45 | 730,833 | 9 months | 730,833 | ||||||||
$ | 13.14 | 528,334 | 1 year 9 months | 528,334 | ||||||||
$ | 16.94 | 50,000 | 2 years 7 months | 50,000 | ||||||||
$ | 15.46 | 550,000 | 2 years 9 months | 546,666 | ||||||||
$ | 17.72 | 50,000 | 3 years 3 months | 50,000 | ||||||||
2,252,567 | 2,249,233 |
During the current quarter, 356,268 options were exercised for proceeds of $3.9 million and 356,268 common shares were issued. The weighted average share price at the date of exercise of options exercised during the current quarter was $22.63.
On June 25, 2020, shareholders resolved to approve that 425,000 options that were granted to the directors of the Company in 2015 and due to expire in April 2020, be extended for one year. These options vested in December 2020 upon the acquisition of the Snowfield property. The $4.4 million fair value of the extension was charged to the statement of operations and comprehensive loss at that time, matching the revised estimated service period.
608,000 options granted to board members and senior management in December 2018 and June 2019 vested in December 2020 upon the acquisition of the Snowfield property and $1.6 million of the fair value of these options, not previously expensed, was charged to the statement of operations and comprehensive loss on an accelerated basis to match the change in the estimate of the service period.
In October 2018, 50,000 five-year options with an exercise price of $16.94, to purchase common shares of the Company, with a grant-date fair value of $0.4 million, were granted to a new Board member. These options also vested in December 2020 upon the acquisition of the Snowfield property and $0.1 million of the fair value of these options, not previously expensed, was charged to the statement of operations and comprehensive loss on an accelerated basis, to match the change in the estimated service period.
The Company has, since 2019, refocused the compensation practices away from issuing a combination of
stock options and RSUs to only issuing RSUs with shorter terms and service periods.
In December 2020, the Board granted 135,450 RSUs. Of these, 28,000 RSUs were granted to the board members, 80,300 RSUs were granted to members of senior management, and the remaining 27,150 RSUs were granted to other employees of the Company. The fair value of the grants, of $3.4 million, was estimated as at the grant date to be amortized over the expected service period of the grants. The expected service period of approximately four months from the date of the grant was dependent on certain corporate objectives being met. Of the $3.4 million fair value of the grants, $0.5 million was amortized during the fourth quarter 2020, and the remaining $2.9 million was amortized during the current quarter. Subsequent to the quarter end, 134,450 RSUs were vested and were exchanged for common shares of the Company.
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In December 2019, the Board granted 139,600 RSUs. Of these, 32,500 RSUs were granted to the board members, 74,200 RSUs were granted to members of senior management, and the remaining 32,900 RSUs were granted to other employees of the Company. The fair value of the grants, of $2.4 million, was estimated as at the grant date to be amortized over the expected service period of the grants. The expected service period of approximately six months from the date of the grant was dependent on certain corporate objectives being met. During the second quarter 2020, all 139,600 RSUs were vested. Of the $2.4 million total fair value of the RSUs, $0.3 million was amortized in December 2019, and the remaining $2.1 million was amortized during first half of 2020.
Subsequent to the quarter end, 243,400 options were exercised for proceeds of $2.2 million.
d) | Basic and diluted net loss per common share |
For the periods ended March 31, 2021 and 2020, basic and diluted net loss per common share are computed by dividing the net loss for the period by the weighted average number of common shares outstanding for the year. The potential effect of stock options, RSUs and warrants has been excluded from the calculation of diluted loss per common share as the effect would be anti-dilutive. At March 31, 2021, there was a total of 2,252,567 stock options and 135,450 RSUs outstanding (December 31, 2020 – 2,611,691 and 139,600 respectively).
14. | Fair value of financial assets and liabilities |
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value.
Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts, volatility measurements used to value option contracts and observable credit default swap spreads to adjust for credit risk where appropriate), or inputs that are derived principally from or corroborated by observable market data or other means.
Level 3: Inputs are unobservable (supported by little or no market activity).
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.
The Company’s financial assets and liabilities as at March 31, 2021 and December 31, 2020 are cash and cash equivalents, short-term deposits, accounts receivable, marketable securities, convertible notes receivable and accounts payable. Other than investments and convertible notes receivable, the carrying values approximate their fair values due to the immediate or short-term maturity of these financial instruments and are classified as a Level 1 measurement. The Company’s equity investments are measured at fair value based on quoted market prices and are classified as a level 1 measurement. The convertible notes receivable are measured at fair value and are classified as a level 3 measurement.
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The Company's financial risk exposures and the impact on the Company's financial instruments are summarized below:
Credit Risk
The Company's credit risk is primarily attributable to short-term deposits, convertible notes receivable, and receivables included in amounts receivable and prepaid expenses. The Company has no significant concentration of credit risk arising from operations. The short-term deposits consist of Canadian Schedule I bank guaranteed notes, with terms up to one year but are cashable in whole or in part with interest at any time to maturity, for which management believes the risk of loss to be remote. Management believes that the risk of loss with respect to financial instruments included in amounts receivable and prepaid expenses to be remote.
Liquidity Risk
The Company's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at March 31, 2021, the Company had cash and cash equivalents of $13.7 million and short-term deposits of $19.9 million (December 31, 2020 - $17.5 million and $19.9 million, respectively) for settlement of current financial liabilities of $5.4 million (December 31, 2020 - $5.4 million). The short-term deposits consist of Canadian Schedule I bank guaranteed deposits and are cashable in whole or in part with interest at any time to maturity. The Company's financial liabilities primarily have contractual maturities of 30 days and are subject to normal trade terms. The Company’s ability to fund its operations and capital expenditures and other obligations as they become due is dependent upon market conditions.
As the Company does not generate cash inflows from operations, the Company is dependent upon external sources of financing to fund its exploration projects and on-going activities. If required, the Company will seek additional sources of cash to cover its proposed exploration and development programs at its key projects, in the form of equity financings and from the sale of non-core assets. Refer to note 13 for details on equity financings.
Market Risk
(a) Interest Rate Risk
The Company has no interest-bearing debt. The Company's current policy is to invest excess cash in Canadian bank guaranteed notes (short-term deposits). The short-term deposits can be cashed in at any time and can be reinvested if interest rates rise.
(b) Foreign Currency Risk
The Company's functional currency is the Canadian dollar and major purchases are transacted in Canadian and US dollars. The Company funds certain operations, exploration and administrative expenses in the United States on a cash call basis using US dollar cash on hand or converted from its Canadian dollar cash. Management believes the foreign exchange risk derived from currency conversions is not significant to its operations and therefore does not hedge its foreign exchange risk. As at March 31, 2021, $5.3 million of cash and cash equivalents and $0.2 million of accounts payable and accrued liabilities are denominated in US dollars.
(c) Investment Risk
The Company has investments in other publicly listed exploration companies which are included in investments. These shares were received as option payments on certain exploration properties the Company owns or has sold. In addition, the Company holds $3.0 million in a gold exchange traded receipt that is recorded on the consolidated statements of financial position in investments. The risk on these investments is significant due to the nature of the investment but the amounts are not significant to the Company.
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15. | Corporate and administrative expenses |
Three months ended March 31, | ||||||||
($000s) | 2021 | 2020 | ||||||
Employee compensation | 968 | 912 | ||||||
Stock-based compensation | 2,926 | 2,042 | ||||||
Professional fees | 165 | 272 | ||||||
Other general and administrative | 698 | 641 | ||||||
4,757 | 3,867 |
16. | Related party disclosures |
During the three months ended March 31, 2021 and 2020, there were no payments to related parties other than compensation paid to key management personnel.
17. | Income taxes |
During the three months ended March 31, 2021, the Company recognized income tax recovery of $0.4 million primarily related to deferred tax recovery arising from the losses in the current quarter, partially offset by deferred tax expense arising due to the renouncement of expenditures related to the June 2020 flow-through shares issued which were capitalized for accounting purposes.
During the comparative three months ended March 31, 2020, the Company recognized income tax recovery of $0.4 million primarily related to deferred tax recovery arising from the losses in the current quarter.
As reported in the Company’s prior year financial statements, in 2019 the Company received a notice from the CRA that it proposed to reduce the amount of expenditures reported, as Canadian Exploration Expenses (CEE) for the three-year period ended December 31, 2016. The Company has funded certain of its exploration expenditures, from time-to-time, with the proceeds from the issuance of flow-through shares and renounced, to subscribers, the expenditures which it determined to be CEE. The notice disputes the eligibility of certain types of expenditures previously audited and approved as CEE by the CRA. The Company strongly disagrees with the notice and responded to the CRA auditors with additional information for their consideration. In 2020, the CRA auditors responded to the Company’s submission and, although accepting additional expenditures as CEE, reiterated that their position remains largely unchanged and subsequently issued reassessments to the Company reflecting the additional CEE expenditures accepted and $2.3 million of Part Xll.6 tax owing. The Company has been made aware that the CRA has reassessed certain investors who subscribed for flow-through shares in 2013 and will reassess other investors with reduced CEE deductions. The Company’s and investors’ reassessments will be appealed to the courts. The Company has indemnified the investors that subscribed for the flow-through shares. The potential tax indemnification to the investors is estimated to be $11.0 million, plus $2.2 million potential interest. No provision has been recorded related to the tax, potential interest, nor the potential indemnity as the Company and its advisors do not consider it probable that there will ultimately be an amount payable.
During the current quarter, $2.4 million was deposited with the Receiver General, on behalf of certain investors in return for their agreement to object to their respective assessments and agreement to repay the Company with any and all recoveries upon the successful resolution of the Company’s successful appeal.
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