GALIANO GOLD INC.
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
UNAUDITED
For the three months ended March 31, 2024 and 2023
TABLE OF CONTENTS
GALIANO GOLD INC. |
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION |
AS AT MARCH 31, 2024 AND DECEMBER 31, 2023 |
(In thousands of United States Dollars) |
March 31, 2024 | December 31, 2023 | ||||||
Note | $ | $ | |||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | 5 | 130,804 | 55,270 | ||||
Accounts receivable | 5,825 | 1,060 | |||||
Inventories | 6 | 29,920 | - | ||||
Value added tax receivables | 9,303 | - | |||||
Prepaid expenses and deposits | 6,616 | 764 | |||||
182,468 | 57,094 | ||||||
Non-current assets | |||||||
Financial assets | 7 | - | 70,165 | ||||
Investment in joint venture | 8 | - | 85,818 | ||||
Reclamation depos its | 5,311 | - | |||||
Right-of-use assets | 9 | 21,013 | 173 | ||||
Mineral properties, plant and equipment | 9 | 237,955 | 52 | ||||
264,279 | 156,208 | ||||||
Total Assets | 446,747 | 213,302 | |||||
Liabilities | |||||||
Current liabilities | |||||||
Accounts payable and accrued liabilities | 57,892 | 11,863 | |||||
Provisions | 10 | 7,000 | - | ||||
Lease liabilities | 11 | 8,264 | 125 | ||||
73,156 | 11,988 | ||||||
Non-current liabilities | |||||||
Lease liabilities | 11 | 16,509 | 78 | ||||
Long-term incentive plan liabilities | 15 | 685 | 318 | ||||
Deferred and contingent consideration | 12 | 64,672 | - | ||||
Asset retirement provisions | 13 | 62,548 | - | ||||
144,414 | 396 | ||||||
Total liabilities | 217,570 | 12,384 | |||||
Equity | |||||||
Common shareholders' equity | |||||||
Share capital | 14 | 612,335 | 579,619 | ||||
Equity reserves | 15 | 53,414 | 53,112 | ||||
Accumulated deficit | (436,572 | ) | (431,813 | ) | |||
Total common shareholders ' equity | 229,177 | 200,918 | |||||
Non-controlling interest | 16 | - | - | ||||
Total equity | 229,177 | 200,918 | |||||
Total liabilities and equity | 446,747 | 213,302 | |||||
Business combination | 4 | ||||||
Commitments and contingencies | 24 |
The accompanying notes form an integral part of these condens ed consolidated interim financial s tatements .
Approved on behalf of the Board of Directors : | ||
"Matt Badylak" | "Greg Martin" | |
Director | Director |
GALIANO GOLD INC.
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(In thousands of United States Dollars, except dollar per share amounts)
Three months ended | |||||||
March 31, 2024 | March 31, 2023 | ||||||
Note | $ | $ | |||||
Revenue | 17 | 31,695 | - | ||||
Cost of sales: | |||||||
Production costs | 18 | (22,162 | ) | - | |||
Depreciation and depletion | 9 | (2,982 | ) | - | |||
Royalties | 19 | (1,905 | ) | - | |||
Total cost of sales | (27,049 | ) | - | ||||
Income from mine operations | 4,646 | - | |||||
General and administrative expenses | 20 | (7,693 | ) | (3,850 | ) | ||
Exploration and evaluation expenditures | (609 | ) | (1,413 | ) | |||
Share of net income related to joint venture | 8 | 2,432 | 9,307 | ||||
Service fee earned as operators of joint venture | 21 | 976 | 1,418 | ||||
Gain on derecognition of equity investment in joint venture | 8 | 1,298 | - | ||||
Income from operations and joint venture | 1,050 | 5,462 | |||||
Transaction costs | 4 | (2,299 | ) | - | |||
Finance income | 22(a) | 2,506 | 3,016 | ||||
Finance expense | 22(b) | (5,725 | ) | (6 | ) | ||
Foreign exchange (loss) gain | (291 | ) | 21 | ||||
Net (loss) income and comprehensive (loss) income for the period | (4,759 | ) | 8,493 | ||||
Net (loss) income attributable to: | |||||||
Common shareholders of the Company | (4,759 | ) | 8,493 | ||||
Non-controlling interest | 16 | - | - | ||||
Net (loss) income for the period | (4,759 | ) | 8,493 | ||||
Weighted average number of shares outstanding: | |||||||
Basic | 23 | 233,510,750 | 224,943,453 | ||||
Diluted | 23 | 233,510,750 | 224,944,779 | ||||
Net (loss) income per share attributable to common shareholders: | |||||||
Basic | (0.02 | ) | 0.04 | ||||
Diluted | (0.02 | ) | 0.04 |
The accompanying notes form an integral part of these condensed consolidated interim financial statements .
GALIANO GOLD INC.
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(In thousands of United States Dollars, except for number of common shares)
Number of shares | Share capital | Equity reserves | Accumulated deficit | Non- controlling interest | Total equity | ||||||||||||||
Note | $ | $ | $ | $ | $ | ||||||||||||||
Balance as at December 31, 2022 | 224,943,453 | 579,591 | 51,998 | (457,898 | ) | - | 173,691 | ||||||||||||
Share-based compensation expense | 15(a) | - | - | 239 | - | - | 239 | ||||||||||||
Net income and comprehensive income for the period | - | - | - | 8,493 | - | 8,493 | |||||||||||||
Balance as at March 31, 2023 | 224,943,453 | 579,591 | 52,237 | (449,405 | ) | - | 182,423 | ||||||||||||
Balance as at December 31, 2023 | 224,972,786 | 579,619 | 53,112 | (431,813 | ) | - | 200,918 | ||||||||||||
Issuance of common shares: | |||||||||||||||||||
Business combination, net of share issuance costs | 4 | 28,500,000 | 32,449 | - | - | - | 32,449 | ||||||||||||
Exercise of stock options | 15(a) | 244,001 | 267 | (86 | ) | - | - | 181 | |||||||||||
Share-based compensation expense | 15(a) | - | - | 388 | - | - | 388 | ||||||||||||
Net loss and comprehensive loss for the period | - | - | - | (4,759 | ) | - | (4,759 | ) | |||||||||||
Balance as at March 31, 2024 | 253,716,787 | 612,335 | 53,414 | (436,572 | ) | - | 229,177 |
The accompanying notes form an integral part of these condensed consolidated interim financial statements .
GALIANO GOLD INC.
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(In thousands of United States Dollars)
Three months ended | |||||||
March 31, 2024 | March 31, 2023 | ||||||
Note | $ | $ | |||||
Operating activities: | |||||||
Net (loss) income for the period | (4,759 | ) | 8,493 | ||||
Adjustments for: | |||||||
Depreciation and depletion | 9,20 | 3,016 | 36 | ||||
Share-based compensation | 15,20 | 5,128 | 1,597 | ||||
Share of net income related to joint venture | 8 | (2,432 | ) | (9,307 | ) | ||
Gain on derecognition of equity investment in joint venture | 8 | (1,298 | ) | - | |||
Transaction costs | 4 | 2,299 | - | ||||
Finance income | 22(a) | (2,506 | ) | (3,016 | ) | ||
Finance expense | 22(b) | 5,725 | 5 | ||||
Unrealized foreign exchange (gain) loss | (78 | ) | 10 | ||||
Operating cash flow before working capital changes | 5,095 | (2,182 | ) | ||||
Change in non-cash working capital | 25 | 7,933 | 1,639 | ||||
Cash provided by (used in) operating activities | 13,028 | (543 | ) | ||||
Investing activities: | |||||||
Acquisition of 45% interest in joint venture from Gold Fields | 4 | (65,000 | ) | - | |||
Cash and cash equivalents assumed on acquisition | 4 | 112,502 | - | ||||
Transaction costs paid | 4 | (2,299 | ) | - | |||
Redemption of preferred shares in joint venture | 7 | 25,000 | - | ||||
Expenditures on mineral properties, plant and equipment | 9 | (7,303 | ) | (29 | ) | ||
Interest received | 848 | 673 | |||||
Cash provided by investing activities | 63,748 | 644 | |||||
Financing activities: | |||||||
Payment of lease liabilities | 11 | (1,078 | ) | (31 | ) | ||
Shares issued for cash on exercise of stock options | 15(a) | 181 | - | ||||
Share issuance costs | (40 | ) | - | ||||
Cash used in financing activities | (937 | ) | (31 | ) | |||
Impact of foreign exchange on cash and cash equivalents | (305 | ) | (8 | ) | |||
Increase in cash and cash equivalents during the period | 75,534 | 62 | |||||
Cash and cash equivalents, beginning of period | 55,270 | 56,111 | |||||
Cash and cash equivalents, end of period | 130,804 | 56,173 | |||||
Supplemental cash flow information | 25 |
The accompanying notes form an integral part of these condensed consolidated interim financial statements.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
1. Nature of operations
Galiano Gold Inc. ("Galiano" or the "Company") was incorporated on September 23, 1999 under the Business Corporations Act of British Columbia, Canada. The Company's head office and principal address is located at 1640 - 1066 West Hastings Street, Vancouver, British Columbia, V6E 3X1, Canada. The Company's registered and records office is located at Suite 3500, 1133 Melville Street, Vancouver, V6E 4E5. The Company's common shares trade on the Toronto Stock Exchange and NYSE American Exchange under the ticker symbol "GAU".
Until March 4, 2024, the Company's principal business activity was the operation of the Asanko Gold Mine ("AGM") through a joint venture arrangement (the "JV") associated with the Company's then 45% equity interest in the entity that held the AGM mining licenses and gold exploration tenements (see note 8).
On March 4, 2024 (the "Acquisition Date"), the Company acquired Gold Fields Limited's ("Gold Fields") 45% interest in the AGM (the "Acquisition"). As of the Acquisition Date, the Company owns a 90% interest in the AGM with the Government of Ghana continuing to hold a 10% free-carried interest (non-controlling interest). Refer to note 4 for further details on the Acquisition and preliminary purchase price accounting.
The AGM consists of four main open-pit mining areas: Abore, Miradani North, Nkran and Esaase, multiple satellite deposits and exploration projects located on the Asankrangwa Gold Belt in the Amansie West District of the Republic of Ghana ("Ghana"), West Africa.
2. Basis of presentation
(a) Statement of compliance
These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34 - Interim Financial Reporting, using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and Interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"). These condensed consolidated interim financial statements do not include all of the necessary annual disclosures in accordance with IFRS and should be read in conjunction with the Company's audited consolidated annual financial statements for the year ended December 31, 2023.
These condensed consolidated interim financial statements were authorized for issue and approved by the Board of Directors on May 2, 2024.
The accounting policies followed in these condensed consolidated interim financial statements are the same as those applied in the Company's audited consolidated annual financial statements for the year ended December 31, 2023, except as described below. The accounting policies of the JV outlined in the Company's annual financial statements for the year ended December 31, 2023 are the same accounting policies applied by the consolidated Galiano group in these financial statements.
Business combinations
Upon the acquisition of a business, the acquisition method of accounting is applied, whereby the purchase consideration is allocated to the identifiable assets, liabilities and contingent liabilities (identifiable net assets) acquired on the basis of fair value at the date of acquisition.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
2. Basis of presentation (continued)
When the cost of the acquisition exceeds the fair value attributable to the Company's share of the identifiable net assets, the difference is recorded as goodwill, which is not amortized and is reviewed for impairment annually or more frequently when there is an indication of impairment.
If the fair value attributable to the Company's share of the identifiable net assets exceeds the cost of acquisition, the difference is immediately recognized in the Statement of Operations and Comprehensive Income (Loss). Acquisition related costs, other than costs to issue equity securities of the Company, including investment banking fees, legal fees, accounting fees, valuation fees, and other professional or consulting fees are expensed as incurred. The cost to issue equity securities of the Company as consideration for the acquisition are reduced from share capital as share issuance costs.
Non-controlling interests are measured either at fair value or at the non-controlling interests' proportionate share of the recognized amounts of the acquirer's identifiable net assets as at the date of acquisition. The choice of measurement basis is made on a transaction-by-transaction basis.
Upon the acquisition of control, any previously held interest is re-measured to fair value at the date control is obtained resulting in a gain or loss upon the acquisition of control.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the business combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete. These provisional amounts are adjusted during the measurement period (up to 12 months from the acquisition date) to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.
(b) Basis of presentation and consolidation
These condensed consolidated interim financial statements have been prepared on a historical cost basis, except for financial instruments carried at fair value.
All amounts are expressed in thousands of United States dollars, unless otherwise stated, and the United States dollar is the functional currency of the Company and each of its subsidiaries. References to C$ are to Canadian dollars.
These condensed consolidated interim financial statements incorporate the financial information of the Company and its subsidiaries as at March 31, 2024. Subsidiaries are entities controlled by the Company. Control exists when the Company has power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
Subsidiaries are included in the consolidated financial statements of the Company from the effective date of acquisition up to the effective date of disposition or loss of control. The results of operations and cash flows of Asanko Gold Ghana Ltd., Adansi Gold Company (GH) Ltd. and Shika Group Finance Limited have been consolidated commencing on March 4, 2024 (refer to note 4).
All significant intercompany amounts and transactions between the Company and its subsidiaries have been eliminated on consolidation.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
2. Basis of presentation (continued)
The principal subsidiaries to which the Company is a party, as well as their geographic locations, were as follows as at March 31, 2024:
Affiliate name | Location | Interest | Classification and accounting method |
Galiano Gold South Africa (PTY) Ltd. | South Africa | 100% | Consolidated |
Galiano International (Isle of Man) Ltd. | Isle of Man | 100% | Consolidated |
Galiano Gold (Isle of Man) Ltd. | Isle of Man | 100% | Consolidated |
Galiano Gold Exploration Mali SARL | Mali | 100% | Consolidated |
Galiano Gold Exploration Ghana Ltd. | Ghana | 100% | Consolidated |
BUK West Africa Limited | United Kingdom | 100% | Consolidated |
Asanko Gold Ghana Ltd.1 | Ghana | 90% | Consolidated |
Adansi Gold Company (GH) Ltd. 1 | Ghana | 100% | Consolidated |
Shika Group Finance Limited1 | Isle of Man | 100% | Consolidated |
Galiano Gold Netherlands B.V.2 | Netherlands | 100% | Consolidated |
1 From January 1, 2024 to March 3, 2024, the Company equity accounted for its 45% interest in Asanko Gold Ghana Ltd. and its 50% interest in each of Adansi Gold Company (GH) Ltd. and Shika Group Finance Limited.
2 Acquired on March 4, 2024 as part of the Acquisition and name changed from GFI Netherlands B.V. to Galiano Gold Netherlands B.V. on April 2, 2024.
(c) Accounting standards adopted during the period
There were no new accounting standards effective January 1, 2024 that impacted these condensed consolidated interim financial statements.
(d) Accounting standards and amendments issued but not yet adopted
There were no accounting standards or amendments to existing standards issued but not yet adopted as of January 1, 2024 that are expected to have a material effect on the Company's financial statements in the future.
3. Significant accounting judgements and estimates
The preparation of financial statements, in conformity with IFRS, requires management to make judgements, estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Management believes the estimates and assumptions used in these condensed consolidated interim financial statements are reasonable; however, actual results could differ from those estimates and could impact future results of operations and cash flows and reported amounts of assets and liabilities.
The Company's significant accounting judgements and estimates are unchanged as compared to those presented in note 6 of the Company's audited annual consolidated financial statements for the year ended December 31, 2023, except as follows:
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
3. Significant accounting judgements and estimates (continued)
Business combinations
Judgements
The Company has concluded that the AGM constitutes a business and, therefore, the acquisition is accounted for in accordance with IFRS 3, Business Combinations. Acquisitions of businesses are accounted for using the acquisition method of accounting.
Estimates
The measurement of consideration transferred and fair value of assets acquired and liabilities assumed required the Company to make certain judgements and estimates taking into account information available at the time of acquisition about future events, including but not limited to: estimates of mineral reserves and resources acquired, exploration potential, future operating costs and capital expenditures, reclamation and closure costs, timing of development of the Nkran pit, future gold prices, discount rates and tax rates. Changes to any of these estimates may impact the fair values disclosed in the preliminary purchase price allocation, which would be adjusted retrospectively until the purchase price allocation is finalized within twelve months of the acquisition date.
4. Acquisition of control of AGM
On March 4, 2024, the Company completed the acquisition of Gold Fields' 45% interest in the Asanko Gold Mine JV. Following the closing of the Acquisition, the Company owns a 90% interest in Asanko Gold Ghana Ltd. ("AGGL"), the entity which holds the AGM's mining concessions and licenses, a 100% interest in Adansi Gold Company (GH) Ltd., an entity which holds exploration licenses in Ghana, and a 100% interest in Shika Group Finance Limited, the former JV entity. The Company also acquired a 100% interest in GFI Netherlands B.V., the entity through which Gold Fields held its former 45% interest in the JV.
The objective of the Acquisition is to consolidate ownership of the AGM and obtain control of the asset.
The Company began consolidating the operating results, cash flows and net assets of the AGM commencing on March 4, 2024.
The total consideration payable to Gold Fields comprised the following:
- $65.0 million in cash;
- issuance of 28.5 million common shares of the Company;
- $55.0 million of deferred consideration comprised of a:
- $25.0 million cash payment on or before December 31, 2025; and
- $30.0 million cash payment on or before December 31, 2026 (collectively "Deferred Consideration")
The Deferred Consideration is to be paid in cash subject to the Company's right to satisfy up to 20% of each payment with common shares of the Company, subject to Gold Fields not owning more than 19.9% of the Company's issued and outstanding common shares at that time; and
- $30.0 million cash payment contingently payable upon production of 100,000 gold ounces from the Nkran deposit ("Contingent Consideration").
Gold Fields will also receive a 1% net smelter return royalty on production from the Nkran deposit beginning upon 100,000 gold ounces being produced, and subject to a maximum of 447,000 gold ounces of production ("Nkran Royalty"). Galiano has a right of first refusal on any full or partial disposition of the Nkran Royalty by Gold Fields.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
4. Acquisition of control of AGM (continued)
For accounting purposes, the consideration also includes the fair value of the Company's pre-existing investments in the JV, specifically the preferred shares and equity accounted investment.
The estimated fair value of consideration paid to Gold Fields as of the acquisition date is summarized as follows:
Fair value | |||
$ | |||
Cash | 65,000 | ||
Common shares (1) | 32,490 | ||
Deferred consideration(2) | 47,628 | ||
Contingent consideration(3) | 13,243 | ||
Nkran royalty(4) | 3,006 | ||
Fair value of consideration paid for 45% interest in AGM | 161,367 | ||
Fair value of Galiano's previously held 45% interest | 136,367 | ||
Fair value of consideration | 297,734 |
(1) The common share consideration fair value is based on a value of $1.14 per share, being the closing price of the Company's common shares on the NYSE American on March 4, 2024.
(2) The Deferred Consideration fair value was estimated using a discounted cash flow model and applying a 6.3% discount rate.
(3) The Contingent Consideration fair value was estimated using a discounted cash flow model and applying a 14.6% discount rate.
(4) The Nkran Royalty fair value was estimated using a discounted cash flow model and applying a forecast gold price of $1,725 per ounce and a discount rate of 14.6%.
The fair value of the Company’s previously held 45% interest in the JV is comprised of the fair value of preferred shares amounting to $46.8 million and the fair value of the Company’s previous equity investment of $89.5 million.
A preliminary allocation of the purchase price is presented in the table below.
Fair value | |||
$ | |||
Assets acquired | |||
Cash and cash equivalents | 112,502 | ||
Accounts receivable | 102 | ||
Value added tax receivables | 7,885 | ||
Inventories | 45,395 | ||
Prepaid expenses and deposits | 5,509 | ||
Reclamation deposits | 5,308 | ||
Mineral properties, plant and equipment | 230,621 | ||
Liabilities assumed | |||
Accounts payable and accrued liabilities | (44,469 | ) | |
Lease liabilities | (19,176 | ) | |
Asset retirement provisions | (45,943 | ) | |
Net assets acquired | 297,734 | ||
Non-controlling interest | - | ||
Net assets attributable to Galiano | 297,734 |
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
4. Acquisition of control of AGM (continued)
As at March 31, 2024, the allocation of the purchase price has not been finalized. The Company is continuing its review of estimates of the consideration, inventories, mineral properties, plant and equipment, asset retirement provisions, leases, deferred taxes and non-controlling interests. The Company will finalize the allocation of the purchase price no later than twelve months after the acquisition date.
The Company expensed $0.4 million of acquisition-related costs during the year ended December 31, 2023 and another $2.3 million were expensed during the three months ended March 31, 2024 and were presented as transaction costs in the Statement of Operations and Comprehensive Income (Loss). In addition, the JV incurred $1.2 million of acquisition-related costs in Ghana.
Since the acquisition on March 4, 2024, the assets acquired from the AGM contributed $31.7 million of revenue and $9.2 million of net earnings before purchase price adjustments. Had the transaction occurred on January 1, 2024, the AGM would have contributed revenue of $65.6 million and net income of $14.5 million for the three months ended March 31, 2024.
5. Cash and cash equivalents
March 31, 2024 | December 31, 2023 | |||||
$ | $ | |||||
Cash held in banks | 74,474 | 15,827 | ||||
Short-term investments | 56,330 | 39,443 | ||||
Cash and cash equivalents | 130,804 | 55,270 |
6. Inventories
March 31, 2024 | December 31, 2023 | |||||
$ | $ | |||||
Gold dore on hand | 2,397 | - | ||||
Gold-in-process | 866 | - | ||||
Ore stockpiles | 11,076 | - | ||||
Supplies | 15,581 | - | ||||
Total inventories | 29,920 | - |
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
7. Financial assets
On closing of the Acquisition, the Company derecognized its preferred share investment in the AGM JV, which is now eliminated on consolidation. The following table summarizes the change in the carrying amount of the Company's preferred shares held in the JV for the three months ended March 31, 2024 and year ended December 31, 2023:
March 31, 2024 | December 31, 2023 | ||||||||
Number of shares | $ | $ | |||||||
Balance, beginning of period | 132,400,000 | 70,165 | 66,809 | ||||||
Fair value adjustment for the period | - | 1,654 | 3,356 | ||||||
Redemption of preferred shares during the period | (25,000,000 | ) | (25,000 | ) | - | ||||
Derecognition on closing of Acquisition | (107,400,000 | ) | (46,819 | ) | - | ||||
Balance, end of period | - | - | 70,165 |
Prior to closing the Acquisition, the Company re-measured the fair value of the preferred shares to $71.8 million and recorded a positive fair value adjustment of $1.7 million in finance income for the three months ended March 31, 2024 (three months ended March 31, 2023 - positive fair value adjustment of $2.3 million).
Prior to closing of the Acquisition, the AGM JV made a $25.0 million preferred share redemption to the Company, which was subsequently used to pay Gold Fields a portion of the cash consideration under the Acquisition.
8. Asanko Gold Mine joint venture
On March 4, 2024, the Company ceased to apply the equity method of accounting for its previous 45% interest in the AGM JV. For the period from January 1, 2024 to March 3, 2024, the Company recognized its 45% share of the JV net earnings which amounted to $2.4 million (three months ended March 31, 2023 - share of the JV's net earnings of $9.3 million).
Prior to closing of the Acquisition, the Company remeasured its equity investment in the AGM JV to fair value and recorded a $1.3 million gain on derecognition of its equity investment in the JV for the three months ended March 31, 2024.
The following table summarizes the change in the carrying amount of the Company's investment in the AGM JV for the three months ended March 31, 2024 and year ended December 31, 2023:
March 31, 2024 | December 31, 2023 | |||||
$ | $ | |||||
Balance, beginning of period | 85,818 | 54,148 | ||||
Company's share of the JV's net income for the period | 2,432 | 31,670 | ||||
Fair value adjustment on derecognition | 1,298 | |||||
Derecognition on closing of Acquisition | (89,548 | ) | - | |||
Balance, end of period | - | 85,818 |
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
9. Mineral properties, plant and equipment ("MPP&E") and right-of-use assets
Exploration | |||||||||||||||||||||
and | Plant, | ||||||||||||||||||||
Mineral | evaluation | buildings and | Right-of-use Assets under | Corporate | |||||||||||||||||
interests | assets | equipment | assets | construction | assets | Total | |||||||||||||||
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||
Cost | |||||||||||||||||||||
As at December 31, 2022 | - | - | - | 623 | - | 461 | 1,084 | ||||||||||||||
Additions | - | - | - | - | - | 35 | 35 | ||||||||||||||
As at December 31, 2023 | - | - | - | 623 | - | 496 | 1,119 | ||||||||||||||
Acquired under the Acquisition (note 4) | 8,399 | 3,964 | 191,560 | 15,746 | 10,952 | - | 230,621 | ||||||||||||||
Additions | 6,513 | - | - | 6,051 | 793 | 4 | 13,361 | ||||||||||||||
Change in asset retirement provisions | 16,383 | - | - | - | - | - | 16,383 | ||||||||||||||
As at March 31, 2024 | 31,295 | 3,964 | 191,560 | 22,420 | 11,745 | 500 | 261,484 | ||||||||||||||
Accumulated depreciation and depletion | |||||||||||||||||||||
As at December 31, 2022 | - | - | - | (346 | ) | - | (406 | ) | (752 | ) | |||||||||||
Depreciation expense | - | - | - | (104 | ) | - | (38 | ) | (142 | ) | |||||||||||
As at December 31, 2023 | - | - | - | (450 | ) | - | (444 | ) | (894 | ) | |||||||||||
Depreciation and depletion expense | (75 | ) | - | (582 | ) | (957 | ) | - | (8 | ) | (1,622 | ) | |||||||||
As at March 31, 2024 | (75 | ) | - | (582 | ) | (1,407 | ) | - | (452 | ) | (2,516 | ) | |||||||||
Net book value: | |||||||||||||||||||||
As at December 31, 2023 | - | - | - | 173 | - | 52 | 225 | ||||||||||||||
As at March 31, 2024 | 31,220 | 3,964 | 190,978 | 21,013 | 11,745 | 48 | 258,968 |
Depreciation and depletion expense for the three months ended March 31, 2024 presented above includes $34 of depreciation expense that is presented within general and administrative expenses in the Statement of Operations and Comprehensive Income (Loss) (three months ended March 31, 2023 - $36). Additionally, depreciation and depletion expense recognized in the Statement of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2024 includes $1.4 million of depreciation expense related to changes in inventories.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
10. Provisions
A services provider of the AGM filed a dispute with an arbitration tribunal alleging the AGM breached the terms of a services agreement and claimed approximately $25 million in damages. The arbitrator ruled in favour of the AGM that there had not been a breach of any terms of the contract, yet made an award to the counterparty of approximately $13 million plus interest for services rendered. The AGM, consistent with the arbitration ruling, maintains the view that there was no breach of contract and all contractual amounts were paid as due. The AGM therefore is undertaking an appeals process in the Court of Appeal in Ghana. A provision of $7.0 million has been recorded as of March 31, 2024 (December 31, 2023 - $7.0 million), which represents management's best estimate to settle the claim. While the Company cannot reasonably predict the ultimate outcome of these actions, and inherent uncertainties exist in predicting such outcomes, the Company believes the estimated provision is reasonable based on the information currently available.
11. Lease liabilities
The following table shows the movement in lease liabilities of the Company for the three months ended March 31, 2024 and year ended December 31, 2023:
March 31, 2024 | December 31, 2023 | |||||
$ | $ | |||||
Balance, beginning of period | 203 | 314 | ||||
Leases assumed in Acquisition | 19,176 | - | ||||
Leases entered into during the period | 6,051 | - | ||||
Lease payments | (1,078 | ) | (127 | ) | ||
Interest expense | 421 | 16 | ||||
Total lease liabilities, end of period | 24,773 | 203 | ||||
Less: current portion of lease liabilities | (8,264 | ) | (125 | ) | ||
Total non-current portion of lease liabilities | 16,509 | 78 |
During the three months ended March 31, 2024, the Company incurred $11.5 million relating to variable lease payments under mining services contracts which have not been included in the measurement of lease liabilities (three months ended March 31, 2023 - nil).
12. Deferred and contingent consideration
In accordance with the Acquisition agreement, certain consideration payable to Gold Fields is deferred in time or contingent upon certain future events. The Company has recognized the following financial liabilities at fair value as of the acquisition date and were subsequently remeasured in accordance with IFRS 9, Financial Instruments ("IFRS 9").
March 31, 2024 | December 31, 2023 | |||||
$ | $ | |||||
Deferred Consideration | 47,874 | - | ||||
Contingent Consideration | 13,703 | - | ||||
Nkran Royalty | 3,095 | - | ||||
Total financial liabilities | 64,672 | - |
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
12. Deferred and contingent consideration (continued)
(a) Deferred Consideration
$55.0 million of the aggregate consideration payable to Gold Fields is deferred with $25.0 million due on or before December 31, 2025 and $30.0 million due on or before December 31, 2026. The Company estimated the fair value of the Deferred Consideration by discounting the contractual future cash flows (assumed $25.0 million payable on December 31, 2025 and $30.0 million payable on December 31, 2026) at a discount rate of 6.3%, resulting in a fair value of $47.6 million as of March 4, 2024. Subsequent to initial recognition, the Deferred Consideration is measured at amortized cost.
For the three months ended March 31, 2024, the Company recognized accretion expense of $0.2 million in finance expense in the Statement of Operations and Comprehensive Income (Loss).
The following table summarizes the change in the carrying amount of the Deferred Consideration for the three months ended March 31, 2024:
March 31, 2024 | December 31, 2023 | |||||
$ | $ | |||||
Balance, beginning of period | - | - | ||||
Initial recognition at fair value (note 4) | 47,628 | - | ||||
Accretion expense | 246 | - | ||||
Balance, end of period | 47,874 | - |
(b) Contingent Consideration
$30.0 million of the aggregate consideration payable to Gold Fields is contingent upon 100,000 gold ounces being produced from the Nkran deposit. The Company estimated the fair value of the Contingent Consideration by discounting forecast future cash flows based upon the expected payment date from the current life of mine plan at a discount rate of 14.6%, resulting in a fair value of $13.2 million as of March 4, 2024.
In accordance with IFRS 3 and IFRS 9, contingent consideration payable by an acquirer in a business combination shall be subsequently measured at fair value through profit or loss. As such, the Company remeasured the fair value of the Contingent Consideration to $13.7 million as of March 31, 2024 and recognized a $0.5 million fair value adjustment for the three months ended March 31, 2014 in finance expense in the Statement of Operations and Comprehensive Income (Loss). In determining the fair value at March 31, 2024, the Company applied the same assumptions as of the March 4, 2024 fair value calculation. The Contingent Consideration falls within level 3 of the fair value hierarchy.
The following table summarizes the change in the carrying amount of the Contingent Consideration for the three months ended March 31, 2024:
March 31, 2024 | December 31, 2023 | |||||
$ | $ | |||||
Balance, beginning of period | - | - | ||||
Initial recognition at fair value (note 4) | 13,243 | - | ||||
Change in fair value during the period | 460 | - | ||||
Balance, end of period | 13,703 | - |
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
12. Deferred and contingent consideration (continued)
(c) Nkran Royalty
Gold Fields is entitled to a 1% net smelter return royalty on gold revenue generated from the Nkran deposit beginning upon 100,000 gold ounces being produced, and subject to a maximum of 447,000 gold ounces of production. The Company estimated the fair value of the Nkran Royalty by discounting forecast future cash flows at a discount rate of 14.6%, resulting in a fair value of $3.0 million as of March 4, 2024. The gold price assumption applied in estimating future royalty payments was based on long-term consensus prices of $1,725 per ounce.
In accordance with IFRS 3 and IFRS 9, contingent consideration payable by an acquirer in a business combination shall be subsequently measured at fair value through profit or loss. As such, the Company remeasured the fair value of the Nkran Royalty to $3.1 million as of March 31, 2024 and recognized a $0.1 million fair value adjustment for the three months ended March 31, 2014 in finance expense in the Statement of Operations and Comprehensive Income (Loss). In determining the fair value at March 31, 2024, the Company updated its long-term gold price assumption to $1,800 per ounce. The Nkran Royalty falls within level 3 of the fair value hierarchy.
The following table summarizes the change in the carrying amount of the Nkran Royalty for the three months ended March 31, 2024:
March 31, 2024 | December 31, 2023 | |||||
$ | $ | |||||
Balance, beginning of period | - | - | ||||
Initial recognition at fair value (note 4) | 3,006 | - | ||||
Change in fair value during the period | 89 | - | ||||
Balance, end of period | 3,095 | - |
13. Asset retirement provisions
The following table shows the movement in asset retirement provisions of the Company for the three months ended March 31, 2024:
March 31, 2024 | December 31, 2023 | |||||
$ | $ | |||||
Balance, beginning of period | - | - | ||||
Assumed in Acquisition | 45,943 | - | ||||
Accretion expense | 221 | - | ||||
Change in estimate | 16,384 | - | ||||
Reclamation undertaken during the period | - | - | ||||
Total asset retirement provisions, end of period | 62,548 | - |
The asset retirement provisions consist of reclamation and closure costs for the AGM's mining properties. Reclamation and closure activities include land rehabilitation, dismantling of buildings and mine facilities, ongoing care and maintenance and other costs.
As at March 31, 2024, the AGM's reclamation cost estimates were discounted using a long‐term risk‐free discount rate of 4.2% (December 31, 2023 - 3.9%). The change in estimate during the period was primarily due to accounting for the asset retirement provision in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets post-acquisition.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
14. Share capital
(a) Authorized:
Unlimited common shares without par value or restrictions.
(b) Issued and outstanding common shares
Number of shares | Amount | |||||
$ | $ | |||||
Balance, January 1, 2023 | 224,943,453 | 579,591 | ||||
Issued pursuant to exercise of stock options (note 15(a)) | 29,333 | 28 | ||||
Balance, December 31, 2023 | 224,972,786 | 579,619 | ||||
Issued on closing of Acquisition (note 4), net of issuance costs | 28,500,000 | 32,449 | ||||
Issued pursuant to exercise of stock options (note 15(a)) | 244,001 | 267 | ||||
Balance, March 31, 2024 | 253,716,787 | 612,335 |
(c) Base shelf prospectus
On December 21, 2022, the Company filed a final short form base shelf prospectus (the "Prospectus") under which the Company may sell from time-to-time common shares, warrants, subscription receipts, units, debt securities and/or share purchase contracts of the Company, up to an aggregate of $300 million. The Prospectus has a term of 25 months from the filing date. As of March 31, 2024, no securities were issued under the Prospectus.
15. Equity reserves and long-term incentive plan awards
The Company has a stock option plan and a share unit plan under which restricted share units ("RSUs"), performance share units ("PSUs") and deferred share units ("DSUs") may be awarded to directors, officers, employees and other service providers. All awards under the share unit plan may be designated by the Company's Board of Directors to be settled in either cash, shares or a combination thereof. As at December 31, 2023, all units previously granted had been determined by the Board to be cash-settled. For awards granted under the share unit plan in 2024, the Board determined that the units would be settled upon vesting in either cash or shares by resolution at that time. Given the Company's historical practice of settling all share units in cash to date, all units have been treated as cash settled as at March 31, 2024 and are recognized at fair value accordingly.
Under the two plans, when combined, the number of shares issuable cannot exceed 9% of the issued and outstanding common shares of the Company. Specifically, shares reserved for issuance under the share unit plan, when designated as equity-settled, may not exceed 5% of the issued and outstanding common shares of the Company. Share units awarded as cash settled units will not be considered in computing the limits of the share unit plan.
RSUs, PSUs and DSUs are cash-settled awards and therefore represent financial liabilities, which are recorded at fair value at each reporting date and adjusted for the completed proportion of the vesting period, with any changes recorded as shared-based compensation expense in the Statement of Operations and Comprehensive Income (Loss). The financial liability associated with these cash-settled awards is recorded in accounts payable and accrued liabilities for amounts expected to be settled within one year, and a separate long-term incentive plan liability for amounts to be settled in excess of one year, as of the balance sheet date.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
15. Equity reserves and long-term incentive plan awards (continued)
(a) Stock options
Options granted typically vest in one-third increments every twelve months following the grant date for a total vesting period of three years. Stock options have a maximum term of five years following the grant date. The fair value of stock options granted is determined using the Black Scholes option pricing model.
The following table is a reconciliation of the movement in stock options for the period:
Weighted average | ||||||
exercise price | ||||||
Number of Options | C$ | |||||
Balance, January 1, 2023 | 8,497,170 | 1.04 | ||||
Granted | 4,574,000 | 0.85 | ||||
Exercised | (29,333 | ) | 0.84 | |||
Cancelled/Expired/Forfeited | (466,502 | ) | 1.13 | |||
Balance, December 31, 2023 | 12,575,335 | 0.97 | ||||
Granted | 3,219,000 | 1.24 | ||||
Exercised | (244,001 | ) | 1.00 | |||
Expired | (60,000 | ) | 0.98 | |||
Balance, March 31, 2024 | 15,490,334 | 1.02 |
For stock options granted during the three months ended March 31, 2024, the following assumptions were applied in the Black Scholes option pricing model:
Assumptions | |||
Expected life of option (years) | 3.7 | ||
Forfeiture rate | 17.9% | ||
Dividend yield | 0.0% | ||
Risk-free rate | 4.4% | ||
Volatility | 57.7% | ||
Black Scholes fair value per option (in US dollars) | $ | 0.43 |
During the three months ended March 31, 2024, the Company recognized $0.4 million of share-based compensation expense relating to stock options (three months ended March 31, 2023 - $0.2 million of share‐based compensation expense).
During the three months ended March 31, 2024, 244,001 stock options were exercised for aggregate gross proceeds to the Company of $0.2 million (three months ended March 31, 2023 - nil).
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
15. Equity reserves and long-term incentive plan awards (continued)
(b) Restricted Share Units
RSUs granted vest in one-third increments every twelve months following the grant date for a total vesting period of three years. The following table is a reconciliation of the movement in the number of RSUs outstanding for the three months ended March 31, 2024 and year ended December 31, 2023:
Number of RSUs | ||||||
March 31, 2024 | December 31, 2023 | |||||
Balance, beginning of period | 564,237 | 534,508 | ||||
Assumed in Acquisition | 75,760 | - | ||||
Granted | 270,000 | 366,200 | ||||
Settled in cash | (50,134 | ) | (279,069 | ) | ||
Forfeited | - | (57,402 | ) | |||
Balance, end of period | 859,863 | 564,237 |
For all RSUs granted during the three months ended March 31, 2024, the awards vest in three equal tranches over a service period of three years and had an estimated forfeiture rate of 23.9% (three months ended March 31, 2023 - no awards granted).
The following table is a reconciliation of the movement in the RSU liability for the three months ended March 31, 2024 and year ended December 31, 2023:
March 31, 2024 | December 31, 2023 | |||||
$ | $ | |||||
Balance, beginning of period | 265 | 169 | ||||
Assumed in Acquisition | 57 | - | ||||
Awards vested and change in fair value, net of forfeited awards | 227 | 265 | ||||
Settled in cash | (46 | ) | (169 | ) | ||
Total RSU liability, end of period | 503 | 265 | ||||
Less: current portion of RSU liability | (339 | ) | (195 | ) | ||
Total non-current RSU liability, end of period | 164 | 70 |
(c) Performance share units
PSUs granted prior to December 31, 2023 vest in either one-half or one-third increments every twelve months following the grant date for a total vesting period of two or three years. PSUs granted in 2024 have a cliff vesting feature and will vest after a service period of three years.
All PSUs contain a performance criterion applied to the number of units that vest on a yearly basis. The number of units that vest will be determined by the Company's relative share price performance in comparison to a peer group of companies or upon achievement of certain Company strategic objectives. The PSU performance multiplier ranges from 0% to 150%.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
15. Equity reserves and long-term incentive plan awards (continued)
The following table is a reconciliation of the movement in the number of PSUs outstanding for the three months ended March 31, 2024 and year ended December 31, 2023:
Number of PSUs | ||||||
March 31, 2024 | December 31, 2023 | |||||
Balance, beginning of period | 2,501,482 | 1,739,401 | ||||
Granted | 884,000 | 1,287,200 | ||||
Settled in cash | - | (908,429 | ) | |||
Added due to performance condition | - | 563,857 | ||||
Forfeited | - | (180,547 | ) | |||
Balance, end of period | 3,385,482 | 2,501,482 |
The following table is a reconciliation of the movement in the PSU liability for the three months ended March 31, 2024 and year ended December 31, 2023:
March 31, 2024 | December 31, 2023 | |||||
$ | $ | |||||
Balance, beginning of period | 1,497 | 503 | ||||
Awards vested and change in fair value, net of forfeited awards | 1,353 | 1,577 | ||||
Settled in cash | - | (583 | ) | |||
Total PSU liability, end of period | 2,850 | 1,497 | ||||
Less: current portion of PSU liability | (2,329 | ) | (1,249 | ) | ||
Total non-current PSU liability, end of period | 521 | 248 |
(d) Deferred share units
DSUs granted vest over a period of one year and will be paid to directors upon their retirement from the Board of Directors of the Company or upon a change of control.
The following table is a reconciliation of the movement in the number of DSUs outstanding for the three months ended March 31, 2024 and year ended December 31, 2023:
Number of DSUs | ||||||
March 31, 2024 | December 31, 2023 | |||||
Balance, beginning of period | 4,068,275 | 3,132,000 | ||||
Granted | 926,100 | 1,942,400 | ||||
Settled in cash | - | (860,875 | ) | |||
Forfeited | - | (145,250 | ) | |||
Balance, end of period | 4,994,375 | 4,068,275 |
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
15. Equity reserves and long-term incentive plan awards (continued)
The following table is a reconciliation of the movement in the DSU liability for the three months ended March 31, 2024 and year ended December 31, 2023:
March 31, 2024 | December 31, 2023 | |||||
$ | $ | |||||
Balance, beginning of period | 3,778 | 1,664 | ||||
Awards vested and change in fair value, net of forfeited awards | 2,652 | 2,663 | ||||
Settled in cash | - | (549 | ) | |||
Total DSU liability, end of period | 6,430 | 3,778 |
The financial liability associated with cash-settled DSU awards is recorded in accounts payable and accrued liabilities.
(e) Phantom share units
On November 6, 2020, the Company granted 1,000,000 cash-settled phantom share units to the Chair of the Board. The units vested three years from the grant date, but will only become payable upon the Chair's departure from the Board or upon a change of control of the Company, in a cash settlement amount equal to the fair value of 1,000,000 common shares as at the Chair's departure date or date of change of control.
The phantom share units represent a financial liability, as they will be settled in cash, and are marked-to-market at each reporting period end and presented in the Statement of Financial Position within accounts payable and accrued liabilities.
The following table is a reconciliation of the movement in the phantom share unit liability for the three months ended March 31, 2024 and year ended December 31, 2023:
March 31, 2024 | December 31, 2023 | |||||
$ | $ | |||||
Balance, beginning of period | 917 | 381 | ||||
Awards vested and change in fair value during the period | 480 | 536 | ||||
Total phantom share unit liability, end of period | 1,397 | 917 |
16. Non-controlling interest ("NCI")
The AGM is wholly-owned by AGGL with the Government of Ghana retaining a 10% free-carried interest. The Government has a nominee on the board of this subsidiary and is entitled to 10% of declared dividends paid out of the subsidiary; however, the Government does not have to contribute to the subsidiary's capital investment. The Government of Ghana's free-carried interest is considered to be an NCI. As of March 31, 2024, AGGL did not have an income surplus in the pool from which dividends may be paid and as such no non-controlling interest was recognized for the three months ended March 31, 2024.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
17. Revenue
AGGL has an offtake agreement (the "Offtake Agreement") with a special purpose vehicle of Red Kite Opportunities Master Fund Limited ("Red Kite") under which the AGM will sell 100% of future gold production from the AGM up to a maximum of 2.2 million ounces. The realized gold sale price will be a spot price selected by Red Kite during a nine‐day quotational period following shipment of gold from the mine.
During the three months ended March 31, 2024, the AGM sold a portion of its production to the Bank of Ghana under the country's gold buying program. As agreed with Red Kite, gold ounces sold to the Bank of Ghana were considered delivered under the Offtake Agreement, and in consideration the AGM paid to Red Kite a "make whole" payment which was calculated in a similar manner to a nine‐day quotational period. The "make whole" payments made to Red Kite were recognized as a reduction of revenues.
During the three months ended March 31, 2024, the AGM sold 31,840 ounces of gold to Red Kite under the Offtake Agreement (three months ended March 31, 2023 -35,174 gold ounces). As of March 31, 2024, the AGM has delivered 1,633,108 gold ounces to Red Kite under the Offtake Agreement.
The Company has recognized revenue from the sale of gold to Red Kite for the period from March 4, 2024 to March 31, 2024, which amounted to $31.7 million.
Included in revenue of the Company is $10 relating to by-product silver sales for the three months ended March 31, 2024.
18. Production costs
The following is a summary of production costs by nature recorded by the Company during the three months ended March 31, 2024. Note that production costs of the AGM were consolidated by the Company for the period from March 4, 2024 to March 31, 2024:
Three months ended | |||
March 31, 2024 | |||
$ | |||
Raw materials and consumables | (4,566 | ) | |
Salaries and employee benefits | (2,064 | ) | |
Contractors | (2,811 | ) | |
Change in stockpile, gold-in-process and gold dore inventories | (12,507 | ) | |
Insurance, government fees, permits and other | (214 | ) | |
Total production costs | (22,162 | ) |
For the period from March 4, 2024 to March 31, 2024, change in inventories included the recognition of purchase price adjustments on gold-in-process and gold on hand inventories totaling $9.2 million.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
19. Royalties
All of the AGM’s concessions are subject to a 5% gross revenue royalty payable to the Government of Ghana. In addition, the Nkran deposit is subject to an additional 1% royalty on a portion of production as described in note 12(c), the Akwasiso deposit is subject to an additional 2% net smelter return royalty payable to the previous owner of the mineral tenement, and the Esaase deposit is subject to an additional 0.5% net smelter return royalty payable to the Bonte Liquidation Committee.
On April 3, 2023, the Government of Ghana imposed a special levy, the Growth and Sustainability Levy ("GSL"), on all companies operating in Ghana with an effective date of May 1, 2023. The purpose of the GSL is to support growth and fiscal sustainability of the Ghanaian economy. For mining companies in Ghana, the GSL is levied at a rate of 1% of gold revenues for the fiscal years 2023 to 2025. The Company has presented the 1% GSL within royalties expense in the Statement of Operations and Comprehensive Income (Loss).
20. General and administrative ("G&A") expenses
The following is a summary of G&A expenses incurred during the three months ended March 31, 2024 and 2023. G&A expenses of the Company include G&A expenses of the AGM for the period March 4, 2024 to March 31, 2024.
Three months ended March 31, | ||||||
2024 | 2023 | |||||
$ | $ | |||||
Wages, benefits and consulting | (1,645 | ) | (1,491 | ) | ||
Office, rent and administration | (299 | ) | (314 | ) | ||
Professional and legal | (315 | ) | (153 | ) | ||
Share-based compensation | (5,128 | ) | (1,597 | ) | ||
Travel, marketing, investor relations and regulatory | (272 | ) | (259 | ) | ||
Depreciation | (34 | ) | (36 | ) | ||
Total G&A expense | (7,693 | ) | (3,850 | ) |
21. JV service fee
For the period from January 1, 2024 to March 3, 2024, the Company was the manager and operator of the AGM JV. For this period, the Company earned a gross service fee of $1.2 million less withholding taxes payable in Ghana of $0.2 million, for a net service fee of $1.0 million, which has been recognized in the Statement of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2024 (three months ended March 31, 2023 - gross service fee of $1.8 million less withholding taxes of $0.4 million). The service fee earned from the JV is considered a related party transaction given the Company's previous 45% interest in the JV.
All transactions with related parties have occurred in the normal course of operations.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
22. Finance income and expense
(a) Finance income
The following is a summary of finance income recorded by the Company during the three months ended March 31, 2024 and 2023. Finance income earned by the AGM has been consolidated by the Company for the period from March 4, 2024 to March 31, 2024.
Three months ended March 31, | ||||||
2024 | 2023 | |||||
$ | $ | |||||
Fair value adjustment on preferred shares (note 7) | 1,654 | 2,343 | ||||
Interest income | 849 | 673 | ||||
Other | 3 | - | ||||
Total finance income | 2,506 | 3,016 |
(b) Finance expense
The following is a summary of finance expense recorded by the Company during the three months ended March 31, 2024 and 2023. Finance expenses incurred by the AGM have been consolidated by the Company for the period from March 4, 2024 to March 31, 2024.
Three months ended March 31, | ||||||
2024 | 2023 | |||||
$ | $ | |||||
Unrealized losses on gold hedging instruments (note 26(b)) | (4,078 | ) | - | |||
Realized losses on gold hedging instruments (note 26(b)) | (169 | ) | - | |||
Interest on lease liabilities (note 11) | (421 | ) | (5 | ) | ||
Accretion expense on asset retirement provisions (note 13) | (221 | ) | - | |||
Accretion expense on deferred consideration (note 12(a)) | (246 | ) | - | |||
Change in fair value of contingent consideration (notes 12(b) and (c)) | (549 | ) | - | |||
Other | (41 | ) | (1 | ) | ||
Total finance expense | (5,725 | ) | (6 | ) |
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
23. Income (loss) per share
For the three months ended March 31, 2024 and 2023, the calculation of basic and diluted income (loss) per share is based on the following data:
Three months ended March 31, | ||||||
2024 | 2023 | |||||
Net (loss) income for the period | (4,759 | ) | 8,493 | |||
Number of shares | ||||||
Weighted average number of ordinary shares - basic | 233,510,750 | 224,943,453 | ||||
Effect of dilutive share options | - | 1,326 | ||||
Weighted average number of ordinary shares - diluted | 233,510,750 | 224,944,779 |
For the three months ended March 31, 2024, the effect of all potentially dilutive securities was anti‐dilutive given that the Company reported a net loss for the period (three months ended March 31, 2023 - 329,795 stock options were determined to be anti-dilutive).
24. Commitments and contingencies
Commitments
The following table reflects the Company's contractual obligations as they fall due as at March 31, 2024 and December 31, 2023. Note the December 31, 2023 balances exclude the liabilities and commitments of the AGM.
Within 1 year | 1 - 5 years | Over 5 years | March 31, 2024 | December 31, 2023 | |||||||||||
Accounts payable, accrued liabilities and payable due to related party | 47,397 | - | - | 47,397 | 5,724 | ||||||||||
Long-term incentive plan (cash-settled awards) | 10,495 | 685 | - | 11,180 | 6,457 | ||||||||||
Mining and other services contracts | 10,553 | 18,738 | - | 29,291 | - | ||||||||||
Asset retirement provisions (undiscounted) | - | 5,049 | 64,366 | 69,415 | - | ||||||||||
Deferred and contingent consideration | - | 55,000 | 38,253 | 93,253 | - | ||||||||||
Corporate office leases | 132 | 55 | - | 187 | 225 | ||||||||||
Total | 68,577 | 79,527 | 102,619 | 250,723 | 12,406 |
Contingencies
Due to the nature of its business, the Company and its subsidiaries may be subject to regulatory investigations, claims, lawsuits and other proceedings in the ordinary course of its business. While the Company cannot reasonably predict the ultimate outcome of these actions, and inherent uncertainties exist in predicting such outcomes, the Company believes that the ultimate resolution of these actions is not reasonably likely to have a material adverse effect on the Company's financial condition or future results of operations.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
25. Supplemental cash flow information
The following table discloses non‐cash transactions impacting the Statements of Cash Flow for the periods presented:
Three months ended March 31, | ||||||
2024 | 2023 | |||||
$ | $ | |||||
Change in asset retirement provisions included in MPP&E | 16,383 | - |
The following table summarizes the changes in non-cash working capital for the three months ended March 31, 2024 and 2023:
Three months ended March 31, | ||||||
2024 | 2023 | |||||
$ | $ | |||||
Accounts receivable | (4,663 | ) | 1,243 | |||
Inventories | 14,084 | - | ||||
Value added tax receivables | (1,555 | ) | - | |||
Prepaid expenses and deposits | (340 | ) | 12 | |||
Accounts payable and accrued liabilities | 407 | 384 | ||||
Change in non-cash working capital | 7,933 | 1,639 |
26. Financial instruments
(a) Financial assets and liabilities by categories
Fair value through profit or loss | Amortized cost | Carrying value | Fair value | |||||||||
As at March 31, 2024 | $ | $ | $ | $ | ||||||||
Financial assets: | ||||||||||||
Cash and cash equivalents | - | 130,804 | 130,804 | 130,804 | ||||||||
Accounts receivable | - | 5,825 | 5,825 | 5,825 | ||||||||
Value added tax receivables | - | 9,303 | 9,303 | 9,303 | ||||||||
Total financial assets | - | 145,932 | 145,932 | 145,932 | ||||||||
Financial liabilities: | ||||||||||||
Accounts payable and accrued liabilities1 | 14,725 | 43,167 | 57,892 | 57,892 | ||||||||
Long-term incentive plan liabilities | 685 | - | 685 | 685 | ||||||||
Lease liabilities | - | 24,773 | 24,773 | 24,773 | ||||||||
Deferred consideration | - | 47,874 | 47,874 | 47,874 | ||||||||
Contingent consideration | 13,703 | - | 13,703 | 13,703 | ||||||||
Nkran royalty | 3,095 | - | 3,095 | 3,095 | ||||||||
Total financial liabilities | 32,208 | 115,814 | 148,022 | 148,022 |
1 Accounts payable includes the current portion of long-term incentive plan liabilities, which are measured at fair value through profit or loss, as well as financial liabilities associated with gold hedging instruments.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
26. Financial instruments (continued)
Fair value through profit or loss | Amortized cost | Carrying value | Fair value | |||||||||
As at December 31, 2023 | $ | $ | $ | $ | ||||||||
Financial assets: | ||||||||||||
Cash and cash equivalents | - | 55,270 | 55,270 | 55,270 | ||||||||
Receivables and receivable due from related party | - | 1,060 | 1,060 | 1,060 | ||||||||
Preferred shares in AGM JV | 70,165 | - | 70,165 | 70,165 | ||||||||
Total financial assets | 70,165 | 56,330 | 126,495 | 126,495 | ||||||||
Financial liabilities: | ||||||||||||
Accounts payable, accrued liabilities and payable due to related party1 | 6,139 | 5,724 | 11,863 | 11,863 | ||||||||
Long-term incentive plan liabilities | 318 | - | 318 | 318 | ||||||||
Lease liability | - | 203 | 203 | 203 | ||||||||
Total financial liabilities | 6,457 | 5,927 | 12,384 | 12,384 |
1 Accounts payable includes the current portion of long-term incentive plan liabilities, which are measured at fair value through profit or loss.
(b) Derivative instruments
The Company's derivatives are comprised of zero cost collar ("ZCC") gold hedging instruments. The losses on derivatives for the three months ended March 31, 2024 and 2023 were comprised of the following:
Three months ended March 31, | ||||||
2024 | 2023 | |||||
$ | $ | |||||
Realized loss on ZCC gold hedges | 169 | - | ||||
Unrealized loss on ZCC gold hedges | 4,078 | - |
(c) Fair value hierarchy
The categories of the fair value hierarchy that reflect the inputs to valuation techniques used to measure fair value are as follows:
Level 1: fair values based on unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3: fair values based on inputs for the asset or liability based on unobservable market data.
Long-term incentive plan liabilities, Contingent Consideration and the Nkran Royalty are recorded at fair value at the reporting date and fall within Level 3 of the fair value hierarchy. The ZCC gold hedging instruments are also recorded at fair value at the reporting date and fall within Level 2 of the fair value hierarchy.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
26. Financial instruments (continued)
There were no transfers between the fair value levels during the three months ended March 31, 2014.
Refer to note 12 for a discussion on the valuation technique applied to the Contingent Consideration and Nkran Royalty. Long-term incentive plan liabilities are valued based on the number of outstanding vested awards multiplied by the Company's share price as of the reporting date. ZCC gold hedging instruments are valued using observable market prices.
(d) Financial instrument risks
The Company has exposure to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth and shareholder returns. The principal financial risks to which the Company is exposed are described as follows.
Credit risk
Credit risk is the risk of an unexpected loss if a customer or the issuer of a financial instrument fails to meet its contractual obligations. The Company is subject to credit risk on cash and cash equivalent balances held at banks in Canada, Isle of Man, Ghana and Mali. The Company invests its cash and cash equivalents, which also has credit risk, with the objective of maintaining safety of principal and providing adequate liquidity to meet all current obligations. In making allocation decisions, management attempts to avoid unacceptable concentration of credit risk to any single counterparty. The risk of loss associated with cash investments is considered to be low as the majority of the Company's cash and cash equivalents are held with highly rated banking institutions.
As at March 31, 2024, the Company had a receivable of $5.6 million due from Red Kite relating to gold ounces delivered (December 31, 2023 - nil), and a $9.3 million value added tax receivable due from the Government of Ghana (December 31, 2023 - nil). The credit risk associated with these receivables is considered to be low based on historical collection experience with the counterparties. However, should any of these counterparties not honour its commitments, or should any of them become insolvent, the Company may incur losses.
Liquidity risk
Liquidity risk encompasses the risk that the Company cannot meet its financial obligations as they fall due. The Company manages liquidity risk through a rigorous planning and budgeting process, which is reviewed and updated on a regular basis, to help determine the funding requirements to support current operations, expansion and development plans, and by managing the Company's capital structure. By managing liquidity risk, the Company aims to ensure that it will have sufficient liquidity to settle obligations and liabilities as they fall due.
Through a combination of the Company's cash balance and interest earned thereon and cash flows generated by the AGM, the Company believes it is in a position to meet all working capital requirements, contractual obligations and commitments as they fall due. The Company's cash flows, however, and its ability to meet working capital requirements and contractual obligations are significantly influenced by the price of gold and the performance of the AGM. The Company aims to manage its liquidity by ensuring that, even in a low gold price environment, it can manage spending and provide adequate cash flow to meet all commitments.
As at March 31, 2024, after consideration of the financial liabilities assumed in the Acquisition, the Company continues to maintain its ability to meet its financial obligations as they come due.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
26. Financial instruments (continued)
Market Risk
(i) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The average interest rate earned by the Company during the three months ended March 31, 2024 on its cash and investments was 5.5% (three months ended March 31, 2023 - 5.0%).
The Contingent Consideration and Nkran Royalty are financial liabilities measured at fair value through profit or loss with fair value determined by reference to a discounted cash flow model. Changes in interest rates would impact the discount rate applied to forecast future cash flows and accordingly the fair value of these financial liabilities. The following tables highlights the sensitivity of the fair values related to these financial liabilities for a 1% decrease (increase) in the underlying discount rate.
Change in fair value | ||||||
1% increase to | 1% decrease to | |||||
discount rate | discount rate | |||||
$ | $ | |||||
Contingent consideration | (668 | ) | 708 | |||
Nkran royalty | (199 | ) | 214 |
(ii) Foreign currency risk
The Company reports its financial statements in US dollars; however, the Company operates in Ghana which utilizes the Ghanaian Cedi. As a result, the financial results of the Company's operations as reported in US dollars are subject to changes in the value of the US dollar relative to local currencies. Since the Company's gold sales are denominated in US dollars and a portion of the Company's operating and capital costs are in local currencies, the Company may be negatively impacted by strengthening local currencies relative to the US dollar and positively impacted by the inverse.
(iii) Price risk
Price risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market prices, other than those arising from currency risk or interest rate risk. The Company is exposed to gold price risk as changes in the gold price may affect the Company earnings or the value of its financial instruments. The Company's revenue is directly dependent on gold prices which have demonstrated significant volatility and are beyond the Company's control.
From time to time, the Company enters into hedging programs to manage its exposure to gold price risk with an objective of margin protection, specifically during periods of forecast elevated capital spend. The Board of Directors continually assess the Company's strategy towards its gold hedging programs. Refer to note 26(b) for disclosure of gains or losses recorded on the Company's gold hedging instruments for the period.
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
27. Segmented information
Geographic Information
As at March 31, 2024, the Company has one reportable segment, being the AGM, and has provided segmented information based on geographic location.
Geographic allocation of total assets and liabilities
March 31, 2024 | Canada | Ghana | Total | ||||||
$ | $ | $ | |||||||
Current assets | 103,194 | 79,274 | 182,468 | ||||||
Property, plant and equipment and right-of-use assets | 194 | 258,774 | 258,968 | ||||||
Other non-current assets | - | 5,311 | 5,311 | ||||||
Total assets | 103,388 | 343,359 | 446,747 | ||||||
Current liabilities | 11,384 | 61,772 | 73,156 | ||||||
Non-current liabilities | 65,387 | 79,027 | 144,414 | ||||||
Total liabilities | 76,771 | 140,799 | 217,570 |
December 31, 2023 | Canada | West Africa | Total | ||||||
$ | $ | $ | |||||||
Current assets | 57,084 | 10 | 57,094 | ||||||
Property, plant and equipment and right-of-use assets | 225 | - | 225 | ||||||
Other non-current assets | - | 155,983 | 155,983 | ||||||
Total assets | 57,309 | 155,993 | 213,302 | ||||||
Current liabilities | 8,475 | 3,513 | 11,988 | ||||||
Non-current liabilities | 396 | - | 396 | ||||||
Total liabilities | 8,871 | 3,513 | 12,384 |
GALIANO GOLD INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 Expressed in thousands of United States Dollars unless otherwise stated |
27. Segmented information (continued)
Geographic allocation of the Statements of Operations and Comprehensive Income
For the three months ended March 31, 2024:
Canada | Ghana | Total | |||||||
$ | $ | $ | |||||||
Revenue | - | 31,695 | 31,695 | ||||||
Cost of sales: | |||||||||
Production costs | - | (22,162 | ) | (22,162 | ) | ||||
Depreciation and depletion | - | (2,982 | ) | (2,982 | ) | ||||
Royalties | - | (1,905 | ) | (1,905 | ) | ||||
Income from mine operations | - | 4,646 | 4,646 | ||||||
General and administrative expenses | (7,439 | ) | (254 | ) | (7,693 | ) | |||
Exploration and evaluation expenditures | - | (609 | ) | (609 | ) | ||||
Share of net income related to joint venture | - | 2,432 | 2,432 | ||||||
Service fee earned as operators of joint venture | 976 | - | 976 | ||||||
Gain on derecognition of equity investment in joint venture | 1,298 | - | 1,298 | ||||||
(Loss) income from operations and joint venture | (5,165 | ) | 6,215 | 1,050 | |||||
Transaction costs | (2,299 | ) | - | (2,299 | ) | ||||
Finance income | 829 | 1,677 | 2,506 | ||||||
Finance expense | (801 | ) | (4,924 | ) | (5,725 | ) | |||
Foreign exchange loss | (14 | ) | (277 | ) | (291 | ) | |||
Net (loss) income and comprehensive (loss) income for the period | (7,450 | ) | 2,691 | (4,759 | ) |
For the three months ended March 31, 2023:
Canada | West Africa | Total | |||||||
$ | $ | $ | |||||||
Share of net income related to joint venture | - | 9,307 | 9,307 | ||||||
Service fee earned as operators of joint venture | 1,418 | - | 1,418 | ||||||
General and administrative expenses | (3,806 | ) | (44 | ) | (3,850 | ) | |||
Exploration and evaluation expenditures | - | (1,413 | ) | (1,413 | ) | ||||
(Loss) income from operations and joint venture | (2,388 | ) | 7,850 | 5,462 | |||||
Finance income | 673 | 2,343 | 3,016 | ||||||
Finance expense | (6 | ) | - | (6 | ) | ||||
Foreign exchange gain (loss) | 23 | (2 | ) | 21 | |||||
Net (loss) income and comprehensive (loss) income for the period | (1,698 | ) | 10,191 | 8,493 |