EX-99.7 8 a12-11867_1ex99d7.htm EX-99.7

Exhibit 99.7

 

SECTION

/02/

 

SANDSTORM GOLD LTD.

cONDeNSeD cONSOLiDATeD iNTeRiM FiNANciAL STATeMeNTS

 


 

cONDeNSeD cONSOLiDATeD iNTeRiM STATeMeNTS OF FiNANciAL POSiTiON

FINANCIAL POSITION

 

Expressed in U.S. dollars ($000s)/unaudited

 

 

 

Note

 

June 30, 2012

 

December 31, 2011

 

ASSETS

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

Cash

 

 

 

$

25,089

 

$

13,073

 

Inventory

 

 

 

534

 

—

 

Loan receivable

 

 

 

4,000

 

—

 

Trade receivables and other

 

 

 

110

 

50

 

 

 

 

 

$

29,733

 

$

13,123

 

Non-current

 

 

 

 

 

 

 

Mineral interests and royalties

 

5

 

143,574

 

128,982

 

Investments

 

6

 

3,175

 

8,362

 

Deferred financing costs

 

7

 

752

 

—

 

Deferred income tax assets

 

9

 

—

 

1,343

 

Other

 

 

 

812

 

982

 

Total assets

 

 

 

$

178,046

 

$

152,792

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

Trade and other payables

 

 

 

$

577

 

$

834

 

Mineral interest payable

 

5

 

4,000

 

—

 

 

 

 

 

$

4,577

 

$

834

 

Non-Current

 

 

 

 

 

 

 

Deferred income tax liability

 

9

 

187

 

—

 

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

Share capital

 

8

 

$

138,941

 

$

125,466

 

Reserves

 

8

 

18,801

 

20,435

 

Retained earnings

 

 

 

15,441

 

5,742

 

Accumulated other comprehensive income

 

 

 

99

 

315

 

 

 

 

 

$

173,282

 

$

151,958

 

Total liabilities and equity

 

 

 

$

178,046

 

$

152,792

 

 

Contractual obligations (Note 12)

 

ON BeHALF OF THe BOARD:

 

“Nolan  Watson”,  Director

 

“David DeWitt”,  Director

 

- The accompanying notes are an integral part of these condensed consolidated interim financial statements -

 

25


 

cONDeNSeD cONSOLiDATeD iNTeRiM STATeMeNTS OF cOMPReHeNSiVe iNcOMe

COMPREHENSIVE INCOME

 

Expressed in U.S. dollars ($000s)/unaudited

 

 

 

 

 

3 Months Ended

 

3 Months Ended

 

6 Months Ended

 

6 Months Ended

 

 

 

Note

 

June 30, 2012

 

June 30, 2011

 

June 30, 2012

 

June 30, 2011

 

Sales

 

 

 

$

14,954

 

$

5,582

 

$

28,418

 

$

9,250

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales, excluding depletion

 

 

 

2,762

 

1,607

 

5,255

 

2,706

 

Depletion

 

 

 

4,308

 

1,171

 

7,985

 

1,785

 

Total cost of sales

 

 

 

$

7,070

 

$

2,778

 

$

13,240

 

$

4,491

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

$

7,884

 

$

2,804

 

$

15,178

 

$

4,759

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses and other (income)

 

 

 

 

 

 

 

 

 

 

 

Administration expenses

 

10

 

1,300

 

901

 

2,548

 

1,880

 

Project evaluation

 

 

 

334

 

3

 

448

 

32

 

Foreign exchange loss

 

 

 

82

 

12

 

108

 

12

 

Other expenses

 

 

 

353

 

—

 

414

 

5

 

Income from deferral of production guarantee

 

13

 

—

 

(774

)

—

 

(774

)

Income from operations

 

 

 

$

5,815

 

$

2,662

 

$

11,660

 

$

3,604

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

 

 

$

5,815

 

$

2,662

 

$

11,660

 

$

3,604

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

9

 

532

 

401

 

1,961

 

385

 

Net income for the period

 

 

 

$

5,283

 

$

2,261

 

$

9,699

 

$

3,219

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on investments - common shares held, net of tax

 

6

 

(319

)

—

 

(216

)

—

 

Total comprehensive income for the period

 

 

 

$

4,964

 

$

2,261

 

$

9,483

 

$

3,219

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

 

 

$

0.07

 

$

0.04

 

$

0.14

 

$

0.05

 

Diluted earnings per share

 

 

 

$

0.06

 

$

0.03

 

$

0.11

 

$

0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

8(f)

 

68,814,660

 

63,960,033

 

69,148,399

 

63,787,291

 

Diluted

 

8(f)

 

82,606,962

 

75,257,162

 

84,520,862

 

72,662,150

 

 

- The accompanying notes are an integral part of these condensed consolidated interim financial statements -

 

26


 

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

 

Expressed in U.S. dollars ($000s) / unaudited

CASH FLOWS

 

 

 

 

 

3 Months Ended

 

3 Months Ended

 

6 Months Ended

 

6 Months Ended

 

Cash flow from (used in):

 

Note

 

June 30, 2012

 

June 30, 2011

 

June 30, 2012

 

June 30, 2011

 

Operating activities

 

 

 

 

 

 

 

 

 

 

 

Net income for the period

 

 

 

$

5,283

 

$

2,261

 

$

9,699

 

$

3,219

 

Items not affecting cash:

 

 

 

 

 

 

 

 

 

 

 

· Depletion and depreciation

 

 

 

4,398

 

1,171

 

8,159

 

1,785

 

· Deferred income tax expense

 

9

 

532

 

401

 

1,961

 

385

 

· Share-based payment

 

8

 

451

 

492

 

929

 

1,020

 

· Loss on fair value adjustment of investments

 

6

 

194

 

—

 

128

 

—

 

· Unrealized foreign exchange loss (gain)

 

 

 

81

 

(8

)

87

 

(12

)

Changes in non-cash working capital

 

11

 

319

 

(1,672

)

(441

)

(2,137

)

 

 

 

 

$

11,258

 

$

2,645

 

$

20,522

 

$

4,260

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

Acquisition of mineral interests and royalties

 

 

 

(18,853

)

(787

)

(18,853

)

(27,937

)

Acquisition of investments

 

6

 

(213

)

—

 

(2,224

)

—

 

Disposal of investments

 

6

 

1,323

 

—

 

6,686

 

—

 

Loan issuance

 

 

 

(4,000

)

—

 

(4,000

)

—

 

Acquisition of other assets

 

 

 

—

 

9

 

—

 

(255

)

 

 

 

 

$

(21,743

)

$

(778

)

$

(18,391

)

$

(28,192

)

Financing activities

 

 

 

 

 

 

 

 

 

 

 

Proceeds on exercise of warrants, options, and compensation warrants

 

 

 

1,472

 

1,315

 

10,865

 

1,315

 

Share issue costs

 

 

 

—

 

(4

)

—

 

28

 

Deferred financing costs

 

7

 

—

 

—

 

(893

)

—

 

 

 

 

 

$

1,472

 

$

1,311

 

$

9,972

 

$

1,343

 

Effect of exchange rate changes on cash

 

 

 

$

(70

)

$

8

 

$

(87

)

$

6

 

Net (decrease) increase in cash

 

 

 

(9,083

)

3,186

 

12,016

 

(22,583

)

Cash – beginning of the period

 

 

 

34,172

 

2,764

 

13,073

 

28,533

 

Cash – end of the period

 

 

 

$

25,089

 

$

5,950

 

$

25,089

 

$

5,950

 

 

- The accompanying notes are an integral part of these condensed consolidated interim financial statements -

 

27


 

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

 

Expressed in U.S. dollars ($000s) / unaudited

CHANGES IN EQUITY

 

 

 

 

 

Share Capital

 

Reserves

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Share

 

 

 

Retained

 

Other Comprehensive

 

 

 

 

 

 

 

 

 

 

 

Share

 

Purchase

 

Compensation

 

Earnings

 

Income

 

 

 

 

 

Note

 

Number

 

Amount

 

Options

 

Warrants

 

Warrants

 

(Deficit)

 

(loss)

 

Total

 

At January 1, 2011

 

 

 

63,612,629

 

$

117,199

 

$

1,051

 

$

17,378

 

$

2,045

 

$

(6,747

)

$

—

 

$

130,926

 

Compensation warrants exercised

 

 

 

580,251

 

1,249

 

—

 

555

 

(846

)

—

 

—

 

958

 

Share issue cost (net of tax)

 

8 (b)

 

—

 

21

 

—

 

—

 

—

 

—

 

—

 

21

 

Options exercised

 

 

 

22,000

 

70

 

(16

)

—

 

—

 

—

 

—

 

54

 

Share based payment

 

8 (b)

 

—

 

—

 

1,020

 

—

 

—

 

—

 

—

 

1,020

 

Warrants exercised

 

 

 

101,000

 

370

 

—

 

(68

)

—

 

—

 

—

 

302

 

Total comprehensive income

 

 

 

—

 

—

 

—

 

—

 

—

 

3,219

 

—

 

3,219

 

At June 30, 2011

 

 

 

64,315,880

 

$

118,909

 

$

2,055

 

$

17,865

 

$

1,199

 

$

(3,528

)

$

—

 

$

136,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At January 1, 2011

 

 

 

63,612,629

 

$

117,199

 

$

1,051

 

$

17,378

 

$

2,045

 

$

(6,747

)

$

—

 

$

130,926

 

Compensation warrants exercised

 

 

 

1,157,405

 

2,492

 

—

 

1,105

 

(1,687

)

—

 

—

 

1,910

 

Options exercised

 

 

 

22,000

 

70

 

(17

)

—

 

—

 

—

 

—

 

53

 

Share based payment

 

 

 

—

 

—

 

1,599

 

—

 

—

 

—

 

—

 

1,599

 

Share issue costs (net of tax)

 

8 (b)

 

—

 

21

 

—

 

—

 

—

 

—

 

—

 

21

 

Warrants exercised

 

 

 

1,547,980

 

5,684

 

—

 

(1,039

)

—

 

—

 

—

 

4,645

 

Total comprehensive income

 

 

 

—

 

—

 

—

 

—

 

—

 

12,489

 

315

 

12,804

 

At December 31, 2011

 

 

 

66,340,014

 

125,466

 

2,633

 

17,444

 

358

 

5,742

 

315

 

151,958

 

Compensation warrants exercised

 

 

 

245,510

 

528

 

—

 

—

 

—

 

—

 

—

 

528

 

Options exercised

 

8 (b)

 

260,000

 

725

 

(150

)

—

 

—

 

—

 

—

 

575

 

Share based payment

 

 

 

—

 

—

 

929

 

—

 

—

 

—

 

—

 

929

 

Share issue costs

 

 

 

—

 

49

 

—

 

—

 

—

 

—

 

—

 

49

 

Warrants exercised

 

8 (c)

 

3,294,247

 

12,173

 

—

 

(2,055

)

(358

)

—

 

—

 

9,760

 

Total comprehensive income

 

6

 

—

 

—

 

—

 

—

 

—

 

9,699

 

(216

)

9,483

 

At June 30, 2012

 

 

 

70,139,771

 

138,941

 

3,412

 

15,389

 

—

 

15,441

 

99

 

173,282

 

 

- The accompanying notes are an integral part of these condensed consolidated interim financial statements -

 

28

 


 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

June 30, 2012 / Expressed in U.S. dollars / unaudited

 

1.       Nature Of Operations

 

Sandstorm Gold Ltd. was incorporated under the Business Corporations Act of British Columbia on March 23, 2007 under the name Sandstorm Resources Ltd. effective February 17, 2011, the Company changed its name to Sandstorm Gold Ltd. Sandstorm Gold Ltd. and its subsidiary entities (“Sandstorm” or the “Company”) is a resource based company that seeks to acquire gold streams (“Gold Streams”) from companies that have advanced stage development projects or operating mines. In return for making a one-time upfront payment to acquire a Gold Stream, Sandstorm receives the right to purchase, at a fixed price per unit, a percentage of a mine’s production for the life of the mine.

 

The head office, principal address and registered office of the Company are located at Suite  1400, 400 Burrard Street, Vancouver, British Columbia, V6C 3A6.

 

These condensed consolidated interim financial statements were authorized for issue by the board of directors of the Company on July 25, 2012.

 

2.     Basis Of Presentation

 

A. STATEMENT OF COMPLIANCE

 

These condensed consolidated interim financial statements, including comparatives, have been prepared in accordance with International Accounting Standards (“IAS”) 34 ‘Interim Financial Reporting (“IAS 34”) using accounting policies consistent with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and interpretations of the IFRS Interpretations Committee (“IFRIC”). These condensed consolidated interim financial statements have been prepared on the basis of accounting policies and methods of computation consistent with those applied in and should be read in conjunction with the Company’s December 31, 2011 consolidated financial statements.

 

B. BASIS OF PRESENTATION

 

These condensed consolidated interim annual financial statements have been prepared on a historical cost basis except for certain financial instruments which are measured at fair value.

 

The condensed consolidated interim financial statements are presented in United States dollars, and all values are rounded to the nearest thousand except as otherwise indicated.

 

3.     Future Changes In Accounting Policies

 

The IASB issued a number of new and revised accounting standards which are effective for annual periods beginning on or after December 1, 2013, with early adoption permitted. These standards include the following:

 

·     IFRS 10, Consolidated Financial Statements;

 

·     IFRS 11, Joint Arrangements;

 

·     IFRS 12, Disclosure of Interests in Other Entities;

 

·     IFRS 13, Fair Value Measurement;

 

·     Amended IAS 27, Separate Financial Statements; and

 

·     Amended IAS 28, Investments in Associates and Joint Ventures.

 

In June 2011, the IASB also issued amended IAS 1, Presentation of Financial Statements, which is effective for annual periods beginning on or after July 1, 2012.

 

These new and revised accounting standards have not yet been adopted by Sandstorm, and the Company has not yet completed the process of assessing the impact that they will have on its financial statements, or whether to early adopt any of the new requirements.

 

29


 

4.       Financial Instruments

 

CAPITAL RISK MANAGEMENT

 

The Company’s objective of capital management is to ensure that it will be able to continue as a going concern and identify, evaluate, and acquire Commodity and Energy streams. The capital of the Company consists of shareholders’ equity. The Company is not subject to any externally imposed capital requirements with the exception of complying with the minimum tangible net worth covenant under the Revolving Loan (note 7). The Company is in compliance with the debt covenants described in note 7.

 

5.       Mineral Interests and Royalties

 

A. CARRYING AMOUNT

 

As of June 30, 2012

 

 

 

Cost

 

Accumulated Depletion

 

 

 

In $000s

 

Opening

 

Additions

 

Ending

 

Opening

 

Depletion

 

Inventory
Depletion
Adjustment

 

Ending

 

Carrying
Amount

 

Aurizona, Brazil

 

$

19,977

 

$

—

 

$

19,977

 

$

1,328

 

$

705

 

$

—

 

$

2,033

 

$

17,944

 

Bachelor Lake, Canada

 

20,845

 

—

 

20,845

 

—

 

41

 

32

 

73

 

20,772

 

Black Fox, Canada

 

56,524

 

—

 

56,524

 

2,614

 

2,658

 

273

 

5,545

 

50,979

 

Bracemac-McLeod, Canada

 

32

 

5,000

 

5,032

 

—

 

—

 

—

 

—

 

5,032

 

Coringa and Cuiú Cuiú, Brazil

 

—

 

7,838

 

7,838

 

—

 

—

 

—

 

—

 

7,838

 

Ming, Canada

 

20,068

 

—

 

20,068

 

—

 

2,766

 

—

 

2,766

 

17,302

 

Mt. Hamilton, U.S.A

 

—

 

10,044

 

10,044

 

—

 

—

 

—

 

—

 

10,044

 

Santa Elena, Mexico

 

13,342

 

—

 

13,342

 

1,473

 

1,529

 

—

 

3,002

 

10,340

 

Summit, U.S.A.

 

4,063

 

—

 

4,063

 

454

 

286

 

—

 

740

 

3,323

 

Total

 

$

134,851

 

$

22,882

 

$

157,733

 

$

5,869

 

$

7,985

 

$

305

 

$

14,159

 

$

143,574

 

 

As of and for the year ended December 31, 2011:

 

 

 

Cost

 

Accumulated Depletion

 

Carrying

 

In $000s

 

Opening

 

Additions

 

Ending

 

Opening

 

Depletion

 

Ending

 

Amount

 

Aurizona, Brazil

 

$

19,977

 

$

—

 

$

19,977

 

$

296

 

$

1,032

 

$

1,328

 

$

18,649

 

Bachelor Lake, Canada

 

—

 

20,845

 

20,845

 

—

 

—

 

—

 

20,845

 

Black Fox, Canada

 

56,470

 

54

 

56,524

 

—

 

2,614

 

2,614

 

53,910

 

Bracemac-McLeod, Canada

 

—

 

32

 

32

 

—

 

—

 

—

 

32

 

Ming, Canada

 

7,062

 

13,006

 

20,068

 

—

 

—

 

—

 

20,068

 

Santa Elena, Mexico

 

13,342

 

—

 

13,342

 

42

 

1,431

 

1,473

 

11,869

 

Summit, U.S.A.

 

4,063

 

—

 

4,063

 

7

 

447

 

454

 

3,609

 

Total

 

$

100,914

 

$

33,937

 

$

134,851

 

$

345

 

$

5,524

 

$

5,869

 

$

128,982

 

 

30

 


 

B. DEPLETABLE VS. NON-DEPLETABLE BALANCES

 

The value allocated to reserves is classified as depletable and is depleted on a units-delivered basis over the estimated recoverable proven and probable reserves at the mine. The value associated with resources and exploration potential is the value beyond proven and probable reserves allocated at acquisition and is classified as non-depletable until such time as it is transferred to the depletable category, generally as a result of the conversion of resources or exploration potential into reserves.

 

As of June 30, 2012

 

In $000s

 

Depletable

 

Non-depletable

 

Total

 

Aurizona

 

$

14,990

 

$

2,954

 

$

17,944

 

Bachelor Lake

 

19,385

 

1,387

 

20,772

 

Black Fox

 

47,915

 

3,064

 

50,979

 

Bracemac-McLeod

 

—

 

5,032

 

5,032

 

Coringa and Cuiú Cuiú

 

7,838

 

—

 

7,838

 

Ming

 

17,302

 

—

 

17,302

 

Mt. Hamilton

 

10,044

 

—

 

10,044

 

Santa Elena

 

8,116

 

2,224

 

10,340

 

Summit

 

3,030

 

293

 

3,323

 

Total

 

$

128,620

 

$

14,954

 

$

143,574

 

 

As of December 31, 2011

 

In $000s

 

Depletable

 

Non-depletable

 

Total

 

Aurizona

 

$

15,695

 

$

2,954

 

$

18,649

 

Bachelor Lake

 

19,457

 

1,387

 

20,844

 

Black Fox

 

50,526

 

3,385

 

53,911

 

Bracemac-McLeod

 

32

 

—

 

32

 

Ming

 

13,389

 

6,679

 

20,068

 

Santa Elena

 

9,640

 

2,229

 

11,869

 

Summit

 

3,317

 

292

 

3,609

 

Total

 

$

112,056

 

$

16,926

 

$

128,982

 

 

C. SUMMARY OF GOLD STREAMS

 

AURIZONA MINE >  The Company has a Gold Stream to purchase 17% of the life of mine gold produced from Luna Gold Corp.’s open-pit Aurizona mine, located in Brazil (the “Aurizona Mine”) for a per ounce cash payment equal to the lesser of $400 and the then prevailing market price of gold.

 

BACHELOR LAKE MINE >  The Company has a Gold Stream with Metanor Resources Inc. (“Metanor”) to purchase 20% of the life of mine gold produced from Metanor’s Bachelor Lake gold mine located in Quebec, Canada (“Bachelor Lake Mine”) for an upfront payment of $20.0 million plus ongoing per ounce payments equal to the lesser of $500 and the then prevailing market price per ounce of gold. Metanor has provided a guarantee that Sandstorm will receive a minimum of $20.0 million in pre-tax cash flow over the next 4.5 years.

 

BLACK FOX MINE >  The Company has a Gold Stream to purchase 12% of the life of mine gold produced from Brigus Gold Corp.’s (“Brigus”) open pit and underground Black Fox mine, located in Canada (the “Black Fox Mine”) and 10% of the life of mine gold produced from Brigus’ Black Fox extension, which includes a portion of Brigus’ Pike River concessions for a per ounce cash payment equal to the lesser of $500 and the then prevailing market price of gold. Brigus has the option until January 1, 2013 to repurchase 50% of the Brigus Gold Stream by making a $36.6 million payment to the Company, upon receipt of which, the percentage of gold the Company is entitled to purchase will decrease to 6% for the Black Fox Mine and 4.5% for the Black Fox extension.

 

BRACEMAC-MCLEOD MINE >  The Company has a Gold Stream with Donner Metals Ltd. (“Donner”) via a back-to-back agreement with Sandstorm Metals & Energy Ltd. (“Sandstorm Metals & Energy”) to purchase 17.5% of the life of mine gold and gold equivalent of silver (“Gold Equivalent”) produced from the Bracemac-McLeod Property located in Quebec, Canada which is operated by Xstrata Canada Corporation (“the Bracemac-McLeod Mine”). Donner is the owner of a 35% joint venture interest in the Bracemac-McLeod Mine.

 

For consideration, the Company made an upfront payment of $5.0 million during the three months ended June 30, 2012 and will continue to make ongoing per ounce payments equal to the lesser of $350 and the then prevailing market price of gold. Donner has provided a guarantee, via a back-to-back agreement with Sandstorm Metals & Energy, that the Company will receive a minimum of $5.0 million in pre-tax cash flows between 2013 and 2016 from the Bracemac-McLeod Gold Stream.

 

Donner has the option until July 13, 2013 to repurchase 50% of the Bracemac-McLeod Gold Stream by making a $3.5 million payment to the Company, upon receipt of which, the percentage of gold and Gold Equivalent the Company is entitled to purchase will decrease to 8.75%.

 

31


 

CORINGA AND CUIÚ CUIÚ PROJECT >   On May 11, 2012 the Company acquired a 2.5% net smelter returns royalty (“NSR”) from Magellan Minerals Ltd (“Magellan”) on the Coringa gold project (“Coringa”) and a 1.0% NSR on the Cuiú Cuiú gold project (“Cuiú Cuiú”) both of which are located in Para state, Brazil. For consideration, Sandstorm made an upfront payment of $7.5 million and subscribed for one million shares of Magellan at a price of $0.50 per share. As part of the agreement, Magellan has provided Sandstorm with a right of first refusal on any future royalty or gold stream financing at Coringa and Cuiú Cuiú.

 

MING MINE >  The Company has a Gold Stream to purchase approximately 25% of the first 175,000 ounces of gold produced and 12% of the life of mine gold produced thereafter, from Rambler Metals & Mining plc’s (“Rambler”) Ming mine, located in Canada (the “Ming Mine”). There are no ongoing per ounce payments required by Sandstorm in respect of the Ming Mine Gold Stream. In the event that the metallurgical recoveries of gold at the Ming Mine are below 85%, the percentage of gold that Sandstorm shall be entitled to purchase shall be increased proportionally.

 

MT. HAMILTON PROJECT >  The Company has a 2.4% NSR on the Mt. Hamilton gold project. The Mt. Hamilton gold project is located in White Pine County, Nevada, U.S.A. and is held by Mt. Hamilton LLC (“MH-LLC”) which is 80% owned by Solitario Exploration & Royalty Corp. and 20% owned by Ely Gold & Minerals Inc. For consideration, the Company made an initial upfront payment of $6.0 million during the three months ended June 30, 2012 and will make a further upfront payment of $4.0 million on January 15, 2013.

 

If MH-LLC enters into a gold stream agreement with Sandstorm that has an upfront deposit of no less than US$30 million, MH-LLC will have the option, for a period of 30 months, to repurchase up to 100% of the NSR for US$12 million. In addition, MH-LLC has provided Sandstorm with a right of first refusal on any future royalty or gold stream financing for the Mt. Hamilton project

 

SANTA ELENA MINE >  The Company has a Gold Stream to purchase 20% of the life of mine gold produced from SilverCrest Mines Inc.’s open pit Santa Elena mine, located in Mexico (the “Santa Elena Mine”) for a per ounce cash payment equal to the lesser of $350 and the then prevailing market price of gold.

 

SUMMIT MINE >  The Company has a Gold Stream to purchase 50% of the first 10,000 ounces of gold produced, and 22% of the life of mine gold produced thereafter, from Santa Fe Gold Corporation’s Summit mine, located in the U.S.A. (the “Summit Mine”) for a per ounce cash payment equal to the lesser of $400 and the then prevailing market price of gold. The Company is currently in discussions with Santa Fe regarding the deferral of amounts due by Santa Fe to the Company.

 

6.     Investments

 

 

 

Opening Balance

 

 

 

Change in Fair

 

 

 

 

 

In $000s

 

January 1, 2012

 

Additions

 

Value

 

Disposals

 

Carrying Amount

 

Common shares held

 

$

7,923

 

$

2,224

 

$

(598

)

$

(6,686

)

$

2,863

 

Warrants held

 

439

 

—

 

(127

)

—

 

312

 

 

 

$

8,362

 

$

2,224

 

$

(725

)

$

(6,686

)

$

3,175

 

 

The fair value of the investments is calculated as the quoted market price of the share or warrant multiplied by the quantity of the shares or warrants held by the Company. During the three and six months ended June 30, 2012, the Company acquired common shares for total consideration of $0.2 million and $2.2 million, respectively (2011 - $nil). During the three and six months ended June 30, 2012 the Company realized proceeds on disposition of investments of $1.3 million and $6.7 million, respectively (2011 - $nil). The tax impact of the changes in investments during the period was $o.8 million (2011 - $nil).

 

7.  Deferred Financing Costs

 

On January 12, 2012, the Company entered into a $50.0 million revolving term loan (the “Revolving Loan”). The Revolving Loan has a term of three years, which is extendable by mutual consent of The Bank of Nova Scotia and the Company. The Revolving Loan can be drawn down at any time to finance acquisitions, investments or for general corporate purposes. Amounts drawn incur interest at LIBOR plus 3.00% to 4.25% per annum dependent upon the Company’s leverage ratio. Undrawn amounts are subject to a standby fee of 0.75% to 1.05% per annum, dependent on the Company’s leverage ratio.

 

Under the credit agreement, the Company is required to maintain an interest coverage ratio greater than or equal to 4.00:1, a leverage ratio less than or equal to 2.50:1, and a tangible net worth greater than the aggregate of $100.0 million and 50% of positive Net

 

32


 

Income for each fiscal quarter after September 30, 2011. The Revolving Loan is secured against the Company’s assets, including the Company’s gold interests and investments. As of June 30, 2012, the Company was in compliance with these covenants.

 

As at June 30, 2012 the Company had not drawn down on its credit facility and therefore, the full $50.0 million remains available for future acquisitions.

 

Deferred financing costs are capitalized and amortized on a straight-line basis over the life of the debt instrument as presented below:

 

In $000s

 

Cost

 

Accumulated Amortization

 

Carrying Amount

 

Debt issuance costs

 

$

893

 

$

141

 

$

752

 

 

The company did not have any deferred financing costs as at December 31, 2011.

 

8.              Share Capital and Reserves

 

A. SHARES ISSUED

 

The Company is authorized to issue an unlimited number of common shares without par value.

 

On May 9, 2012, the Company completed its five for one consolidation (the “Consolidation”) of the Company’s common shares.  The 349,658,858 common shares issued and outstanding prior to the Consolidation have been consolidated to approximately 69,931,771 common shares.  The Company’s outstanding stock options were adjusted on the same basis with proportionate adjustments being made to the stock option exercise prices.

 

The Company’s listed warrants were not consolidated. Following the Consolidation, each five (5) listed warrants of SSL.WT (expiring on April 23, 2014) will entitle the holder to purchase one post-Consolidation common share at the adjusted total exercise price of US$3.00. Each five (5) listed warrants of SSL.WT.A (expiring on October 19, 2015) will entitle the holder to purchase one post-Consolidation common share at the adjusted total exercise price of US$5.00.

 

All comparative period information has been adjusted to reflect this Consolidation.

 

B. STOCK OPTIONS

 

The Company has an incentive stock option plan (the “Option Plan”) whereby the Company may grant stock options to eligible employees, officers, directors and consultants at an exercise price, expiry date, and vesting conditions to be determined by the board of directors. The maximum expiry date is five years from the grant date. All options are equity settled. The Option Plan provides for the issuance of up to 10% of the Company’s issued common shares as at the date of the grant.

 

A summary of the Company’s options and the changes for the period are as follows:

 

 

 

 

 

Weighted average

 

 

 

Number of Options

 

exercise price (C$)

 

Options outstanding at December 31, 2010

 

2,664,000

 

2.85

 

Granted

 

1,238,000

 

6.30

 

Exercised

 

(22,000

)

2.35

 

Forfeited

 

(10,000

)

3.40

 

Options outstanding at December 31, 2011

 

3,870,000

 

3.95

 

 

 

 

 

 

 

Exercised

 

(260,000

)

2.15

 

Options outstanding at June 30, 2012

 

3,610,000

 

4.08

 

 

33


 

A summary of the Company’s options as of June 30, 2012 are as follows:

 

Number outstanding

 

Exercisable

 

Price per Share (C$)

 

Expiry Date

 

650,000

 

650,000

 

$

2.25

 

June 16, 2014

 

140,000

 

140,000

 

$

2.20

 

July 6, 2014

 

200,000

 

200,000

 

$

2.18

 

July 28, 2014

 

20,000

 

20,000

 

$

3.35

 

May 19, 2015

 

1,362,000

 

1,362,000

 

$

3.40

 

November 26, 2015

 

91,000

 

—

 

$

6.30

 

August 25, 2016

 

1,147,000

 

—

 

$

6.35

 

November 25, 2016

 

3,610,000

 

2,372,000

 

 

 

 

 

 

The weighted-average share price at date of exercise for the three and six months ended June 30, 2012 was C$8.81 and C$8.93, respectively (C$5.36 — three and six months ended June 30, 2011)

 

A summary of share-based payment recognized is as follows:

 

 

 

3 Months Ended

 

3 Months Ended

 

6 Months Ended

 

6 Months Ended

 

In $000s

 

June 30, 2012

 

June 30, 2011

 

June 30, 2012

 

June 30, 2011

 

Employees

 

$

(451

)

$

(389

)

$

(929

)

$

(874

)

Non-employees

 

—

 

(103

)

—

 

(146

)

 

 

$

(451

)

$

(492

)

$

(929

)

$

(1,020

)

 

C. SHARE PURCHASE WARRANTS

 

A summary of the Company’s warrants and the changes for the period are as follows:

 

 

 

Number of warrants on a

 

Shares to be issued upon

 

 

 

pre-consolidated basis

 

exercise of the warrants

 

Warrants outstanding at January 1, 2011

 

119,036,211

 

23,807,242

 

Issued upon exercise of Compensation Warrants

 

2,893,511

 

578,702

 

Exercised

 

(7,739,900

)

(1,547,980

)

Warrants outstanding at December 31, 2011

 

114,189,822

 

22,837,964

 

 

 

 

 

 

 

Exercised

 

(15,857,462

)

3,171,492

 

Warrants outstanding at June 30, 2012

 

98,332,360

 

19,666,472

 

 

A summary of the Company’s warrants as of June 30, 2012 are as follows:

 

 

 

Pre-consolidated

 

Shares to be issued

 

 

 

 

 

Number of warrants on a

 

exercise price per

 

upon exercise of the

 

Consolidated exercise

 

 

 

pre-consolidated basis

 

warrant

 

warrants

 

price per share

 

Expiry Date

 

78,643,672

 

$

0.60

 

15,728,734

 

$

3.00

 

April 23, 2014

 

19,688,688

 

$

1.00

 

3,937,738

 

$

5.00

 

October 19, 2015

 

98,332,360

 

 

 

19,666,472

 

 

 

 

 

 

34


 

D. COMPENSATION WARRANTS

 

Each Compensation Warrant entitles the holder to acquire one unit comprised of one common share of the Company and one-half of a share purchase warrant. Each Compensation Warrant has an exercise price of $0.33 and each five full share purchase warrants issued upon exercise of the Compensation Warrants will entitle the holder to purchase one common share at an adjusted exercise price of $3.00 until April 23, 2014.

 

A summary of the Company’s Compensation Warrants and the changes for the period are as follows:

 

 

 

Number of Compensation Warrants

 

Compensation Warrants outstanding at December 31, 2011

 

1,227,550

 

Exercised

 

(1,227,550

)

Compensation Warrants outstanding at June 30, 2012

 

—

 

 

E. RESTRICTED SHARE PLAN

 

On April 4, 2011, the Company adopted a restricted share plan (the “Restricted Share Plan”) whereby the Company may grant restricted share rights to eligible employees, officers, directors and consultants at an expiry date to be determined by the board of directors. Each restricted share right entitles the holder to receive a common share of the Company without any further consideration. The Restricted Share Plan provides for the issuance of up to 4,000,000 restricted share rights outstanding at a given time. As of June 30, 2012 and December 31, 2011, no restricted share rights had been granted by the Company under the Restricted Share Plan.

 

F. DILUTED EARNINGS PER SHARE

 

Diluted earnings per share is calculated based on the following:

 

 

 

3 Months Ended

 

3 Months Ended

 

6 Months Ended

 

6 Months Ended

 

In $000s

 

June 30, 2012

 

June 30, 2011

 

June 30, 2012

 

June 30, 2011

 

Net income

 

$

5,283

 

$

2,261

 

$

9,699

 

$

3,219

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average number of shares

 

68,814,660

 

63,960,033

 

69,148,399

 

63,787,291

 

Effect of dilutive securities

 

 

 

 

 

 

 

 

 

· Compensation warrants - shares

 

61,247

 

821,460

 

104,398

 

870,522

 

· Compensation warrants - warrants

 

41,603

 

162,107

 

71,901

 

119,772

 

· Stock options

 

1,997,313

 

1,196,562

 

2,737,250

 

970,336

 

· Warrants

 

11,692,139

 

9,117,000

 

12,458,914

 

6,914,229

 

Diluted weighted average number of common shares

 

82,606,962

 

75,257,162

 

84,520,863

 

72,662,150

 

 

The following lists the stock options and share purchase warrants excluded from the computation of diluted weighted average number of common shares as they were anti-dilutive:

 

 

 

3 Months Ended

 

3 Months Ended

 

6 Months Ended

 

6 Months Ended

 

 

 

June 30, 2012

 

June 30, 2011

 

June 30, 2012

 

June 30, 2011

 

Warrants

 

—

 

—

 

—

 

19,692,025

 

 

35


 

9.              Income Taxes

 

The income tax expense differs from the amount that would result from applying the federal and provincial income tax rate to the net income before income taxes. These differences result from the following items:

 

 

 

3 Months Ended

 

3 Months Ended

 

6 Months Ended

 

6 Months Ended

 

In $000s

 

June 30, 2012

 

June 30, 2011

 

June 30, 2012

 

June 30, 2011

 

Income before income taxes

 

$

5,815

 

$

2,662

 

$

11,660

 

$

3,604

 

Canadian federal and provincial income tax rates

 

25.0

%

26.5

%

25.0

%

26.5

%

Income tax expense based on the above rates

 

1,454

 

705

 

2,915

 

955

 

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

· Permanent differences

 

—

 

168

 

—

 

255

 

· Non-deductible expenses

 

115

 

—

 

236

 

—

 

· Difference between statutory and foreign tax rates

 

(972

)

(610

)

(1,907

)

(963

)

· Other

 

(65

)

138

 

717

 

138

 

Deferred tax expense

 

$

532

 

$

401

 

$

1,961

 

$

385

 

 

The components of deferred income taxes are as follows:

 

 

 

6 Months Ended

 

Year ended

 

In $000s

 

June 30, 2012

 

December 31, 2011

 

Deferred Income Tax Assets

 

 

 

 

 

· Non-capital losses

 

837

 

1,260

 

· Share issue costs

 

1,873

 

1,811

 

· Long term investments in shares and warrants

 

337

 

—

 

Deferred income tax assets

 

$

3,047

 

$

3,071

 

 

 

 

 

 

 

Deferred Income Tax Liabilities

 

 

 

 

 

· Mineral Interest

 

3,234

 

1,579

 

· Long term investments in shares and warrants

 

—

 

149

 

Deferred income tax liabilities

 

3,234

 

1,728

 

Deferred income tax (liability) asset, net

 

$

(187

)

$

1,343

 

 

The Company has deductible temporary differences, unused tax losses, and unused tax credits expiring as follows:

 

In $000s

 

Location

 

Amount

 

Expiration

 

Non-capital loss carry-forwards

 

Canada

 

$

7,745

 

2029-2032

 

Non-capital loss carry-forwards

 

Barbados

 

$

1,287

 

2018-2021

 

 

36

 

 


 

10. Administration Expenses

 

The administration expenses for the Company are as follows:

 

 

 

3 Months Ended

 

3 Months Ended

 

6 Months Ended

 

6 Months Ended

 

In $000s

 

June 30, 2012

 

June 30, 2011

 

June 30, 2012

 

June 30, 2011

 

Corporate administration

 

$

329

 

$

179

 

$

636

 

$

336

 

Employee benefits and salary

 

348

 

170

 

676

 

344

 

Professional fees

 

172

 

60

 

307

 

180

 

 

 

$

849

 

$

409

 

$

1,619

 

$

860

 

Equity settled stock based compensation (a non-cash expense)

 

451

 

492

 

929

 

1,020

 

Total administration expenses

 

$

1,300

 

$

901

 

$

2,548

 

$

1,880

 

 

11. Supplemental Cash Flow Information

 

 

 

3 Months Ended

 

3 Months Ended

 

6 Months Ended

 

6 Months Ended

 

In $000s

 

June 30, 2012

 

June 30, 2011

 

June 30, 2012

 

June 30, 2011

 

Change in non-cash working capital

 

 

 

 

 

 

 

 

 

· Trade and other receivables

 

$

87

 

$

(1,672

)

$

67

 

$

(1,633

)

· Inventory

 

93

 

42

 

(227

)

—

 

· Prepaid expenses

 

(95

)

(24

)

(88

)

(14

)

· Trade and other payables

 

234

 

(18

)

(193

)

(490

)

Net increase (decrease) in cash

 

$

319

 

$

(1,672

)

$

(441

)

$

(2,137

)

 

12. Contractual Obligations

 

GOLD STREAMS

 

In connection with its Gold Streams, the Company has committed to purchase the following:

 

 

 

 

 

Per ounce cash payment:

 

 

 

 

 

 

 

lesser of amount below and the

 

Inflationary adjustment to per

 

Gold Stream

 

% of life of mine gold

 

then prevailing market price of gold

 

ounce cash payment

 

Aurizona

 

17

%

$

400

 

1% annual inflationary adjustment beginning on February 9, 2014

 

Bachelor Lake

 

20

%

$

500

 

None

 

Black Fox

 

12

%

$

500

 

An inflationary adjustment beginning in 2013, not to exceed 2% per annum

 

Bracemac-McLeod

 

17.5

%

$

350

 

None

 

Ming

 

25% of the first 175,000 ounces of gold produced, and 12% thereafter

 

$

nil

 

N/A

 

Santa Elena

 

20

%

$

350

 

1% annual inflationary adjustment beginning July 13, 2014

 

Summit

 

50% of the first 10,000 ounces of gold produced, and 22% thereafter

 

$

400

 

1% annual inflationary adjustment beginning 3 years after the mine achieves commercial production

 

 

In connection with the Mt. Hamilton royalty, the Company has committed an upfront payment of $4.0 million on January 15, 2013.

 

37


 

13. Segmented Information

 

The Company’s reportable segments are summarized in the tables below:

 

For the three months ended June 30, 2012

 

 

 

 

 

Cost of sales

 

 

 

Net income

 

Cash from (used in)

 

In $000s

 

Sales

 

(excluding depletion)

 

Depletion

 

(loss)

 

operations

 

Aurizona

 

$

3,530

 

$

886

 

$

326

 

$

2,318

 

$

2,644

 

Bachelor Lake

 

122

 

38

 

39

 

45

 

52

 

Black Fox

 

3,238

 

1,001

 

1,397

 

840

 

2,131

 

Bracemac-McLeod

 

—

 

—

 

—

 

—

 

—

 

Coringa and Cuiú Cuiú

 

—

 

—

 

—

 

 

 

—

 

Ming

 

4,139

 

—

 

1,555

 

2,584

 

4,139

 

Mt. Hamilton

 

—

 

—

 

—

 

—

 

—

 

Santa Elena

 

3,925

 

837

 

991

 

2,097

 

3,317

 

Summit

 

—

 

—

 

—

 

—

 

—

 

Corporate

 

—

 

—

 

—

 

(2,601

)

(1,025

)

Consolidated

 

$

14,954

 

$

2,762

 

$

4,308

 

$

5,283

 

$

11,258

 

 

For the three months ended June 30, 2011

 

 

 

 

 

 

 

 

 

Income from

 

 

 

 

 

 

 

 

 

 

 

 

 

deferral of

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

production

 

Net income

 

Cash from

 

In $000s

 

Sales

 

(excluding depletion)

 

Depletion

 

guarantee

 

(loss)

 

operations

 

Aurizona

 

$

1,466

 

$

393

 

$

145

 

$

—

 

$

928

 

$

928

 

Bachelor Lake

 

—

 

—

 

—

 

—

 

—

 

—

 

Black Fox

 

2,555

 

845

 

725

 

—

 

985

 

612

 

Bracemac-McLeod

 

—

 

—

 

—

 

—

 

—

 

—

 

Ming

 

—

 

—

 

—

 

—

 

—

 

—

 

Santa Elena

 

1,299

 

301

 

263

 

—

 

735

 

219

 

Summit

 

262

 

68

 

38

 

774

 

930

 

225

 

Corporate

 

—

 

—

 

—

 

—

 

(1,317

)

661

 

Consolidated

 

$

5,582

 

$

1,607

 

$

1,171

 

$

774

 

$

2,261

 

$

2,645

 

 

For the six months ended June 30, 2012

 

 

 

 

 

Cost of sales

 

 

 

Net income

 

Cash from (used in)

 

In $000s

 

Sales

 

(excluding depletion)

 

Depletion

 

(loss)

 

operations

 

Aurizona

 

$

7,855

 

$

1,918

 

$

705

 

$

5,232

 

$

5,677

 

Bachelor Lake

 

122

 

38

 

39

 

45

 

52

 

Black Fox

 

6,292

 

1,905

 

2,659

 

1,728

 

4,192

 

Bracemac-McLeod

 

—

 

—

 

—

 

—

 

—

 

Coringa and Cuiú Cuiú

 

—

 

—

 

—

 

—

 

—

 

Ming

 

7,537

 

—

 

2,766

 

4,771

 

7,536

 

Mt. Hamilton

 

—

 

—

 

—

 

—

 

—

 

Santa Elena

 

6,205

 

1,292

 

1,530

 

3,383

 

4,913

 

Summit

 

407

 

102

 

286

 

19

 

306

 

Corporate

 

—

 

—

 

—

 

(5,479

)

(2,154

)

Consolidated

 

$

28,418

 

$

5,255

 

$

7,985

 

$

9,699

 

$

20,522

 

 

38


 

For the six months ended June 30, 2011

 

 

 

 

 

 

 

 

 

Income from

 

 

 

 

 

 

 

 

 

 

 

 

 

deferral of

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

production

 

Net income

 

Cash from

 

In $000s

 

Sales

 

(excluding depletion)

 

Depletion

 

guarantee

 

(loss)

 

operations

 

Aurizona

 

$

3,441

 

$

962

 

$

354

 

$

—

 

$

2,125

 

$

2,125

 

Bachelor Lake

 

—

 

—

 

—

 

—

 

—

 

—

 

Black Fox

 

3,487

 

1,180

 

1,011

 

—

 

1,296

 

922

 

Bracemac-McLeod

 

—

 

—

 

—

 

—

 

—

 

—

 

Ming

 

—

 

—

 

—

 

—

 

—

 

—

 

Santa Elena

 

1,949

 

464

 

366

 

—

 

1,119

 

605

 

Summit

 

373

 

100

 

54

 

774

 

993

 

286

 

Corporate

 

—

 

—

 

—

 

—

 

(2,314

)

322

 

Consolidated

 

$

9,250

 

$

2,706

 

$

1,785

 

$

774

 

$

3,219

 

$

4,260

 

 

Total assets as of:

 

 

 

 

 

 

 

In $000s

 

June 30, 2012

 

December 31, 2011

 

Aurizona

 

$

17,944

 

$

18,649

 

Bachelor Lake

 

20,772

 

20,844

 

Black Fox

 

50,979

 

53,911

 

Bracemac-McLeod

 

5,032

 

32

 

Coringa and Cuiú Cuiú

 

7,838

 

—

 

Ming

 

17,302

 

20,068

 

Mt. Hamilton

 

10,044

 

—

 

Santa Elena

 

10,340

 

11,869

 

Summit

 

3,323

 

3,609

 

Corporate

 

34,472

 

23,810

 

Consolidated

 

$

178,046

 

$

152,792

 

 

39