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Fair Value Measurements
 12 Months Ended
Dec. 31, 2012
Fair Value Measurements [Abstract]  
Fair Value Measurements

16. Fair Value Measurements

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

The following table presents our liabilities at December 31, 2012, which are measured at fair value on a recurring basis:

 

          Fair Value Measurements at December 31, 2012  
          Quoted     Significant        
          Prices     Other     Significant  
          in Active     Observable     Unobservable  
          Markets     Inputs     Inputs  
    Total     (Level 1)     (Level 2)     (Level 3)  
Liabilities:                                
Gold call derivative   $ 16,330     $ -     $ 16,330     $ -  
Gold forward derivative     297,451               297,451          
Derivative liability - contingent dividend     230,900       -       -       230,900  
Total Liabilities   $ 544,681     $ -     $ 313,781     $ 230,900  

 

The following table presents our assets and liabilities at December 31, 2011, which are measured at fair value on a recurring basis:

 

          Fair Value Measurements at December 31, 2011  
          Quoted     Significant        
          Prices     Other     Significant  
          in Active     Observable     Unobservable  
          Markets     Inputs     Inputs  
    Total     (Level 1)     (Level 2)     (Level 3)  
Assets:                                
Certificates of deposit   $ 2,211,287     $ -     $ 2,211,287     $ -  
Liabilities:                                
Derivative liability - contingent dividend     1,025,000       -       -       1,025,000  
Total Liabilities   $ 3,236,287     $ -     $ 2,211,287     $ 1,025,000  

 

During the years ended December 31, 2012 and 2011, there were no transfers of assets and liabilities between Level 1, Level 2, or Level 3.

 

Following is a description of the valuation methodologies used for the Company's financial instruments measured at fair value on a recurring basis as well as the general classification of such instruments pursuant to the valuation hierarchy.

 

Derivative liability - contingent dividend - The Company's contingent dividend derivative liability is valued using The Monte-Carlo model with various observed and unobservable market inputs and classified as Level 3 in the valuation hierarchy. These market inputs include volatility, stock price, maturity date, and discount rate.

 

Gold Call and Put Derivatives - The Company's gold call and put are valued based on Black-Scholes model with various observable inputs. These market inputs include volatility of gold prices, gold strike prices, maturity dates of the options, exercise prices of the options, and risk free interest rates.

 

Certificates of Deposit - To estimate the fair value of certificates of deposit, cash flows are evaluated and then discounted using the appropriate market rates for the applicable maturities. The certificates of deposit are classified within level 2 of the valuation hierarchy as valuation inputs are primarily based on readily observable pricing information for similar instruments.

 

Gold Forward Derivative - The Company's gold forward is valued based on observable market changes in the forward prices for gold.

 

The following table indicates the changes in the level 3 financial instruments for the years ended December 31, 2012 and 2011.

 

    Contingent Dividend  
    Payment on Convertible  
    Preferred Stock  
       
Balances at January 1, 2011   $ 4,873,192  
Issuance of convertible preferred stock     15,954  
Change in fair value     (3,864,146 )
Balances at December 31, 2011     1,025,000  
Issuance of convertible preferred stock     6,009  
Change in fair value     (800,109 )
Balances at December 31, 2012   $ 230,900  

 

For Level 3 financial instruments that were measured at fair value on a recurring basis during the year ended December 31, 2012, the following table presents the fair value of those liabilities as of the measurement date, valuation techniques and related unobservable inputs of those liabilities:

 

Year                 Quantitave  
Ended   Fair Value     Valuation Techniques   Unobservable Input   Inputs Used  
2012 Derivative liability - contingent dividend   $ 230,900     Monte-Carlo Simulation   Discount Rate     12 %

 

Significant changes to the unobservable input would result in a significantly different fair value measurement of the contingent dividend derivative liability.

 

The carrying amount of cash and cash equivalents and trade payables approximates fair value because of the short-term maturity of these financial instruments. At December 31, 2012, the fair value of long-term debt obligations was $14,045,000. The carrying value of long-term debt obligations approximates fair value at December 31, 2011. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 2 inputs, with the exception of cash and cash equivalents (Level 1). The fair values of long-term debt obligations with the exception of the Auramet Facility debt obligation are based on current market rates for bonds of the same risk and maturities. The fair value of the Auramet Facility debt obligation was determined based on the current market futures for gold at the various repayment dates.