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Fair Value Measurements
 3 Months Ended
Mar. 31, 2013
Fair Value Measurements [Abstract]  
Fair Value Measurements

7. Fair Value Measurements

 

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:

 

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

 

The following table presents our liabilities measured at fair value on a recurring basis:

 

          Fair Value Measurements at March 31, 2013  
          Quoted     Significant        
          Prices     Other     Significant  
          in Active     Observable     Unobservable  
          Markets     Inputs     Inputs  
    Total     (Level 1)     (Level 2)     (Level 3)  
Liabilities:                                
Gold forward derivative   $ 30,867     $ -     $ 30,867     $ -  
Derivative liability - contingent dividend     76,000       -       -       76,000  
Total Liabilities   $ 106,867     $ -     $ 30,867     $ 76,000  

 

The following table presents our liabilities 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  

 

We had no assets measured at fair value on a recurring basis at March 31, 2013 and December 31, 2012. During the three months ended March 31, 2013 and twelve months ended December 31, 2012, there were no transfers of assets or 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 models 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 Derivative - The Company's gold call is valued using a 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.

 

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 three months ended March 31, 2013 and 2012:

 

    Contingent Dividend  
    Payment On  
    Convertible  
    Preferred Stock  
Balance at January 1, 2013   $ 230,900  
Change in fair value     (154,900 )
Balance at March 31, 2013   $ 76,000  
         
Balance at January 1, 2012   $ 1,025,000  
Change in fair value     (366,800 )
Balance at March 31, 2012   $ 658,200  

 

For Level 3 financial instruments that were measured at fair value on a recurring basis during the quarter ended March 31, 2013, the following table presents the fair value of those liabilities as of the measurement date, valuation techniques and related unobservable inputs of those liabilities:

 

                  Quantitave  
    Fair Value     Valuation Techniques   Unobservable Input   Inputs Used  
Derivative liability - contingent dividend   $ 76,000     Monte-Carlo Simulation   Discount Rate     12 %

 

The carrying amount of cash and cash equivalents, and trade payables and receivables approximates fair value because of the short-term maturity of these financial instruments. The fair value of long-term debt obligations approximates carrying value at March 31, 2013 and December 31, 2012. 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).