CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2016 and 2015
(Expressed in Canadian Dollars)
Rye Patch Gold Corp.
Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
As at
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable (note 6 and 9)
Inventory (note 7)
Prepaid expenses and deposits (note 8)
December 31, 2016
$
Non-current assets
Inventory (note 7)
Prepaid expenses and deposits (note 8)
Deferred debt issue costs (note 18)
Property, plant and equipment (note 10)
Exploration and evaluation assets (note 11)
Reclamation bonds (note 12)
TOTAL ASSETS
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities (note 16)
Due to related parties (note 20)
Current portion of credit facility (note 18)
Loans payable (note 17)
Contingent consideration payable (note 5)
Provisions for reclamation (note 13)
11,121,286 $
2,180,412
10,744,598
1,350,409
3,578,769
1,349,190
149,281
25,396,705
5,077,240
1,138,832
2,995,334
3,640,576
73,709,756
7,267,391
27,748,180
116,500,069
64,974
7,608,316
353,749
8,027,039
$
141,896,774 $
13,104,279
$
8,415,870 $
460,557
6,780,635
1,179,362
7,963,853
115,878
24,916,155
342,308
50,125
107,952
500,385
Non-current liabilities
Credit facility (note 18)
Provision for reclamation (note 13)
TOTAL LIABILITIES
EQUITY
Share capital (note 14)
Foreign currency translation adjustment
Reserves (note 14)
Deficit
TOTAL EQUITY
TOTAL EQUITY AND LIABILITIES
December 31, 2015
8,711,009
39,752,690
48,463,699
-
73,379,854
500,385
82,873,772
3,194,206
13,830,393
(31,381,451)
68,516,920
$
31,314,265
2,271,167
4,955,052
(25,936,590)
12,603,894
141,896,774 $
13,104,279
Commitments and contingencies (note 21)
Events after reporting period (note 26)
The accompanying notes are an integral part of these consolidated financial statements.
They are signed on the Company's behalf by:
APPROVED BY THE BOARD:
/s/ Jonathan Challis
Director
/s/ William C. Howald
Director
Rye Patch Gold Corp.
Consolidated Statements of Comprehensive Income (Loss)
(Expressed in Canadian Dollars)
For the years ended
December 31, 2016
December 31, 2015
MINING OPERATIONS
Revenue
Cost of sales (note 19)
INCOME (LOSS) FROM MINING OPERATIONS
ROYALTY INCOME (note 9)
$
1,285,705
(6,122,764)
(4,837,059)
6,197,192
1,360,133
6,090,298
6,090,298
(4,311,478)
(779,582)
(715,688)
(871,871)
(6,678,619)
(2,374,369)
(3,764,465)
(6,138,834)
28,400
(904,673)
926,781
104,052
(284,715)
3,780
(126,375)
(5,444,861)
39,334
298,310
337,644
$
923,039
(4,521,822)
1,422,108
1,711,216
$
(0.02)
0.00
$
(0.02)
0.00
EXPENSES
General and administrative expenses (note 19)
Exploration and evaluation expenses (note 10)
Business acquisition costs (note 4)
Write-down of exploration and evaluation assets (note 11)
OTHER INCOME (EXPENSE)
Interest and other income
Interest expense
Change in fair value of contingent consideration (note 5)
Change in estimate of provision for reclamation (note 13)
Accretion expense
Currency exchange gain (loss)
NET INCOME (LOSS) FOR THE YEAR
OTHER COMPREHENSIVE INCOME
Item that will be reclassified to net income (loss)
Foreign currency translation adjustment
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR
Basic earnings (loss) per share for the year
attributable to common shareholders (note 20)
Diluted earnings (loss) per share for the year
attributable to common shareholders (note 20)
Weighted average number of common shares - basic (note 20)
Weighted average number of common shares - diluted (note 20)
The accompanying notes are an integral part of these consolidated financial statements.
247,609,420
247,609,420
289,108
145,521,615
145,521,615
Rye Patch Gold Corp.
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in Canadian Dollars)
Share capital
Balance at December 31, 2015
Equity issuance
Share issue costs
Shares issued upon acuisition of Florida Canyon Group
Warrants issued upon closing of credit facility
Share based payments
Exercise of share options
Net comprehensive income (loss) for the year
Balance at December 31, 2016
Number
of shares
143,838,246 $
223,247,242
20,000,000
210,000
387,295,488 $
Amount
31,314,265
49,114,393
(5,633,352)
8,000,000
78,466
82,873,772
Balance at December 31, 2014
Share-based payments
Repurchase of shares
Net comprehensive income for the period
Balance at December 31, 2015
146,446,746
(2,608,500)
143,838,246 $
31,700,768
(386,503)
31,314,265
The accompanying notes are an integral part of these consolidated financial statements.
$
Reserves
Equity settled
employee
Agent's
Warrants
benefits
options
1,875,998 $
2,829,261 $
249,793 $
2,822,961
5,040,966
1,042,930
(31,516)
9,739,925 $
3,840,675 $
249,793 $
$
1,875,998
1,875,998 $
$
2,693,303
135,958
2,829,261 $
249,793
249,793 $
Total
4,955,052
2,822,961
5,040,966
1,042,930
(31,516)
13,830,393
Foreign currency
translation
adjustment
$
2,271,167
923,039
$
3,194,206
4,819,094
135,958
4,955,052
849,059
1,422,108
2,271,167
$
$
Deficit
(25,936,590)
(5,444,861)
(31,381,451)
$
(26,225,698)
289,108
(25,936,590)
$
$
Total
12,603,894
49,114,393
(2,810,391)
8,000,000
5,040,966
1,042,930
46,950
(4,521,822)
68,516,920
$
11,143,223
135,958
(386,503)
1,711,216
12,603,894
$
Rye Patch Gold Corp.
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
For the years ended
December 31, 2016
December 31, 2015
Cash flows provided from (used by):
OPERATING ACTIVITIES
Net income (loss) for the period
Adjustments for items not affecting cash:
Depreciation
Foreign exchange gain
Share-based payments
Accretion expense
Change in fair value of contingent consideration
Change in estimate of provision for reclamation
Write-down of inventory
Write-off of exploration and evaluation assets
$
(5,444,861) $
289,108
133,095
(3,780)
1,042,930
761,568
(926,781)
(104,052)
2,936,360
871,871
(733,650)
24,857
(271,305)
135,958
178,618
Net changes in non-cash working capital items:
Accounts receivable
Inventory
Prepaid expenses and deposits
Accounts payable and accrued liabilities
Due to related parties
Net cash flows from (used in) operating activities
(437,290)
(3,739,192)
730,771
995,171
410,432
(2,773,758)
113,878
(82,526)
11,186
(7,761)
213,395
FINANCING ACTIVITIES
Equity financing, net of share issue costs
Shares issued upon exercise of share options
Proceeds from credit facility
Deferred cost related to the credit facility
Repayment of loans payable
Repayment of notes payables acquired through the acquisition
Repurchase of common shares
Net cash flows used in financing activities
46,304,002
46,950
18,922,425
(2,516,310)
(796,355)
(2,639,400)
59,321,312
(386,503)
(386,503)
376,327
(21,673,562)
(19,541,698)
(2,646,495)
(747,550)
(4,832,947)
(49,065,925)
(41,814)
(2,130,374)
(33,418)
(2,205,606)
INVESTING ACTIVITIES
Cash received on Florida Canyon acquisition
Acquisition of Florida Canyon Group
Purchase of property, plant and equipment
Prepayment on property, plant and equipment
Mineral properties
Reclamation bond
Net cash flow used in investing activities
Effects of currency exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Cash and cash equivalents consist of:
Cash
Short-term deposits
60,888
$
$
$
Supplementary cash flow information (note 25)
The accompanying notes are an integral part of these consolidated financial statements.
458,084
7,542,517
3,578,769
11,121,286 $
(1,920,630)
5,499,399
3,578,769
11,001,399 $
119,887
11,121,286 $
1,966,188
1,612,581
3,578,769
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
1. NATURE OF OPERATIONS
Rye Patch Gold Corp. (the “Company”) was incorporated under the British Columbia Business Corporations Act on
April 13, 2006 and its head office is located at Suite 1500 – 701 West Georgia Street, Vancouver, British Columbia.
The Company is principally engaged in the operations, acquisition, exploration and development of mineral
properties located in the state of Nevada.
On July 28, 2016, the Company completed its acquisition of Florida Canyon Mining, Inc. (“Florida Canyon”),
Standard Gold Mining, Inc. (“Standard Mine”) and RP Dirt, Inc, (collectively the “Florida Canyon Group”). With the
acquisition, the Company acquired a producing property, the Florida Canyon Mine, and the existing leach pad of
the Standard Mine. The Company holds several other exploration projects in Nevada.
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
These consolidated financial statements were authorized for issue on May 1, 2017 by the directors of the
Company.
Statement of compliance with International Financial Reporting Standards
These consolidated financial statements of the Company, including comparatives, have been prepared in
accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting
Standards Board (“IASB”).
Basis of presentation
The consolidated financial statements have been prepared on a going concern basis, under the historical cost
convention, as modified by financial assets and financial liabilities carried at fair value through profit or loss
(“FVTPL”).
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Company’s
accounting policies.
These consolidated financial statements include the accounts of Rye Patch Gold Corp. and its wholly owned
subsidiaries (note 20). Subsidiaries are entities over which the Company has control. The Company controls a
subsidiary when it is exposed to, or has rights to, variable returns from its involvement with the subsidiary and
has the ability to affect those returns through its power over the subsidiary. Inter-company transactions,
balances, and unrealized gains or losses on transactions between the Company’s subsidiaries are eliminated.
When necessary, amounts reported by subsidiaries have been adjusted to conform to the Company’s accounting
policies
Foreign currencies
Determination of functional currency
In determining the functional currency of the Company, the following was considered:
•
the currency that mainly influences the cost of labour, materials, service and other costs of exploration
and evaluation activities;
•
the currency used to maintain the amounts charged by operating activities;
•
the currency in which funds from financing activities are generated; and
•
the currency in which receipts from operating activities are usually retained.
Page 8 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (continued)
Functional currency
The consolidated financial statements are presented in Canadian dollars, which are the presentation and the
functional currency of the parent entity, Rye Patch Gold Corp. The functional currency of the Company’s
subsidiaries is the US Dollar.
Transactions and balances
Foreign currency transactions are translated into the functional currency of an entity using the rate on the
transaction day Monetary assets and liabilities denominated in foreign currencies are translated to the
functional currency at the rate of exchange in effect at the end of each reporting period. Foreign exchange
gains and losses resulting from the settlement of foreign currency transactions are recognized in income.
Foreign operations
The results of foreign operations are translated to Canadian dollars at a monthly average rate of exchange
during the year. The assets and liabilities of foreign operations are translated to Canadian dollars at rates of
exchange in effect at the end of the reporting period. Gains or losses arising on translation of foreign
operation’s assets and liabilities to Canadian dollars at period end are recognized in other comprehensive
income as a foreign currency translation adjustment. When a foreign operation is sold, such exchange
differences are recognized in the statement of comprehensive income (loss) as part of the gain or loss on sale.
Cash and cash equivalents
Cash and cash equivalents consist of balances on deposit and investments in highly liquid short-term deposits
which have original maturities of 90 days or less are readily convertible to known amounts of cash and which
are subject to insignificant risks of changes in fair value.
Inventories
Inventories are stated at the lower of average cost and net realizable value (“NRV”). Cost of supplies inventory
includes acquisition, freight and other directly attributable costs. Work-in-process inventory includes ore in the
leaching process and gold on carbon. Finished goods include gold in doré. For work-in process and finished
goods inventories, cost includes all direct costs incurred in production including direct labor and materials,
freight, depreciation and amortization of plant and equipment used in the production process, depletion of
mineral property costs and directly attributable overhead costs.
If the NRV is lower than the expected cost of the finished product, the inventory is written down to the estimated
NRV. If there is a subsequent increase in the value of inventory, the previous write-downs to NRV are reversed
up to cost to the extent that the related inventory has not been sold.
Page 9 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (continued)
Financial instruments
Financial assets
The Company recognizes financial assets at fair value, plus transaction costs in the case of financial assets not
subsequently measured at fair value through profit and loss, when it becomes party to a contract. The
Company classifies its financial assets into one of the following categories, depending on the purpose for
which the asset was acquired. The Company's accounting policy for each category is as follows:
Fair value through profit or loss - This category comprises derivatives, or assets acquired or incurred principally
for the purpose of selling or repurchasing it in the near term. They are carried in the consolidated statement
of financial position at fair value with changes in fair value recognized in the consolidated statement of
comprehensive income (loss).
Loans and receivables - These assets are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. They are carried at amortized cost less any provision for
impairment. This category includes cash and cash equivalents, accounts receivable and reclamation bonds.
Held-to-maturity investments - These assets are non-derivative financial assets with fixed or determinable
payments and fixed maturities that the Company's management has the positive intention and ability to hold
to maturity. The Company does not hold any held-to-maturity investments.
Available-for-sale - Non-derivative financial assets not included in the above categories are classified as
available-for-sale. They are carried at fair value with changes in fair value recognized directly in equity. Where
a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment,
the amount of the loss is removed from equity and recognized in the consolidated statement of
comprehensive income (loss).
All financial assets except for those at fair value through profit or loss are subject to review for impairment at
least at each reporting date. Financial assets are impaired when there is any objective evidence that a financial
asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each
category of financial assets, which are described above.
Financial liabilities
The Company classifies its financial liabilities into one of two categories. The Company's accounting policy for
each category is as follows:
Fair value through profit or loss - This category comprises derivatives, or liabilities acquired or incurred
principally for the purpose of selling or repurchasing it in the near term. They are carried in the consolidated
statement of financial position at fair value with changes in fair value recognized in the consolidated
statement of comprehensive income (loss). The Company classifies its contingent consideration as fair value
through profit and loss.
Page 10 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (continued)
Other financial liabilities - This category includes amounts due to related parties, accounts payable and
accrued liabilities, loans payable and its credit facility all of which are recognized at amortized cost.
Financial liabilities classified as other financial liabilities are initially recorded at fair value, net of transaction
costs incurred. Subsequently, they are carried at amortized cost; any difference between the proceeds (net
of transaction costs) and the redemption value is recognized in the statement of income (loss) over the period
of the debt using the effective interest method.
Financing and transaction costs paid on the establishment of financial liabilities are recognized as
transaction costs of the financial liability to the extent that it is probable that some or all of the facility will
be drawn down. In this case, the costs are deferred until the draw-down occurs. To the extent there is no
evidence that it is probable that some or all of the facility will be drawn down, the costs are capitalized as a
pre-payment for liquidity services and amortized over the period of the loan to which it relates. Any fees
incurred due to undrawn funds are expensed as incurred.
Property, plant and equipment
Plant and equipment
Plant and equipment are recorded at cost less accumulated depreciation and impairment charges.
The cost of an item of plant and equipment includes the purchase price or construction cost, any costs
directly attributable to bringing the asset to the location and condition necessary for its intended use, an
initial estimate of the costs of dismantling and removing the item and restoring the site on which it is
located, and for qualifying assets, the associated borrowing costs.
Where an item of plant and equipment is comprised of major components with different useful lives, the
components are accounted for as separate items of plant and equipment.
Costs incurred for major overhaul of existing equipment and sustaining capital are capitalized as plant and
equipment and are subject to depreciation once they are available for use. Major overhauls include
improvement programs that increase the productivity or extend the useful life of an asset beyond that
initially envisaged. The costs of routine maintenance and repairs that do not constitute improvement
programs are accounted for as a cost of inventory.
Assets under construction
Mineral property development commences when approved by management and the Company has obtained
all required permitting to proceed. During development, plant and equipment expenditures are capitalized
and classified as assets under construction. Once completed, all applicable assets related to construction are
reclassified to plant and equipment. Other development expenditures relating to mineral properties are
capitalized directly to mineral interests.
Page 11 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (continued)
Mineral interest and mine development costs
The Company accounts for its mineral property interests by capitalizing the costs of acquisition, by property,
and mine development costs. The Company expenses to operations the costs related to exploration and
evaluation. Revenue and expenses derived from mining activities prior to assets being ready for use in the
manner intended by management are included in the cost of the related mineral property.
Mineral properties are recorded at cost less accumulated depletion and impairment charges. Upon sale or
abandonment of mineral properties, the cost and related accumulated depletion are written off and any gains
or losses thereon are included in the statement of loss.
During the production phase, mining expenditures (exploration or development costs) incurred either to
develop new ore bodies or to develop mine areas in advance of current production are capitalized to mine
development. Waste removal (stripping) costs incurred in the production phase are accounted for as variable
production costs. However, stripping costs will be capitalized and recorded on the statement of financial
position as mine development, a component of property, plant and equipment, when the stripping activity
provides access to sources of reserves or resources that will be produced in future periods that would not
have otherwise been accessible in the absence of this activity.
Depreciation of property, plant and equipment
When assets are ready for use as intended by management, the carrying amounts of mineral properties and
property, plant and equipment are depleted or depreciated to their estimated residual value over the
estimated economic life of the specific assets to which they relate as indicated below:
•
•
•
Mineral interest and mine development expenditures - based on a unit-of-production method (“UOP”).
In applying the UOP method over the recoverable ounces to which the asset specifically relates,
depletion is calculated using the quantity of material extracted from the mine in the period as a
percentage of the total quantity of material expected to be extracted in current and future periods;
Plant and equipment - straight-line basis or UOP. The major categories are as follows;
- Buildings
5 – 20 years
- Computer hardware and software
2 – 5 years
- Vehicles, machinery and equipment
2 – 15 years and UOP
- Office furniture, equipment and other
1 year
Deferred stripping - on a unit-of-production basis.
Estimates of residual values, useful lives, and economically mineable reserves and resources are reassessed
annually and any change in estimate is taken into account in the determination of remaining depreciation,
depletion or amortization charges.
Page 12 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (continued)
Borrowing costs
Interest and other financing costs relating to the construction of mineral properties, plant and equipment or
development of mineral properties are capitalized as assets under construction or in mineral properties until
they are complete and available for use, at which time they are transferred to plant and equipment or to
depletable mineral properties. Interest costs incurred after the asset has been placed into service are charged
to the statement of loss.
Exploration and evaluation expenses
Exploration and evaluation expenditures relate to properties where the Company has valid ownership and
exploration and evaluation rights. Acquisition costs and property maintenance costs related to these
properties are capitalized as exploration and evaluation assets. Expenditures incurred to explore and evaluate
the properties are expensed as incurred. Such expenditures comprise activities that are directly attributable
to:
• researching and analyzing existing exploration data;
• conducting geological studies, exploratory drilling and sampling;
• examining and testing extraction and treatment methods; and
• activities in relation to evaluating the technical feasibility and commercial viability of extracting a
mineral resource.
The Company classifies exploratory expenditures such as geological testing, assays and sampling, and drilling
as exploration expenditures. Expenditures related to examining and testing extraction and treatment
methods and activities in relation to evaluating the technical feasibility and commercial viability of extracting
a mineral resource are classified as evaluation expenditures.
Once management has determined that the development potential of the property is economically viable and
technically feasible and the necessary permits are in place for its development, the Company will begin
capitalizing the expenditures as mineral interests, a component of property, plant and equipment.
Revenue Recognition
The Company’s primary source of revenue is from the sale of gold doré. Revenue is recognized in the
consolidated financial statements when the following conditions are met:
• the significant risks and rewards of ownership have passed to the customer;
• neither continuing managerial involvement, to the degree usually associated with ownership, nor
effective control over the good sold, has been retained;
• the amount of revenue can be measured reliably; it is probable that economic benefits associated with
the sale will flow to us; and
• the costs incurred or to be incurred in respect of the sale can be measured reliably.
Revenue from the sale of gold doré or bullion is typically recognized on the trade settlement date when funds
are received.
Page 13 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (continued)
Impairment of non-current assets
The Company’s mineral properties and property and equipment are reviewed for impairment if there is any
indication that the carrying amount may not be recoverable. If any such indication is present, the recoverable
amount of the asset is estimated in order to determine whether impairment exists. Where the asset does not
generate cash flows that are independent from other assets, the Company estimates the recoverable amount
of the cash-generating unit to which the asset belongs.
An asset’s recoverable amount is the higher of fair value less costs of disposal (“FVLCD”) and value in use. In
assessing value in use, the estimated future cash flows are discounted to their present value, using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset for which estimates of future cash flows have not been adjusted.
FVLCD is determined as the amount that would be obtained from the sale of the asset in an orderly transaction
between market participants. Fair value of mineral assets is generally determined as the present value of the
estimated future cash flows expected to arise from the continued use of the asset, including any expansion
prospects.
If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount,
the carrying amount is reduced to the recoverable amount. Impairment is recognized immediately in the
consolidated statement of comprehensive income (loss). Where an impairment subsequently reverses, the
carrying amount is increased to the revised estimate of recoverable amount but only to the extent that this does
not exceed the carrying value that would have been determined if no impairment had previously been
recognized.
Reclamation expenditures
Reclamation expenditure include dismantling and demolition of infrastructure, the removal of residual materials
and remediation of disturbed areas. Estimated reclamation expenditures are provided for in the accounting period
when the obligation arising from the related disturbance occurs, based on the net present value of estimated
future costs. The cost estimates are updated during the life of the operation to reflect known development, e.g.
revisions to cost estimates and to the estimated lives of the operations, and are subject to formal reviews at
regular intervals. The initial closure provision together with changes resulting from changes in estimated cash
flows or discount rates are adjusted within the mineral property asset to which the provision relates. These costs
are then depreciated over the life of the asset to which they relate, typically using the units of production method.
The accretion or unwinding of the discount applied in establishing the net present value of provisions is charged
to the consolidated statement of income (loss) as a finance expense.
Share capital
Common shares are classified as equity. Transaction costs directly attributable to the issue of common shares
and share options are recognized as a deduction from equity, net of any tax effects.
Page 14 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (continued)
Share-based payments
The Company grants share purchase options to directors, officers, employees and consultants to purchase
common shares. The fair value of options granted is recognized as a share-based payment expense with a
corresponding increase in the Equity Settled Employee Benefits reserve. An individual is classified as an
employee when the individual is an employee for legal or tax purposes (direct employee) or provides services
similar to those performed by a direct employee.
The fair value is measured at grant date and each tranche is recognized on a graded-vesting basis over the period
during which the options vest. The fair value of the options granted is measured using the Black-Scholes option
pricing model taking into account the terms and conditions upon which the options were granted. At each
financial position reporting date, the amount recognized as an expense is adjusted to reflect the actual number
of share purchase options that are expected to vest.
Earnings or loss per share
The Company presents the basic and diluted earnings or loss per share data for its common shares, calculated
by dividing the earnings or loss attributable to common shareholders of the Company by the weighted average
number of common shares outstanding during the year. Diluted earnings or loss per share is determined by
adjusting the earnings or loss attributable to common shareholders and the weighted average number of
common shares outstanding for the effects of all dilutive potential common shares.
Income taxes
(i)
Current income tax
Current tax for each of our taxable entities is based on the local taxable profit for the period at the local
statutory tax rates enacted or substantively enacted at the date of the consolidated statement of financial
position.
(ii)
Deferred tax
Deferred tax is recognized, using the liability method, on temporary differences between the carrying
value of assets and liabilities in the consolidated statement of financial position and the corresponding tax
bases used in the computation of taxable profit. Deferred tax is determined using tax rates and tax laws
that are enacted or substantively enacted at the date of the consolidated statement of financial position
and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is
settled.
Deferred tax assets are recognized for all deductible temporary differences to the extent that it is
probable that taxable profits will be available to be utilized against those deductible temporary
differences. Deferred tax assets are reviewed at each reporting date and amended to the extent that it is
no longer probable that the related tax benefit will be realized.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off the current
tax assets against the current tax liabilities and when they relate to income taxes levied by the same
taxation authority and we intend to settle our current tax assets and liabilities on a net basis.
Page 15 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (continued)
Business combinations
A business combination is defined as an acquisition of assets and liabilities that constitute a business under IFRS
3. A business is an integrated set of activities and assets that is capable of being conducted and managed for
the purpose of providing a return to us and our shareholders. A business consists of inputs, including noncurrent assets, and processes, including operational processes, that when applied to those inputs have the
ability to create outputs that provide a return to us and our shareholders. A business also includes those assets
and liabilities that do not necessarily have all the inputs and processes required to produce outputs, but can be
integrated with our inputs and processes or we could easily replicate the processes to create outputs. When
acquiring a set of activities or assets in the exploration and development stage, which may not have outputs,
we consider other factors to determine whether the set of activities or assets is a business. Those factors include,
but are not limited to, whether the set of activities or assets:
•
Has begun planned principal activities;
•
Has employees, intellectual property and other inputs and processes that could be applied to those
inputs;
•
Is pursuing a plan to produce outputs; and
•
Will be able to obtain access to customers that will purchase the outputs.
Not all of the above factors need to be present for a particular integrated set of activities or assets in the
exploration and development stage to qualify as a business.
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a
business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair value
of the assets and liabilities transferred. The results of businesses acquired during the period are included in the
consolidated financial statements from the date of acquisition. The identifiable assets, liabilities and contingent
liabilities of the businesses which can be measured reliably are recorded at provisional fair values at the date of
acquisition. Provisional fair values are finalized within 12 months of the acquisition date. Acquisition-related
costs are expensed as incurred. Measurement period adjustments are adjustments that arise from additional
information obtained during the measurement period (which cannot exceed one year from the acquisition date)
about facts and circumstances that existed at the acquisition date.
Accounting estimates and judgments
The preparation of these consolidated financial statements requires management to make estimates and
judgments and form assumptions that affect the reported amounts and other disclosures in these consolidated
financial statements. The estimates and associated assumptions are based on historical experience and various
other factors that are believed to be reasonable under the circumstances, the results of which form the basis of
making the judgments about carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different assumptions and conditions.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognized in the period in which the estimate is revised if the revision affects only that period or in the
period of the revision and further periods if the review affects both current and future periods.
Critical accounting estimates are estimates and assumptions made by management that may result in material
adjustments to the carrying amount of assets and liabilities within the next financial year. Critical accounting
judgments are accounting policies that have been identified as being complex or involving subjective judgments
or assessments.
Page 16 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (continued)
Critical accounting estimates and judgments included in the consolidated financial statements are:
(i) Business Combination – Acquisition of Florida Canyon Group
Judgment is required to determine whether we acquired a business under the definition of IFRS 3,
Business combinations ("IFRS 3"), and also the acquisition date when we obtained control over the
acquiree, which we determined was the date that consideration was transferred and when we assumed
the assets and liabilities of the acquiree. The valuation of certain consideration requires significant
management estimates and judgement. This includes the fair value of the US$5,000,000 contingent
consideration as well as the fair value of the contingent warrants. The fair value of the contingent
consideration is estimated based on timing and probability of the payout. The contingent warrants
were valued using the Black-Scholes valuation model and required management to estimate key inputs
such as the expected life and volatility when using the valuation model.
Business combinations are accounted for using the acquisition method whereby identifiable assets
acquired and liabilities assumed, including contingent liabilities, are recorded at their fair values at the
date of acquisition. The valuation of certain assets and liabilities requires significant management
estimates and judgment. Property, plant and equipment requires judgment over the appropriate fair
value methodology to appraise the assets and various assumptions around estimated useful lives and
current replacement costs. The mineral property asset valuations are based upon estimates of Mineral
Resources used in the life of mine plan, as well as estimates of future metal prices, production, costs,
and economic assumptions around inflation rates and discount rates. The inventory valuation requires
estimates of the quantity on the leach pads and costs to convert inventory into saleable form and all
associates selling cost. The reclamation provision requires an estimate of the magnitude and timing of
future cash flows and economic assumptions around inflation and discount rates.
(ii) Forward Contracts – Own Use
Contracts to buy or sell a non-financial item, such as a commodity, that can be settled net in cash or
another financial instrument, fall under the scope of IAS 39 and are accounted for as derivatives and
marked to market through the statement of loss and comprehensive loss. However, certain criteria
exist whereby a contract may be considered ‘own use’, and be exempt from the requirements of IAS
39. The determination of the Company’s accounting for its gold forward sales contracts (Note 14)
requires judgment to determine that the contracts meet the requirements of ‘own use’.
An ‘Own Use’ contract is a contract that was entered into and continues to be held for the purpose of
the delivery of a non-financial item in accordance with the Company’s expected purchase, sale or usage
requirements. In the case of the Company’s gold forward sales contracts, the Company plans to settle
the contracts through the delivery of its own gold production, and therefore, these contracts result in
the physical delivery of a commodity, and as per the Company’s Credit Facility (Note 14), there is a
specified schedule whereby the Company will be required to deliver a set number of ounces. Given the
Company’s current production levels and expected production levels based on the Company’s current
life of mine plan, the production of gold will be sufficient to fulfill the physical delivery requirements of
the contracts based on the agreed schedule within the Credit Facility
Page 17 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (continued)
(iii) Valuation of Inventory
Finished goods
Finished goods are valued at the lower of average cost and NRV. NRV is calculated as the estimated
price at the time of sale based on prevailing and forecast metal prices less associated selling costs.
Leach pad inventory
In determining the value of the leach pad, we make estimates of quantities and grades of ore on leach
pads and in process, and the recoverable gold in this material to determine the total inventory. Changes
in these estimates can result in a change in carrying amounts of inventory, as well as cost of sales.
(iv) Impairment of non-current assets
The Company reviews the carrying amounts of property, plant, equipment and exploration and
evaluation assets whenever events or changes in circumstances indicate that the carrying amounts may
exceed the estimated recoverable amounts determined by reference to estimated future operating
results and discounted future cash flows. An impairment loss is recognized when the carrying amount
of those assets is not recoverable. Calculating the estimated recoverable amount for non-current asset
impairment tests requires management to make estimates and assumptions with respect to estimated
recoverable reserves, resources, estimated future commodity prices, future production and sales
volume, the expected future operating, capital and reclamation costs, discount rates and exchange
rates. These estimates are subject to various risks and uncertainties which may ultimately have an
effect on the estimated recoverability of the carrying amounts of the non-current assets.
(v) Reclamation provision
Reclamation provision represents the present value of estimated future costs for the reclamation of
the Company’s mines and properties. These estimates include assumptions as to the future activities,
cost of services, timing of the reclamation work to be performed, inflation rates, exchange rates and
interest rates. The actual cost to reclaim a mine may vary from the estimated amounts because there
are uncertainties in factors used to estimate the cost and potential changes in regulations or laws
governing the reclamation of a mine. Management periodically reviews the reclamation requirements
and adjusts the liability as new information becomes available and will assess the impact of new
regulations and laws as they are enacted.
(vi) Contingent consideration
As of December 31, 2016, the valuation of contingent consideration requires significant management
estimates and judgement. This includes the fair value of the US$5,000,000 contingent consideration
as well as the fair value of the contingent warrants. The fair value of the contingent consideration is
estimated based on timing and probability of the payout. The contingent warrants were valued using
the Black-Scholes valuation model and required management to estimate key inputs such as the
expected life and volatility when using the valuation model.
Page 18 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
3. NEW ACCOUNTING STANDARDS
New standards and interpretations not yet adopted
Certain new standards, interpretations, amendments and improvements to existing standards were issued by
the IASB or IFRIC that are mandatory for accounting periods beginning on or after January 1, 2017. Updates
which are not applicable or are not consequential to the Company have not been discussed below. The following
standards have not yet been adopted by the Company and are being evaluated to determine their impact:
•
IFRS 9: New standard addresses the classification, measurement and recognition of financial assets and
financial liabilities. IFRS 9 replaces the guidance in International Accounting Standard (“IAS”) 39 that
relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the
mixed measurement model and establishes three primary measurement categories for financial assets:
amortized cost, fair value through other comprehensive income (“OCI”) and FVTPL. There is a new
expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For
financial liabilities, there were no changes to classification and measurement except for the recognition
of changes in own credit risk in OCI, for liabilities designated as FVTPL. The standard is effective for
accounting periods beginning on or after January 1, 2018. Early adoption is permitted. We are currently
evaluating the impact the standard is expected to have on our consolidated financial statements.
•
IFRS 15: The IASB has replaced IAS 18, Revenue in its entirety with IFRS 15, Revenue from contracts with
customers (“IFRS 15”) which is intended to establish a new control-based revenue recognition model and
change the basis for deciding whether revenue is to be recognized over time or at a point in time. IFRS
15 is effective for annual periods commencing on or after January 1, 2017. We are currently evaluating
the impact the standard is expected to have on our consolidated financial statements.
•
IFRS 16: New standard that replaces IAS 17 with a new approach to lease accounting that requires a
lessee to recognize assets and liabilities for the rights and obligations created by substantially all leases.
IFRS 16 is effective for annual periods beginning on or after January 1, 2019.
Page 19 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
4. ACQUISITION OF FLORIDA CANYON GROUP
On July 28, 2016, the Company completed the acquisition of a 100% interest in the Florida Canyon Group consisting
of Florida Canyon, Standard Mine and Dirt, Inc. for a total purchase price of $38,457,232 (US $29,140,890). The
transaction consisted of the acquisition of all of the issued and outstanding shares of Florida Canyon, Standard Mine
and RP Dirt, Inc. for consideration of cash, common shares of the Company and contingent consideration.
The acquisition is a business combination and has been accounted for in accordance with the measurement and
recognition provisions of IFRS 3. IFRS 3 requires that the purchase consideration be allocated to the assets acquired
and liabilities assumed in a business combination based upon their estimated fair values at the date of acquisition.
Fair values are determined based on third party appraisals, discounted cash flow models, and quoted market prices,
as appropriate. Acquisition costs, in the form of advisory, legal and other professional fees, associated with the
transaction to acquire the Florida Canyon Group of $715,688 were expensed as incurred.
The following tables show the purchase consideration and the estimated fair values of the assets acquired and
liabilities assumed. The estimated fair values reported for property, plant, and equipment and inventory changed
from the preliminary estimates reported in the Company’s September 30, 2016 interim financial statements.
Cash payment
Cash payment based on working capital adjustment
20,000,000 common shares issued (1)
Contingent consideration (2)
Consideration
$
Cash and cash equivalents
Accounts receivable
Prepaid expense
Inventory
Property, plant and equipment
Reclamation bonds
$
$
Accounts payable and accrued liabilities
Royalty payable
Note payable (3)
Loans payable
Provision for reclamation
Net identifiable assets acquired
(1)
(2)
(3)
$
19,795,500
1,878,062
8,000,000
8,783,670
38,457,232
376,327
405,338
2,241,313
10,889,587
49,430,836
21,965,769
(5,160,044)
(38,815)
(2,639,400)
(1,952,884)
(37,060,795)
38,457,232
The common shares were valued at the closing price of the Company’s shares on the Toronto Venture Exchange on July 28, 2016, $0.40.
Contingent consideration consists of 15,000,000 common share warrants and a US$5,000,000 payment due 60 days after commercial
production. The US$5,000,000 payment was present valued using a credit-adjusted risk free rate. The common share purchase warrants
have a life of two years from the date of issue and have an exercise price of US$0.50. Refer to note 5 for complete details on the valuation
of the contingent consideration.
Repaid on the date of acquisition
As part of the acquisition, US$1.6 million has been held by the Company and is in trust in relation to an unsettled
liability of the seller that could potentially include Florida Canyon. The party with the claim against the seller
provided an arbitration notice during the year that included Florida Canyon, but was subsequently cancelled. As
part of the Florida Canyon group purchase agreement, the arbitration notice triggered a clause in the purchase
agreement resulting in the funds held in trust to remain there until such time Florida Canyon has been provided a
waiver or a settlement agreement discharging Florida Canyon of any potential liability. The Company also has the
ability to withhold the contingent cash payment, when it comes due, until such time the matter is resolved.
Page 20 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
4. ACQUISITION OF FLORIDA CANYON GROUP (continued)
The Company has recorded revenue of $1,285,705 and a net loss of $5,118,279 since the acquisition date of the
Florida Canyon Group. If the Florida Canyon Group had been consolidated into our operations from January 1, 2016,
our consolidated revenue would be approximately $13,411,144 and our net loss would be approximately
$13,615,354.
5. CONTINGENT CONSIDERATION
As part of the acquisition of the Florida Canyon Group, the Company agreed that a portion of the total
consideration to be contingent on a future event related to the Florida Canyon Mine. The Company agreed to pay
US$5,000,000 in the form of cash, equity or equity instruments and issue 15,000,000 share purchase warrants 60days after the Company has reached commercial production at Florida Canyon Mine.
As it relates to the US$5,000,000 contingent consideration, the Company has the discretion to decide what form
the settlement of this payment will take. It is the Company’s best estimate that the Company will make this
contingent payment in cash and as such, the estimate of fair value is based on discounting the US$5,000,000 from
the anticipated payment day to July 28, 2016 and December 31, 2016 with the difference been recognised in profit
and loss, using a credit-adjusted risk free rate of 9%. The Company defines commercial production as three
consecutive months of gold production at 75% of the forecasted production capacity.
The contingent common share purchase warrants have been valued using the Black-Scholes option pricing model.
The common share purchase warrants have an exercise price of US$0.50, or such higher price as may be required
by Toronto Venture Exchange policies. In accordance with IAS 32, the contingent common share warrants have
been recognized as a derivative liability as they do not meet the criteria for equity recognition due to the variable
consideration value resulting from the exercise price being denominated in a currency other than the Company’s
functional currency.
Balance, beginning of period
$
-
Fair value upon initial recognition - Cash payment
6,053,670
Fair value upon initial recognition - Warrants
2,730,000
(926,781)
Change in fair value
106,964
Foreign exchange
Balance, December 31, 2016
$
7,963,853
The inputs for the valuation of the warrants were as follows:
Risk-free interest rate
0.51% - 0.84%
Expected annual volatility
88% - 90%
Expected life
2.57 - 3.00
Expected dividend yield
-
Weighted average share price
$
0.36
Weighted average exercise price
$
0.66
Grant date fair value per warrant
$
0.18
Year-end fair value per warrant
$
0.11
Page 21 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
6. RECEIVABLES
December 31, 2016
Royalty receivable (note 9)
$
December 31, 2015
1,624,972 $
GST receivable
68,020
Other receivables
487,420
$
2,180,412 $
1,336,255
12,935
1,349,190
7. INVENTORIES
December 31, 2016
Ore on heap leach pads
$
December 31, 2015
5,506,496 $
-
Dore
4,978,658
-
Material and supplies
1,398,276
-
$
11,883,430 $
-
Non-current portion of ore on heap leach pads
$
(1,138,832) $
-
Current portion of inventory
$
10,744,598 $
-
The doré and ore on heap leach pads are being held at their net realizable value while materials and supplies
inventory are being held at their cost. The cost of the inventory held at its net realizable value was $13,485,154.
Following significant declines in the gold price from the date of acquisition of the Florida Canyon Group, we wrotedown ore on the heap leach pads and doré inventory to its net realizable value, resulting in a charge of $2,936,360.
8. PREPAID EXPENSES AND DEPOSITS
December 31, 2016
Prepaid expense
$
Deposits
1,305,938 $
393,310
Prepaid capital expenditures
2,646,495
December 31, 2015
149,281
-
$
4,345,743 $
Non-current portion of prepaid expenses
$
(2,995,334) $
-
Current portion of prepaid expenses
$
1,350,409 $
149,281
Page 22 of 45
149,281
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
9. ROYALTY INCOME
On June 25, 2013, the Company and Coeur Rochester Inc., a wholly owned subsidiary of Coeur Mining Inc.
(collectively, “Coeur”), reached a settlement on the legal dispute over title to certain LH and OG unpatented lode
mining claims covering portions of the Rochester and Packard mine areas. In settlement of the legal dispute, the
Company conveyed all of the disputed LH and OG unpatented lode mining claims (comprising 386 of the 410 LH
claims and all three OG claims) to Coeur in return for the following:
•
•
•
Coeur made a cash payment to the Company in the sum of US$10,000,000;
Coeur granted to Rye Patch Gold US Inc., a production royalty equal to 3.4% of the gross revenue, less
refining costs, of gold and silver produced and sold from the Rochester Mine (the “Coeur NSR”); and
Conveyed all of Coeur’s right, title and interest in the Blue Bird patented lode mining claim located near
Lincoln Hill.
The Coeur NSR was effective as of January 1, 2014 and will terminate after 39.4 million silver equivalent ounces
have been produced and sold from the Rochester Mine. Silver equivalent will be determined by converting sales
of gold to the equivalent number of ounces of silver based on actual prices of gold and silver at the time of sale.
The Coeur NSR is assignable to an affiliate controlled by the Company; however, from and after January 1, 2014,
the Coeur NSR may be assigned (i) in a single-asset transaction, (ii) for cash consideration, (iii) upon at least 30
days’ advance notice to Coeur and (iv) to a company whose principal business is the acquisition, holding or
management of precious metals production royalties and streams. Coeur shall have a right of first refusal to
acquire the Coeur NSR on the same terms as any proposed permitted sale of the Coeur NSR by the Company.
During 2015, the Company filed a demand for arbitration in relation to payments received in 2014. The Company
believes payment were deficient by US$313,242. The process is pending selection of a mutually agreed, qualified
arbitrator that meets the stringent requirements under the Arbitration Clause of the NSR Agreement.
During the year ended December 31, 2016, the Company earned $6,197,192 (US$4,683,625) as royalty income
(December 31, 2015 - $6,090,298 (US$4,784,126). At December 31, 2016, there were approximately 15.9 million
ounces (2015 - 24.1 million ounces) remaining of the royalty.
The account receivable related to royalty income as at December 31, 2016 was $1,624,972 (US$1,210,227)
(December 31, 2015 - $1,336,255 (US$965,502)). This amount was received subsequent to December 31, 2016.
Page 23 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
10. PROPERTY, PLANT AND EQUIPMENT
Mineral Interests
& Mine Development
Cost
As at December 31, 2015
Acquisiton of Florida Canyon Group
Additions
Currency translation adjustment
Balance as at December 31, 2016
$
Vehicles, machinery &
equipment
- $
79,440
14,576,479
153,838
14,809,757 $
- $
170,274
2,968
173,242 $
98,756 $
161,005
(1,218)
258,543 $
$
- $
- $
- $
- $
- $
(12,410)
(194)
(12,604) $
(78,079) $
(29,155)
1,384
(105,850) $
$
48,578,588 $
14,809,757 $
160,638 $
$
Net book value
As at December 31, 2016
Computer hardware &
software
Buildings
- $
39,243,903
8,589,627
745,058
48,578,588 $
$
Depreciation
As at December 31, 2015
Charged for the year
Currency translation adjustment
Balance as at December 31, 2016
Construction
In Progress
152,693
$
32,269
9,937,219
551,265
175,820
10,696,573
Office furniture,
equipment & other
$
121,276 $
(1,640)
119,636 $
(6,654) $
(680,245)
(10,235)
(697,134) $
(102,594) $
(9,599)
1,198
(110,995) $
9,999,439
$
$
8,641 $
Total
252,301
49,430,836
23,878,376
1,074,826
74,636,339
(187,327)
(731,409)
(7,847)
(926,583)
73,709,756
During the year, the Company capitalized $607,330 (2015 - $Nil) in depreciation related to assets used in the development of the mine to mineral Interests and mine development and construction in
progress.
Computer hardware &
software
Cost
As at December 31, 2014
Additions
Currency translation adjustment
Balance as at December 31, 2015
Depreciation
As at December 31, 2014
Charged for the year
Currency translation adjustment
Balance as at December 31, 2015
Net book value
As at December 31, 2015
$
Machinery &
equipment
Office furniture,
equipment & other
Total
71,866 $
17,319
9,571
98,756 $
3,938 $
24,495
3,836
32,269 $
112,484 $
8,792
121,276 $
188,288
41,814
22,199
252,301
$
(57,346) $
(13,061)
(7,672)
(78,079) $
(2,537) $
(3,454)
(663)
(6,654) $
(87,528) $
(8,338)
(6,728)
(102,594) $
(147,411)
(24,853)
(15,063)
(187,327)
$
20,677 $
25,615 $
18,682 $
$
$
Page 24 of 45
64,974
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
11. EXPLORATION AND EVALUATION ASSETS
Oreana Trend
Lincoln Hill
Lincoln Hill
Gold Ridge
Property
Property
(Note 11a)
(Note 11a)
Cortez Trend
Garden Gate
Patty
(Note 11c)
(Note 11d)
Wilco - Newmont
(Note 11b)
Others
(Notes 11e, 11f and 11g)
Total
Acquisition costs
Cumulative acquisition costs as at
December 31, 2015
During the period:
Acquisition costs
Holdings costs
Permits and licences
Lease obligations
Staking costs
Total acquisition costs for the period
$
Write-off of exploration and evaluation assets
Foreign currency translation adjustment
Balance as at December 31, 2016
$
2,445,040
$
1,266,831
$
2,074,589
$
760,877
7,827
31,926
2,766
117,370
5,833
165,722
127,133
156
(867)
126,422
55,857
43
212,981
268,881
41,117
79,518
120,635
(70,787)
(36,144)
(58,378)
(21,121)
2,539,975
$
1,357,109
$
Page 25 of 45
2,285,092
$
860,391
$
878,153
$
(871,871)
(6,282)
$
-
182,826
46,837
19,053
65,890
$
54,664
275,086
2,965
409,002
5,833
747,550
(23,892)
$
224,824
7,608,316
(871,871)
(216,604)
$
7,267,391
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
11. EXPLORATION AND EVALUATION ASSETS (continued)
Oreana Trend
Lincoln Hill
Lincoln Hill
Gold Ridge
Property
Property
(Note 11a)
(Note 11a)
Cortez Trend
Garden Gate
Patty
(Note 11c)
(Note 11d)
Wilco - Newmont
(Note 11b)
Others
(Notes 11a and 11b)
Total
Acquisition costs
Cumulative acquisition costs as at
December 31, 2014
During the year:
Acquisition costs
Holding costs
Permitting and licenses
Lease obligations
Staking costs
Total acquisition costs for the year
$
Foreign currency translation adjustment
Balance as at December 31, 2015
$
1,312,486
664,799
29,574
237
112,069
806,679
562,946
118,969
81
2,003
683,999
33,049
52,307
41
183,222
268,619
6,323
34,531
75,370
4,288
120,512
144
128,069
25,123
153,336
63,602
39,348
17,897
39,984
97,229
325,875
151,672
311,735
112,696
129,007
21,995
2,445,040
$
$
431,160
1,266,831
$
$
Page 26 of 45
1,494,235
2,074,589
$
$
527,669
760,877
$
$
595,810
878,153
$
$
182,826
$
4,424,962
1,306,609
381,347
359
395,784
46,275
2,130,374
1,052,980
$
7,608,316
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
11. EXPLORATION AND EVALUATION ASSETS (continued)
Oreana Trend
Lincoln Hill
Lincoln Hill
Gold Ridge
Property
Property
(Note 11a)
(Note 11a)
Wilco - Newmont
(Note 11b)
Cortez Trend
Garden Gate
Patty
(Note 11c)
(Note 11d)
Others
(Notes 11a and 11b)
Total
Expenditures (recovery) charged
to operations for the year ended December 31, 2016
During the period:
Exploration Expenditures
Assay and sampling (Non-drill)
Communication costs
Property office expenses
Drilling
Geological costs
Legal
Property investigations & generative
Total Exploration Expenses
$
Evaluation Expenditures
Drilling - metalugical testing
Approval & permits
Metallurgy, mine processing & engineering
Total Evaluation Expenditures
Total expenditures charged to
operations during the year
- $
79
3,808
(1,137)
71,688
13,743
88,181
7,952
77,768
80,630
166,350
$
254,531 $
4,597 $
268
3,560
321
85,906
94,652
4,268
4,268
98,920 $
Page 27 of 45
- $
3,785
2,023
38,745
44,553
44,077
44,077
88,630 $
491
9,073
18,564
28,128
$
28,128
- $
271
18,978
21,628
202
41,079
$
41,079 $
3,278 $
674
108
36,695
2,721
224,818
268,294
268,294 $
7,875
1,021
12,023
29,258
273,226
16,666
224,818
564,887
7,952
126,113
80,630
214,695
779,582
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
11. EXPLORATION AND EVALUATION ASSETS (continued)
Oreana Trend
Lincoln Hill
Lincoln Hill
Gold Ridge
Property
Property
(Note 11a)
(Note 11a)
Wilco - Newmont
(Note 11b)
Cortez Trend
Garden Gate
Patty
(Note 11c)
(Note 11d)
Others
(Notes 11a and 11b)
Total
Expenditures (recovery) charged
to operations for the year ended December 31, 2015
During the period:
Exploration Expenditures
Assays & Sampling
$
Consultants
Communication costs
Property office expenses
Drilling
Field costs
Geological costs
Geophysical costs
Legal costs
Property investigations & Generative
Total Exploration Expenses
14,970 $
165
48
976
2,026
102,629
11,965
12,561
145,340
26,175 $
57
466
378
286,294
75,893
1,837
391,100
- $
82
48
2,894
577
81,699
85,300
- $
48
(5,673)
1,507
15,078
10,960
- $
193
233
717
969,848
109
25,466
996,566
26,498 $
170
419
155
251
475
88,208
1,058,291
1,174,467
67,643
667
1,262
5,120
1,251,297
4,117
388,973
11,965
14,398
1,058,291
2,803,733
Evaluation Expenditures
4,921
353,599
272,959
184,813
816,292
Drilling - in-fill
Drilling - Metalugical testing
Approval & Permits
Metallurgy, Mine processing & Engineering
Infrastructure
Total Evaluation Expenditures
Total expenditures charged to
operations during the year
$
961,632 $
40,428
40,428
431,528 $
Page 28 of 45
104,012
104,012
189,312 $
-
10,960
-
$
996,566 $
-
1,174,467 $
4,921
353,599
417,399
184,813
960,732
3,764,465
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
11. EXPLORATION AND EVALUATION ASSETS (continued)
Oreana Trend – gold exploration properties, Nevada, United States of America
a)
Lincoln Hill Resource Project, Pershing County:
(i) Lincoln Hill - evaluating a gold and silver resource
On November 7, 2007, the Company entered into a renewable 20-year Mining Lease agreement with
Mountain Gold Exploration, Inc. and Lane Griffin (collectively, the “Lessors”) on the Lincoln Hill property.
The property is comprised of one patented lode claim and unpatented mining claims.
Between 2007 and 2015, the Company made advanced royalty payments of US$640,000, issued 750,000
common shares and completed the required US$2.1 million in exploration expenditures, in satisfaction of
the terms of the Mining Lease agreement. Each year thereafter the Company must pay an advanced royalty
amount of US$80,000, with the Lessors retaining a 4% net smelter royalty (“NSR”), 1% of which can be
acquired by the Company for US$3 million. The advanced royalties are credited towards the Lessors’ NSR.
Lincoln Hill property additions:
In April 2015, the Company purchased surface and mineral estate on private lands adjacent to the Lincoln
Hill resource project and surrounding exploration targets. The Company paid US$500 per acre for the
surface and mineral estate with the vendor retaining an NSR royalty ranging from 2.125% to 3.5%
depending on the parcel.
(ii) Gold Ridge Property – exploration drilling
In November 2006, April 2009 and April 2015, the Company acquired, through staking, 100% of an area of
lode mining claims that are located near the Lincoln Hill resource.
(iii) Independence Hill Property – exploration drilling
The property is located less than one kilometre south of the Lincoln Hill resource.
b) Wilco - Newmont Property:
(i) Wilco – 100% owned with a limited 60% back-in right
A 2006 agreement between the Company and North American Diversified Resources Corporation (“NADR”),
assigned a prior 2005 agreement between NADR and Newmont Mining Corporation (“Newmont”) to the
Company. Subsequently, the Company acquired a 100% interest in the Wilco property by making
acquisition payments of 5 million shares valued at US$500,000, cash of US$150,000 and completing US$3
million of exploration expenditures. The Company is obligated to make the following payments: an index
linked annual rent of US$84,000 to Newmont should the Company fail to spend minimum required
expenditures on the property, annual advanced royalty payments of US$20,000 (prior to 2011, US$15,000)
and sliding scale royalties between 2% to 5% should certain of the properties achieve production. As a
result of the Company not meeting its US$500,000 annual work commitment in 2016, a rental fee totalling
US$90,204 (2015 - US$85,858) was paid to Newmont. All other payments are in good standing.
Newmont has a back-in right to earn up to 60% by spending US$15 million over 8 years (or 70% by spending
US$20 million). This right must be exercised within 120 days of a feasibility study being issued. Should
Newmont fail to complete its obligations for the back-in right, the Company can acquire Newmont’s interest
for US$2 million and reduce Newmont and the underlying owners to a range of NSRs between 2% and 5%.
Page 29 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
11. EXPLORATION AND EVALUATION ASSETS (continued)
(ii) Wilco – H&M Mining – leased mining claims
On March 21, 2007, the Company entered into a Lease and Option agreement on a separate mining claim
within the Wilco-Newmont project area. The lease is for 20 years (with two 20 year extension provisions).
The lease allows for the purchase of the mining claim by the Company for US$1 million, less lease and NSR
payments made. The lease is subject to a 1% to 3% gold price linked NSR and annual payments totaling
US$110,000 from 2007 to 2011 and US$40,000 thereafter. All payments are in good standing.
(iii) Wilco – Rose Claims – purchased mining claims
In April 2015, the Company purchased 23 unpatented lode claims east of the Wilco project covering the
Rosal mine property in Section 30, T28N, R33E from Platoro West Inc. The Company paid approximately
US$1,087 per claim and granted a 1.5% NSR royalty to the seller.
(iv) South Coal Canyon
In December 2010, the Company acquired, through staking, the South Coal Canyon property in Pershing
County, Nevada.
(v) X Claims
In January 2012, the Company acquired, through staking, the X Claims property in Pershing County, Nevada.
Cortez Trend – gold exploration properties, Nevada, United States of America
c)
Garden Gate Pass Property
On October 1, 2010, the Company acquired the Garden Gate Pass property from Pyramid Lake LLC
(“Pyramid Lake”). The Company controls 100% of the property subject to annual advance royalty payments
and a 2% NSR payable to Pyramid Lake. Advanced royalty payments are as follows:
Initial payments to October 1, 2012
By October 1, 2013 and every year to 2017
By October 1, 2018 and every year thereafter
US$ Amount
145,000
60,000
100,000
Paid
Paid
d) Patty Property
On October 18, 2011, the Company entered into an agreement with Barrick Gold, US Gold Corp and
Chapleau Resources (“the Patty Joint Venture”) to earn an undivided 60% of the Patty project located in
Eureka County, Nevada. The Patty project consists of 616 unpatented lode claims covering 53.1 square
kilometres and is located immediately south of the Company’s 100% owned Garden Gate Pass project.
Under the terms of this agreement, the Company has the right to earn a 60% undivided interest in the Patty
project by spending US$5 million over a five-year period, of which the first year’s expenditure of
US$500,000 is committed.
Page 30 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
11. EXPLORATION AND EVALUATION ASSETS (continued)
The Patty Joint Venture is required to spend a minimum of US$500,000 annually (the “Work Commitment”)
on the property until the commencement of production. Rye Patch Gold US Inc. completed its first and
second year Work Commitment obligation of US$500,000 in 2012 and US$700,000 in 2013. From October
18, 2011 to September 30, 2014, the Company completed US$2,081,442 in expenditures on the Patty
project. As a result of permitting delays with the Bureau of Land Management, the Company was not able
to drill on the Patty project in 2014. On November 4, 2014, Rye Patch Gold US Inc. signed a waiver with the
Barrick Group to defer the remaining 2014 Work Commitment of US$118,558 to the 2015 Work
Commitment obligation. The 2015 Work Commitment obligation was amended in December 2015 to
reduce the commitment from $1,450,000 to $800,000 and total aggregate expenditures to $2,850,000 as
at December 31, 2015. During 2016, the Company terminated the agreement with Barrick Gold and as a
result, the Company wrote-off all the capitalized mineral property interests related to the Patty property in
the year ended December 31, 2016.
12. RECLAMATION BONDS
The reclamation bonds represent cash that has been placed in trust as security to the United States Bureau of Land
Management (the “BLM”) relating to the Company’s site closure obligations.
a)
Rye Patch Gold US Inc., has made reclamation deposits totaling $343,193 (US$255,599) (December 31, 2015 $353,749 (US$255,599)) related to is Nevada exploration projects.
b)
For the Standard Gold Mine, the reclamation deposits for bonding requirements at December 31, 2016 is
$5,537,401 (US$3,990,021). The full amount of the deposit is invested in reclamation insurance policies to
collateralize $13,395,804 (US$9,976,766) in surety bonding provided by the Company’s insurance companies.
c)
For the Florida Canyon Mine, the reclamation deposits for bonding requirements at December 31, 2016 are
$12,028,360 (US$8,958,338). The full amount of the deposits are invested in reclamation insurance policies to
collateralize $30,070,905 (US$22,395,848) in surety bonding provided by the Company’s insurance companies.
The total bonding requirement of US$39,189,469 includes a surety bond of US$16,936,130 issued by Safeco
Insurance Company that will only cover reclamation liabilities related to Florida Canyon Mine should the
Company default on its obligation to fund such expenditures.
In addition, on August 10, 2006, in order to provide surety for long-term monitoring and maintenance costs
(“LTMM”) after the planned demise of mining permits, Florida Canyon was required by the BLM to establish
the Florida Canyon Mine Irrevocable Trust (the “Trust”). Funds paid to the Trust can only be returned upon
BLM determination that LTMM is no longer necessary or on completion of approved reclamation activities. All
amounts paid to the Trust have been recorded as restricted certificates of deposit. At December 31, 2016
$9,576,675 (US$7,132,401) pertains to the Trust.
The surety bonds and restricted certificates of deposit have named the overseeing government agencies as
beneficiaries in the event of the Company’s failure and the requirement for the government agencies to
complete site restoration, as required under government regulation. These certificates of deposit will be
released when the government approves successful site restoration and surety bonding is no longer necessary.
Page 31 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
13. PROVISIONS FOR RECLAMATION
December 31, 2016
Balance, beginning of year
$
Provisions assumed through Florida Canyon Group acquisition
Change in estimation
107,952 $
December 31, 2015
90,691
37,060,795
-
1,771,246
-
Accretion expense
284,716
-
Foreign exchange
643,859
17,261
39,868,568 $
107,952
Balance, end of year
$
Current portion of provision for reclamation
$
115,878 $
107,952
Non-current portion of provision for reclamation
$
39,752,690 $
-
The acquisition of Standard Mine and Florida Canyon resulted in the Company assuming total reclamation
provisions of $37,060,795 (US$28,082,742). The total inflated, undiscounted amount of the reclamation
provision assumed was $40,839,802 (US$30,946,278). In addition, subsequent to the acquisition, the Company
began construction of the new heap leach pad, resulting in an increase of $1,875,298 in the estimated
reclamation obligation. Reclamation is expected to be completed at the Florida Canyon and Standard Mine by
2037. The inflated, undiscounted reclamation provision at December 31, 2016 was $44,200,661
(US$32,919,238).
The provision for reclamation has been calculated to reflect the amount of the expected cash flows to remediate
disturbances incurred as of December 31, 2016. The Company applied a discount rates of 1.93% to 2.79% and
an inflation rate of 2.50% in calculating the estimated obligation.
14. SHARE CAPITAL AND RESERVES
Authorized share capital
Unlimited number of common shares without par value.
Unlimited number of preferred shares without par value.
Issued and outstanding share capital
At December 31, 2016, there were 387,295,488 common shares issued and outstanding (December 31, 2015 –
143,838,246).
On June 16, 2016, the Company completed a private placement of 223,247,242 subscription receipts for gross
proceeds of $49,114,393. The subscription receipts were held in escrow until such time that the Company
closed the acquisition of the Florida Canyon Group. On July 28, 2016, the Company completed the acquisition
and the subscription receipts were converted to common shares of the Company on a one-to-one basis. In
conjunction with the financing, the Company incurred total share issue costs of $5,633,352 of which $2,822,961
related to agent warrants and $2,810,391 in cash share issue costs.
On closing of the acquisition, the Company also issued 20,000,000 common shares as part of the consideration
paid for the Florida Canyon Group. The common shares were recorded at their market value of $0.40 per
common share at the time of issue.
During the year ended December 31, 2016, a total of 210,000 common shares were issued upon exercise of
share options for total proceeds of $46,950. A total of $31,516 was transferred from reserves to share capital
upon exercise of these share options.
During the year ended December 31, 2015, the Company repurchased and cancelled 2,608,500 common shares
for a total cost of $386,503. The normal course issuer bid expired in 2016 and there were no repurchased
common shares during the year ended December 31, 2016.
Page 32 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
14. SHARE CAPITAL AND RESERVES (continued)
Share purchase options
Effective May 28, 2008, as amended on April 6, 2009, the Company adopted a share purchase option plan. Under
this plan, the Company may grant options of up to 10% of its outstanding common shares to its directors, officers,
employees and consultants. The exercise price of the share purchase options will be no less than the closing price
of the shares on the TSX Venture Exchange (the “Exchange”) on the business day immediately before the date of
granting of the option, unless the Exchange permits discounts, or allows some other minimum exercise price.
Vesting for the share options granted occurs over a period of two years, with an initial 25% of the share purchase
options vesting on the sixth month immediately after the date of grant, followed by an additional 25% of the share
purchase options every six months thereafter until fully vested.
On August 12, 2016, the Company granted 10,000,000 share options to employees, officers, directors and
consultants. The share options have an exercise price of $0.50 per common share and a life of ten years.
On December 14, 2016, the Company granted 300,000 share options to a director of the Company. The share
options have an exercise price of $0.30 per common share and a life of ten years.
During the year ended December 31, 2015:
a)
On August 28, 2015, the Company granted share purchase options to its directors, officers, employees
and consultants to purchase up to an aggregate of 1,000,000 common shares of the Company. The share
purchase options are exercisable for a term of ten years at an exercise price of $0.16 per common share.
b) On March 1, 2015, the Company granted share purchase options to its Chief Financial Officer to purchase
up to an aggregate of 200,000 common shares of the Company. The share purchase options are
exercisable for a term of ten years at an exercise price of $0.15 per common share.
The changes in share purchase options during the years ended December 31, 2016 and 2015 were as follows:
Year ended December 31, 2016
Number
Weighted average
outstanding
exercise price
Outstanding, beginning of year
Granted
Expired
Exercised
Cancelled
Forfeited
Outstanding, end of year
5,500,000 $
10,300,000
(440,000)
(210,000)
(125,000)
(2,200,000)
12,825,000 $
0.32
0.49
0.35
0.22
0.60
0.49
0.43
Year ended December 31, 2015
Number
Weighted average
outstanding
exercise price
Outstanding, beginning of year
Granted
Expired
Exercised
Cancelled
Forfeited
Outstanding, end of year
4,640,000 $
1,200,000
(292,500)
(47,500)
5,500,000 $
0.37
0.16
0.40
0.27
0.32
During the year ended December 31, 2016 the Company recorded share-based payments expense of $1,042,930
(December 31, 2015 – $135,958).
Page 33 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
14. SHARE CAPITAL AND RESERVES (continued)
Share purchase options - Continued
The fair value of the share-based payments expense was estimated using the following assumptions:
For the years ended
December 31, 2016 December 31, 2015
1.01% - 1.78%
1.30% - 1.44%
117%
120% - 122%
10.00
10.00
$
0.25 $
0.15
$
0.49 $
0.16
$
0.32 $
0.14
Risk-free interest rate
Expected annual volatility
Expected life
Expected dividend yield
Weighted average share price
Weighted average exercise price
Weighted average grant date fair value per option
The estimates of expected volatility are based on the historically observed volatility of the Company for a period
generally commensurate with the expected lives of the instruments.
The following summarizes information about share purchase options outstanding and exercisable at December 31,
2016:
Expiry date
August 21, 2019
January 18, 2022
July 12, 2023
July 22, 2024
September 16, 2024
March 1, 2025
August 28, 2025
August 28, 2026
December 14, 2026
Options
outstanding
460,000
1,280,000
1,150,000
485,000
150,000
200,000
900,000
7,900,000
300,000
12,825,000
Options
exercisable
460,000
1,280,000
1,150,000
485,000
150,000
150,000
450,000
4,125,000
Exercise
price
0.20
0.60
0.20
0.27
0.27
0.15
0.16
0.50
0.30
0.42 $
Estimated
grant date
fair value
92,552
870,854
195,881
93,646
22,158
28,520
141,700
3,248,000
70,020
4,763,331
Weighted average
remaining
contractual life
(in years)
2.64
5.05
6.53
7.56
7.72
8.17
8.66
9.66
9.96
8.48
Share purchase Warrants
During the year ended December 31, 2016, the Company issued the following share purchase warrants:
a)
The Company issued 11,162,362 share purchase warrants in conjunction with the equity financing completed
on July 28, 2016. The share purchase warrants have an exercise price of $0.22 and have a life of two years.
The share purchase warrants were treated as share issue costs related to the equity financing; and
b) On July 28, 2016, in conjunction with the closing of the equity financing and the acquisition of the Florida
Canyon Group, the Company also signeda US$27,000,000 credit facility (Note 18. Upon signing of the credit
facility, the Company issued 16,224,545 share purchase warrants with an exercise price of $0.22 and a life of
five years to the lender. The fair value of the share purchase warrants were recorded as costs related to the
credit facility.
Page 34 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
14. SHARE CAPITAL AND RESERVES (continued)
Share purchase Warrants - Continued
Year ended December 31, 2016
Number
Weighted average
outstanding
exercise price
Outstanding, beginning of year
- $
Year ended December 31, 2015
Number
Weighted average
outstanding
exercise price
- Outstanding, beginning of year
-
Issued
27,386,907
0.22 Issued
-
Outstanding, end of year
27,386,907 $
0.22 Outstanding, end of year
-
$
-
$
-
In addition to the warrants issued during the year, the Company has also contingently agreed to issue warrants in
relation to the acquisition of the Florida Canyon Group. Refer to note 5 for additional details.
As at December 31, 2016, the following share purchase warrants are outstanding:
Expiry date
July 28, 2018
July 28, 2021
Warrants
outstanding
11,162,362
Exercise
price
0.22
16,224,545
27,386,907
0.22
0.22 $
Estimated
grant date
fair value
2,822,961
Weighted average
remaining
contractual life
(in years)
1.57
5,040,966
7,863,927
4.58
3.35
The fair value of the share purchase warrants was estimated using the following assumptions:
For the year ended
December 31, 2016
Risk-free interest rate
0.58% - 0.65%
Expected annual volatility
90% - 91%
Expected life
Expected dividend yield
Weighted average share price
Weighted average exercise price
Weighted average grant date fair value per option
$
$
$
Page 35 of 45
2.00 - 5.00
0.40
0.22
0.29
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
15. INCOME TAX
The Company’s deferred tax assets and liabilities at December 31, 2016 and 2015 are as follows:
Balance, December 31, 2016
Net balance at
January 1, 2016
Business
combinations
(note 4)
$
$
$
(985,099)
1,342,892
25,252
(569,080)
Exploration expenditures
Mineral property interests
111,994
Accrued interest on loans
Financing fees
Net operating losses and tax credits
Net
-
Inventory
Property, plant and equipment
Recognized in the
statement of
income (loss)
91,579
(12,348,746)
-
1,151,413
15,693
(43,222)
Deferred tax
assets
Deferred tax
liabilities
$
$
$
357,793
(4,046)
357,793
-
-
(547,874)
(547,874)
617,766
709,345
709,345
-
-
(12,799,449)
(562,697) (12,799,449)
683,612
1,835,025
1,835,025
-
613,934
586,405
586,405
-
5,311,155
5,163,986
2,541,349
13,016,490
13,016,490
Reclamation provision
-
10,861,637
276,378
11,138,015
11,138,015
-
Other
-
538,340
-
(310,441)
5,464,094
3,860,808
27,643,073
(13,657,764)
Deferred tax assets (liabilities) not recognised
(5,464,094)
(3,860,808)
Recognized net deferred tax assets (liabilities)
-
-
Net deferred tax assets (liabilities)
(848,781)
(310,441)
4,660,407
13,985,309
(4,660,407) (13,985,309) (27,643,073)
-
-
13,657,764
-
-
Balance, December 31, 2015
Recognized in
Net balance at the statement of
January 1, 2015 income (loss)
$
$
Net operating losses and tax credits
5,474,879
2,258
20,275
(15,693)
(163,724)
Net deferred tax assets (liabilities)
5,620,978
(5,620,978)
-
(156,884)
156,884
-
Property, plant and equipment
22,994
Mineral property interests
91,719
Financing fees
Deferred tax assets (liabilities) not recognised
Recognized net deferred tax assets (liabilities)
31,386
Page 36 of 45
Net
$
25,252
111,994
15,693
5,311,155
Deferred tax
assets
Deferred tax
liabilities
$
$
25,252
-
111,994
-
15,693
-
5,311,155
-
5,464,094
5,464,094
(5,464,094) (5,464,094)
-
-
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
15. INCOME TAX (continued)
A reconciliation of the provision for (recovery of) income taxes is as follows:
2016
Earnings (loss) before income taxes
$
2015
(5,444,861) $
Combined Canadian and provincial statutory tax rates
26.00%
Income tax expense (recovery) based on combined statutory tax rates
289,108
26.00%
(1,415,664)
75,169
(266,373)
150,207
Increase (decrease) in income tax expense (recovery) resulting from:
Higher effective tax rate in foreign jurisdiction
Permanent differences
Adjustments in respect of prior year
Share issue costs
Tax assets acquired
(575,139)
353,843
(1,122,215)
-
(730,702)
(15,693)
(3,634,565)
Movement of deferred assets not recognized
-
7,785,938
Other
(125,487)
(41,280)
$
-
(438,039)
$
-
At December 31, 2016, the Company had estimated non-capital losses for income tax purposes of approximately
$40.6 million that may be used to offset future taxable income. These losses have varying expiration dates ranging
from 2026 to 2036.
As at December 31, 2016
Canada
$
13,375,732
United States
$
27,232,593
Total operating losses
$
40,608,325
16. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
December 31, 2016
Accounts payable
$
Accrued liabilities
6,700,407 $
1,352,761
Interest payable
276,862
Royalty payable
85,840
$
Page 37 of 45
8,415,870 $
December 31, 2015
300,865
41,443
342,308
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
17. LOANS PAYABLE
Prior to acquisition by the Company, the Florida Canyon Group had entered into agreements with Caterpillar
Financial Services (“CAT Loan”) and Bank of America Leasing and Capital, LLC (“BALC Loan”) in 2012 and 2013
respectively. In 2016, the BALC loan was assumed by ADM-Gold Co., Ltd (“Admiral”) and as part of the acquisition
of the Florida Canyon Group, the Company agreed to repay that loan over 13 months from the date of close.
CAT Loan
Balance, beginning of period
$
Florida Canyon Group acquisition
December 31, 2016
513,493
Interest expense
9,126
Payments - principal and interest
(302,010)
Foreign exchange
5,472
Balance, end of period
$
226,079
The loan was recognized at fair value at the time of acquisition and bears an interest rate of 4.97% and is scheduled
to be repaid monthly. The loan was secured by the mining equipment owned by the Florida Canyon Group. The
loan was repaid in full subsequent to year end.
Admiral Loan
December 31, 2016
Balance, beginning of period
Florida Canyon Group acquisition
$
1,439,392
31,374
Interest expense
(534,844)
Payments - principal and interest
17,361
Foreign exchange
Balance, end of period
$
953,283
The loan was recognized at fair value at the time of acquisition and bears an interest rate of 6.07% and is scheduled
to be repaid monthly with the final payment to be completed in September 2017. The loan is secured by
equipment owned by the Florida Canyon Group.
18. CREDIT FACILITY
Prior to the completion of the Florida Canyon Group acquisition, the Company entered into a credit agreement
(the “Credit Agreement”) with Macquarie Bank Limited (“Macquarie Bank”) for a US$25 million credit facility (the
“Credit Facility”) with an additional US$2 million allotted for capitalized interest until the first scheduled
repayment.
The Credit Facility bears interest at LIBOR plus 8% per annum and includes a provision to deliver 150,000 ounces
of gold over a five year period at USD$1,276 an ounce through gold forward sales contracts. Interest is payable
quarterly on each individual draw down taken from the credit facility. Company has the option to roll over the
interest payment into the principal balance of the draw down until the first scheduled repayment date. Repayment
of the Credit Facility is scheduled over the first four years of production following the restart of the Florida Canyon
mine, subject to earlier mandatory prepayment from certain levels of excess free cash flow from the mine and
voluntary prepayment at the option of the Company. The Company is expected to make payments of US$5.1M in
2017, US$14.9M in 2018, US$4.8M in 2019, and US$2.2M in 2020, assuming the full principal amount is drawn.
Page 38 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
18. CREDIT FACILITY (continued)
Rye Patch U.S.’s obligations under the Credit Facility are guaranteed by the Company and certain material
subsidiaries. In addition, Macquarie Bank will have a first ranking security interest over all of the properties and
assets of the Company and its material subsidiaries, including the Florida Canyon mine property and assets as well
as shares of the subsidiary companies that hold the property and assets.
Upon the signing of the Credit Agreement, Rye Patch issued to Macquarie Bank 16,224,545 share purchase
warrants, each share purchase warrant being exercisable for one common share of the Company for a five-year
term from date of issue at an exercise price of Cdn$0.22 per common share. The share purchase warrants, and
the common shares underlying the warrants, are subject to a four-month hold period that expired November 29,
2016. The share purchase warrants were fair valued at $5,404,966 (Note 13) and recognized as debt issue costs.
In addition to the share purchase warrants, the Company incurred $1,890,013 in cash transaction costs related to
the establishment of the Credit Facility. As at December 31, 2016, US$14,178,631 had been drawn down on the
credit facility and the effective interest rates per annum on the funds drawn range from 25% to 36%. The effective
interest rate reflects the interest rate on credit facility and the amortization of the deferred debt issuance costs.
December 31, 2016
Balance, beginning of year
$
Draw downs, net of transaction costs
14,920,826
Accretion of transaction costs
476,852
Foreign exchange
93,966
Balance, end of year
$
15,491,644
In connection with the credit facility, the Company must maintain certain ongoing project ratios and a specific
current ratio. As at December 31, 2016, the Company was in compliance with these ratios.
Forward Sales Contract
In order to mitigate gold price risk and as a condition of the Credit Facility, the Company was required to enter
into margin free gold forward sales contracts of 150,000 ounces. On September 19, 2016, the Company finalized
and scheduled out its forward contracts at a flat forward price of US$1,276 per ounce (the “Hedge Facility”).
For accounting purposes, management has determined that the Hedge Facility meets the requirements of ‘Own
Use’, and is thereby exempt from the requirements of IAS 39. An ‘Own Use’ contract is a contract that was entered
into and continues to be held for the purpose of the delivery of the non-financial item in accordance with the
Company’s expected purchase, sale or usage requirements, that is, it will result in the physical delivery of a
commodity, and as per the Credit Facility, there is a specified schedule whereby the Company will be required to
deliver the produced ounces. As a result, the Hedge Facility is not considered a derivative and is not marked to
market at each reporting period, recognition of gains or losses is deferred until settlement and delivery of the
gold.
Page 39 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
19. COSTS BY NATURE
a)
Cost of Sales
For the years ended
December 31, 2016
Direct operating costs
$
Impairment of inventory
Depreciation
Royalty expense
$
2,987,828
December 31, 2015
$
-
2,936,360
-
107,440
-
91,136
-
6,122,764 $
-
b) General and Administrative Expenses
For the years ended
December 31, 2016
Accounting, audit, and tax
$
605,120
December 31, 2015
$
179,602
Depreciation
25,655
24,857
Directors fees
241,830
105,000
Insurance
70,830
43,816
Investor relations
353,930
442,626
Legal fees
116,840
77,250
Management fees
654,411
349,269
Office and administration
195,296
252,257
Rent
146,687
164,452
1,042,930
135,958
Travel
42,279
71,975
Transfer agent and filing fees
99,226
58,061
Share-based payments
Wages and bonus
716,444
$
469,246
4,311,478 $
2,374,369
20. RELATED PARTY TRANSACTIONS
The consolidated financial statements include the accounts of Rye Patch Gold Corp. and its subsidiaries as listed in
the following table:
Name
Rye Patch Gold US Inc.
Rye Patch Mining US Inc.
Florida Canyon Mining, Inc.
Standard Gold Mining, Inc.
RP Dirt, Inc.
Country of incorporation
Ownership
United States of America
United States of America
United States of America
United States of America
United States of America
100%
100%
100%
100%
100%
Balances and transactions between the Company and its subsidiaries have been eliminated on consolidation.
Page 40 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
20. RELATED PARTY TRANSACTIONS (continued)
Details of the transactions between the Company and other related parties are disclosed below. The Company’s
related parties consist of companies owned, directly or indirectly, by directors and key management as follows:
Name
Nature of transactions
Tanadog Management and Technical Services Inc.
Management fees
Quantum Advisory Partners LLP
Accounting and audit
Koffman Kalef LLP Business Lawyers
Legal fees
The Company incurred fees and expenses in the normal course of operations in connection with companies owned
by directors and key management. Expenses have been measured at the amount of consideration established and
agreed to by the related parties.
The Company’s related party expenses are as follows:
For the years ended
December 31, 2016
December 31, 2015
Accounting and audit (1)
Legal fees
$
(2)
Management fees
(3)
Office and administration
(3)
$
-
$
43,212
665,332
64,490
654,411
349,269
57,161
1,376,904
$
46,323
503,294
(1) The Company paid accounting services fees to Quantum Advisory Partners LLP whose incorporated partner was
the Company’s Chief Financial Officer until March 1, 2015.
(2) The Company paid legal and corporate secretary service fees to Koffman Kalef LLP Business Lawyers in which
the Company’s Corporate Secretary is a partner. Of the $665,332 fees incurred during the year ended December
31, 2016 (2015 - $64,490), $134,732 (2015 - $64,490) were expensed to legal fees and transaction costs,
$134,762 related to share issue costs and the remaining were recorded a debt transaction costs as they related
to the Credit Facility. As at December 31, 2016, $14,649 (December 31, 2015 - $Nil) was owed to this firm.
(3) The Company paid for management fees to Tanadog Management and Technical Services Inc. which is
controlled by the Company’s President. The Company’s management services contract with Tanadog
Management and Technical Services Inc. is renewable automatically for consecutive one year terms, at
US$180,000 per year. Fees payable on termination of services is one and a half times the annual rate and fees
payable on change of control is three times the annual rate.
In addition, the Company paid for office and administrative services to the same company. As at December 31,
2016, $460,557 (December 31, 2015 - $50,125) was owed to this company.
Key management personnel compensation
The remuneration of directors and other members of key management personnel during the year ended December
31, 2016 and 2015 were as follows:
Salaries and management fees
Directors fees
$
Share-based payments - management (i)
Share-based payments - directors
237,966
(i)
$
i.
For the years ended
December 31, 2016
December 31, 2015
1,102,951 $
564,415
241,830
105,000
145,103
1,727,850
53,159
$
Share-based payments are the fair value of share options granted to key management personnel and directors.
Page 41 of 45
33,603
756,177
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
21. COMMITMENTS
a)
The Company has a Reno office lease that was renewed in prior years for three years ending June 30, 2017.
The monthly rent is US$5,400 adjusted annually by the consumer price index.
b) The Company entered into agreements to lease vehicles from a company controlled by its President. The
monthly lease payments total US$4,800 per month with terms of 12 and 36 months.
c)
Florida Canyon entered into a three-year extension in 2015 to a previous contract to purchase its cyanide.
The extension runs through fiscal 2017 and requires the Company to purchase a minimum of 5,000,000
pounds of cyanide in 2017.
d) Gold and silver produced from the Florida Canyon Mine are subject to a 2.5% net smelter return royalty
(“NSR”). Certain gold produced from the Standard Mine is subject to a 1% NSR. Additionally, all gold
produced from both the Florida Canyon and Standard Mines is subject to a 3.25% NSR. Royalty expense is
recorded at the time of sale of gold and silver, measured using the applicable royalty percentage.
22. OPERATING SEGMENT INFORMATION
The Company operates in one segment, which is the exploration and development of mineral properties. The
Company’s assets and liabilities are located within two geographical areas, Canada and the state of Nevada in the
United States of America. The property, plant and equipment are located solely in the Nevada segment.
The following table shows the assets and liabilities as at December 31, 2016 and 2015 and the net income
(loss)for the years ended December 31, 2016 and 2015 attributable to each geographical segment:
Canada
As at December 31, 2016
Cash
Inventory
Exploration and evaluation assets
Property, plant and equipment
Reclamation bonds
Other assets
Credit Facility
Contingent consideration payable
Provision for reclamation
Other liabilities
$
Net income (loss):
For the year ended December 31, 2016
For the year ended December 31, 2015
Total
747,040 $
9,997
123,356
(709,140)
171,253 $
10,374,246 $
11,883,430
7,267,391
73,699,759
27,748,180
10,043,375
(15,491,644)
(7,963,853)
(39,868,568)
(9,346,649)
68,345,667 $
11,121,286
11,883,430
7,267,391
73,709,756
27,748,180
10,166,731
(15,491,644)
(7,963,853)
(39,868,568)
(10,055,789)
68,516,920
$
1,696,534 $
10,992
113,404
(54,142)
1,766,788 $
1,882,235 $
7,608,316
53,982
353,749
1,385,067
(107,952)
(338,291)
10,837,106 $
3,578,769
7,608,316
64,974
353,749
1,498,471
(107,952)
(392,433)
12,603,894
$
$
(3,886,074) $
(1,588,483) $
(1,558,788) $
1,877,591 $
(5,444,862)
289,108
$
As at December 31, 2015
Cash
Exploration and evaluation assets
Property, plant and equipment
Reclamation bonds
Other assets
Provision for reclamation
Other liabilities
United States
$
Page 42 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Fair Value Measurement
In accordance with IFRS, financial instruments are classified into one of the five following categories: held-fortrading, held-to-maturity investments, loans and receivables, available-for-sale financial assets and other financial
liabilities. The fair value of cash and cash equivalents, accounts receivable, reclamation bonds, accounts payables
and accrued liabilities and due to related parties approximate their carrying value due to their short terms
maturity.
Loans payable have been classified as other financial liabilities measured at amortized cost. The fair value of loans
payables approximates their carrying values as the effective interest rates are based on the market rates.
Contingent consideration has been classified as fair value through profit and loss at inception and re-valued at the
balance sheet date.
IFRS 13 establishes a fair value hierarchy that reflects the significance of inputs used in making fair value
measurements as follows:
Level 1
quoted prices in active markets for identical assets or liabilities;
Level 2
inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. from derived prices); and
Level 3
inputs for the asset or liability that are not based upon observable market data.
The Company has determined the estimated fair values of its financial instruments based upon appropriate
valuation methodologies. At December 31, 2016, the Company has contingent consideration composed of share
purchase warrants and deferred cash consideration. The share purchase warrants and contingent cash
consideration are being measured and recognized on the consolidated statement of financial position using level
3 inputs with changes in fair value being recorded through profit and loss. As at December 31, 2016, the
contingent share purchase warrants had a value $1,579,500 and the contingent cash consideration had a value of
$6,384,353 (Note 5).
Market Risks
The Company’s operations consist of the acquisition, exploration and development of mineral resource properties
in North America. The Company examines the various financial risks to which it is exposed and assesses the impact
and likelihood of being affected by these risks, which may include credit risk, liquidity risk, currency risk, interest
rate risk and other price risks. When material, these risks are also reviewed and monitored by the Board of
Directors.
Credit risk
Counterparty credit risk is the risk that the financial benefits of a contract with a specific counterparty will be lost
if the counterparty defaults on its obligations under the contract. This includes any cash amounts owed to the
Company by that counterparty, less any amounts owed to the counterparty by the Company where a legal right
of offset exists and also includes the fair values of contracts with individual counterparties which are recorded in
the consolidated financial statements. The Company manages this risk by only entering into contracts with
counterparties who have sufficient financial strength to minimize the risk of a financial default. The Company’s
cash and cash equivalents are held with large Canadian and U.S. financial institutions. Accounts receivable consist
of refundable excise taxes due from the Federal Government of Canada, accrued interest, accounts receivable
from the sale of gold and silver and royalty receivable from Coeur which has been received subsequent to year
end. Reclamation bonds are amounts deposited with the Bureau of Land Management of the United States
Department of the Interior and the Department of Conservation & Natural Resources of the State of Nevada.
Page 43 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet is financial obligations as they come due. The
Company has in place a planning and budgeting process to help determine the funds required to support the
Company's normal operating requirements and its exploration and development plans. The annual budget is
approved by the Board of Directors. The Company ensures, through the management of its available cash and the
issue of shares, that there are sufficient cash balances to meet its short-term business requirements. Accounts
payable and accrued liabilities and amounts due to related parties are due on demand.
The Company’s current treasury, credit facility, anticipated royalty income and gold sales, are expected to be
sufficient to fund the restart of the Florida Canyon Mine, corporate expenditures and other planned exploration
and resource definition work through 2017. The availability of capital resources to meet its 2017 requirements
is dependent on the timely restart of the Florida Canyon Mine. Any delays to the restart of the Florida Canyon
Mine may require the Company to raise further equity or debt financing. There is no certainty that further
equity or debt financing will be available to the Company in any amount, on a timely basis, or terms acceptable
to the Company.
As at December 31, 2016, the Company had available undrawn funds of $14,529,852 (US$10,821,369) from the
credit facility (note 18).
Currency risk
The Company is subject to minimum currency risk as the Company and its subsidiaries operate primarily in their
respective functional currencies.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows from a financial instrument will fluctuate because
of changes to market interest rates. The Company has interest bearing cash balances, which are subject to
fluctuation in the interest rate. A 10% increase or decrease in the interest rate earned from financial institutions
on deposits would result in nominal increase or decrease in the Company’s net loss. The Company had additional
exposure to interest rate risk on it’s credit facility, which is subject to a floating interest. A 10% increase or
decrease in the rate would result in an increase or decrease in interest expense of $172,138.
Commodity price risk
The ability of the Company to develop its mineral properties and the future profitability of the Company will be
directly related to the market price of gold. As part of the Company’s Credit Facility the Company has entered into
forward contracts for the sale of 150,000 at a fixed gold price of US$1,276 per ounce.
Page 44 of 45
Rye Patch Gold Corp.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2016
(Expressed in Canadian Dollar)
24. CAPITAL MANAGEMENT
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going
concern in order to continue production of its producing assets, pursue the development of its mineral properties
and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk level.
In assessing our capital structure, we include in our assessment the components of shareholders’ equity, loans
payable and its credit facility. The Company manages its capital structure and makes adjustments to it in light of
changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its
capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets or
adjust the amount of cash and cash equivalents.
In order to facilitate the management of its capital requirements, the Company prepares expenditure budgets that
are updated as necessary depending on various factors, including successful capital deployment and general
industry conditions.
As of December 31, 2016, we were in compliance with our externally-imposed financial covenants in relation to
the Credit Facility (note 17).
25. SUPPLEMENTAL CASH FLOW INFORMATION
December 31, 2016
December 31, 2015
Cash paid during the year for interest
$
40,499 $
Cash paid during the year for income taxes
$
- $
-
Interest received
$
18,311 $
32,931
Accounts payable capitalized to property, plant and equipment
$
1,863,066 $
-
Accounts payables capitalized to inventory
$
101,730 $
-
Asset retirement obligation capitalized to property, plane and equipment
$
1,875,298 $
-
Non-cash deferred transaction costs related to the unused portion of the credit facility
$
2,393,781 $
-
Non-cash transaction costs included in the carrying value of the credit facility
$
2,647,185 $
-
Accretion expense related to the asset retirement obligation
$
284,716 $
-
Amortization related to deferred transactions costs
$
476,852 $
-
26. EVENTS AFTER THE REPORTING PERIOD
Subsequent to year-end, the Company completed draw-downs of the remaining credit facility of US$10,821,369
(note 18). As a result, the credit facility has been fully drawn down.
In addition, in February 2017, the Company purchased 100% ownership, subject to a 1% NSR royalty to the
underlying owner, in 38 WR unpatented lode mining claims from Paramount Gold Nevada Corp. for US$100,000.
The WR claims lie between Lincoln Hill and Gold Ridge and consolidate the Company’s land position.
Page 45 of 45
Management Discussion and Analysis
Date of Report
Rye Patch Gold Corp. (“Rye Patch” or the “Company”) is a resource company focused on the operation, acquisition,
exploration and development, of precious metal resource properties in Nevada, United States of America. On July 28, 2016,
the Company completed its acquisition of Florida Canyon Mining, Inc. (“Florida Canyon”), Standard Gold Mining, Inc.
(“Standard Mine”) and RP Dirt, Inc., collectively the “Florida Canyon Group”. With the acquisition, the Company acquired
two producing properties in Florida Canyon and Standard Mine. The Company owns and controls several resource and earlystage projects in west central Nevada. The Company operates through its wholly owned subsidiaries, Rye Patch Gold US Inc.
(“Rye Patch US”), its exploration arm, and Rye Patch Mining US Inc. (“Rye Patch Mining”), Florida Canyon, Standard Mine and
RP Dirt Inc. This Management’s Discussion and Analysis (“MD&A”) is prepared as of May 1, 2017 and should be read in
conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2016 and
supporting notes, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued
by the International Accounting Standards Board (“IASB”). All currency references are expressed in Canadian dollars unless
otherwise specifically indicated.
Forward-Looking Statements
This MD&A contains forward-looking statements within the meaning of applicable Canadian securities legislation. Such
forward-looking statements concern the Company’s anticipated results and developments in the Company’s operations in
future periods, the price of gold, the estimation of resources, planned exploration and development of its properties, sources
of funds, including expected returns from the Rochester Mine 3.4% net smelter returns royalty (the “Rochester Mine Royalty”)
and future cash flows from operations, plans related to its business and other matters that may occur in the future.
Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered
reasonable by the Company, are inherently subject to significant business, economic and competitive uncertainties and
contingencies and include assumptions as to the Company’s operating costs, resource estimates, the price of gold and silver,
the continued operation of the Rochester Mine by Coeur Mining, Inc. (“Coeur”) in accordance with Coeur’s public statements,
the achievement of the Rochester Mine production as stated and forecast by Coeur and the uninterrupted payment of the
Rochester Mine Royalty. Known and unknown factors could cause actual results to differ materially from those projected in
the forward-looking statements. Such factors include, but are not limited to:
• Fluctuations in the currency markets such as Canadian dollar and U.S. dollar;
• Fluctuations in the prices of gold and silver and other minerals;
• Changes in government legislation, taxation, controls, regulations and political or economic developments in Canada
and the United States;
• Risks associated with mining activities;
• The speculative nature of exploration, including the risk of obtaining necessary licenses and permits, and quantities or
grades of mineral resources;
• The nature of mineral exploration and mining and the uncertain commercial viability of certain mineral deposits;
• The Company’s ability to achieve and maintain consistent operating revenues;
• The Company’s ability to obtain necessary financing to fund the re-start of mining operations at the Florida Canyon
Mine, development of its mineral properties or the completion of further exploration programs in accordance with its
2017 development and exploration program; and
• The cash flow to be received from the Company’s Rochester Mine Royalty as projected in its cash flow model.
1
This is not an exhaustive list of the factors that may affect the Company’s forward-looking statements. Many of these
uncertainties and contingencies can affect the Company’s actual results and could cause actual results to differ materially
from those expressed or implied in any forward-looking statements made by, or on behalf of, the Company.
Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable
securities laws, the Company disclaims any intent or obligation to update any forward-looking statement, whether as a result
of new information, future events or results or otherwise. Although the Company believes that the assumptions inherent in
the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and
accordingly, undue reliance should not be put on such statements due to their inherent uncertainty.
Additional Information
Additional information relating to the Company, including the Company’s news releases and technical reports, is available on
SEDAR at www.sedar.com and on the Company’s website at www.ryepatchgold.com.
2
Outlook and Summary
The year of 2016 saw a fundamental change for Rye Patch Gold. The Company surprised the industry by acquiring the Florida
Canyon Mine, a long tenure and renowned Nevada gold mine that, due to ten years of private ownership, had largely slipped
from the radar. This transaction transformed Rye Patch from a resource exploration company to a near term gold producer.
2016 was a year of opportunity and execution, 2017 will be a year of value realisation and growth.
On July 28, 2016, the Company announced concurrently; the US$29m acquisition of the Florida Canyon gold mine (the
“Acquisition”) located in Pershing County, Nevada, the closing of a Cdn$49.1 million private placement and the signing of a
USD$25 million credit facility agreement with Macquarie Bank Limited to fund the mine redevelopment with an additional
US$2 million allotted for capitalized interest. Since July, Rye Patch has been executing its mine construction and development
program. In August, the Company secured the bonding for the new leach pad, and immediately commenced construction of
a new one hundred acre (0.41 hectares) leach pad, the refurbishment of the mining fleet including five loaders, 16 haul trucks,
and relocated and expanded the crusher facility. Construction remained on budget and was largely completed by year end.
Mining of over liner material and the stock piling of ore for the pad was started on November 1, 2016, and loading of the pad
commenced on December 24, 2016. On March 30, 2017 approval to commence leaching was received, and the first gold
pour took place towards the end of April. Declaration of commercial production will follow once all operating parameters
have been achieved on a consistent basis. The timeframe from closing an accretive deal to first gold pour was achieved in
nine months.
The acquisition and restart of Florida Canyon Mine is a unique
and transformational opportunity, with excellent potential
operational synergies with the Company’s existing resource
projects at Lincoln Hill, Gold Ridge and Wilco located just
30 kilometres to the south. This acquisition created a new and
exciting company with expected initial annualized production of
75,000 ounces of gold and an expanding resource base of
three million ounces of Measured and Indicated gold and gold
equivalent resources. With construction, complete and ramp up
in full swing, the immediate future is now centered on
successful completion of the performance testing and declaring
commercial production. This solid foundation will act as a base,
to steadily and organically grow both production and resources
in and around the existing operations. Initially the work will
concentrate along the mine trend and then expand throughout
the district, southward toward the Lincoln Hill, Gold Ridge and
Wilco Projects along the Oreana trend. Separately, there is an
interesting opportunity to explore a significant sulphide target
beneath the Florida Canyon oxide resource.
3
Company Overview
Operations
Florida Canyon Mine – Acquisition completed
On July 28, 2016, the Company completed the acquisition of a 100% interest in the Florida Canyon Group consisting of Florida
Canyon, Standard Mine and Dirt, Inc. for a total purchase price of $38,457,232 (US $29,140,890). The transaction consisted
of the acquisition of all of the issued and outstanding shares of Florida Canyon, Standard Mine and RP Dirt, Inc. for
consideration of cash, common shares of the Company and contingent consideration.
The acquisition is a business combination and has been accounted for in accordance with the measurement and recognition
provisions of IFRS 3. IFRS 3 requires that the purchase consideration be allocated to the assets acquired and liabilities assumed
in a business combination based upon their estimated fair values at the date of acquisition. Fair values are determined based
on third party appraisals, discounted cash flow models, and quoted market prices, as appropriate. Acquisition costs, in the
form of advisory, legal and other professional fees, associated with the transaction to acquire the Florida Canyon Group of
$715,688 were expensed as incurred.
The following tables show the purchase consideration and the estimated fair values of the assets acquired and liabilities
assumed. The estimated fair values reported for property, plant, and equipment and inventory changed from the preliminary
estimates reported in the Company’s September 30, 2016 interim financial statements.
Cash payment
Cash payment based on working capital adjustment
20,000,000 common shares issued (1)
Contingent consideration (2)
Consideration
$
Cash and cash equivalents
Accounts receivable
Prepaid expense
Inventory
Property, plant and equipment
Reclamation bonds
$
Accounts payable and accrued liabilities
Royalty payable
Note payable (3)
Loans payable
Provision for reclamation
Net identifiable assets acquired
(1)
(2)
(3)
$
$
19,795,500
1,878,062
8,000,000
8,783,670
38,457,232
376,327
405,338
2,241,313
10,889,587
49,430,836
21,965,769
(5,160,044)
(38,815)
(2,639,400)
(1,952,884)
(37,060,795)
38,457,232
The common shares were valued at the closing price of our shares on the Toronto Venture Exchange on July 28, 2016, $0.40.
Contingent consideration consists of 15,000,000 common share warrants and a US$5,000,000 payment due 60 days after commercial production.
The US$5,000,000 payment was present valued using a credit-adjusted risk free rate. The common share purchase warrants have a life of two years
from the date of grant and have an exercise price of US$0.50. Refer to note 5 of the financial statements for complete details on the valuation of
the contingent consideration.
Repaid on the date of acquisition
As part of the acquisition, US$1.6 million has been held by the Company in trust in relation to an unsettled liability of the
seller that could potentially include Florida Canyon. The party with the claim against the seller provided an arbitration notice
during the year that included Florida Canyon, but was subsequently cancelled. As part of the Florida Canyon group purchase
agreement, the arbitration notice triggered a clause in the purchase agreement resulting in the funds held in trust to remain
there until such time Florida Canyon has been provided a waiver or a settlement agreement discharging Florida Canyon of
any potential liability. The Company also has the ability to withhold the contingent cash payment, when it comes due, until
such time the matter is resolved.
4
The Company has recorded revenue of $1,285,705 and a net loss of $6,262,498 since the acquisition date of the Florida
Canyon Group. If the Florida Canyon Group had been consolidated into our operations from January 1, 2016, our consolidated
revenue would be approximately $13,411,144 and our net loss would be approximately $13,288,772.
Florida Canyon Mine - Re-Start of gold production completed
Work to restart the Florida Canyon Mine commenced at the end of August, following the July 28, 2016 Acquisition and once
the requisite bonding had been secured.
By the end of the year, just four months later, the three major construction components of the Florida Canyon Restart Project;
mining fleet refurbishment, crusher relocation and expansion and the first phase of the new South Heap Leach Facility,
consisting of the lower third of the pad, and the pregnant, barren and contingency solution ponds, had essentially been
completed.
The mining fleet refurbishment consisted of maintenance and major component replacements and was largely completed in
December with an agreement to purchase an additional Caterpillar 993K Loader, which was delivered in February 2017. The
fleet of Caterpillar equipment now consists of three 993k loaders, four 992 loaders, eleven 785 (150-ton) haul trucks and five
777 (100-ton) haul trucks.
The crusher facility, now with expanded capacity of 7.2m tons per annum (6.5m tonnes per annum) was successfully moved
back from the Standard Mine located 10 kilometres (6 miles) to the south, and installed at its new Florida Canyon location by
mid-December. The crusher was set with all concrete, wiring and dust abatement equipment along with a new 12-metre high
retaining wall and the addition of a large dump hopper and new radial arm stacker. The crusher is currently operational and
is approaching its operating parameters of a consistent 20,000 tons per day (18,200 tonnes per day).
Mining commenced on the Jasperoid Hill deposit on November 1, 2016 with stripping of waste and stockpiling of low grade
ore to be crushed for the over liner on the heap leach pad. Once the crusher was completed in mid-December, crushing of
the over liner material commenced and was loaded onto the lower one-third portion of the new phase-one South Heap Leach
Facility. The pad, along with the pregnant, barren and contingency solution ponds required the ground to be compacted
with two 15 centimetres levels of clay, over which a synthetic plastic liner was placed and capped with over liner to the depth
of 5 feet. As of the end of March 2017, 925,987 tonnes of over liner and an additional 206,627 tonnes of ore had been placed.
Mining, crushing and ore placement are continuing at the new South Heap Leach Facility, with the ramp-up to 600,000 tons
per month production (545,000 tonnes per month) well under-way.
Upon completion of the first phase of the pad, Rye Patch filed its “As-Built” design consisting of survey and engineering design
documentations demonstrating the completion of the project within design parameters including all quality assurance and
quality control documentation with the Nevada State regulators on February 24, 2017 and received approval to start stacking
ore on March 7, 2017, and irrigation on March 30, 2017. Irrigation with cyanide commenced on April 12 and the first gold
pour was completed on April 25, 2017.
Executing this restart program through the winter months proved to be particularly challenging with the project having to
endure a 100-year rain and snow event through the winter months. The Company steadfastly overcame each challenge to
complete the construction and begin ramp-up successfully. The focus will now shift to proving consistency and continuity as
the mine works through its period of performance testing prior to the Company declaring commercial production.
Florida Canyon Mine - Location and Background
The Florida Canyon mine is located half way between Lovelock and Winnemucca, Nevada, and approximately 30 kilometres
north of the Company’s Wilco, Lincoln Hill and Gold Ridge projects. The mine sits immediately adjacent to Interstate 80 at
EXIT 138 and is located approximately 210 kilometres (130 miles) northeast of Reno, Nevada.
5
The mine is currently producing from existing leach pad facilities located at Florida Canyon and Standard mines. The mine
restart consists of the construction of a new heap leach pad and waste storage facility to complete a planned layback of the
existing oxide orebody. Production from the new heap leach pad is expected to start in the second quarter of 2017 and grow
to an average annual production of 75,000 ounce of gold. The expansion and operation is fully permitted.
Once commercial production achieves steady state at Florida Canyon, Rye Patch will receive operating cash flow from a
producing mine and from its existing NSR royalty along with having a pipeline of advanced-projects for potential future
growth.
Significant potential cost savings are envisioned in the future between the Florida Canyon Mine and Rye Patch’s nearby
Lincoln Hill and Wilco resource projects. Oxide resources at Lincoln Hill and Wilco represent additional resources that could
potentially contribute to increased future gold output to the Company. The infrastructure at Florida Canyon could reduce
capital and operating costs for the Lincoln Hill and Wilco projects by reducing capital requirements to build these stand-alone
operations. Active carbon from each deposit could be trucked to Florida Canyon where it would utilize the existing, carbon
stripping plant, refinery, and workforce to produce doré’. The extent of any synergies and operational integration with the
Florida Canyon mine will be the subject of future studies conducted on the Lincoln Hill and Wilco properties.
Florida Canyon Mine – Preliminary Economic Analysis (“PEA”)
Mine Development Associates (“MDA”) completed a Preliminary Economic Assessment dated effective March 16, 2016,
amended January 27, 2017 (the “PEA”) of the Florida Canyon gold mine. The PEA was completed based on a US$1,000 per
ounce gold price for the first two years and a US$1,150 per ounce gold price for the remaining life of mine.
PEA and Acquisition Highlights:
•
•
•
•
•
•
•
•
Average production of 75,000 ounces of gold per year for 8 years;
US$1,000 gold price for years 1 to 2 and US$1,150 gold price used for years 3 to 8;
Pre-tax Net Present Value (“NPV”) (7.5%) is US$65.43million, with a 41.4% IRR;
Cash Cost per gold ounce is calculated at US$759 per ounce;
Fully permitted expansion;
US$25 million Credit Facility in place;
The potential to reduce capital requirements for the other Oreana Trend resource assets; and
Tremendous exploration and further development potential.
All mining and ancillary equipment required to operate the Florida Canyon mine is in place together with a team of
experienced low-grade, low-cost operators with a successful 30-year mining history.
% of Base Case
90%
100%
110%
NPV5%
$000,000’s
$11.5
$45.8
$80.2
PEA Sensitivity Analysis (AFTER TAX)
Gold Price
IRR
Yr 1 & 2
(%)
$/oz Au
14.5%
$900
34.4%
$1,000
53.8%
$1,100
Gold Price
After Yr 2
$/oz Au
$1,035
$1,150
$1,265
6
Summary of Base Case Assumptions PEA
$1,000 (yrs 1&2)
Gold Price (USD$)
$1,150 (yr 3 to 8)
Average Annual Gold Production (ounces)
75,000
Pre-Production Capital Costs (USD$)
$25.2 M
LOM Sustaining Capital (USD$)
$23.9 M
Strip Ratio
1.47:1
Pre-Production Period (years)
0.5
Mine Life (years)
8
Cash Cost per Gold Ounce (USD$)
$759
PRE-TAX
Life of Mine NPV at 5% Discount Rate (USD$)
$79.3 M
Internal Rate of Return
41.5%
AFTER-TAX
Life of Mine NPV at 5% Discount Rate (USD$)
$56.4 M
Internal Rate of Return
34.4%
MDA used the following resources, in the form of a resource block model for determining the mineable gold in the PEA. The
mineral resources have a cut-off grade of 0.006 oz Au/ton (0.2 grams of gold/tonne) for oxide material.
Florida Canyon March 16, 2016 Measured and Indicated Oxide Resources
(0.006 oz Au/ton cut-off grade)
Tons
oz
X (000’s)
Au/t
Item
Ounces Au
X (000’s)
Measured
79,635.4
0.013
1,035.3
Indicated
Measured + Indicated
4,566.7
84,202.1
0.02
0.013
91.3
1,126.6
Florida Canyon March 16, 2016 Inferred Oxide Resources
(0.006 oz Au/ton cut-off grade)
Item
Inferred
Tons
Inferred
oz
Ounces Au
X (000's)
Au/t
X (000’s)
350.8
0.015
5.3
The Company cautions that the PEA is preliminary in nature in that it is based in part on Inferred Mineral Resources which
are considered too speculative geologically to have the economic considerations applied to them that would enable them
to be characterized as mineral reserves, and there is no certainty that the PEA will be realized. Mineral resources that are
not mineral reserves do not have demonstrated economic viability.
The Company’s decision to place the Florida Canyon mine into production is not based on a feasibility study of mineral
reserves demonstrating economic and technical viability, and the Company cautions that historically such projects have a
much higher risk of economic or technical failure.
7
Mine Planning
A PEA provides a basis to estimate project operating and capital costs and establish a projection of the potential mineable
resource including measured, indicated and inferred categories as permitted under National Instrument 43-101. A Whittle
pit optimization was performed using estimates of operating costs typical of operating surface mines using heap leach
processing in northern Nevada and using metallurgical recovery based on 30 years of recovery history and column leach test
work performed on material from the Florida Canyon mine. The ultimate pit shell was determined using a gold price of
US$1,150 per ounce and only the Measured and Indicated oxide resources shown above were used for production scheduling.
No inferred material was used in the financial modelling. The strip ratio for the economic pit is 1.47 tons of waste for every
one ton of ore.
Metallurgy
The Florida Canyon mine has been in continuous operation since 1986, and a total of 2.2875Mozs of gold have been produced
and sold from the operation. For the 30-year period, gold recoveries have reached an average of 68.3% on a combination of
crushed and run-of-mine (“ROM”) material (recovery of 50% for ROM and 71% for crush). The Company’s PEA contemplates
placing only crushed material on the new heap leach pad, thereby increasing the average recovery from 68% to 71.1%.
Approximately 63.8 million tons (57.9 million tonnes) of new ore will be sent to the new South Heap Leach Pad (“SHLP”) and
93.7 million tons (85 million tonnes) of waste will be stored in the new South Waste Rock Storage Facility. The ore material
will be placed on the SHLP at a rate of 7.2 million tons (6.5 million tonnes) per annum and will be the basis for recovering
metals from the Property. The crushed material gold recovery is expected at 71.1% of total placed. Recovery is expected over
30 to 45-day period, on a declining curve, from the date placed on the pad.
Capital Costs
Each capital item has an associated quote or bid to substantiate the cost. The capital required to build the expansion
includes US$5.834M for mining equipment and deferred maintenance, US$2.735M for a crusher move and upgrade,
US$7.208M for new leach pad, pond and piping construction, US$3.781M for contingency and US$0.9M for miscellaneous.
The total capital requirement is US$28.985 million including contingency.
Operating Costs
Operating cost assumptions were based on similar scale surface mining operations using heap leach processing in northern
Nevada, and process cost estimates for key consumables are based on the available metallurgical test data, power
consumption data and prevailing costs for key materials in similar Nevada mining operations. Operating cost per ton of
material processed are summarized as follows:
PEA Pit Optimization Parameters
Item
Mining Cost
Mining Cost
Processing Cost
Processing Cost
Processing Cost
Process Recovery
Minimum Grade
Gold Price
Royalty
Selling Cost
Interamp Pit Slope
Interamp Pit Slope
Item
Rock
Fill
Crushing and Pad Placement
Leaching
G & A Cost
Rock
Fill
Value
(dollar amounts in US$)
$1.35 to $1.65 per ton depending on location
$1.35 per ton
$1.10 per ton processed
$2.60 per ton processed
$0.50 per ton processed
68%
0.006 ounce per ton
$1150 per ounce of gold
5.75%
$5.00 per ounce sold
45 degrees
37 degrees
8
Infrastructure
Everything needed for a mine is on the mine site. The Florida Canyon mine is adjacent to a major transportation and
services corridor. The mine is within one mile of Interstate 80, the Union Pacific Railroad, and NV Energy transmission lines.
All requirements for energy, water and process materials are available, and services are established. Nevada has a large,
well-established gold mining industry. Services, supplies, manpower, housing, equipment and venders are readily available
within the state. With Reno located 2 hours to the west and Salt Lake City approximately 6 hours to the east, the project’s
excellent access from Interstate 80 allows for a reduced inventory and quick response for parts and services. The access
reduces costs and increases supply-chain optionality.
The existing waste rock storage facilities are in the process of closure and have been reclaimed, and the existing leach pads
are at capacity. A new 300-acre (121.4 hectare) heap leach facility (SHLP) is fully permitted. The SHLP is divided into three
cells each covering 100 acres (40.5 hectares). The first cell will be constructed with initial production anticipated early 2017.
The pad location and attendant facilities are fully permitted.
The process facilities consist of five sets of carbon in columns with a maximum capacity of 9,000 gpm. An ARD plant, carbon
acid wash, an elution and stripping circuit, electrowinning and refinery circuit, carbon handling and regeneration circuit and
an assay lab with a metallurgical lab are on site. The facility has the capacity to produce over 180,000 ounces of gold per
year.
A crusher and an agglomeration and conveyor plant were located at the time of purchase at the Standard Mine located 10
kilometres to the south of Florida Canyon. The crusher and associated facilities have been moved and upgraded. The crusher
capacity has been increased from 5.0M tons (4.5M tonnes) per annum to 7.2M tons (6.5M tonnes) per annum. Construction
of a new lime silo for lime storage and dosing ore was also completed. Ancillary facilities include a maintenance shop with
offices. The maintenance shop has two bays with room to work on four Cat 785 haul trucks within the bays. An administration
building includes offices, meeting rooms, and a training room. There is an assay laboratory with a metallurgical lab, a technical
services office for the geological staff, a security office and guard shack, and lay down yards.
The Florida Canyon mine PEA was prepared by Mine Development Associates under the direction of Neil B. Prenn, PE, and
incorporates the work of a number of industry-leading consultants, all of which are Qualified Persons (as defined under
National Instrument 43-101) and are independent of Rye Patch.
Lincoln Hill Resource Project – Driving toward production
-
Lincoln Hill – gold/silver resource
Gold Ridge - exploration drilling
Independence Hill - exploration drilling
In May 2014, the Company completed its first Preliminary Economic Analysis “PEA” on its 100% owned Lincoln Hill project
and is summarized below with ownership details provided in Note 11 of the consolidated financial statements for the year
ended December 31, 2016. Following receipt of the PEA the Company entered into an Environmental Assessment process
(“EA”), covering two priority areas inclusive of 1,977 acres of Bureau of Land Management (“BLM”) land and 672 acres of
private land. The goal of applying for the Economic Assessment (“EA”) is to enable Rye Patch US to complete its in-fill,
development, metallurgical and exploration drilling programs, and gather base line data for future mine permitting. Rye
Patch US continues to work diligently generating and supplying the requisite additional information and is currently awaiting
the approval of the EA.
9
Lincoln Hill Resource Project - Preliminary Economic Assessment, May 2014
A simple heap leach, modest scale mine demonstrating robust economics as follows:
-
NPV(5%) - US$64.2 million
Gold and Silver Price Sensitivity (in US$)
76.5% IRR, using $1,350 Au oz, $22 Ag oz
Pit shell used US$775 Au oz, $13.56 Ag oz
Pre-Tax
Au Price
Ag Price
IRR
Low capital expenditures - $26 million.
NPV (5%)
Cash cost US$575 (EqAu oz)
$1,250
$20
$51.5
63.7%
Full cost US$758 (EqAu oz)
Heap leach process easily scalable as the project grows.
$1,350
$22
$64.2
76.5%
Run of Mine (“ROM”)with 64% recovery for gold and 59% recovery
59% recovery for silver
$1,450
$25
$78.6
90.7%
Potential for resource expansion:
-
Infill and expansion drilling at Lincoln Hill
Gold Ridge exploration, 4.5 kms of strike, recent drilling was 100% success rate, including 20m sections grading
1.24 Equivalent Au oz/tonnes.
Independence Hill, on strike with Lincoln Hill, and proximal to old mine workings.
The Company cautions that the PEA is preliminary in nature in that it is based on Inferred Mineral Resources which
are considered too speculative geologically to have the economic considerations applied to them that would enable
them to be characterized as mineral reserves, and there is no certainty that the PEA will be realized. Mineral resources
that are not mineral reserves do not have demonstrated economic viability.
Resource Estimate - National Instrument 43-101 Compliant
Lincoln Hill
(2)
Resource
category
Measured
Indicated
Inferred
Total M + I Resource
Total Inferred Resource
Tonnes
(X 1,000)
4,211
25,100
20,822
29,311
20,822
Gold
Gold Grade Silver Grade
Equivalent
(g/t)
(g/t)
Grade (g/t)
0.43
0.38
0.38
0.39
0.38
11.76
10.73
15.36
10.88
15.36
0.67
0.60
0.69
0.61
0.69
Contained
Gold
Ounces
Contained
Silver
Ounces
58,000
306,000
255,000
364,000
255,000
1,592,000
8,655,000
8,163,000
8,656,592
8,163,000
Contained
Au & Au
Equivalent
(3)
Ounces
89,840
479,100
418,260
568,940
418,260
Contained
Ag & Ag
Equivalent
(3)
Ounces
4,492,000
23,955,000
20,913,000
28,447,000
20,913,000
(1) All resources on 100% basis. Metallurgical recoveries and net smelter returns are assumed to be 100% unless indicated. Conforms to NI43- 101 resource definitions;
(2) Based on Rye Patch Gold's July 2, 2014, National Instrument 43-101 Lincoln Hill Preliminary Economic Assessment Technical report (see www.sedar.com)
(3) Wilco and Lincoln Hill Resources includes Au equivalent ounces (Aueq.); where Aueq. = (Au g/t) + (Ag g/t / 50); and Ageq. = (Ag g/t) + (Au g/t * 50).
Mineral resources are not mineral reserves and do not have demonstrated economic viability.
Metallurgy
During the first quarter of 2016, the Company announced (news release March 9, 2016) the initial results for the Phase-2,
feasibility-level metallurgical test program for Lincoln Hill Project. The program included 18 bottle-roll tests and studies on
specific gravity, work index, and abrasion. Acid Based Accounting (ABA) studies and column testing are continuing. Highlights
are as follows:
-
A total of 6 composites at three different feed sizes were analysed, and results indicate that gold and silver recoveries
are size dependent;
The results suggest that Rochester-like gold and silver recoveries are achievable with a crushing circuit.
Gold recoveries for the larger sized material can be improved through increased leach time; and
Additional work, Phase-3, will be completed to identify the optimum heap leach feed size.
10
The gold recoveries show a positive trend with smaller feed size. The bottle roll results varied from 94.1% to 82.4% for 75µm
feed size, and from 57.1% to 29.4% passing for the 50mm size. Silver recoveries showed the same increase in recovery with
smaller feed size and varied from 90.9% to 76.7% for 75µm to 39.2% to 13.5% for the 50mm size fraction. Recoveries can be
improved for the larger sized material by increasing the leach time and cyanide concentration for silver. The data indicate
that silver liberation from smaller feed sizes on Lincoln Hill material behaves similar to the adjacent Rochester mine.
The metal recoveries from this latest testing show a marked improvement from those used for the 2014, PEA which used
recoveries for run-of-mine rather than crushed material. The PEA documented a run-of-mine gold recovery of 64% and a
silver recovery of 59%.
Lincoln Hill upside
Gold Ridge
The property is located 1.5 kilometres (1 mile) to the west of Lincoln Hill resource. Exploration drilling in 2014 and 2016 has
identified an approximate 4.5 kilometres long north-south orientated structural zone associated with a fold and thrust
system. The 2014 campaign identified an initial 500-metre-long stretch of mineralization including notable drill results in
drillholes GR-017 that returned 1.24 g/t AuEq (0.67 g/t Au, 28.5 g/t Ag) over 19.8 metres from the hinge zone of the anticline,
and GR-025 that tested the east limb and returned 1.54 g/t AuEq (1.3 g/t Au, 12.2 g/t Ag) over 10.7 metres, ending in
mineralization (news release dated September 15, 2014).
As reported on January 6, 2016, the fall 2015 drill program focused along a 2.2 kilometre stretch of the structural zone testing
the limbs and axial zone of the anticline with 18 of the 24 drillholes that intersecting significant mineralization. A total of
2,420 metres (7,940 feet) was complete, highlights include: drillhole GR-027 tested the west side in the southern portion of
the anticline and cut 1.16 g/t AuEq. over 42.7m including 3.28 g/t AuEq over 7.6m; and drillhole GR-032 tested the west limb
in the northern portion of the anticline and intercepted 0.91 g/t AuEq over 18.3m with the drillhole ending in mineralization.
The style of mineralization appears similar to and along strike with the Standard Mine located on the Florida Canyon property
approximately 16 kilometres to the north. The folded sediments host gold and silver mineralization along the axial plane of
the anticline and within low-angle structural zones (thrust faults). The mineralization is open to the north and south with a
follow-up drill program planned as part of the larger Plan of Operations permit that is in progress.
Two target areas are showing good potential and continuity along the zone. The northern target has a strike length of 800
metres and is characterized by outcrops of jasperoid breccia with fragments of quartz vein and jasperoid in an iron rich matrix.
The South target area is approximately 1.5 kilometres south of the North area and has a surface exposure of 500 metres,
where four drillholes intersected significant gold and silver mineralization. Drillhole GR-027 cut 42.7 metres grading 1.16 g/t
AuEq starting at shallow depths. Limited drilling has been completed on the South target area, and, the zone is open to the
south and north. Geologically, the mineralized intervals encountered are within the oxide zone. However, no metallurgical
test work has been completed.
See the events after reporting period section for an acquisition completed in February 2017 related to this property.
Independence Hill
The Independence Hill target is located less than one kilometre south of the Lincoln Hill resource and represents the strike
extension of the Lincoln Hill ore body. Notable drillhole results include LR-112 that returned 4.18g/t Au and 20.6 g/t Ag over
13.7 metres, including 34.35 g/t Au and 143 g/t Ag over 1.5 metres at the Looney zone. Also, LR-108 returned 0.62 g/t Au
and 9.7 g/t Ag over 22.9 metres, including 3.16 g/t Au and 10.2 g/t Ag over 3 metres at the Octopus zone (news release dated
November 24, 2014). A follow-up drill program awaits approval of the Plan of Operations.
11
Panther Canyon
In 2016, Rye Patch US staked 119 unpatented lode claims covering the historic Rye Patch mine located 13 kilometres (8 miles)
north of Gold Ridge and 6 kilometres south of Florida Canyon’s Standard Gold mine operation along a major north-south
structural zone in Pershing County, Nevada. The new project is called Panther Canyon.
On the claims acquired in 2016, the mineralized gold-silver zone has been traced in outcrop and occupies a north-south
trending structural corridor that extends for 2.7 kilometres in length and 120 to 300 metres (400 to 1,000 feet) in width along
a major thrust fault Mineralization on the south end of the new claims is silver dominated and progressively becomes enriched
in gold from the south to the north where historic surface grab samples range from 1.25 to 3.44 g/t (0.04 to 0.11 opt) gold
within the mineralized zone. The gold and silver zonation is probably related to the Rocky Canyon intrusive complex located
immediately to the south. A swarm of intrusive dikes and sills is focused proximal to the general thrust zone as at the nearby
Florida Canyon and Standard Mines. The style of mineralization and structural setting look very similar to the Gold Ridge
property located to the south, and the Florida Canyon mine located to the north.
Wilco Resource
The Wilco property is located 160 kilometres (100 miles) northeast of Reno, Nevada and is close to the Lincoln Hill project
along the southern extent of the Oreana Trend. The project is subject to a back-in right by Newmont Mining Corporation.
Further ownership details are provided in note 11 of the audited consolidated financial statements for the year ended
December 31, 2016. The project currently contains two gold resources, Section Line and Colado -- the subject of the June
2012 resource estimate. The 2014 drilling campaign successfully tested the “Gap” target that lies between Section line and
Colado and identified higher grade mineralization in Colado.
No substantial exploration work was completed on the Wilco property during the year; however, with the acquisition of the
Florida Canyon project, it is clear that Wilco shares some of the same regional geologic and structural ore controls as Florida
Canyon. As a result of the Company not meeting its 2016 annual Work Commitment obligation, a rental fee totalling
US$90,204 was paid to Newmont Mining Corporation.
Cortez Trend Player
Garden Gate Pass
The Cortez trend is an exciting exploration area that has tremendous upside potential. Since 1991, over 50 million ounces of
gold have been discovered, mined and processed along the trend, with Barrick’s 15-plus million ounce Goldrush deposit
illustrating the potential and the prize. The Company’s Garden Gate Pass property abuts the Goldrush discovery along the
same geologic environment in the trend. To date, Rye Patch US has completed twelve drillholes on the project. The Company
has been refining the drill targets and believes they pose some of the best exploration opportunities along this world-class
12
gold trend. No immediate work is planned for this property as the Company focuses its efforts and financial resources on the
Florida Canyon Mine restart.
Finance
Private Placement $49.1 million
On June 16, 2016, the Company completed a private placement of 223,247,242 subscription receipts of the Company
(“Subscription Receipts”) at Cdn$0.22 per Subscription Receipt for gross proceeds of Cdn$49,114,393 (the “Offering”). The
private placement was completed through a syndicate of agents (the “Agents”) co-led by Macquarie Capital Markets Canada
Ltd. and Canaccord Genuity Corp. (the “Lead Agents”), and including Dundee Securities Ltd. and GMP Securities L.P., and
included the exercise of an over-allotment option granted to the Agents.
The net proceeds from the Offering was used to finance, in part, the acquisition of 100% ownership of the Florida Canyon
Group, the balance to be used for certain working capital and corporate requirements needed to restart the Florida Canyon
gold mine.
Immediately prior to the completion of the Acquisition of the Florida Canyon Group, the escrowed proceeds from the
Company’s Cdn$49.1 million private placement of Subscription Receipts were released following satisfaction of the escrow
release conditions. The Subscription Receipts were converted on a one-for-one basis into 223,247,242 common shares of
the Company. The common shares were subject to a hold period expiring on October 17, 2016.
Upon conversion of the Subscription Receipts, the Company paid the balance of the 5% agents’ commission and also issued
a total of 11,162,362 agents’ warrants (the “Agents’ Warrants”) to Macquarie Capital Markets Canada Ltd., Canaccord
Genuity Corp., Dundee Securities Ltd. and GMP Securities L.P. Each Agents’ Warrant is exercisable for one common share of
the Company for a two-year term from date of issue at an exercise price of Cdn$0.22 per common share. The Agents’
Warrants, and the common shares underlying the Agents’ Warrants, were subject to a four-month hold period expiring
November 29, 2016.
Macquarie Bank Credit Facility
Prior to the completion of the Acquisition, the Company entered into a credit agreement (the “Credit Agreement”) with
Macquarie Bank Limited (“Macquarie Bank”) for a US$25 million credit facility (the “Credit Facility”) for the Company’s wholly
owned U.S. subsidiary, Rye Patch Mining U.S. Inc. (“Rye Patch U.S.”) with an additional US$2 million allotted for capitalized
interest until the first scheduled repayment. The Credit Facility in combination with the aforementioned equity financing is
expected to be sufficient to fund the restart of the Florida Canyon gold mine.
The Credit Facility bears interest at LIBOR plus 8% per annum and includes a provision to deliver 150,000 ounces of gold over
a five year period at USD$1,276 an ounce through gold forward sales contracts. Interest is payable quarterly on each individual
drawn down taken from the credit facility. Company has the option to roll over the interest payment into the principal
balance of the draw down until the first scheduled repayment date. Repayment of the Credit Facility is scheduled over the
first four years of production following the restart of the Florida Canyon mine, subject to earlier mandatory prepayment from
certain levels of excess free cash flow from the mine and voluntary prepayment at the option of the Company. The Company
is expected to make payments of US$5.1M in 2017, US$14.9M in 2018, US$4.8M in 2019, and US$2.2M in 2020, assuming
the full principal amount is drawn.
Rye Patch U.S.’s obligations under the Credit Facility are guaranteed by the Company and certain material subsidiaries. In
addition, Macquarie Bank will have a first ranking security interest over all of the properties and assets of the Company and
its material subsidiaries, including the Florida Canyon mine property and assets as well as shares of the subsidiary companies
that hold the property and assets.
Upon the signing of the Credit Agreement, Rye Patch issued to Macquarie Bank 16,224,545 share purchase warrants, each
share purchase warrant being exercisable for one common share of the Company for a five-year term from date of issue at
13
an exercise price of Cdn$0.22 per common share. The share purchase warrants, and the common shares underlying the
warrants, are subject to a four-month hold period that expired November 29, 2016. The share purchase warrants were fair
valued at $5,404,966 (Note 13) and recognized as debt issue costs. In addition to the share purchase warrants, the Company
incurred $1,890,013 in cash transaction costs related to the establishment of the Credit Facility. As at December 31, 2016,
US$14,178,631 had been drawn down on the credit facility and the effective interest rates per annum on the funds drawn
range from 25% to 36%. The effective interest rate reflects the interest rate on credit facility and the amortization of the
deferred debt issuance costs.
At the year end, US$14,178,631 and US$27,000,000 respectively of the credit facility had been drawn down. The Company
made its first delivery of 3,409 ounces of gold against the credit facility related forward gold price contracts in February, 2017.
Rochester Mine Royalty
As described in detail in note 9 of the audited consolidated financial statements for the year ended December 31, 2016, the
Company and Coeur Rochester Inc. settled a dispute over certain mineral claims, and as a result, Rye Patch US obtained a
3.4% Net Smelter Return (“NSR”) on production from the Rochester Mine located in Pershing County, Nevada, United States
of America. The royalty is capped at 39.4 million silver equivalent ounces. At December 31, 2016, there were approximately
15.9 million ounces (2015 - 24.1 million ounces) remaining of the royalty. Payment on the royalty commenced January 1,
2014, and is payable quarterly. During 2016, the Company earned royalty income of $6.20 million of which $1.62 million was
received in cash subsequent to the year end. On August 10, 2015, Rye Patch US was unable to resolve a payment dispute
directly with Coeur Mining and filed a demand for arbitration on the Q1 2014 NSR. The Company retained
Pricewaterhousecoopers LLP to perform specified audit procedures of the 2014 royalty calculation and payments. Based on
the results, the arbitration calls into question the exclusion of US$9.2 million of revenue from gold and silver produced and
sold in January 2014. The Company contends that the payment of the 3.4% royalty for 2014 was deficient in the amount of
US$313,242. The process is pending selection of a mutually agreed, qualified arbitrator that meets the stringent
requirements under the Arbitration Clause of the NSR Agreement.
Liquidity
As of December 31, 2016, the Company had cash and cash equivalents of $11,121,286 compared to $3,578,769 as of
December 31, 2015. The Company had working capital of $25,396,705 at December 31, 2016 (December 31, 2015 $4,4,576,855).
During the year ended December 31, 2016, the Company had net inflows from finance activities of $59 million from one
equity financing and proceeds from the credit facility. It had cash outflow of $2.8 million from operations and invested $49
million principally on the acquisition and development of Florida Canyon (see “Results of Operations”).
During the year, the Company completed a $49.1 million equity financing and secured a USD$25 million credit facility with
Macquarie Bank. In addition, the Company received net smelter returns (“NSR”) production royalty of $4.6 million from
Coeur Rochester Inc. (“Coeur”), a wholly owned subsidiary of Coeur Mining Inc. and an additional $1.6 million subsequent to
year end related to the fourth quarter of 2016. The royalty income resulted from the settlement on June 25, 2013 between
Coeur and the Company. Combined, the Company’s current treasury, credit facility, anticipated royalty income and gold sales,
are expected to be sufficient to fund the restart of the Florida Canyon Mine, corporate expenditures and other planned
exploration and resource definition work through 2017. The availability of capital resources to meet its 2017 requirements
is dependent on the timely restart of the Florida Canyon Mine. Any delays to the restart of the Florida Canyon Mine may
require the Company to raise further equity or debt financing. There is no certainty that further equity or debt financing will
be available to the Company in any amount, on a timely basis, or terms acceptable to the Company.
Mining development and exploration is a capital-intensive business and there may be many years between initial exploration
and any prospect of revenues. This nature of the mining business increases risks of insufficient capital resources above the
risk level of many other businesses.
14
Corporate
With the transformational nature of the acquisition of the Florida Canyon Group, the Company’s message and value
proposition has changed significantly. To migrate the communication strategy to the next level, the Company engaged a
Marketing Consulting company - 120 West Strategic Communication LLC (“120 West”) in January 2017. Ira Gostin MBA, the
President and Chief Marketing Officer at 120 West, has over 25 years of experience in corporate communications as a
founding executive of Tahoe Resources, a graduate of Columbia’s leadership program and a member of the Public relations
Society of America and the National Investors Institute. 120 West will receive a fee of US$139,000 over a twelve-month period
for the various services it has been contracted for.
In December, Rye Patch announced the appointment of Tim Baker to the Board. Mr. Baker has over 35 years’ experience
with mining companies in management and operations, which he attained through his various management positions at
globally focused mid-tier and senior mining companies. Tim Baker is currently Chairman of the Board of Golden Star
Resources, and a director on the Antofagasta PLC and Sherritt International boards. He was previously Executive VicePresident and Chief Operating Officer at Kinross Gold Corp. Prior to joining Kinross in 2006, Mr. Baker was Executive General
Manager of Placer Dome Chile. He has previously managed mining operations in Chile, Tanzania, Venezuela and the USA,
and held production and geological roles in Kenya, Liberia and Canada. Tim has a B.Sc. in Geology from Edinburgh University
and is a member of the Institute of Corporate Directors.
Impairment of Long-lived Assets
The Company completed an impairment analysis as at December 31, 2016, which considered the indicators of impairment in
accordance with IAS 36, “Impairment of Assets”. Management concluded that no impairment indicators existed as at
December 31, 2016 because:
•
•
•
•
•
There have been no significant changes in the legal factors or climate that affects the value of the properties;
All property rights remain in good standing;
There have been no significant changes in the projections for the properties;
Exploration results continue to be positive; and
The Company intends to continue its exploration and development plans on its properties.
During 2016, the Company terminated the agreement with Barrick Gold and as a result, the Company wrote-off all the
capitalized mineral property interests related to the Patty property in the year ended December 31, 2016. The total writedown was $871,871.
15
Results of Operations
Selected Annual Information
For the years ended
December 31, 2016
Income (loss) from mining operations
$
Royalty Income
Operating expenses
Interest and miscellaneous income
December 31, 2015
(4,837,059) $
December 31, 2014
-
$
December 31, 2013
-
6,197,192
6,090,298
4,136,994
(6,678,619)
(6,138,834)
(5,192,914)
28,400
$
(3,847,752)
39,334
60,806
Net income (loss)
(5,444,861)
289,108
(991,411)
3,986,378
68,890
Comprehensive income (loss)
(4,521,822)
1,711,216
(299,769)
4,377,883
Earnings (loss) per share:
Basic
$
(0.02) $
0.00
$
(0.01) $
0.03
Diluted
$
(0.02) $
0.00
$
(0.01) $
0.03
As at:
December 31, 2016
Working capital
$
Total assets
480,550
141,896,774
December 31, 2015
$
4,576,855
13,104,279
December 31, 2014
$
6,411,573
11,622,922
December 31, 2013
$
7,647,506
11,586,773
Total liabilities
73,379,854
500,385
479,699
349,468
Share capital
82,873,772
31,314,265
31,700,768
31,700,768
Deficit
31,381,451
25,936,590
26,225,698
25,234,287
Review of Annual Results
The Company’s net income decreased significantly as compared with 2015 from net income of $289,108 in 2015 to a net loss
of $5,444,861 in 2016. The significant change is the result of the inclusion of Florida Canyon’s operations from the date of
acquisition.
Revenue
During the year, the Company had revenues from doré sales and from its royalty agreement. The Company earned
$1,285,705 (2015 - $Nil) from doré sales. Of the total doré sales revenue, $1,262,956 occurred in the third quarter of 2016.
The Company did not complete any gold sales in the fourth quarter as the Company was in the process of finalizing its forward
gold price agreements. All doré accumulated from October to December 2016 were sold subsequent to year-end.
Royalty revenue increased slightly during the year to $6,197,192 as compared with $6,090,298.
Cost of Sales
Cost of sales includes direct operating costs, depreciation, royalty expense and impairment of inventory. There was a
significant decrease in the gold price from the date of acquisition to December 31, 2016 and as a result, the Company recorded
an impairment charge on its leach pad and doré inventory in the fourth quarter of 2016. In total, the inventory impairment
charge was $2,936,360 of the total cost of sales. The Company carries its inventory at lower of cost and net realizable value.
16
General and Administrative Expenses
For the years ended
December 31, 2016
Accounting, audit, and tax
$
605,120
December 31, 2015
$
179,602
Depreciation
25,655
24,857
Directors fees
241,830
105,000
70,830
43,816
Investor relations
353,930
442,626
Legal fees
116,840
77,250
Management fees
654,411
349,269
Office and administration
195,296
252,257
Rent
146,687
164,452
1,042,930
135,958
42,279
71,975
Insurance
Share-based payments
Travel
Transfer agent and filing fees
Wages and bonus
$
99,226
58,061
716,444
469,246
4,311,478 $
2,374,369
The Company was significantly more active during the year, which was the reason for the significant increases in the general
and administrative expenses as compared with the prior year. Some of the more significant increases were as follows:
•
Accounting, auditing, and tax –As a consequence of the acquisition of the Florida Canyon Group, Rye Patch’s
accounting infrastructure, reporting and tax compliance and planning increased significantly in size and complexity
resulting in higher costs than in prior years.
•
Director fees, management fees, wages and bonus – The increase from the prior year was mainly due to bonuses
received by the board and management for their work on the acquisition and closing the acquisition.
•
Share-based payments – The increase in share-based payments was due to the grant of 10.3 million share options
shortly after the close of the acquisition.
Exploration, evaluation and resource development expenses
The Company incurred $779,582 in exploration, evaluation and resource development expenditures in 2016 as compared
with $3,764,465 in the prior year. The significant decrease was the result of the acquisition of the Florida Canyon Group and
the Company focusing its resources on construction of the Florida Canyon mine.
During the year, the Company also decided to terminate its agreement with Barrick Gold on the Patty property. As a result,
the Company wrote-off $871,871 of capitalized costs related to the Patty property.
Other
For the years ended
December 31, 2016
Interest expense
Change in fair value of derivative liability
Accretion expense
Business acquisition costs
$
$
$
$
December 31, 2015
(904,673) $
-
926,781 $
-
(284,715) $
-
(715,688) $
-
The above costs were all the result of the acquisition of the Florida Canyon Group.
•
Interest expense relates to the interest incurred on the credit facility and loans payable;
17
•
The change in fair value of the derivative liability is related to the contingent warrants issuable related to the
acquisition;
•
The accretion expense relates to the cash contingent liability, accretion of the asset retirement obligation and
accretion of the deferred transaction costs related to the credit facility;
•
Business acquisition costs were all the costs related to the Florida Canyon Group acquisition
Summary of Quarterly Results
The following is a summary of the Company’s financial results for the past eight quarters:
December 31, 2016
Income (loss) from mining operations
$
Royalty Income
September 30, 2016
(2,718,868) $
1,614,442
Other income (loss)
1,744,187
268,013
Net income (loss)
June 30, 2016
(2,118,191) $
$
1,458,709
392,059
(4,480,525)
March 31, 2016
-
(1,344,561)
1,379,854
85,424
(871,871)
786,273
(406,048)
Earnings (loss) per share:
Basic
$
(0.02) $
-
$
-
$
-
Diluted
$
(0.02) $
-
$
-
$
-
For the three months ended
December 31, 2015
Income (loss) from mining operations
$
Royalty Income
Other income (loss)
Net income (loss)
September 30, 2015
-
$
June 30, 2015
- $
1,289,041
1,473,184
20,786
152,295
(402,706)
497,501
March 31, 2015
- $
-
1,491,389
1,836,684
6,266
158,297
(693,023)
887,336
Earnings (loss) per share:
Basic
$
-
$
-
$
-
$
-
Diluted
$
-
$
-
$
-
$
-
The expenses incurred by the Company from January 1, 2015 to June 30, 2016 were typical of junior exploration companies
that did not have established mineral reserves. Expenses were not incurred evenly over the quarters as a result of nonrecurring activities or events. In Q3 2016, the Company made a significant acquisition, the Florida Canyon Group, and as a
result, the Q3 and Q4 2016 losses were significantly higher than the previous quarter. The Company anticipates losses to
continue until such time as the Company reaches commercial production at Florida Canyon.
Review of Fourth Quarter Results
Revenue
During the fourth quarter, the Company had revenues from doré sales and from its royalty agreement. The Company earned
$22,749 (2015 - $Nil) from silver sales. See discussion above in the review of annual results section for additional details on
the change in doré sales.
Royalty revenue increased slightly during the quarter to $1,614,442 as compared with $1,289,041 in the comparative
quarter.,.
Cost of Sales
Cost of sales includes direct operating costs, depreciation, royalty expense and impairment of inventory. See discussion
above in the review of annual results section.
18
General and Administrative Expenses
For the three months ended
December 31, 2016
Accounting, audit, and tax
$
Depreciation
Directors fees
Insurance
December 31, 2015
286,410 $
46,434
5,479
6,225
241,830
105,000
35,834
10,824
Investor relations
132,847
260,204
Legal fees
(99,748)
23,925
Management fees
476,665
60,078
Office and administration
57,816
6,408
Rent
21,630
35,082
571,125
43,954
12,065
27,442
Share-based payments
Travel
Transfer agent and filing fees
16,881
Wages and bonus
345,476
$
2,104,310 $
13,296
-
33,001
605,871
The Company was significantly more active during the fourth quarter as compared with the same period in 2015. Some of
the more significant increases were as follows:
•
Accounting, auditing, and tax – There was a significant increase due to an increase in the annual audit fee, increased
tax fees and additional fees related to the acquisition.
•
Director fees, management fees, wages and bonus – The increase from the prior year was mainly due to bonuses
received by the board and management for their work on the acquisition and closing the acquisition.
•
Share-based payments – The increase in share-based payments was due to the grant of 10.3 million share options
shortly after the close of the acquisition.
•
Investor relations – there was a significant decrease in the investor relation expenditures as the Company focused
on construction of Florida Canyon mine.
Exploration, evaluation and resource development expenses
The Company incurred $63,012 in exploration, evaluation and resource development expenditures in the fourth quarter of
2016 as compared with $1,106,662 in the comparative quarter. The significant decrease was the result of the acquisition of
the Florida Canyon Group and the Company focusing its resources on construction of the Florida Canyon mine.
Other
For the three months ended
December 31, 2016
Interest expense
Change in fair value of derivative liability
Accretion expense
Business acquisition costs
$
$
$
$
December 31, 2015
(904,673) $
-
(82,719) $
-
(173,330) $
-
(92) $
-
The above costs were all the result of the acquisition of the Florida Canyon Group. Please refer to discussion above in the
review of annual results section for details on the other items.
19
Disclosure of Outstanding Share Data
Common Shares
Authorized: unlimited number of common shares without par value and an unlimited number of preferred shares without
par value.
Issued and Outstanding
At December 31, 2016
387,295,488
Common shares
At the date of this MD&A
387,295,488
As at December 31, 2016, 12,825,000 share purchase options and 27,386,907 share purchase warrants were outstanding,
which would result in an additional 40,211,907 common shares issued and outstanding on a fully diluted basis.
Transactions with Related Parties
The consolidated financial statements include the accounts of Rye Patch Gold Corp. and its subsidiaries as listed in the
following table:
Name
Rye Patch Gold US Inc.
Rye Patch Mining US Inc.
Florida Canyon Mining, Inc.
Standard Gold Mining, Inc.
RP Dirt, Inc.
Country of incorporation
Ownership
United States of America
United States of America
United States of America
United States of America
United States of America
100%
100%
100%
100%
100%
Balances and transactions between the Company and its subsidiaries have been eliminated on consolidation and are not
disclosed in this note.
Details of the transactions between the Company and other related parties are disclosed below. The Company’s related
parties consist of companies owned, directly or indirectly, by directors and key management as follows:
Name
Tanadog Management and Technical Services Inc.
Quantum Advisory Partners LLP
Koffman Kalef LLP Business Lawyers
Nature of transactions
Management fees
Accounting and audit
Legal fees
The Company incurred fees and expenses in the normal course of operations in connection with companies owned by
directors and key management. Expenses have been measured at the exchange amount which is the amount of consideration
established and agreed to by the related parties.
The Company’s related party expenses are as follows:
For the years ended
December 31, 2016
December 31, 2015
Accounting and audit (1)
Legal fees
$
(2)
Management fees
(3)
Office and administration (3)
$
-
$
43,212
665,332
64,490
654,411
349,269
57,161
1,376,904
$
46,323
503,294
(1) The Company paid for accounting services to Quantum Advisory Partners LLP whose incorporated partner was the
Company’s Chief Financial Officer until March 1, 2015.
20
(2) The Company paid for legal and corporate secretary services fees to Koffman Kalef LLP Business Lawyers in which the
Company’s Corporate Secretary is a partner. Of the $665,332 fees incurred during the year ended December 31, 2016
(2015 - $64,490), $134,732 (2015 - $64,490) were expensed to legal fees and transaction costs, $134,762 related share
issue costs and the remaining were capitalized to deferred costs as they related to the Credit Facility. As at December
31, 2016, $14,649 (December 31, 2015 - $Nil) was owed to this firm.
(3) The Company paid for management fees to Tanadog Management and Technical Services Inc. which is controlled by the
Company’s President. The Company’s management services contract with Tanadog Management and Technical Services
Inc. is renewable automatically for consecutive one year terms, at US$180,000 per year. Fees payable on termination of
services is one and a half times the annual rate and fees payable on change of control is three times the annual rate.
In addition, the Company paid for office and administrative services to the same company. As at December 31, 2016,
$460,557 (December 31, 2015 - $50,125) was owed to this company.
Key management personnel compensation
The remuneration of directors and other members of key management personnel during the year ended December 31, 2016
and 2015 were as follows:
Salaries and management fees
Directors fees
$
Share-based payments - management (i)
Share-based payments - directors
237,966
(i)
$
i.
For the years ended
December 31, 2016
December 31, 2015
1,102,951 $
564,415
241,830
105,000
145,103
1,727,850
53,159
$
33,603
756,177
Share-based payments are the fair value of share options granted to key management personnel and directors.
Commitments and contingencies
a)
The Company has a Reno office lease that was renewed in prior years for three years ending June 30, 2017. The
monthly rent is US$5,400 adjusted annually by the consumer price index.
b) The Company entered into agreements to lease vehicles from a company controlled by its President. The monthly
lease payments total US$4,800 per month with terms of 12 and 36 months.
c)
Florida Canyon entered into a three-year extension in 2015 to a previous contract to purchase its cyanide. The
extension runs through fiscal 2017 and requires the Company to purchase a minimum of 5,000,000 pounds of
cyanide.
d) Gold and silver produced from the Florida Canyon Mine are subject to a 2.5% net smelter return royalty (“NSR”).
Certain gold produced from the Standard Mine is subject to a 1% NSR. Additionally, all gold produced from both the
Florida Canyon and Standard Mines is subject to a 3.25% NSR. Royalty expense is recorded at the time of sale of
gold and silver, measured using the applicable royalty percentage.
Events after reporting period
Subsequent to year-end, the Company completed draw-downs of US$10,821,369. As a result, the credit facility has been
fully drawn down.
In addition, in February 2017, the Company purchased 100% ownership, subject to a 1% NSR royalty to the underlying
owner, in 38 WR unpatented lode mining claims from Paramount Gold Nevada Corp. for US$100,000. The WR claims lie
between Lincoln Hill and Gold Ridge and consolidate the Company’s land position.
21
Off-balance sheet arrangements
There are no off-balance sheet arrangements as at the date of the MD&A.
Financial instruments and risk management
In accordance with IFRS, financial instruments are classified into one of the five following categories: held-for-trading, heldto-maturity investments, loans and receivables, available-for-sale financial assets and other financial liabilities. The fair
value of cash and cash equivalents, accounts receivable, reclamation bonds, accounts payables and accrued liabilities and
due to related parties approximate their carrying value due to their short terms maturity.
Loans payable have been classified as other financial liabilities measured at amortized cost. The fair value of loans payables
approximates their carrying values as the effective interest rates are based on the market rates. Contingent consideration
has been classified as fair value through profit and loss at inception and re-valued at the balance sheet date.
IFRS 13 establishes a fair value hierarchy that reflects the significance of inputs used in making fair value measurements as
follows:
Level 1
quoted prices in active markets for identical assets or liabilities;
Level 2
inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. from derived prices); and
Level 3
inputs for the asset or liability that are not based upon observable market data.
The Company has determined the estimated fair values of its financial instruments based upon appropriate valuation
methodologies. At December 31, 2016, the Company has contingent consideration composed of share purchase warrants
and deferred cash consideration. The share purchase warrants and contingent cash consideration are being measured and
recognized on the consolidated statement of financial position using level 3 inputs with changes in fair value being recorded
through profit and loss. As at December 31, 2016, the contingent share purchase warrants had a value $1,579,500 and the
contingent cash consideration had a value of $6,384,353 (Note 5).
Market Risks
The Company’s operations consist of the acquisition, exploration and development of mineral resource properties in North
America. The Company examines the various financial risks to which it is exposed and assesses the impact and likelihood
of being affected by these risks, which may include credit risk, liquidity risk, currency risk, interest rate risk and other price
risks. When material, these risks are also reviewed and monitored by the Board of Directors.
Credit risk
Counterparty credit risk is the risk that the financial benefits of a contract with a specific counterparty will be lost if the
counterparty defaults on its obligations under the contract. This includes any cash amounts owed to the Company by that
counterparty, less any amounts owed to the counterparty by the Company where a legal right of offset exists and also
includes the fair values of contracts with individual counterparties which are recorded in the consolidated financial
statements. The Company manages this risk by only entering into contracts with counterparties who have sufficient
financial strength to minimize the risk of a financial default. The Company’s cash and cash equivalents are held with large
Canadian and U.S. financial institutions. Accounts receivable consist of refundable excise taxes due from the Federal
Government of Canada, accrued interest, accounts receivable from the sale of gold and silver and royalty receivable from
Coeur which has been received subsequent to year end. Reclamation bonds are amounts deposited with the Bureau of
Land Management of the United States Department of the Interior and the Department of Conservation & Natural
Resources of the State of Nevada.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet is financial obligations as they come due. The Company
has in place a planning and budgeting process to help determine the funds required to support the Company's normal
operating requirements and its exploration and development plans. The annual budget is approved by the Board of
Directors. The Company ensures, through the management of its available cash and the issue of shares, that there are
22
sufficient cash balances to meet its short-term business requirements. Accounts payable and accrued liabilities and
amounts due to related parties are due on demand.
The Company expects its current capital resources will be sufficient to carry out its exploration plans and operations
through 2017. As at December 31, 2016, the Company had undrawn funds of $17,215,253 (US$12,821,369).
Currency risk
The Company is subject to minimum currency risk as the Company and its subsidiaries operate primarily in their respective
functional currencies. The Company does not invest in derivatives to mitigate this risk.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows from a financial instrument will fluctuate because of
changes to market interest rates. The Company has interest bearing cash balances, which are subject to fluctuation in the
interest rate. A 10% increase or decrease in the interest rate earned from financial institutions on deposits would result in
nominal increase or decrease in the Company’s net loss. The Company had additional exposure to interest rate risk on it’s
credit facility, which is subject to a floating interest. A 10% increase or decrease in the rate would result in an increase or
decrease in interest expense $172,138.
Commodity price risk
The ability of the Company to develop its mineral properties and the future profitability of the Company will be directly
related to the market price of gold. As part of the Company’s Credit Facility the Company has entered into forward contracts
for the sale of 150,000 at a fixed gold price of US$1,276 per ounce.
Changes in Accounting Policies
The following newly applicable accounting standards resulting from the acquisition of the Florida Canyon Group:
Revenue Recognition
Our primary source of revenue is from the sale of gold doré. Revenue is recognized in the consolidated financial statements
when the following conditions are met:
• the significant risks and rewards of ownership have passed to the customer;
• neither continuing managerial involvement, to the degree usually associated with ownership, nor effective control
over the good sold, has been retained;
• the amount of revenue can be measured reliably; it is probable that economic benefits associated with the sale will
flow to us; and
• the costs incurred or to be incurred in respect of the sale can be measured reliably.
Revenue from the sale of gold doré or bullion is typically recognized on the trade settlement date when funds are received.
Inventories
Inventories are stated at the lower of average cost and net realizable value (“NRV”). Cost of supplies inventory includes
acquisition, freight and other directly attributable costs. Work-in-process inventory includes ore in the leaching process
and gold on carbon. Finished goods include gold in doré. For work-in process and finished goods inventories, cost includes
all direct costs incurred in production including direct labor and materials, freight, depreciation and amortization of plant
and equipment used in the production process, depletion of mineral property costs and directly attributable overhead
costs.
If the NRV is lower than the expected cost of the finished product, the inventory is written down to the estimated NRV. If
there is a subsequent increase in the value of inventory, the previous write-downs to NRV are reversed up to cost to the
extent that the related inventory has not been sold.
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Business combinations
A business combination is defined as an acquisition of assets and liabilities that constitute a business under IFRS 3. A
business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of
providing a return to us and our shareholders. A business consists of inputs, including non-current assets, and processes,
including operational processes, that when applied to those inputs have the ability to create outputs that provide a return
to us and our shareholders. A business also includes those assets and liabilities that do not necessarily have all the inputs
and processes required to produce outputs, but can be integrated with our inputs and processes or we could easily
replicate the processes to create outputs. When acquiring a set of activities or assets in the exploration and development
stage, which may not have outputs, we consider other factors to determine whether the set of activities or assets is a
business. Those factors include, but are not limited to, whether the set of activities or assets:
• Has begun planned principal activities;
• Has employees, intellectual property and other inputs and processes that could be applied to those inputs;
• Is pursuing a plan to produce outputs; and
• Will be able to obtain access to customers that will purchase the outputs.
Not all of the above factors need to be present for a particular integrated set of activities or assets in the exploration and
development stage to qualify as a business.
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business
combination is measured at fair value, which is calculated as the sum of the acquisition-date fair value of the assets and
liabilities transferred. The results of businesses acquired during the period are included in the consolidated financial
statements from the date of acquisition. The identifiable assets, liabilities and contingent liabilities of the businesses
which can be measured reliably are recorded at provisional fair values at the date of acquisition. Provisional fair values
are finalized within 12 months of the acquisition date. Acquisition-related costs are expensed as incurred. Measurement
period adjustments are adjustments that arise from additional information obtained during the measurement period
(which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition
date.
Accounting estimates and judgments
The preparation of these consolidated financial statements requires management to make estimates and judgments and
form assumptions that affect the reported amounts and other disclosures in these consolidated financial statements.
The estimates and associated assumptions are based on historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions and conditions.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the
revision and further periods if the review affects both current and future periods.
Critical accounting estimates are estimates and assumptions made by management that may result in material
adjustments to the carrying amount of assets and liabilities within the next financial year. Critical accounting judgments
are accounting policies that have been identified as being complex or involving subjective judgments or assessments.
Critical accounting estimates and judgments included in the consolidated financial statements are:
(i) Business Combination – Acquisition of Florida Canyon Group
Judgment is required to determine whether we acquired a business under the definition of IFRS 3, Business
combinations ("IFRS 3"), and also the acquisition date when we obtained control over the acquiree, which we
determined was the date that consideration was transferred and when we assumed the assets and liabilities of
the acquiree. The valuation of certain consideration requires significant management estimates and judgement.
This includes the fair value of the US$5,000,000 contingent consideration as well as the fair value of the
contingent warrants. The fair value of the contingent consideration is estimated based on timing and probability
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of the payout. The contingent warrants were valued using the Black-Scholes valuation model and required
management to estimate key inputs such as the expected life and volatility when using the valuation model.
Business combinations are accounted for using the acquisition method whereby identifiable assets acquired and
liabilities assumed, including contingent liabilities, are recorded at their fair values at the date of acquisition.
The valuation of certain assets and liabilities requires significant management estimates and judgment.
Property, plant and equipment requires judgment over the appropriate fair value methodology to appraise the
assets and various assumptions around estimated useful lives and current replacement costs. The mineral
property asset valuations are based upon estimates of Mineral Resources used in the life of mine plan, as well
as estimates of future metal prices, production, costs, and economic assumptions around inflation rates and
discount rates. The inventory valuation requires estimates of the quantity on the leach pads and costs to convert
inventory into saleable form and all associates selling cost. The reclamation provision requires an estimate of
the magnitude and timing of future cash flows and economic assumptions around inflation and discount rates.
(ii) Forward Contracts – Own Use
Contracts to buy or sell a non-financial item, such as a commodity, that can be settled net in cash or another
financial instrument, fall under the scope of IAS 39 and are accounted for as derivatives and marked to market
through the statement of loss and comprehensive loss. However, certain criteria exist whereby a contract may
be considered ‘own use’, and be exempt from the requirements of IAS 39. The determination of the Company’s
accounting for its gold forward sales contracts (Note 14) requires judgment to determine that the contracts
meet the requirements of ‘own use’.
An ‘Own Use’ contract is a contract that was entered into and continues to be held for the purpose of the
delivery of a non-financial item in accordance with the Company’s expected purchase, sale or usage
requirements. In the case of the Company’s gold forward sales contracts, the Company plans to settle the
contracts through the delivery of its own gold production, and therefore, these contracts result in the physical
delivery of a commodity, and as per the Company’s Credit Facility (Note 14), there is a specified schedule
whereby the Company will be required to deliver a set number of ounces. Given the Company’s current
production levels and expected production levels based on the Company’s current life of mine plan, the
production of gold will be sufficient to fulfill the physical delivery requirements of the contracts based on the
agreed schedule within the Credit Facility
(iii) Valuation of Inventory
Finished goods
Finished goods are valued at the lower of average cost and NRV. NRV is calculated as the estimated price at the
time of sale based on prevailing and forecast metal prices less associated selling costs.
Leach pad inventory
In determining the value of the leach pad, we make estimates of quantities and grades of ore on leach pads and
in process, and the recoverable gold in this material to determine the total inventory. Changes in these estimates
can result in a change in carrying amounts of inventory, as well as cost of sales.
(iv) Impairment of non-current assets
The Company reviews the carrying amounts of property, plant, equipment and exploration and evaluation assets
whenever events or changes in circumstances indicate that the carrying amounts may exceed the estimated
recoverable amounts determined by reference to estimated future operating results and discounted future cash
flows. An impairment loss is recognized when the carrying amount of those assets is not recoverable. Calculating
the estimated recoverable amount for non-current asset impairment tests requires management to make
estimates and assumptions with respect to estimated recoverable reserves, resources, estimated future
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commodity prices, future production and sales volume, the expected future operating, capital and reclamation
costs, discount rates and exchange rates. These estimates are subject to various risks and uncertainties which
may ultimately have an effect on the estimated recoverability of the carrying amounts of the non-current assets.
(v) Reclamation provision
Reclamation provision represents the present value of estimated future costs for the reclamation of the
Company’s mines and properties. These estimates include assumptions as to the future activities, cost of
services, timing of the reclamation work to be performed, inflation rates, exchange rates and interest rates. The
actual cost to reclaim a mine may vary from the estimated amounts because there are uncertainties in factors
used to estimate the cost and potential changes in regulations or laws governing the reclamation of a mine.
Management periodically reviews the reclamation requirements and adjusts the liability as new information
becomes available and will assess the impact of new regulations and laws as they are enacted.
(vi) Contingent consideration
As of December 31, 2016, the valuation of contingent consideration requires significant management estimates
and judgement. This includes the fair value of the US$5,000,000 contingent consideration as well as the fair
value of the contingent warrants. The fair value of the contingent consideration is estimated based on timing
and probability of the payout. The contingent warrants were valued using the Black-Scholes valuation model
and required management to estimate key inputs such as the expected life and volatility when using the
valuation model.
Future Accounting Pronouncements
Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB
or IFRIC that are mandatory for accounting periods beginning on or after January 1, 2017. Updates which are not
applicable or are not consequential to the Company have not been discussed below. The following standards have not
yet been adopted by the Company and are being evaluated to determine their impact:
•
IFRS 9: New standard addresses the classification, measurement and recognition of financial assets and financial
liabilities. IFRS 9 replaces the guidance in International Accounting Standard (“IAS”) 39 that relates to the
classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement
model and establishes three primary measurement categories for financial assets: amortized cost, fair value
through other comprehensive income (“OCI”) and FVTPL. There is a new expected credit losses model that
replaces the incurred loss impairment model used in IAS 39. For financial liabilities, there were no changes to
classification and measurement except for the recognition of changes in own credit risk in OCI, for liabilities
designated as FVTPL. The standard is effective for accounting periods beginning on or after January 1, 2018. Early
adoption is permitted. We are currently evaluating the impact the standard is expected to have on our
consolidated financial statements.
•
IFRS 15: The IASB has replaced IAS 18, Revenue in its entirety with IFRS 15, Revenue from contracts with customers
(“IFRS 15”) which is intended to establish a new control-based revenue recognition model and change the basis
for deciding whether revenue is to be recognized over time or at a point in time. IFRS 15 is effective for annual
periods commencing on or after January 1, 2017. We are currently evaluating the impact the standard is expected
to have on our consolidated financial statements.
•
IFRS 16: New standard that replaces IAS 17 with a new approach to lease accounting that requires a lessee to
recognize assets and liabilities for the rights and obligations created by substantially all leases. IFRS 16 is effective
for annual periods beginning on or after January 1, 2019.
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