UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE
ISSUER PURSUANT TO RULE 13a-16 OR
15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2019
Commission File Number: 001-21777
GOLDEN QUEEN MINING CONSOLIDATED LTD. |
(Translation of registrant’s name into English) |
#880 - 580 Hornby Street |
Vancouver, BC V6C 3B6 |
Canada |
(Address of principal executive office) |
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F x Form 40-F ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____
DOCUMENTS INCLUDED AS PART OF THIS FORM 6-K
See the Exhibit Index hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Golden Queen Mining Consolidated Ltd. | |||||
Date: | August 19, 2019 | (Registrant) | |||
By: | /s/ Brenda Dayton | ||||
Name: | Brenda Dayton | ||||
Title: | Corporate Secretary |
EXHIBIT INDEX
Exhibit Number | Description | |
99.1 | Condensed Consolidated Interim Financial Statements for the Six Months Ended June 30, 2019 | |
99.2 | Management’s Discussion and Analysis for the Six Months Ended June 30, 2019 | |
99.3 | CEO Certification of Interim Filings | |
99.4 | CFO Certification of Interim Filings |
Exhibit 99.1
Golden Queen Mining Consolidated Ltd.
(formerly “Golden Queen Mining Co. Ltd.”)
Condensed Consolidated Interim Financial Statements
June 30, 2019
(US dollars – Unaudited)
GOLDEN QUEEN MINING CONSOLIDATED LTD.
(formerly “Golden Queen Mining Co. Ltd.”)
Condensed Consolidated Interim Balance Sheets
(amounts expressed in thousands of US dollars - Unaudited)
June 30, 2019 | December 31, 2018 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 4,711 | $ | 5,725 | ||||
Inventories (Note 5) | - | 25,031 | ||||||
Prepaid expenses and other current assets | 190 | 467 | ||||||
Total current assets | 4,901 | 31,223 | ||||||
Restricted cash (Note 6) | - | 1,005 | ||||||
Deferred financing cost | - | 3,314 | ||||||
Property, plant, equipment and mineral interests (Note 7) | - | 135,818 | ||||||
Advance minimum royalties | - | 497 | ||||||
Inventories (Note 5) | - | 6,913 | ||||||
Total Assets | $ | 4,901 | $ | 178,770 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 306 | $ | 6,899 | ||||
Interest payable | - | 773 | ||||||
Current portion of note payable (Note 14(ii)) | - | 24,690 | ||||||
Current portion of loan payable (Note 8) | - | 6,578 | ||||||
Derivative liabilities (Note 8) | 3 | 3,390 | ||||||
Total current liabilities | 309 | 42,330 | ||||||
Credit facility | - | 5,000 | ||||||
Loan payable (Note 8) | - | 5,622 | ||||||
Asset retirement obligation (Note 10) | - | 2,497 | ||||||
Deferred tax liability | - | 8,588 | ||||||
Total liabilities | 309 | 64,037 | ||||||
Temporary Equity | ||||||||
Redeemable portion of non-controlling interest (Note 14(iv)) | - | 24,286 | ||||||
Shareholders’ Equity | ||||||||
Common shares, no par value, unlimited shares authorized (2018 - unlimited); 12,192,573 (2018 – 30,010,146) shares issued and outstanding (Note 11) | 38,830 | 95,575 | ||||||
Additional paid-in capital | 97,521 | 44,002 | ||||||
Commitment to issue shares (Notes 4 and 16) | 250 | - | ||||||
Deficit accumulated | (132,009 | ) | (95,559 | ) | ||||
Total shareholders’ equity attributable to GQM Ltd. | 4,592 | 44,018 | ||||||
Non-controlling interest (Note 14(iv)) | - | 46,429 | ||||||
Total Shareholders’ Equity | 4,592 | 90,447 | ||||||
Total Liabilities, Temporary Equity and Shareholders’ Equity | $ | 4,901 | $ | 178,770 |
Subsequent Events (Note 16)
Approved by the Directors:
“Paul M. Blythe” | “Bryan A. Coates” | |
Paul M. Blythe, Director | Bryan A. Coates, Director |
See Accompanying Notes to the Condensed Consolidated Interim Financial Statements
GOLDEN QUEEN MINING CONSOLIDATED LTD.
(formerly “Golden Queen Mining Co. Ltd.”)
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss
(amounts expressed in thousands of US dollars, except shares amounts - Unaudited)
Three Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenues | ||||||||||||||||
Sales | $ | 9,542 | $ | 14,485 | $ | 26,521 | $ | 24,070 | ||||||||
Cost of Sales | ||||||||||||||||
Direct mining costs | (7,309 | ) | (8,130 | ) | (19,593 | ) | (21,146 | ) | ||||||||
Depreciation and depletion (Note 7) | (1,522 | ) | (3,364 | ) | (4,140 | ) | (6,340 | ) | ||||||||
Income (loss) from mine operations | 711 | 2,991 | 2,788 | (3,416 | ) | |||||||||||
General and administrative expenses (Note 12) | (2,430 | ) | (879 | ) | (4,262 | ) | (2,133 | ) | ||||||||
Operating (loss) income | (1,719 | ) | 2,112 | (1,474 | ) | (5,549 | ) | |||||||||
Other income (expenses) | ||||||||||||||||
Gain (loss) on derivative instruments (Note 9) | (127 | ) | (70 | (277 | ) | 68 | ||||||||||
Finance expense (Note 14 (iii)) | (1,349 | ) | (1,441 | ) | (3,769 | ) | (2,974 | ) | ||||||||
Loss on sale of subsidiaries (Note 4) | (31,354 | ) | - | (31,354 | ) | - | ||||||||||
Interest income | 38 | 37 | 111 | 72 | ||||||||||||
Other expenses | - | (34 | ) | - | (76 | ) | ||||||||||
Total other income (expenses) | (32,792 | ) | (1,508 | (35,289 | ) | (2,910 | ) | |||||||||
Net and comprehensive (loss) income for the period | $ | (34,511 | ) | $ | 604 | $ | (36,763 | ) | $ | (8,459 | ) | |||||
Less: Net and comprehensive (income) loss attributable to the non-controlling interest for the period (Note 14 (iv)) | 361 | (1,236 | ) | 313 | 2,410 | |||||||||||
Net and comprehensive loss attributable to Golden Queen Mining Co Ltd. for the period | $ | (34,150 | ) | $ | (632 | ) | $ | (36,450 | ) | $ | (6,049 | ) | ||||
Loss per share – basic and diluted (Note 13) | $ | (1.54 | ) | $ | (0.02 | ) | $ | (1.40 | ) | $ | (0.25 | ) | ||||
Weighted average number of common shares outstanding – basic and diluted | 22,178,244 | 30,010,144 | 26,072,559 | 24,477,273 |
See Accompanying Notes to the Condensed Consolidated Interim Financial Statements
GOLDEN QUEEN MINING CONSOLIDATED LTD.
(formerly “Golden Queen Mining Co. Ltd.”)
Condensed Consolidated Interim Statements of Shareholders’ Equity, Non-controlling Interest and Redeemable Portion of Non-controlling Interest
(amounts expressed in thousands of US dollars, except shares amounts - Unaudited)
Common shares | Amount | Additional Paid-in Capital | Commitment to Issue Shares | Deficit Accumulated | Total
Shareholders’ Equity attributable to GQM Ltd | Non- controlling Interest | Total Shareholders’ Equity | Redeemable Portion of Non- controlling Interest | ||||||||||||||||||||||||||||
Balance, December 31, 2017 | 11,114,870 | $ | 71,126 | $ | 43,853 | $ | - | $ | (88,500 | ) | $ | 26,479 | $ | 36,321 | $ | 62,800 | $ | 24,214 | ||||||||||||||||||
Issuance of common shares (Note 11) | 18,895,276 | 24,368 | - | - | - | 24,368 | - | 24,368 | - | |||||||||||||||||||||||||||
Capital contribution from non-controlling interest | - | - | - | - | - | - | 10,000 | 10,000 | - | |||||||||||||||||||||||||||
Stock-based compensation | - | - | 80 | - | - | 80 | - | 80 | - | |||||||||||||||||||||||||||
Net loss for the period | - | - | - | - | (6,049 | ) | (6,049 | ) | (1,446 | ) | (7,495 | ) | (964 | ) | ||||||||||||||||||||||
Balance, June 30, 2018 | 30,010,146 | $ | 95,494 | $ | 43,933 | $ | - | $ | (94,549 | ) | $ | 44,878 | $ | 44,875 | $ | 89,753 | $ | 23,250 | ||||||||||||||||||
Balance, December 31, 2018 | 30,010,146 | $ | 95,575 | $ | 44,002 | $ | - | $ | (95,559 | ) | $ | 44,018 | $ | 46,429 | $ | 90,447 | $ | 24,286 | ||||||||||||||||||
Sale of subsidiaries (Note 4) | - | - | - | - | - | - | (46,241 | ) | (46,241 | ) | (24,161 | ) | ||||||||||||||||||||||||
Return to treasury (Note 4) | (17,817,573 | ) | (56,745 | ) | 53,423 | - | - | (3,322 | ) | - | (3,322 | ) | - | |||||||||||||||||||||||
Commitment to issue shares (Notes 4 and 16) | - | - | - | 250 | - | 250 | - | 250 | - | |||||||||||||||||||||||||||
Stock-based compensation | - | - | 96 | - | - | 96 | - | 96 | - | |||||||||||||||||||||||||||
Net loss for the period | - | - | - | - | (36,450 | ) | (36,450 | ) | (188 | ) | (36,638 | ) | (125 | ) | ||||||||||||||||||||||
Balance, June 30, 2019 | 12,192,573 | $ | 38,830 | $ | 97,521 | $ | 250 | $ | (132,009 | ) | $ | 4,592 | $ | - | $ | 4,592 | $ | - |
See Accompanying Notes to the Condensed Consolidated Interim Financial Statements
GOLDEN QUEEN MINING CONSOLIDATED LTD.
(formerly “Golden Queen Mining Co. Ltd.”)
Condensed Consolidated Interim Statements of Cash Flows
(amounts expressed in thousands of US dollars - Unaudited)
Six Months Ended June 30, | Six Months Ended June 30, | |||||||
2019 | 2018 | |||||||
Operating Activities | ||||||||
Net loss for the period | $ | (36,763 | ) | $ | (8,459 | ) | ||
Adjustment to reconcile net loss to cash used in operating activities: | ||||||||
Depreciation and depletion | 4,071 | 6,340 | ||||||
Amortization of debt discount and interest accrual | 2,165 | 1,124 | ||||||
Accretion expense | 69 | 83 | ||||||
Change in fair value of derivative liabilities (Note 9) | 277 | (68 | ) | |||||
Stock based compensation | 96 | 80 | ||||||
Unrealized foreign exchange gain | 43 | (37 | ) | |||||
Transaction fee paid in shares (Note 4) | 250 | - | ||||||
Loss on sale of subsidiaries (Note 4) | 31,354 | - | ||||||
Changes in non-cash working capital items: | ||||||||
Prepaid expenses & other current assets | (423 | ) | (93 | ) | ||||
Inventory | (8,196 | ) | (8,080 | ) | ||||
Accounts payable & accrued liabilities | 1,368 | (1,598 | ) | |||||
Interest payable | 900 | - | ||||||
Cash used in operating activities | (4,789 | ) | (10,708 | ) | ||||
Investment activities: | ||||||||
Additions to property, plant, equipment and mineral interests | (2,919 | ) | (2,394 | ) | ||||
Cash disposed of on sale of subsidiaries, net of cash received (Note 4) | (1,115 | ) | - | |||||
Cash used in investing activities | (4,034 | ) | (2,394 | ) | ||||
Financing activity: | ||||||||
Issuance of common shares (Note 11) | - | 24,368 | ||||||
Proceeds from credit facility | 10,000 | - | ||||||
Repayment of credit facility | - | (3,000 | ) | |||||
Repayments of loan payable (Note 8) | (3,196 | ) | (3,954 | ) | ||||
Repayments of note payable and accrued interest (Note 14(ii)) | - | (6,711 | ) | |||||
Capital contribution from non-controlling interest | - | 10,000 | ||||||
Cash generated from financing activities | 6,804 | 20,703 | ||||||
Net change in cash, cash equivalents and restricted cash | (2,019 | ) | 7,601 | |||||
Cash, cash equivalents and restricted cash, beginning balance | 6,730 | 2,937 | ||||||
Cash, cash equivalents and restricted cash, ending balance | $ | 4,711 | $ | 10,538 |
Supplementary Disclosure of Cash Flow Information
Six Months Ended June 30, | Six Months Ended June 30, | |||||||
2019 | 2018 | |||||||
Cash paid during the period for: | ||||||||
Interest on loan and note payable | $ | 221 | $ | 401 | ||||
Non-cash financing and investing activities: | ||||||||
Asset retirement costs charged to mineral property interests | $ | 417 | $ | 575 | ||||
Mining equipment acquired through issuance of debt | $ | - | $ | 3,113 | ||||
Mineral property expenditures included in accounts payable | $ | - | $ | 100 | ||||
Extension fee added to principal balance | $ | 75 | $ | - | ||||
Non-cash amortization of discount and interest expense | $ | 2,165 | $ | 1,124 |
See Accompanying Notes to the Condensed Consolidated Interim Financial Statements
GOLDEN QUEEN MINING CONSOLIDATED LTD.
(formerly “Golden Queen Mining Co. Ltd.”)
Notes to the Condensed Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2019 and 2018
(amounts expressed in thousands of US dollars, except share amounts - Unaudited)
1. | Nature of Business |
Golden Queen Mining Consolidated Ltd. (“Golden Queen”, “GQM Ltd.” or the “Company”) was engaged in the operation of the Soledad Mountain Mine (“the Mine”), located in the Mojave Mining District, Kern County, California. The Company owned 50% of Golden Queen Mining Company, LLC (“GQM LLC”), the operator of the Mine. The remaining 50% was owned by Gauss LLC (“Gauss”). On May 22, 2019, the Company completed the sale of its subsidiaries including its interest in GQM LLC (Note 4). On July 26, 2019, the Company changed its name from “Golden Queen Mining Co. Ltd.” to “Golden Queen Mining Consolidated Ltd.”.
2. | Basis of Presentation |
These unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) applicable to going concern. The accounting policies followed in preparing these condensed consolidated interim financial statements are those used by the Company as set out in the audited consolidated financial statements for the year ended December 31, 2018 other than noted below.
Certain information and note disclosures normally included for annual consolidated financial statements prepared in accordance with US GAAP have been omitted. These unaudited condensed consolidated interim financial statements should be read together with the audited consolidated financial statements of the Company for the year ended December 31, 2018.
In the opinion of Management, all adjustments considered necessary (including reclassifications and normal recurring adjustments) to present fairly the financial position, results of operations and cash flows as at June 30, 2019 and for all periods presented, have been included in these unaudited condensed consolidated interim financial statements. The interim results are not necessarily indicative of results for the full year ending December 31, 2019, or future operating periods.
3. | Summary of Accounting Policies and Estimates and Judgements |
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and judgements have been made by Management in several areas including the derivative liability – warrants. Actual results could differ from those estimates.
New Accounting Pronouncements
Adopted
(i) | February 2016, FASB issued ASC 842 that requires lessees to recognize lease assets and corresponding lease liabilities on the balance sheet for all leases with terms of more than 12 months. The update, which supersedes existing lease guidance, will continue to classify leases as either finance or operating, with the classification determining the pattern of expense recognition in the income statement. |
The ASU was effective for annual and interim periods beginning January 1, 2019 and is applicable on a modified retrospective basis. The Company adopted the guidance effective January 1, 2019 and has applied the guidance on a modified retrospective basis. There was an immaterial impact on the financial statements from the adoption of this guidance.
4. | Sale of Subsidiaries |
On February 7, 2019, the Company entered into a binding share purchase agreement with a group of purchasers including Thomas M. Clay and certain members of the Clay family and associated entities (the “Purchaser”), whereby the Purchaser would acquire 100% of the Company’s 50% ownership interest in the Soledad Mountain Project (the “Transaction”).
GOLDEN QUEEN MINING CONSOLIDATED LTD.
(formerly “Golden Queen Mining Co. Ltd.”)
Notes to the Condensed Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2019 and 2018
(amounts expressed in thousands of US dollars, except share amounts - Unaudited)
4. | Sale of Subsidiaries (continued) |
The Transaction was subject to the approval of the shareholders of the Company. The shareholders voted for the Transaction at the Annual General and Special meeting held on May 13, 2019. On May 22, 2019, the Transaction closed.
The consideration from the Purchasers was comprised of (1) $4.25 million in cash; (2) the extinguishment of all amounts owing to the Purchasers by the Company under Clay Group Loan (Note 14(ii)); and (3) the cancellation of all of the Purchasers’ ownership interest in the Company (consisting of 17,817,573 Shares, 45,750 options and 1,800,000 share purchase warrants). In addition, the Purchasers may pay a contingent payment to the Company if the Soledad Mountain Project is subsequently sold or transferred to a third party in certain circumstances.
The Company incurred $977 of costs relating to the Transaction during the six months ended June 30, 2019, including 1,339,694 common shares issued as a financial advisory fee. The common shares were recorded at the fair value of $250 and included in commitment to issue shares as at June 30, 2019. Subsequent to June 30, 2019, the Company issued the 1,339,694 common shares to the financial advisor.
Proceeds: | ||||
Cash | $ | 4,250 | ||
17,817,573 shares returned to treasury at the fair value of C$0.25 per share | 3,322 | |||
Clay Group Loan principal (Note 14 (ii)) | 25,700 | |||
Clay Group Loan interest payable (Note 14 (ii)) | 1,700 | |||
Clay Group Share Purchase Warrants (Note 9) | 79 | |||
35,051 | ||||
Book value of net assets disposed of | 136,807 | |||
Redeemable portion of non-controlling interest | (24,161 | ) | ||
Non-controlling interest | (46,241 | ) | ||
66,405 | ||||
Loss on sale of subsidiaries | $ | (31,354 | ) |
The excess book value of the shares over the fair market value of the shares on May 22, 2019 of $53,423 was allocated to additional paid-in capital.
5. | Inventories |
Inventories consisted primarily of production from the Company’s operation, in varying stages of the production process and supplies and spare parts, all of which were presented at the lower of cost or net realizable value. Inventories of the Company were comprised of:
June 30, 2019 | December 31, 2018 | |||||||
Stockpile inventory | $ | - | $ | 6,913 | ||||
In-process inventory | - | 21,607 | ||||||
Dore inventory | - | 761 | ||||||
Supplies and spare parts | - | 2,663 | ||||||
$ | - | $ | 31,944 | |||||
Current portion | $ | - | $ | 25,031 | ||||
Non-current portion | $ | - | $ | 6,913 |
GOLDEN QUEEN MINING CONSOLIDATED LTD.
(formerly “Golden Queen Mining Co. Ltd.”)
Notes to the Condensed Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2019 and 2018
(amounts expressed in thousands of US dollars, except share amounts - Unaudited)
6. | Restricted Cash |
The Company’s restricted cash consisted of the following:
June, 2019 | December 31, 2018 | |||||||
Certificate of Deposit | $ | - | $ | 1,005 |
7. | Property, Plant, Equipment and Mineral Interests |
Property, plant and equipment and mineral interests, are depreciated and depleted using either the units-of-production or straight-line method over the shorter of the estimated useful life of the asset or the expected life of mine. Assets under construction in progress are recorded at cost and re-allocated to its corresponding category when they become available for use.
Land | Mineral
property interest and claims | Mine
development | Machinery
and equipment | Buildings
and infrastructure | Construction
in progress | Interest
capitalized | Total | |||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||||||
At December 31, 2017 | $ | 3,969 | $ | 5,280 | $ | 50,773 | $ | 70,066 | $ | 28,397 | $ | 54 | $ | 5,886 | $ | 164,425 | ||||||||||||||||
Additions | 173 | 5 | 492 | - | - | 6,902 | - | 7,572 | ||||||||||||||||||||||||
Transfers | (5 | ) | 550 | 711 | 5,375 | 48 | (6,679 | ) | - | - | ||||||||||||||||||||||
Disposals | - | - | - | (213 | ) | - | - | - | (213 | ) | ||||||||||||||||||||||
At December 31, 2018 | $ | 4,137 | $ | 5,835 | $ | 51,976 | $ | 75,228 | $ | 28,445 | $ | 277 | $ | 5,886 | $ | 171,784 | ||||||||||||||||
Additions | 132 | - | 417 | 214 | - | 1,862 | - | 2,625 | ||||||||||||||||||||||||
Disposals | - | - | - | - | (50 | ) | - | - | (50 | ) | ||||||||||||||||||||||
Sale of subsidiaries | (4,269 | ) | (5,835 | ) | (52,392 | ) | (75,422 | ) | (28,395 | ) | (2,139 | ) | (5,886 | ) | (174,359 | ) | ||||||||||||||||
At June 30, 2019 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Accumulated depreciation and depletion | ||||||||||||||||||||||||||||||||
At December 31, 2017 | $ | - | $ | 328 | $ | 3,415 | $ | 13,353 | $ | 5,010 | $ | - | $ | 471 | $ | 22,577 | ||||||||||||||||
Additions | - | 278 | 2,682 | 7,789 | 2,357 | - | 430 | 13,536 | ||||||||||||||||||||||||
Disposals | - | - | - | (147 | ) | - | - | - | (147 | ) | ||||||||||||||||||||||
At December 31, 2018 | $ | - | $ | 606 | $ | 6,097 | $ | 20,995 | $ | 7,367 | $ | - | $ | 901 | $ | 35,966 | ||||||||||||||||
Additions | - | 55 | 1,036 | 2,827 | 582 | - | 208 | 4,708 | ||||||||||||||||||||||||
Sale of subsidiaries | - | $ | (661 | ) | (7,133 | ) | (23,822 | ) | (7,949 | ) | - | (1,109 | ) | (40,674 | ) | |||||||||||||||||
At June 30, 2019 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Carrying values | ||||||||||||||||||||||||||||||||
At December 31, 2018 | $ | 4,137 | $ | 5,229 | $ | 45,879 | $ | 54,233 | $ | 21,078 | $ | 277 | $ | 4,985 | $ | 135,818 | ||||||||||||||||
At June 30, 2019 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
GOLDEN QUEEN MINING CONSOLIDATED LTD.
(formerly “Golden Queen Mining Co. Ltd.”)
Notes to the Condensed Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2019 and 2018
(amounts expressed in thousands of US dollars, except share amounts - Unaudited)
8. | Loan Payable |
As at June 30, 2019 and December 31, 2018, equipment financing balances are as follows:
June 30, 2019 | December 31, 2018 | |||||||
Balance, beginning of the period | $ | 12,200 | $ | 17,243 | ||||
Additions | - | 3,751 | ||||||
Principal repayments | (3,196 | ) | (8,156 | |||||
Down payments and taxes | - | (638 | ) | |||||
Sale of subsidiaries | (9,004 | ) | - | |||||
Balance, end of the period | $ | - | $ | 12,200 | ||||
Current portion | $ | - | $ | 6,578 | ||||
Non-current portion | $ | - | $ | 5,622 |
9. | Derivative Liabilities |
Share Purchase Warrants
The Company had 1,000,000 share purchase warrants outstanding exercisable at $7.831 per share and 800,000 share purchase warrants outstanding exercisable at $6.65 per share (the “Clay Group share purchase warrants”). As part of the sale of subsidiaries, the Clay Group share purchase warrants were cancelled (Note 4).
The Company has an additional 631,770 share purchase warrants outstanding with an exercise price of C$20.00 per share. The share purchase warrants meet the definition of a derivative liability instrument as the exercise price is not a fixed price as described above. Therefore, the settlement feature does not meet the “fixed-for-fixed” criteria outlined in ASC 815-40-15.
The fair value of the derivative liabilities related to the share purchase warrants as at June 30, 2019 was $3 (December 31, 2018 – $76). The derivative liabilities were calculated using the Black-Scholes pricing valuation model with the following weighted average assumptions:
Warrants derivative liabilities | June 30, 2019 | December 31, 2018 | ||||||
Risk-free interest rate | 1.30 | % | 1.37 | % | ||||
Expected life of derivative liability | 0.07 years | 1.69 years | ||||||
Expected volatility | 173.18 | % | 93.96 | % | ||||
Dividend rate | 0.00 | % | 0.00 | % |
GQM LLC Warrants
In connection with the 2018 Credit Facility, GQM LLC issued 21,486 warrants (the “GQM LLC Warrants”), with each warrant entitling the holder to purchase a unit of GQM LLC for a period of five (5) years at an exercise price of $475.384 per unit. The warrants were classified as a derivative liability due to a clause in the warrant agreement that offers the warrant holders price protection. As part of the sale of subsidiaries, the GQM LLC Warrants were disposed of. The fair value of the derivative liabilities related to the warrants as at the date of sale of subsidiaries, May 22, 2019 was $3,585 (December 31, 2018 - $3,314). The derivative liability was calculated using the Black-Scholes pricing valuation model.
GQM LLC Warrants derivative liability | May 22, 2019 | December 31, 2018 | ||||||
Risk-free interest rate | 2.23 | % | 2.65 | % | ||||
Expected life of derivative liability | 4.60 years | 4.89 years | ||||||
Expected volatility | 20.00 | % | 20.00 | % | ||||
Dividend rate | 0.00 | % | 0.00 | % |
GOLDEN QUEEN MINING CONSOLIDATED LTD.
(formerly “Golden Queen Mining Co. Ltd.”)
Notes to the Condensed Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2019 and 2018
(amounts expressed in thousands of US dollars, except share amounts - Unaudited)
9. | Derivative Liabilities (continued) |
The change in the derivative liabilities is as follows:
June 30, 2019 | December 31, 2018 | |||||||
Balance, beginning of the period | $ | 3,390 | $ | 441 | ||||
GQM LLC Warrants | - | 3,314 | ||||||
Change in fair value | 195 | (365 | ) | |||||
Sale of subsidiaries (Note 4) | (3,585 | ) | - | |||||
Balance, end of the period | $ | - | $ | 3,390 |
10. | Asset Retirement Obligations |
The following is a summary of asset retirement obligations:
June 30, 2019 | December 31, 2018 | |||||||
Balance, beginning of the period | $ | 2,497 | $ | 1,838 | ||||
Accretion | 69 | 167 | ||||||
Changes in cash flow estimates | 417 | 492 | ||||||
Sale of subsidiaries (Note 4) | (2,983 | ) | - | |||||
Balance, end of the period | $ | - | $ | 2,497 |
11. | Share Capital |
The Company’s common shares outstanding are no par value, voting shares with no preferences or rights attached to them.
Common shares
On February 22, 2018, the Company closed a rights offering and issued 18,895,276 shares for total gross proceeds of $25,036. The Company paid associated fees of $587 which were classified as share issue costs.
On May 22, 2019, as part of the sale of subsidiaries (Note 4), 17,817,573 common shares were returned to treasury and cancelled.
Stock options
The Company’s current stock option plan (the “Plan”) was adopted by the Company in 2013 and approved by shareholders of the Company in 2013. The Plan provides a fixed number of 720,000 common shares of the Company that may be issued pursuant to the grant of stock options. The exercise price of stock options granted under the Plan shall be determined by the Company’s Board of Directors (the “Board”) but shall not be less than the volume-weighted, average trading price of the Company’s shares on the Toronto Stock Exchange (“TSX”) for the five (5) trading days immediately prior to the date of the grant. The expiry date of a stock option shall be the date so fixed by the Board subject to a maximum term of five (5) years.
The Company has elected to use the Black-Scholes option pricing model to determine the fair value of stock options granted. The compensation expense is amortized on a straight-line basis over the requisite service period, which approximates the vesting period.
GOLDEN QUEEN MINING CONSOLIDATED LTD.
(formerly “Golden Queen Mining Co. Ltd.”)
Notes to the Condensed Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2019 and 2018
(amounts expressed in thousands of US dollars, except share amounts - Unaudited)
11. | Share Capital (continued) |
Stock options (continued)
The following is a summary of stock option activity during the six months ended June 30, 2019 and the year ended December 31, 2018:
Shares | Weighted Average Exercise Price per Share | |||||||
Options outstanding, December 31, 2017 | 260,000 | $ | 5.37 | |||||
Options forfeited | (7,500 | ) | $ | 2.90 | ||||
Options expired | (20,000 | ) | $ | 14.83 | ||||
Options outstanding, December 31, 2018 | 232,500 | $ | 4.64 | |||||
Options cancelled on sale of subsidiaries | (45,750 | ) | 4.39 | |||||
Options outstanding, June 30, 2019 | 186,750 | $ | 4.70 |
During the six months ended June 30, 2019, the Company recognized $96 (2018 - $80) in stock-based compensation relating to the vesting of employee stock options.
The following table summarizes information about stock options outstanding and exercisable as at June 30, 2019:
Expiry Date | Number Outstanding | Number Exercisable | Remaining Contractual Life (years) | Exercise Price | ||||||||||||
September 8, 2020 | 32,250 | 32,250 | 1.19 | $ | 5.80 | |||||||||||
November 30, 2021 | 26,500 | 17,666 | 2.42 | $ | 6.60 | |||||||||||
March 20, 2022 | 40,000 | 26,667 | 2.72 | $ | 6.50 | |||||||||||
October 20, 2022 | 88,000 | 29,333 | 3.31 | $ | 2.90 | |||||||||||
186,750 | 105,916 | 2.69 |
As at June 30, 2019, the aggregate intrinsic value of the outstanding exercisable options was $nil (December 31, 2018 – $nil).
Warrants
As at June 30, 2019, 631,770 warrants were outstanding (December 31, 2018 – 2,431,770). As part of the sale of subsidiaries, 1,800,000 Clay Group share purchase warrants were cancelled (Note 4).
The following table summarizes information about share purchase warrants outstanding as at June 30, 2019:
Expiry Date | Number Outstanding | Remaining Contractual Life (years) | Exercise Price | |||||||||
July 25, 2019 (1) | 631,770 | 0.07 | C$ | 20.00 |
(1) | Non-tradable share purchase warrants. Subsequent to June 30, 2019, these share purchase warrants expired unexercised. |
GOLDEN QUEEN MINING CONSOLIDATED LTD.
(formerly “Golden Queen Mining Co. Ltd.”)
Notes to the Condensed Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2019 and 2018
(amounts expressed in thousands of US dollars, except share amounts - Unaudited)
12. | General and Administrative Expenses |
General and administrative expenses are incurred to support the administration of the business that are not directly related to production. Significant components of general and administrative expenses are comprised of the following:
Three Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Audit, legal and professional fees | $ | 285 | $ | 169 | $ | 388 | $ | 409 | ||||||||
Salaries and benefits and director fees | 1,206 | 180 | 2,005 | 683 | ||||||||||||
Regulatory fees and licenses | 9 | 46 | 34 | 125 | ||||||||||||
Insurance | 99 | 144 | 270 | 283 | ||||||||||||
Transaction expenses (Note 4) | 524 | - | 990 | - | ||||||||||||
Corporate administration | 307 | 340 | 575 | 633 | ||||||||||||
$ | 2,430 | $ | 879 | $ | 4,262 | $ | 2,133 |
13. | Loss Per Share |
Three Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Numerator: | ||||||||||||||||
Net loss attributable to the shareholders of the Company - numerator for basic and diluted | $ | (34,150 | ) | $ | (632 | ) | $ | (36,450 | ) | $ | (6,049 | ) | ||||
Denominator: | ||||||||||||||||
Weighted average number of common shares outstanding -basic and diluted | 22,178,244 | 30,010,144 | 26,072,559 | 24,477,273 | ||||||||||||
Loss per share – basic and diluted | $ | (1.54 | ) | $ | (0.02 | ) | $ | (1.40 | ) | $ | (0.25 | ) |
Weighted average number of shares for the six months ended June 30, 2019 excludes 1,867,501 options (December 31, 2018 – 2,325,001) and 6,317,700 warrants (December 31, 2018 – 24,317,700) that were antidilutive.
14. | Related Party Transactions |
Except as noted elsewhere in these consolidated financial statements, related party transactions are disclosed as follows:
(i) | Compensation of Key Management Personnel, Transactions with Related Parties and Related Party Balances |
For the three and six months ended June 30, 2019, the Company recognized $916 and $1,277 (for the three and six months ended June 30, 2018 –$104 and $299) salaries and fees for Officers and Directors. Included in this compensation was $758 of termination payments made to the CEO and the Corporate Secretary on completion of the Transaction.
GOLDEN QUEEN MINING CONSOLIDATED LTD.
(formerly “Golden Queen Mining Co. Ltd.”)
Notes to the Condensed Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2019 and 2018
(amounts expressed in thousands of US dollars, except share amounts - Unaudited)
14. | Related Party Transactions (continued) |
(ii) | Note Payable |
As at December 31, 2018, The Company had a loan with the Clay Group with a principal balance of $25,625 (the “Clay Group Loan”). The Clay Group Loan had principal and accrued interest due as follows: $1.7 million of principal and accrued interest on January 1, 2019; $3.9 million of principal and accrued interest on April 1, 2019; and the balance due on May 21, 2019. On December 27, 2018, the Company and the Clay Group agreed to amend the Clay Group Loan, extending the due date of $1.7 million of principal as well as interest from the original due date of January 1, 2019 to February 1, 2019. An extension fee of $125 was added to the principal amount owing. On February 1, 2019, the due date was extended to February 8, 2019 for an extension fee of $75 that was added to the principal amount owing. On February 8, 2019, the due dates of principal and interest on the Clay Group Loan were extended until completion of the Transaction (Note 4). The amendments were accounted for as debt modifications. The Loan was settled as part of the Transaction (Note 4).
The following table summarizes activity on the notes payable:
June 30, 2019 | December 31, 2018 | |||||||
Balance, beginning of the year | $ | 24,690 | $ | 30,099 | ||||
Accretion of discount on loans | 568 | 2,040 | ||||||
Capitalized financing, extension and legal fees | (75 | ) | (125 | ) | ||||
Extension fee added to principal | 75 | 125 | ||||||
Accretion of capitalized financing, extension and legal fees | 442 | 262 | ||||||
Repayment of loans and interest | - | (7,711 | ) | |||||
Settled on sale of subsidiaries | (25,700 | ) | - | |||||
Balance, end of the year | $ | - | $ | 24,690 |
(iii) | Amortization of Discounts and Interest Expense |
The following table summarizes the amortization of discount and interest on loans:
Three Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Accretion of the Clay Group Loan discount | $ | 42 | $ | 504 | $ | 568 | $ | 994 | ||||||||
Accretion of capitalized financing and legal fees | 177 | 66 | 442 | 130 | ||||||||||||
Amortization of deferred financing fees | 473 | - | 1,128 | - | ||||||||||||
Interest expense related to the Clay Group Loan | 390 | 695 | 1,048 | 1,409 | ||||||||||||
Interest expense related to the 2018 Credit Facility | 142 | - | 322 | - | ||||||||||||
Closing and commitment fees related to the Credit Facility | 13 | 10 | 40 | 40 | ||||||||||||
Interest expense related to Komatsu financial loans (1) | 112 | 166 | 221 | 401 | ||||||||||||
Accretion of discount and interest on loan | $ | 1,349 | $ | 1,441 | $ | 3,769 | $ | 2,974 |
(1) | Komatsu is not a related party and has only been included in the above table to reconcile the total interest expense incurred for the period to the amounts capitalized and expensed. |
GOLDEN QUEEN MINING CONSOLIDATED LTD.
(formerly “Golden Queen Mining Co. Ltd.”)
Notes to the Condensed Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2019 and 2018
(amounts expressed in thousands of US dollars, except share amounts - Unaudited)
(iv) | Joint Venture Transaction |
The Company was presented Gauss’ ownership in GQM LLC as a non-controlling interest amount on the balance sheet within the equity section. However, there were terms in the agreement that provided for the exit from the investment in GQM LLC for an initial member whose interest in GQM LLC becomes less than 20%.
14. | Related Party Transactions (continued) |
(iv) | Joint Venture Transaction (continued) |
If a member became less than a 20% interest holder, its remaining interest would (ultimately) be terminated through one of 3 events at the non-diluted member’s option:
a. | Through conversion to a net smelter royalty (“NSR”); |
b. | Through a buy-out (at fair value) by the non-diluted member; or |
c. | Through a sale process by which the diluted member’s interest is sold. |
The net assets of GQM LLC as at May 22, 2019 (the date of sale of subsidiaries – Note 4) and December 31, 2018 were as follows:
May 22, 2019 | December 31, 2018 | |||||||
Assets, GQM LLC | $ | 179,353 | $ | 171,334 | ||||
Liabilities, GQM LLC | (38,547 | ) | (29,904 | ) | ||||
Net assets, GQM LLC | $ | 140,806 | $ | 141,430 |
Non-Controlling Interest
The carrying value of the non-controlling interest is adjusted for net income and loss, distributions and contributions pursuant to ASC 810-10 based on the same percentage allocation used to calculate the initial book value of temporary equity.
Three Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net and comprehensive income (loss) in GQM LLC | $ | (721 | ) | $ | 2,475 | $ | (626 | ) | $ | (4,819 | ) | |||||
Non-controlling interest percentage | 50 | % | 50 | % | 50 | % | 50 | % | ||||||||
Net and comprehensive income (loss) attributable to non-controlling interest | $ | (361 | ) | $ | 1,238 | $ | (313 | ) | $ | (2,410 | ) | |||||
Net and comprehensive income (loss) attributable to permanent non-controlling interest | $ | (217 | ) | $ | 743 | $ | (188 | ) | $ | (1,446 | ) | |||||
Net and comprehensive income (loss) attributable to temporary non-controlling interest | $ | (144 | ) | $ | 495 | $ | (125 | ) | $ | (964 | ) |
Permanent Non-Controlling Interest | Temporary Non-Controlling Interest | |||||||
Carrying value of non-controlling interest, December 31, 2017 | $ | 36,321 | $ | 24,214 | ||||
Capital contribution | 10,000 | - | ||||||
Net and comprehensive income for the year | 108 | 72 | ||||||
Carrying value of non-controlling interest, December 31, 2018 | $ | 46,429 | $ | 24,286 | ||||
Net and comprehensive income for the period | (188 | ) | (125 | ) | ||||
Sale of subsidiaries (Note 4) | (46,241 | ) | (24,161 | ) | ||||
Carrying value of non-controlling interest, June 30, 2019 | $ | - | $ | - |
GOLDEN QUEEN MINING CONSOLIDATED LTD.
(formerly “Golden Queen Mining Co. Ltd.”)
Notes to the Condensed Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2019 and 2018
(amounts expressed in thousands of US dollars, except share amounts - Unaudited)
15. | Financial Instruments |
Fair Value Measurements
All financial assets and financial liabilities are recorded at fair value on initial recognition. Transaction costs are expensed when they are incurred, unless they are directly attributable to the acquisition of qualifying assets, in which case they are added to the costs of those assets until such time as the assets are substantially ready for their intended use or sale.
The three levels of the fair value hierarchy are as follows:
Level 1 | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
Level 2 | Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; |
Level 3 | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
June 30, 2019 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Liabilities: | ||||||||||||||||
Share purchase warrants – derivative liabilities (Note 9) | $ | 3 | $ | - | $ | 3 | $ | - | ||||||||
$ | 3 | $ | - | $ | 3 | $ | - |
December 31, 2018 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Liabilities: | ||||||||||||||||
Share purchase warrants – derivative liabilities (Note 9) | $ | 76 | $ | - | $ | 76 | $ | - | ||||||||
GQM LLC Warrants (Note 9) | 3,314 | - | 3,314 | - | ||||||||||||
$ | 3,390 | $ | - | $ | 3,390 | $ | - |
Under fair value accounting, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The fair value measurement of the financial instruments above use observable inputs in option price models such as the binomial and the Black-Scholes valuation models.
Credit Risk
Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Company by failing to discharge its obligations. To mitigate exposure to credit risk on financial assets the Company has established policies to ensure liquidity of funds and ensure counterparties demonstrate minimum acceptable credit worthiness.
The Company maintains its US Dollar and Canadian Dollar cash in bank accounts with major financial institutions with high credit standings. Cash deposits held in the United States are insured by the Federal Deposit Insurance Corporation (“FDIC”) for up to $250 and Canadian Dollar cash deposits held in Canada are insured by the Canada Deposit Insurance Corporation (“CDIC”) for up to C$100. The Company has not experienced any losses on such accounts and management believes that using major financial institutions with high credit ratings mitigates the credit risk in cash.
Interest Rate Risk
The Company holds approximately its cash in bank deposit accounts with major financial institutions. The interest rates received on these balances may fluctuate with changes in economic conditions. Based on the average cash balances during the six months ended June 30, 2019, a 1% decrease in interest rates would have reduced the interest income for the six months ended June 30, 2019, by an immaterial amount.
GOLDEN QUEEN MINING CONSOLIDATED LTD.
(formerly “Golden Queen Mining Co. Ltd.”)
Notes to the Condensed Consolidated Interim Financial Statements
For the Six Months Ended June 30, 2019 and 2018
(amounts expressed in thousands of US dollars, except share amounts - Unaudited)
15. | Financial Instruments (continued) |
Foreign Currency Exchange Risk
Certain purchases of corporate overhead items are denominated in Canadian Dollar. As a result, currency exchange fluctuations may impact the costs of operations. Specifically, the appreciation of the Canadian Dollar against the US Dollar may result in an increase in the Canadian operating expenses in US dollar terms. As at June 30, 2019, the Company maintained the majority of its cash balance in Canadian Dollars. The Company currently does not engage in any currency hedging activities.
16. | Subsequent Events |
Subsequent to June 30, 2019, the Company issued 1,339,694 common shares as a financial advisory fee (Note 4). The common shares were included in commitment to issue shares as at June 30, 2019.
On July 25, 2019, 631,770 warrants exercisable at C$20.00 per share expired unexercised.
On July 26, 2019, the Company changed its name from “Golden Queen Mining Co. Ltd.” to “Golden Queen Mining Consolidated Ltd.”.
Effective July 26, 2019, the Company consolidated its common shares on the basis of one new common share for every ten old common shares issued and outstanding at that time. All references to share and per share amounts in these financial statements have been retroactively restated to reflect the share consolidation.
On July 26, 2019, the Company’s common shares were delisted from the Toronto Stock Exchange and were listed on the NEX board of the TSX Venture Exchange under the symbol “GQM”.
Exhibit 99.2
Golden Queen Mining Consolidated Ltd |
(formerly “Golden Queen Mining Co. Ltd.”) |
Management’s Discussion and Analysis (“MD&A”) |
For the six months ended June 30, 2019 |
The following information, prepared as of August 16, 2019, should be read in conjunction with the condensed interim consolidated financial statements of Golden Queen Mining Consolidated Ltd. (formerly “Golden Queen Mining Co. Ltd.”). (“Golden Queen”, “GQM Ltd.”, “Company”, “we”, “our” or “us”) for the six months ended June 30, 2019, together with the audited consolidated financial statements of the Company for the year ended December 31, 2018. The referenced consolidated financial statements have been prepared in accordance with US generally accepted accounting principles (“US GAAP”), where appropriate as applicable to interim financial reporting. All amounts herein are presented in thousands of US dollars, except per share amounts, or unless otherwise noted.
Forward-looking Statements
Certain statements contained herein constitute "forward-looking statements.” These statements, identified by words such as “plan,” "anticipate,” "believe,” "estimate,” "should,” "expect" and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, general business, economic, competitive, political and social uncertainties.
General
Golden Queen was previously engaged in the operation of the Soledad Mountain Mine (“the Mine”), located in the Mojave Mining District, Kern County, California. The Company owned 50% of Golden Queen Mining Company, LLC (“GQM LLC”), the operator of the Mine. The remaining 50% was owned by Gauss LLC (“Gauss”). On May 22, 2019, the Company completed the sale of its subsidiaries including its interest in GQM LLC. On July 26, 2019, the Company changed its name from “Golden Queen Mining Co. Ltd.” to “Golden Queen Mining Consolidated Ltd.”.
The Company’s shares trade on the NEX board of the TSX Venture Exchange under the symbol “GQM.H”.
The Soledad Mountain Mine
The Company was previously engaged in the operation of the Soledad Mountain Mine (“the Mine”), located in the Mojave Mining District, Kern County, California. The Company owned 50% of Golden Queen Mining Company, LLC (“GQM LLC”), the operator of the Mine, until closing of the Transaction on May 22, 2019. The remaining 50% was owned by Gauss LLC (“Gauss”). The Mine is located just outside the town of Mojave in southern California and utilizes conventional open pit mining methods and cyanide heap leach and Merrill-Crowe processes to recover gold and silver from crushed, agglomerated ore. The Mine also produces small amounts of aggregate.
1 |
Golden Queen Mining Consolidated Ltd |
(formerly “Golden Queen Mining Co. Ltd.”) |
Management’s Discussion and Analysis (“MD&A”) |
For the six months ended June 30, 2019 |
Recent Developments
The Transaction
Pursuant to a share purchase agreement dated February 7, 2019, the Company agreed to sell 100% of the shares of its subsidiary Golden Queen Mining Holdings Inc. (the “Transaction”), which held 50% of the outstanding units of Golden Queen Mining, LLC (“LLC”), to a group of purchasers including Thomas M. Clay and certain members of the Clay family and associated entities (collectively, the “Purchasers”). Golden Queen Mining, LLC owns and operates the Soledad Mountain Project located in Kern County, California.
The consideration from the Purchasers was comprised of (i) $4.25 million in cash; (ii) the extinguishment of all amounts owing to the Purchasers by the Company under the Clay Group Loan ($25,700,000); and (iii) the cancellation of all of the Purchasers’ ownership interest in the Company (consisting of 17,817,573 Shares, 45,750 options and 1,800,000 share purchase warrants). In addition, the Purchasers may be required to pay a contingent payment to the Company if the Soledad Mountain Project is subsequently sold or transferred to a third party in certain circumstances. The fair value of the consideration paid by the Purchasers totaled $35 million.
The Company was unable to repay the interest and principal payments due on the Clay Group Loan, which was extinguished upon completion of the Transaction. If the shareholders did not approve the Transaction, then the Clay Group Loan principal and accrued interest would have been due immediately. Under this scenario, should the Company be unable to negotiate an extension to the Clay Group Loan, the Company would have had no alternative but to pursue a reorganization or, at worst, bankruptcy, where the likely outcome for shareholders was the total loss of their equity value.
The Company was looking for alternatives to refinance and/or reschedule its debt without success and faced a significant insolvency risk. The Transaction has many benefits, including the elimination of this risk. Proxy Advisors, Glass Lewis and Institutional Shareholder Services, both recommended that shareholders vote for the Transaction.
The Transaction was subject to the approval of the shareholders of the Company. The shareholders voted for the Transaction at the Annual General and Special meeting held on May 13, 2019. On May 22, 2019, the Transaction closed.
The Company balance sheet as at June 30, 2019 is now comprised of only current assets and current liabilities with working capital of $4.5 million.
Effective July 26, 2019, the Company consolidated its common shares on the basis of one new common share for every ten old common shares issued and outstanding at that time. All references to share and per share amounts in this MD&A have been retroactively restated to reflect the share consolidation.
2 |
Golden Queen Mining Consolidated Ltd |
(formerly “Golden Queen Mining Co. Ltd.”) |
Management’s Discussion and Analysis (“MD&A”) |
For the six months ended June 30, 2019 |
On July 26, 2019, the Company’s common shares were delisted from the Toronto Stock Exchange and were listed on the NEX board of the TSX Venture Exchange under the symbol “GQM”.
Outlook
The Company is currently evaluating possible opportunities for the future which include acquiring prospective mineral projects in North America.
Discussion of Operations
For the three and six months ended June 30, 2019, the Company generated revenues from operations of $9,542 and $26,521, respectively. In comparison, for the same periods of 2018 the Company generated revenues from operations of $14,485 and $24,070, respectively.
The costs, excluding depreciation and depletion, applicable to sales incurred during the three and six months ended June 30, 2019 were $7,309 and $19,593 (three and six months ended June 30, 2018 - $8,130 and $21,146), respectively.
Depreciation and depletion expenses during the three and six months ended June 30, 2019 were $1,522 and $4,140 (three and six months ended June 30, 2018 – $3,364 and $6,340), respectively.
General and administrative expenses for the three and six months ended June 30, 2019 were $2,430 and $4,262 (three and six months ended June 30, 2018 - $879 and $2,133), respectively. The increase in 2019 compared to 2018 was mainly a result of transaction costs of $990 relating to a Transaction as well as an increase in salaries and benefits and directors’ fees from $683 in 2018 to $2,005 in 2019 as a result of termination payments made to key management on completion of the Transaction.
For the three and six months ended June 30, 2019, the Company incurred finance expenses of $1,349 and $3,769 compared to $1,441 and $2,974 for the three and six months ended June 30, 2018. The increase in finance expenses was mainly due to the amortization of deferred financing fees relating to LLC warrants and interest expense on the LLC line of credit.
For the three and six months ended June 30, 2019, the Company recorded gains of $38 and $111 on derivative instruments compared to gains of $37 and $72 on derivative instruments for the three and six months ended June 30, 2018, respectively. The gains in 2019 and 2018 were due to decreases in the Company’s share price and the remaining life of derivatives.
3 |
Golden Queen Mining Consolidated Ltd |
(formerly “Golden Queen Mining Co. Ltd.”) |
Management’s Discussion and Analysis (“MD&A”) |
For the six months ended June 30, 2019 |
During the three and six months ended June 30, 2019, the Company recorded a loss on sale of subsidiaries of $31,354 relating to the Transaction. The loss on sale is as a result of the book value of net assets and non-controlling interest disposed of being greater than the proceeds of sale.
Summary of Quarterly Results
The following is selected financial data from the Company’s unaudited quarterly financial statements for the last eight quarters ending with the most recently completed quarter, being June 30, 2019.
Three Months Ended ($) | ||||||||||||||||
June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | |||||||||||||
Revenues | 9,542 | 16,979 | 17,478 | 16,855 | ||||||||||||
Net and comprehensive income (loss) | (34,511 | ) | (2,252 | ) | 4,937 | (3,357 | ) | |||||||||
Net and comprehensive income (loss) attributable to GQM Ltd. | (34,150 | ) | (2,300 | ) | 1,393 | (2,403 | ) | |||||||||
Basic net income (loss) per share | (1.54 | ) | (0.08 | ) | 0.05 | (0.08 | ) | |||||||||
Diluted net income (loss) per share | (1.54 | ) | (0.08 | ) | 0.05 | (0.08 | ) |
Three Months Ended ($) | ||||||||||||||||
June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 | |||||||||||||
Revenues | 14,485 | 9,585 | 13,939 | 16,496 | ||||||||||||
Net and comprehensive income (loss) | 604 | (9,063 | ) | (1,327 | ) | (3,224 | ) | |||||||||
Net and comprehensive income (loss) attributable to GQM Ltd. | (632 | ) | (5,417 | ) | (2,188 | ) | (1,889 | ) | ||||||||
Basic net income (loss) per share | (0.02 | ) | (0.29 | ) | (0.20 | ) | (0.17 | ) | ||||||||
Diluted net income (loss) per share | (0.02 | ) | (0.29 | ) | (0.20 | ) | (0.17 | ) |
During the three months ended June 30, 2019, the Company completed the Transaction and recorded a loss of $31,354. In addition, the Company incurred $916 of key management compensation which included termination payments.
4 |
Golden Queen Mining Consolidated Ltd |
(formerly “Golden Queen Mining Co. Ltd.”) |
Management’s Discussion and Analysis (“MD&A”) |
For the six months ended June 30, 2019 |
During the three months ended March 31, 2019, net and comprehensive loss was $2,252 mainly as a result of G&A and finance expense of $4,252 which was offset by income from mine operations of $2,077.
During the three months ended December 31, 2018, net and comprehensive income of $4,937 was mainly due to a reclassifying depreciation and depletion from the cost of sales to inventory as the inventory stock piles were increasing throughout the year.
During the three months ended September 30, 2018, net and comprehensive loss of $3,357 was mainly due to the loss generated from mine operations of $1,229. Mine operations improvements and higher grade were offset by additional cost for East Pit phase 2 stripping, equipment overhauls and the lower gold price.
During the three months ended June 30, 2018, net and comprehensive income was $604 mainly as a result of income generated from mine operations of $2,991 and inventory reallocation into stockpile inventory.
During the three months ended March 31, 2018, net and comprehensive loss was $9,063 mainly as a result of loss from mine operations of $6,449 due to higher direct mining costs as a result of developing the East Pit and lower revenues due to lower gold production as a result of fewer available gold ounces on the leach pad.
In addition to the fluctuations in derivative liabilities described above, results for the second half of 2017 were impacted by the lower gold production due to significant reduction in ore grade in Nord-West Pit and Main Pit Ph-1. Although the operations moved to East Pit in the middle of November 2017, higher cost of production was experienced during this period. Finally, The Tax Cuts and Jobs Act (“TCJA”) was enacted on December 22, 2017, which significantly changed U.S. income tax law, including a reduction of the Federal corporate income tax rate from 35% to 21%. Primarily as a result of the TCJA, a $4,725 income tax recovery was recognized in fourth quarter of 2017.
In general, the results of operations can vary from quarter to quarter depending upon the nature, timing and cost of activities undertaken, whether or not the Company incurs gains or losses on foreign exchange or grants stock options, and the movements in its derivative liability.
Liquidity and Capital Resources
As part of the Transaction, the Company disposed of all its debt obligations including the Clay Group Loan of $25,700. Consideration received included cash of $4,250. As at June 30, 2019, the Company had no long-term debt and had working capital of $4,592 including cash of $4,711.
Cash from operating activities:
For the six months ended June 30, 2019, $4,789 of cash was used in operating activities compared to $10,708 of cash used in operating activities for the six months ended June 30, 2018. The decreased use of cash in 2019 was primarily due to decreased direct mining costs in 2019 compared to 2018 and the disposition of the subsidiaries part way through the period.
5 |
Golden Queen Mining Consolidated Ltd |
(formerly “Golden Queen Mining Co. Ltd.”) |
Management’s Discussion and Analysis (“MD&A”) |
For the six months ended June 30, 2019 |
Cash used in investing activities:
For the six months ended June 30, 2019, $4,034 of cash was used in investing activities compared to $2,394 of cash used in investing activities for the six months ended June 30, 2018. The major use of cash in 2019 was the purchase and installation of a replacement secondary cone crusher and the disposition of $1,115 of cash on sale of subsidiaries, net of $4,250 cash received.
Cash from financing activities:
For the six months ended June 30, 2019, $6,804 of cash was generated from financing activities compared to $20,703 of cash generated from financing activities for the six months ended June 30, 2018. In the 2019 period, GQM LLC received $10 million from a credit facility offset by loan repayments of $3,196. In the 2018 period, the Company completed a rights offering raising gross proceeds of $25,036.
Working capital:
The following table shows working capital (deficiency) as at June 30, 2019 and December 31, 2018:
June 30, 2019 $ | December 31, 2018 $ | |||||||
Current assets | 4,901 | 31,223 | ||||||
Current liabilities | (309 | ) | (42,330 | ) | ||||
Working capital (deficiency) | 4,592 | (11,107 | ) |
The increase in working capital is due to the sale of subsidiaries which eliminated most of the Company’s liabilities and provided cash of $4,250.
The Company has no material commitments for capital expenditures.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
6 |
Golden Queen Mining Consolidated Ltd |
(formerly “Golden Queen Mining Co. Ltd.”) |
Management’s Discussion and Analysis (“MD&A”) |
For the six months ended June 30, 2019 |
Transactions Between Related Parties
During the three and six months ended June 30, 2019 and 2018, related party transactions are disclosed as follows:
(i) | Compensation of Key Management Personnel, Transactions with Related Parties and Related Party Balances |
For the three and six months ended June 30, 2019, the Company recognized $916 and $1,277 (for the three and six months ended June 30, 2018 – $104 and $299) salaries and fees for Officers and Directors.
(ii) | Note Payable |
As at December 31, 2018, The Company had a loan with the Clay Group with a principal balance of $25,625 (the “Clay Group Loan”). The Clay Group Loan had principal and accrued interest due as follows: $1.7 million of principal and accrued interest on January 1, 2019; $3.9 million of principal and accrued interest on April 1, 2019; and the balance due on May 21, 2019. On December 27, 2018, the Company and the Clay Group agreed to amend the Clay Group Loan, extending the due date of $1.7 million of principal as well as interest from the original due date of January 1, 2019 to February 1, 2019. An extension fee of $125 was added to the principal amount owing. On February 1, 2019, the due date was extended to February 8, 2019 for an extension fee of $75 that was added to the principal amount owing. On February 8, 2019, the due dates of principal and interest on the Clay Group Loan were extended until completion of the proposed transaction between the Clay Group and the Company. The amendments were accounted for as debt modifications. The Loan was settled as part of the Transaction.
Changes in Accounting Policies including Initial Adoption
Full disclosure of the Company’s significant accounting policies and estimates in accordance with US GAAP can be found in the notes to its audited consolidated financial statements for the year ended December 31, 2018 and unaudited condensed interim consolidated financial statements for the six months ended June 30, 2019.
Adopted
February 2016, FASB issued ASC 842 that requires lessees to recognize lease assets and corresponding lease liabilities on the balance sheet for all leases with terms of more than 12 months. The update, which supersedes existing lease guidance, will continue to classify leases as either finance or operating, with the classification determining the pattern of expense recognition in the income statement.
7 |
Golden Queen Mining Consolidated Ltd |
(formerly “Golden Queen Mining Co. Ltd.”) |
Management’s Discussion and Analysis (“MD&A”) |
For the six months ended June 30, 2019 |
The ASU was effective for annual and interim periods beginning January 1, 2019 and is applicable on a modified retrospective basis. The Company adopted the guidance effective January 1, 2019 and has applied the guidance on a modified retrospective basis. There was an immaterial impact on the financial statements from the adoption of this guidance.
Financial Instruments
As at June 30, 2019, the Company’s financial instruments consisted of cash, accounts payable and accrued liabilities and derivative liability.
All financial assets and financial liabilities are recorded at fair value on initial recognition.
Credit Risk
Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Company by failing to discharge its obligations. To mitigate exposure to credit risk on financial assets the Company has established policies to ensure liquidity of funds and ensure counterparties demonstrate minimum acceptable credit worthiness.
The Company maintains its US Dollar and Canadian Dollar cash in bank accounts with major financial institutions with high credit standings. Cash deposits held in Canada are insured by the Canada Deposit Insurance Corporation (“CDIC”) for up to C$100. The Company has not experienced any losses on such accounts and management believes that using major financial institutions with high credit ratings mitigates the credit risk in cash.
Interest Rate Risk
The Company holds its cash in bank deposit accounts with major financial institutions. The interest rates received on these balances may fluctuate with changes in economic conditions. Based on the average cash balances during the six months ended June 30, 2019, a 1% decrease in interest rates would have reduced the interest income for the six months ended June 30, 2019 by an immaterial amount.
Foreign Currency Exchange Risk
Certain purchases of corporate overhead items are denominated in Canadian Dollar. As a result, currency exchange fluctuations may impact the costs of operations. Specifically, the appreciation of the Canadian Dollar against the US Dollar may result in an increase in the Canadian operating expenses in US dollar terms. As at June 30, 2019, the Company maintained the majority of its cash balance in US Dollars. The Company currently does not engage in any currency hedging activities.
8 |
Golden Queen Mining Consolidated Ltd |
(formerly “Golden Queen Mining Co. Ltd.”) |
Management’s Discussion and Analysis (“MD&A”) |
For the six months ended June 30, 2019 |
Outstanding Share Data
Effective July 26, 2019, the Company consolidated its common shares on the basis of one new common share for every ten old common shares issued and outstanding at that time. All references to share and per share amounts in this MD&A have been retroactively restated to reflect the share consolidation.
The number of shares issued and outstanding and the fully diluted share position are set out in the table below:
Item | No. of Shares | |||||||
Shares issued and outstanding as at December 31, 2018 | 30,010,146 | |||||||
Shares issued during the period up to August 14, 2019 | 1,339,694 | |||||||
Shares returned to treasury and cancelled pursuant to the Transaction | (17,817,573 | ) | ||||||
Shares issued and outstanding as at August 16, 2019 | 13,532,267 | Exercise Price | Expiry Date | |||||
Shares to be issued on exercise of directors and employees stock options | 186,750 | $2.90 to $6.60 | From 09/08/20 to 10/20/22 | |||||
Fully diluted August 16, 2019 | 13,719,017 |
The Company has unlimited authorized share capital.
Disclosure Controls and Procedures
The Company’s management has evaluated the effectiveness of the Company’s disclosure controls and procedures as at June 30, 2019, and have concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under Canadian securities laws is (i) recorded, processed, summarized and reported within the time periods specified in Canadian securities laws and (ii) accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosure.
Management is also responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is designed to evaluate the effectiveness of the Company’s financial reporting.
During the six month period ended June 30, 2019, there were no changes in internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting for the period ended June 30, 2019 and subsequent periods.
9 |
Golden Queen Mining Consolidated Ltd |
(formerly “Golden Queen Mining Co. Ltd.”) |
Management’s Discussion and Analysis (“MD&A”) |
For the six months ended June 30, 2019 |
Other Information
Additional information related to the Company is available for viewing on SEDAR at www.sedar.com.
10 |
Exhibit 99.3
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Guy Le Bel, Principal Executive Officer, in the capacity of Chief Executive Officer of Golden Queen Mining Consolidated Ltd., certify the following:
1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Golden Queen Mining Consolidated Ltd. (the “issuer”) for the interim period ended June 30, 2019. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
(ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the control framework developed by COSO (Committee of Sponsoring Organizations of the Treadway Commission). |
5.2 | ICFR – material weakness relating to design: None to disclose. |
1 |
5.3 | Limitation on scope of design: N/A. |
6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on April 1, 2019 and ended on June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: August 16, 2019 | |
/s/Guy Le Bel | |
Guy Le Bel | |
Principal Executive Officer, in the capacity of Chief Executive Officer |
2 |
Exhibit 99.4
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Guy Le Bel, Chief Financial Officer of Golden Queen Mining Consolidated Ltd., certify the following:
1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Golden Queen Mining Consolidated Ltd. (the “issuer”) for the interim period ended June 30, 2019. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
(ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the control framework developed by COSO (Committee of Sponsoring Organizations of the Treadway Commission). |
5.2 | ICFR – material weakness relating to design: None to disclose. |
1 |
5.3 | Limitation on scope of design: N/A. |
6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on April 1, 2019 and ended on June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: August 16, 2019 | |
/s/Guy Le Bel | |
Guy Le Bel | |
Chief Financial Officer |
2 |