EX-99.1 2 tm2227581d1_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

 

 

Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021

 

Presented in United States dollars

 

 

 

 

ORLA MINING LTD.

Condensed Interim Consolidated Balance Sheets

(Unaudited – Thousands of United States dollars)

 

   September 30   December 31 
As at  2022   2021 
ASSETS          
Current assets          
Cash and cash equivalents  $89,148   $20,516 
Trade and other receivables   453    306 
Value added taxes recoverable (note 11)   5,244    16,776 
Inventory (note 10)   18,256    9,657 
Prepaid expenses   4,534    1,090 
    117,635    48,345 
Restricted cash   6,476    3,680 
Value added taxes recoverable (note 11)   4,488    7,444 
Property, plant and equipment (note 13)   223,457    7,635 
Long-term inventory (note 10)   3,433    1,299 
Mineral properties under construction (note 14)   —    213,749 
Exploration and evaluation properties (notes 12 and 15)   235,232    82,743 
Other non-current assets   850    — 
TOTAL ASSETS  $591,571   $364,895 
           
LIABILITIES          
Current liabilities          
Trade and other payables (note 16)  $7,953   $6,816 
Accrued liabilities (note 17)   8,890    5,659 
Current portion of long term debt (note 18)   37,200    25,293 
Taxes payable   23,629    — 
    77,672    37,768 
Lease obligations (note 23)   2,147    1,029 
Accrued liabilities (note 17)   232    161 
Long term debt (note 18)   129,448    136,060 
Site closure provisions (note 24)   7,873    5,460 
TOTAL LIABILITIES   217,372    180,478 
           
SHAREHOLDERS' EQUITY          
Share capital (note 25)   438,633    269,198 
Reserves   27,078    29,306 
Accumulated other comprehensive income   (2,064)   2,441 
Accumulated deficit   (89,448)   (116,528)
TOTAL SHAREHOLDERS' EQUITY   374,199    184,417 
           
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $591,571   $364,895 

 

/s/ Jason Simpson   /s/ Elizabeth McGregor
Jason Simpson, Director   Elizabeth McGregor, Director

 

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

 

Page 2

 

 

ORLA MINING LTD. 

Condensed Interim Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) 

(Unaudited – Thousands of United States dollars)

 

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
REVENUE (note 4)  $49,030   $—   $136,472   $— 
                     
COST OF SALES                    
Operating costs (note 5)   (11,973)   —    (32,115)   — 
Depletion, depreciation and amortization (note 6)   (6,283)   —    (11,302)   — 
Royalties (note 13)   (1,217)   —    (3,380)   — 
    (19,473)   —    (46,797)   — 
                     
EARNINGS FROM MINING OPERATIONS   29,557    —    89,675    — 
                     
GENERAL AND ADMINISTRATIVE EXPENSES (note 7)   (2,342)   (1,649)   (8,172)   (5,333)
EXPLORATION AND EVALUATION EXPENSES (note 8)   (8,327)   (3,573)   (13,334)   (12,245)
                     
OTHER                    
Interest income   274    61    1,208    105 
Depreciation   (85)   (52)   (162)   (120)
Share based payments (note 27)   (518)   (416)   (1,921)   (1,897)
Interest and accretion expense (note 9)   (2,578)   (511)   (5,913)   (1,194)
Loss on early settlement of project loan (note 19(b))   —    —    (13,219)   — 
Foreign exchange gain (loss)   3,842    (3,320)   4,905    (1,413)
Other   4    (94)   6    837 
    939    (4,332)   (15,096)   (3,682)
                     
INCOME (LOSS) BEFORE TAXES   19,827    (9,554)   53,073    (21,260)
                     
Income taxes (note 28)   (10,932)   —    (25,993)   — 
                     
INCOME (LOSS) FOR THE PERIOD  $8,895   $(9,554)  $27,080   $(21,260)
                     
OTHER COMPREHENSIVE INCOME (LOSS)                    
Items that may in future periods be reclassified to profit or loss:                    
Foreign currency differences arising on translation   (3,632)   (2,590)   (4,505)   (643)
TOTAL COMPREHENSIVE INCOME (LOSS)  $5,263   $(12,144)  $22,575   $(21,903)
                     
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (note 26)                    
Basic (millions)   282.5    246.0    261.4    239.3 
Diluted (millions)   296.7    246.0    283.1    239.3 
                     
EARNINGS (LOSS) PER SHARE (note 26)                    
Basic  $0.03   $(0.04)  $0.10   $(0.09)
Diluted  $0.03   $(0.04)  $0.10   $(0.09)

 

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

 

Page 3

 

 

ORLA MINING LTD. 

Condensed Interim Consolidated Statements of Cash Flows

(Unaudited – Thousands of United States dollars)

 

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
OPERATING ACTIVITIES                    
Income (loss) for the period  $8,895   $(9,554)  $27,080   $(21,260)
Adjustments for:                    
Interest and finance costs   2,304    450    4,705    1,089 
Loss on early settlement of project loan   —    —    13,219    — 
Interest income received   274    91    1,208    216 
Payment of cash settled RSUs and DSUs   (326)   —    (2,049)   — 
Adjustments for items not affecting cash:                    
Depreciation, depletion, and amortization   7,081    52    13,710    120 
Share based payments (note 27)   518    416    1,921    1,897 
Other gains and losses   13    508    63    (163)
Exploration expense paid via the issuance of common shares   —    —    —    150 
Unrealized foreign exchange loss (gain)   (3,212)   4,124    (3,833)   2,018 
Cash provided by (used in) operating activities before changes in non-cash working capital   15,547    (3,913)   56,024    (15,933)
Changes in non-cash working capital (note 30(b))   7,499    1,004    7,451    8,278 
Cash provided by (used in) operating activities   23,046    (2,909)   63,475    (7,655)
                     
INVESTING ACTIVITIES                    
Purchase of plant and equipment   (1,752)   (468)   (3,898)   (1,216)
Deposits and other payments on long term assets   (538)   —    (781)   — 
Mineral properties and related construction   —    (22,067)   (5,643)   (86,635)
Acquisition of Gold Standard, net of cash received (note 12)   (1,226)   —    (1,226)   — 
Restricted cash   (103)   (60)   (54)   (1,053)
Value added taxes received   5,813    (3,215)   18,434    (13,799)
Cash provided by (used in) investing activities   2,194    (25,810)   6,832    (102,703)
                     
FINANCING ACTIVITIES                    
Advances received on (payments of) the Camino Rojo project loan   —    —    (127,500)   50,000 
Proceeds from issuance of common shares   —    34,442    —    34,442 
Common share issuance costs (note 25)   (196)   (1,000)   (196)   (1,000)
Payment of the Newmont loan (note 20)   —    —    (10,836)   — 
Advances received from Credit Facility (note 21)   —    —    130,000    — 
Proceeds from exercise of warrants   —    384    13,070    14,213 
Proceeds from exercise of stock options   209    48    3,451    405 
Transaction costs related to financing facilities (note 21)   —    —    (1,866)   (289)
Interest paid   (1,887)   (3,940)   (6,509)   (8,021)
Lease payments   (103)   (65)   (358)   (171)
Cash provided by financing activities   (1,977)   29,869    (744)   89,579 
                     
Effects of exchange rate changes on cash   (858)   (1,483)   (931)   (689)
                     
Net increase (decrease) in cash   22,405    (333)   68,632    (21,468)
Cash, beginning of period   66,743    51,045    20,516    72,180 
CASH, END OF PERIOD  $89,148   $50,712   $89,148   $50,712 

 

Supplemental cash flow information (note 30)

 

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

 

Page 4

 

 

ORLA MINING LTD. 

Condensed Interim Consolidated Statements of Changes in Equity 

(Unaudited – Thousands of United States dollars)

 

   Common shares   Reserves             
   Number
of
shares
(thousands)		   Amount   Share based
payments
reserve		   Warrants
reserve		   Total   Accumulated
Other
Comprehensive
Income (loss)		   Retained
earnings
(deficit)		   Total 
Balance at January 1, 2021   229,286   $217,948   $8,486   $21,395   $29,881   $3,002   $(90,250)  $160,581 
Shares issued pursuant to a financing   9,085    34,442    —    —    —    —    —    34,442 
Shares issued for property payments   33    150    —    —    —    —    —    150 
Share issuance costs   —    (1,000)   —    —    —    —    —    (1,000)
Warrants exercised (note 25(b))   8,010    16,340    —    (2,127)   (2,127)   —    —    14,213 
Options exercised   617    649    (244)   —    (244)   —    —    405 
RSUs settled   449    487    (487)   —    (487)   —    —    — 
Share based payments   —    —    1,897    —    1,897    —    —    1,897 
Loss for the period   —    —    —    —    —    —    (21,260)   (21,260)
Other comprehensive loss   —    —    —    —    —    (643)   —    (643)
Balance at September 30, 2021   247,480    269,016    9,652    19,268    28,920    2,359    (111,510)   188,785 
                                         
Balance at January 1, 2022   247,600   $269,198   $10,051   $19,255   $29,306   $2,441   $(116,528)  $184,417 
Shares issued pursuant to acquisition (note 12)   43,689    149,363    —    —    —    —    —    149,363 
Share issuance costs (note 25)   —    (196)   —    —    —    —    —    (196)
Replacement options issued (note 12)   —    —    1,647    —    1,647    —    —    1,647 
Warrants exercised (note 25)   7,698    15,137    —    (2,067)   (2,067)   —    —    13,070 
Options exercised (note 27)   3,237    6,315    (2,864)   —    (2,864)   —    —    3,451 
RSUs redeemed (note 27)   36    138    (138)   —    (138)   —    —    — 
RSUs settled in cash (note 27)   —    (1,320)   (403)   —    (403)   —    —    (1,723)
DSUs redeemed (note 27)   112    165    (165)   —    (165)   —    —    — 
DSUs settled in cash (note 27)   —    (167)   (159)   —    (159)   —    —    (326)
Share based payments (note 27)   —    —    1,921    —    1,921    —    —    1,921 
Income for the period   —    —    —    —    —    —    27,080    27,080 
Other comprehensive loss   —    —    —    —    —    (4,505)   —    (4,505)
Balance at September 30, 2022   302,372   $438,633   $9,890   $17,188   $27,078   $(2,064)  $(89,448)  $374,199 

 

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

 

Page 5

 

  

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

 

1.CORPORATE INFORMATION AND NATURE OF OPERATIONS

 

Orla Mining Ltd. was incorporated in Alberta in 2007 and was continued into British Columbia in 2010 and subsequently into Ontario under the Business Corporations Act (Ontario) in 2014. In 2016, the Company was continued as a federal company under the Canada Business Corporations Act. The “Company”, “Orla”, “we”, and “our” refer to Orla Mining Ltd. and its subsidiaries. The registered office of the Company is located at Suite 1010, 1075 West Georgia Street, Vancouver, Canada.

 

The Company is engaged in the acquisition, exploration, development, and exploitation of mineral properties, and holds the Camino Rojo gold and silver mine in Zacatecas State, Mexico, Cerro Quema gold project in Panama, and the South Railroad and Lewis gold projects in Nevada, USA.

 

These condensed interim consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. Different bases of measurement may be appropriate if the Company is not expected to continue operations for the foreseeable future. The Company declared commercial production at Camino Rojo, effective April 1, 2022.

 

2.BASIS OF PREPARATION

 

(a)Statement of compliance and basis of presentation

 

These condensed interim consolidated financial statements have been prepared in accordance with IAS 34 «Interim Financial Reporting» and do not include all the information required for full annual financial statements.

 

The preparation of these condensed interim consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

These condensed interim consolidated financial statements are presented in United States dollars and include the accounts of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated upon consolidation.

 

On November 10, 2022, the Board of Directors authorized these condensed interim consolidated financial statements for issuance.

 

3.SIGNIFICANT ACCOUNTING POLICIES

 

These condensed interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as at and for the years ended December 31, 2021 and 2020.

 

We applied the same accounting policies in these condensed interim consolidated financial statements as those applied in the Company’s audited consolidated financial statements as at and for the year ended December 31, 2021, except as noted herein. In preparing these condensed interim consolidated financial statements, the significant judgements we made in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the audited consolidated financial statements as at and for the year ended December 31, 2021.

 

(a)Change in functional currency

 

As a result of the continued advancement of Camino Rojo and the resulting changes in underlying transactions, events, and circumstances, we reassessed the functional currency of Minera Camino Rojo SA de CV. We determined that the functional currency of Minera Camino Rojo SA de CV is the United States dollar. Consequently, the functional currency for this subsidiary changed from Mexican pesos to United States dollars effective January 1, 2022. This change in functional currency has been applied prospectively effective January 1, 2022.

 

Page 6

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

  

(b)Forthcoming requirements

 

Amendments to IAS 1 and IFRS Practice Statement 2 Disclosure of Accounting Policies are intended to help preparers in deciding which accounting policies to disclose in their financial statements. The amendments are effective for annual periods beginning on or after 1 January 2023.

 

Amendments to IAS 1 Classification of Liabilities as Current or Noncurrent provides a more general approach to the classification of liabilities under IAS 1 based on the contractual arrangements in place at the reporting date. The amendments are for annual periods beginning on or after 1 January 2023.

 

Amendments to IAS 8 Definition of Accounting Estimates help entities to distinguish between accounting policies and accounting estimates. The amendments are effective for annual periods beginning on or after 1 January 2023.

 

Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction clarify how companies account for deferred tax on transactions such as leases and decommissioning obligations. The amendments are effective for annual periods beginning on or after 1 January 2023.

 

We are reviewing the amendments listed above and have not yet concluded the potential effects of these amendments on our financial position, changes in financial position, and results of operations.

 

4.REVENUE

 

Camino Rojo was under commissioning during the three months ended March 31, 2022. The Company declared commercial production at Camino Rojo, effective April 1, 2022.

 

Revenue by significant product type:

 

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Gold  $48,839   $—   $135,865   $— 
Silver   191    —    607    — 
Revenue  $49,030   $—   $136,472   $— 
                     
Customer A  $26,959   $—   $108,608   $— 
Customer B   21,240    —    21,240    — 
Customer C   —    —    5,793    — 
Others   831    —    831    — 
Revenue  $49,030   $—   $136,472   $— 

  

Page 7

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

  

5.COST OF SALES

  

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Mining and processing costs  $11,774   $—   $31,416   $— 
Refining and transportation costs   199    —    699    — 
   $11,973   $—   $32,115   $— 

  

In common with all mining companies in Mexico, Camino Rojo is subject to an Extraordinary Mining Duty of 0.5% of revenues from precious metals. The Extraordinary Mining Duty is included within Cost of Sales – Royalties.

 

6.DEPLETION, DEPRECIATION AND AMORTIZATION

 

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Depletion of producing mineral property  $3,762   $—   $7,075   $— 
Depreciation of plant and equipment   2,521    —    4,227    — 
Depletion and depreciation  $6,283   $—   $11,302   $— 

  

Camino Rojo was under construction during the three months ended March 31, 2022. The Company declared commercial production at Camino Rojo, effective April 1, 2022. Consequently, no depletion was recorded prior to April 1, 2022.

 

7.GENERAL AND ADMINISTRATIVE EXPENSES
   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Office and administrative  $769   $487   $2,116   $1,354 
Professional fees   357    241    1,682    1,294 
Regulatory and transfer agent   44    162    284    579 
Salaries and benefits   1,172    759    4,090    2,106 
   $2,342   $1,649   $8,172   $5,333 

 

 

Page 8

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

  

8.EXPLORATION AND EVALUATION EXPENSES

  

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Camino Rojo Project  $3,479   $2,977   $5,734   $7,602 
Cerro Quema Project   2,353    484    4,796    4,276 
South Railroad Project   2,309    —    2,309    — 
Other   186    112    495    367 
   $8,327   $3,573   $13,334   $12,245 

  

9.INTEREST AND ACCRETION EXPENSE

 

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Interest (note 9(a))  $2,322   $7   $4,694   $22 
Accretion (note 9(b))   256    504    1,219    1,172 
Interest and accretion expense  $2,578   $511   $5,913   $1,194 

  

(a)Interest expense

 

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Project loan (note 19)  $—   $—   $869   $— 
Credit Facility (note 21)   1,761    —    2,722    — 
Fresnillo obligation (note  22)   483    —    966    — 
Interest expense on leases (note 23)   21    7    41    22 
Other   57    —    96    — 
   $2,322   $7   $4,694   $22 

 

The Company declared commercial production at Camino Rojo, effective April 1, 2022. Borrowing costs prior to that date were capitalized and consequently do not appear in interest expense.

 

Page 9

 

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

   

(b)Accretion expense

 

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Project loan  $—   $—   $261   $— 
Newmont loan (note 20)   —    357    366    1,025 
Credit Facility   138    —    244    — 
Accretion of site closure provisions (note 24)   118    147    348    147 
   $256   $504   $1,219   $1,172 

  

10.INVENTORY

 

   September 30,
2022		   December 31,
2021		 
Current          
     Stockpiled ore  $1,368   $2,458 
     In-process inventory   12,588    6,513 
     Finished goods inventory   1,373    — 
     Materials and supplies   2,927    686 
     Inventory – current  $18,256   $9,657 
           
Long term          
     Stockpiled ore  $3,433   $1,299 

 

Long term inventory consists of stockpiled ore that is not expected to be processed within 12 months.

 

Included within inventory at September 30, 2022 is $2,167,000 of depreciation (December 31, 2021 — $nil)

 

11.VALUE ADDED TAXES RECOVERABLE

 

Our Mexican entities pay value added taxes (called “IVA” in Mexico) on certain goods and services we purchase. Value added taxes paid in Mexico are fully recoverable. However, IVA recovery returns in Mexico are subject to complex filing requirements and detailed audit or review by the fiscal authorities. Consequently, the timing of receipt of refunds is uncertain. The Mexican tax authorities began issuing payments on these IVA claims to the Company in November 2021.

 

We have used judgement in classifying the current and non-current portions of our Mexican VAT receivables. Factors considered include the regularity of payments received since receiving the first payment, communication from the Mexican tax authorities with respect to specific claims and the expected length of time for refunds in accordance with Mexico’s regulations. Of the long term portion, approximately $4.2 million (December 31, 2021 - $3.4 million) is under dispute with the taxation authorities.

 

Page 10

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

   

12.ACQUISITION OF GOLD STANDARD VENTURES CORP.

 

 On August 12, 2022, the Company completed the acquisition of Gold Standard Ventures Corp (“Gold Standard”) through a plan of arrangement (the “Transaction”). On closing of the Transaction, shareholders of Gold Standard received 0.1193 (“Exchange Ratio”) Orla shares plus C$0.0001 cash per each Gold Standard share. This resulted in total cash consideration paid of $28,000 and the issuance of 43,688,556 Orla common shares to Gold Standard shareholders. Gold Standard stock options that were outstanding at August 12, 2022 were exchanged for stock options to acquire Orla shares (“Replacement Options”) at the Exchange Ratio, resulting in the issuance of 1,758,334 Replacement Options. We accounted for this acquisition as a purchase of assets. Accordingly, we allocated the sum of consideration paid and transaction costs incurred to the net assets acquired based on relative fair values. 

 

The purchase consideration was calculated follows:

 

Cash consideration  $28 
Estimated fair value of 43,688,556 common shares issued by the Company   149,363 
Estimated fair value of 1,758,334 Replacement Options issued by the Company   1,647 
Transaction costs   3,019 
Total purchase price  $154,057 

 

Assets acquired and liabilities assumed:

 

Cash and cash equivalents  $1,821 
Restricted cash (pursuant to environmental bonding)   2,704 
Receivables and other assets   2,170 
Right of use assets   117 
Trade and other payables   (3,524)
Lease liabilities   (117)
Asset retirement obligations   (1,603)
Subtotal   1,568 
Mineral properties – Nevada   152,489 
Total assets acquired and liabilities assumed, net  $154,057 

 

The fair value of Orla common shares issued was determined using the Company’s share price of C$4.36 on the date of closing of the Transaction and the exchange rate of 1.2741 CAD/USD.

 

Each Replacement Option gives the holder rights to acquire common shares of the Company. The exercise price of the Replacement Options was determined by dividing the exercise price of the Gold Standard stock options by the Exchange Ratio. The full option value of the Replacement Options was accounted for as consideration, and no future compensation expense will be recorded with respect to the Replacement Options as there will be no significant continuing employment by the holders of the Replacement Options.

 

The fair value of the Replacement Options was determined using the Black-Scholes option pricing model using the following assumptions:

 

Exercise price – various prices ranging from C$4.78 to C$18.87; Share price at issuance date – C$4.36;
Expected volatility – 45%; Expected life – 1.9 years; Risk free interest rate – 3.3% and expected dividends – nil.

 

On issuance, the weighted average fair value of the Replacement Options was C$0.58.

 

Page 11

 

  

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

   

13.PROPERTY, PLANT AND EQUIPMENT

  

The Camino Rojo Project lies 190 km NE of the city of Zacatecas, 48 km S-SW of the town of Concepcion del Oro, and 54 km S-SE of Newmont Corporation’s (“Newmont”) Peñasquito Mine.

 

In November 2017, we acquired the Camino Rojo Project, a gold and silver oxide heap leach project located in Zacatecas State, Mexico, from Goldcorp Inc. (now, Newmont Corporation). A 2% net smelter return royalty (the “Royalty”) on the sale of all metal production from the oxide material at Camino Rojo is payable.

 

The Company and Newmont also entered into an option agreement regarding the potential development of sulphide operations at Camino Rojo. Pursuant to the option agreement, Newmont will, subject to the applicable sulphide project meeting certain thresholds, have an option to acquire a 60% or 70% interest in the applicable sulphide project (“Sulphide Option”). The Royalty excludes revenue on the sale of metals produced from a sulphide project. However, should Newmont decide not to elect to acquire an interest in an applicable sulphide project, or if an applicable sulphide project does not meet certain threshold, Newmont would be entitled to a 2% net smelter return royalty on metals produced from the sulphide material.

 

In February 2021, the Company completed a Layback Agreement with Fresnillo plc (“Fresnillo”) and certain of its subsidiaries which allows Orla to expand the Camino Rojo mine oxide pit onto part of Fresnillo’s mineral concession located immediately north of Orla’s property. The Company agreed to pay Fresnillo total cash consideration of $62.8 million in staged payments (note 22).

 

In December 2020, we commenced construction of the oxide gold mine and on April 1, 2022, we declared commercial production at Camino Rojo.

 

   Producing
mineral
property		   Buildings   Machinery
and
equipment		   Other
assets		   Right of
use assets		   Total 
Cost                              
At December 31, 2021  $—   $66   $5,238   $1,261   $2,119   $8,684 
Additions   —    1,407    1,939    538    1,750    5,634 
Transfers from mineral properties under construction   127,002    58,869    36,684    608    —    223,163 
Reclassification of capitalized interest   (19,020)   11,585    7,341    94    —    — 
Change in site closure provision (note 24)   1,216    (300)   (190)   —    —    726 
Leased assets derecognized at end of lease   —    —    —    —    (215)   (215)
At September 30, 2022  $109,198   $71,627   $51,012   $2,501   $3,654   $237,992 
                               
Accumulated depreciation                              
At December 31, 2021  $—   $6   $350   $288   $405   $1,049 
Depletion and depreciation   6,036    3,961    2,916    294    494    13,701 
Leased assets derecognized at end of lease   —    —    —    —    (215)   (215)
At September 30, 2022  $6,036   $3,967   $3,266   $582   $684   $14,535 
                               
Net book value                              
At December 31, 2021  $—   $60   $4,888   $973   $1,714   $7,635 
At September 30, 2022  $103,162   $67,660   $47,746   $1,919   $2,970   $223,457 

 

Page 12

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

   

14.MINERAL PROPERTIES UNDER CONSTRUCTION

  

(a)Camino Rojo Oxide Gold Mine

 

   At historical cost         
   Mineral
properties		   Deposits to
construction
vendors		   Construction
in progress		   Other costs
capitalized		   Accumulated
foreign
exchange on
translation		   Carrying
value		 
At December 31, 2021  $102,072   $1,658   $96,721   $19,456   $(6,158)  $213,749 
Additions   —    —    5,636    —    —    5,636 
Borrowing costs capitalized (note 14(b))   —    —    —    4,085    —    4,085 
Change in site closure provision (note 24)   —    —    —    (238)   —    (238)
Transfer within categories   (4,060)   (1,589)   (509)   —    6,158    — 
Transfer to producing mineral property   (98,012)   —    (101,848)   (23,303)   —    (223,163)
Transfer to other non-current assets   —    (69)   —    —    —    (69)
At September 30, 2022  $—   $—   $—   $—   $—   $— 

 

Determining when a mine under construction is substantially complete and ready for its intended use requires significant judgement. Some of the criteria we used to make that determination for the Camino Rojo Oxide Gold Mine included:

 

·completion of all major capital expenditures to bring the mine to the condition necessary for steady state operation,

·completion of a reasonable period of testing of the mine plant and equipment,

·ability to produce saleable product (ie, the ability to produce metal within specifications),

·transfer of the mine from the construction group to operating personnel,

·mine and plant reaching a pre-determined percentage of design capacity,

·metal content (the grade) of ore being mined sufficiently consistent with the mine plan,

·mineral recoveries being at or near the expected production level,

·ability to sustain ongoing production of metal.

 

No one factor was more important than any other factor; consequently, we considered these collectively to determine that the date of commencement of commercial production for the Camino Rojo Oxide Gold Mine was April 1, 2022.

 

(b)Borrowing costs capitalized

 

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Borrowing costs – Camino Rojo project loan (note 19)  $—   $3,552   $3,612   $8,755 
Borrowing costs – Fresnillo obligation (note 22)   —    470    473    1,166 
Interest earned on borrowed funds   —    (26)   —    (111)
   $—   $3,996   $4,085   $9,810 

 

The Company declared commercial production at Camino Rojo, effective April 1, 2022. Consequently, no borrowing costs were capitalized subsequent to March 31, 2022.

 

Page 13

 

 

 

ORLA MINING LTD.

Notes to the Condensed Interim Consolidated Financial Statements

Three and nine months ended September 30, 2022 and 2021

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

 

15.EXPLORATION AND EVALUATION PROPERTIES

 

The Company’s exploration and evaluation properties consist of the Cerro Quema Project in Panama and the Nevada projects (South Railroad, Lewis and Monitor Gold projects in Nevada, United States).

 

Acquisition costs  Cerro
Quema		   Nevada
projects		   Total 
At December 31, 2021  $82,429   $314   $82,743 
Acquisition of Gold Standard Ventures (note 12)   —    152,489    152,489 
At September 30, 2022  $82,429   $152,803   $235,232 

 

(a)Cerro Quema Project

 

The Cerro Quema Project is located on the Azuero Peninsula in Los Santos Province, Panama. The project is at the exploration and development stage for a proposed open pit mine with process by heap leaching. We own the mineral rights as well as the surface rights over the current mineral resource areas, proposed mine development areas, and priority drill target areas.

 

The original 20-year terms for the exploitation concessions expired in February and March of 2017. The Company has applied for the prescribed ten-year extension to these concessions as it is entitled to under Panamanian mineral law. In March 2017, the Ministry of Commerce and Industry provided written confirmation to the Company that the extension applications had been received and that exploration work could continue while the Company awaits renewal of the concessions. As of the date of these financial statements, final concession renewals have not been received and are still under review. In the absence of such renewals, construction or development activities of the Cerro Quema Project cannot proceed. However, we continue to receive ongoing drilling, water use, environmental and other permits, and have paid concession taxes, and issued the annual reports in the normal course.

 

The Company published the results of a Pre-Feasibility Study on the Cerro Quema Project entitled “Project Pre-Feasibility Updated NI 43-101 Technical Report on the Cerro Quema Project Province of Los Santos, Panama” dated January 18, 2022.

 

(b)Projects in Nevada, United States

 

We acquired the Monitor Gold Project in Nye County, Nevada in 2018. We acquired the South Railroad Project and the Lewis Gold Project in 2022 (note 12).

 

(i)South Railroad Project

 

The South Railroad project is located in Elko County, Nevada, USA.

 

Prior to its acquisition by Orla, the previous owners of the South Railroad Project entered into various agreements to acquire or lease certain claims, properties and surface rights subject to net smelter return royalties (“NSR”) ranging between 1% and 5%. Certain of these claims are also subject to a 1.5% mineral production royalty. The agreements are subject to specific lease terms, extension options, back-in rights, buy down or purchase provisions, and work commitments.

 

Page 14

 

 

ORLA MINING LTD.

Notes to the Condensed Interim Consolidated Financial Statements

Three and nine months ended September 30, 2022 and 2021

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

 

To maintain the agreements in good standing, minimum payments and work commitments are required each year as follows:

 

    Total work
commitments		   Total lease
payments		   Total 
2022   $1,400   $1,117   $2,517 
2023    1,300    1,070    2,370 
2024    1,300    682    1,982 
2025    300    682    982 
2026    300    694    994 
    $4,600   $4,245   $8,845 

 

The Company and the previous owner have incurred approximately $1,000,000 of the required 2022 work commitments, and $492,000 of the required 2022 lease payments during the nine months ended September 30, 2022.

 

(ii)Lewis Gold Project

 

During the year ended December 31, 2017, Gold Standard acquired a 100% right, title and interest in mining claims located in the Battle Mountain Mining District in Lander County, Nevada, USA (the “Lewis Gold Project”).

 

(iii)Monitor Gold Project

 

The Monitor Gold Project consists of three separate option agreements consisting of 491 claims covering 3,891 hectares in Nye County, Nevada, USA.

 

In 2022, the payments required under the option agreements consist of $80,000 in advance royalty payments (paid), and $175,000 in work commitments (completed in prior years). To maintain the option agreements in good standing, minimum payments and work commitments are required each year until 2038.

 

16.TRADE AND OTHER PAYABLES

 

   September 30,
2022		   December 31,
2021		 
Trade payables  $3,294   $5,966 
Royalties payable   1,659    113 
Payroll related liabilities   1,039    339 
Current portion of lease obligations (note 23)   627    372 
Other   1,334    26 
   $7,953   $6,816 

 

Page 15

 

 

ORLA MINING LTD.

Notes to the Condensed Interim Consolidated Financial Statements

Three and nine months ended September 30, 2022 and 2021

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

 

17.ACCRUED LIABILITIES

 

   September 30,
2022		   December 31,
2021		 
Current          
Accruals related to operating and construction activities  $4,919    2,045 
Land and water fees   —    1,795 
Payroll related   2,752    1,244 
Accrued interest on Credit Facility (note 21)   886    — 
Current portion of site closure provisions (note 24)   34    — 
Others   299    575 
Accrued liabilities – current  $8,890   $5,659 
           
Long term          
Payroll related  $232   $161 

 

18.LONG TERM DEBT

 

   September 30, 2022   December 31, 2021 
   Current   Long term   Total   Current   Long term   Total 
Camino Rojo Project Loan (note 19)  $—   $—   $—   $—   $113,260   $113,260 
Newmont loan (note 20)   —    —    —    10,293    —    10,293 
Credit facility (note 21)   22,200    106,648    128,848    —    —    — 
Fresnillo obligation (note 22)   15,000    22,800    37,800    15,000    22,800    37,800 
   $37,200   $129,448   $166,648   $25,293   $136,060   $161,353 

 

19.CAMINO ROJO PROJECT LOAN

 

(a)Project loan

 

In December 2019, the Company entered into a loan agreement with Trinity Capital Partners Corporation (“Trinity Capital”) and certain other lenders with respect to a credit debt facility of $125 million for the development of Camino Rojo (the “Project Loan”).

 

The Project Loan provided a total of $125 million to the Company, available in three tranches. The Company drew down $25 million in December 2019, $50 million in October 2020, and $50 million in April 2021. The Project Loan was denominated in US dollars, and bore interest at 8.8% per annum, payable quarterly, and was secured by all the assets of Camino Rojo and the fixed assets of the Cerro Quema Project. The principal amount was due upon maturity at December 18, 2024.

 

On December 1, 2020, we commenced construction of the Camino Rojo Oxide Gold Mine and began capitalizing the interest on this loan to “mineral properties under construction”. On April 1, 2022, we commenced commercial production at the Camino Rojo Oxide Gold Mine and began expensing the interest on this loan. The Project Loan was fully repaid in April 2022 and replaced with the Credit Facility (see note 21).

 

Page 16

 

 

ORLA MINING LTD.

Notes to the Condensed Interim Consolidated Financial Statements

Three and nine months ended September 30, 2022 and 2021

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

 

   Loan
advances		   Interest and
accretion		   Transaction
costs		   Net 
At December 31, 2021  $125,000   $—   $(11,740)  $113,260 
Accretion during the period, capitalized   —    2,764    848    3,612 
Accretion during the period, expensed   —    869    261    1,130 
Cash interest paid   —    (3,633)   —    (3,633)
Foreign exchange   —    —    (88)   (88)
Principal repayment including early repayment premium   (127,500)   —    —    (127,500)
Loss on early settlement of project loan   2,500    —    10,719    13,219 
At September 30, 2022  $—   $—   $—   $— 

 

(b)Loss on early settlement of project loan

 

Upon draw down of the first tranche, in December 2019, the Company issued 32.5 million common share purchase warrants (with an exercise price of C$3.00 per warrant and expiry date of December 18, 2026) to the lenders in connection with the closing. Including these warrants, a total of $12,039,000 was considered transaction costs to be amortized over the then-expected five year life of the project loan.

 

On April 28, 2022, the Company entered into a Credit Facility (note 21) and used a portion of the proceeds of the Credit Facility to repay the Camino Rojo project loan in full. The remaining unamortized transaction costs were expensed.

 

   Three months ended
September 30, 2022		   Nine months ended
September 30, 2022		 
Unamortized transaction costs written off (non-cash)  $—   $10,719 
Early repayment premium paid (cash)   —    2,500 
Loss on early settlement of project loan  $—   $13,219 

 

20.NEWMONT LOAN

 

As part of the Company’s acquisition of the Camino Rojo project from Newmont, Newmont agreed to provide interest-free loans to the Company for all the annual landholding costs at Camino Rojo from November 2017 until December 2019. The loans were to be repaid upon declaration of commencement of commercial production of a heap leach operation at Camino Rojo. On May 6, 2022, we repaid this loan in full.

 

Page 17

 

 

ORLA MINING LTD.

Notes to the Condensed Interim Consolidated Financial Statements

Three and nine months ended September 30, 2022 and 2021

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

 

   Mexican pesos
(thousands)		   Mexican pesos
(thousands)		   US dollars
(thousands)		 
   Undiscounted   Discounted     
At December 31, 2021  $219,466   $211,881   $10,293 
Accretion during the period   —    7,585    366 
Foreign exchange   —    —    177 
Principal repayment   (219,466)   (219,466)   (10,836)
At September 30, 2022  $—   $—   $— 

 

21.CREDIT FACILITY

 

On April 28, 2022, the Company entered into a Credit Facility consisting of a $100 million term facility and a $50 million revolving facility through a syndicate of lenders composed of The Bank of Nova Scotia, Bank of Montreal, and Canadian Imperial Bank of Commerce. The Credit Facility is secured by the Company’s present and future assets, property and all proceeds thereof other than present and future assets owned by Cerro Quema, which is excluded from the collateral. The proceeds from the Credit Facility were used to repay the existing Project Loan (note 19), with the balance of the revolving facility being available for general corporate purposes and working capital.

 

The Credit Facility consists of two parts:

 

1.$100 million term facility with a five-year term, repayable in 18 equal quarterly instalments commencing December 31, 2022.

 

2.$50 million revolving facility, with the ability to increase to $75 million, subject to certain conditions and customary consents. The revolving facility has a three-year term, with an option to extend the term of the revolving facility by up to one-year intervals, subject to certain conditions and customary consents. Full repayment of the revolving facility is due upon maturity.

 

The applicable interest rate for each Credit Facility will be based on the term Secured Overnight Financing Rate (“SOFR”), plus an applicable margin ranging from 2.75% to 3.75% based on the Company’s leverage ratio at the end of each fiscal quarter. The undrawn portion of the revolving facility is subject to a standby fee ranging from 0.6875% to 0.9375%. Until September 30, 2022, the Company was subject to an average interest rate of 4.9%. The Company may select interest periods of one, three or six months and interest is payable at the end of each interest period, or at a minimum every three months.

 

The Company may prepay all or any portion of the amounts owed under the credit agreement without penalty.

 

   Term facility   Revolving
facility		   Total 
At December 31, 2021  $—   $—   $— 
Advances during the period   100,000    30,000    130,000 
Transaction costs paid, which will be accreted over the term of each facility   (1,435)   (431)   (1,866)
Accretion during the period   2,285    681    2,966 
Interest paid during the period   (1,051)   (315)   (1,366)
Reallocated to accrued interest payable   (576)   (310)   (886)
At September 30, 2022  $99,223   $29,625   $128,848 
                
Current   22,200    —    22,200 
Non-current   77,023    29,625    106,648 
   $99,223   $29,625   $128,848 

 

Page 18

 

 

 

  

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

  

Upon closing of the Credit Facility, the Company drew down the $100 million term facility and $30 million from the revolving facility. The Company incurred $2.2 million in advisory, legal and upfront fees that were directly attributable to the Credit Facility. The following details how we accounted for these initial transaction costs:

  

   Transaction
costs		    
Allocated to the term facility  $1,435   Accreted over the expected life (5 years)
Allocated to the revolving facility, drawn amount   431   Accreted over the expected life (3 years)
Allocated to the revolving facility, undrawn amount   287   Expensed immediately at loan inception date
Total transaction costs incurred  $2,153    

 

22.FRESNILLO OBLIGATION

 

Pursuant to the terms of the Layback Agreement (note 14(a)), we agreed to pay Fresnillo total cash consideration of $62.8 million through the following staged payment schedule:

 

i.$25 million upon closing of the transaction (paid February 22, 2021);

ii.$15 million on December 1, 2022; and

iii.$22.8 million on December 1, 2023

 

The amounts payable bear interest at 5% per annum, payable quarterly. To March 31, 2022, we capitalized the interest on this loan to “Mineral properties and related construction”. On April 1, 2022, we commenced commercial production at the Camino Rojo Oxide Gold Mine and began to expense the interest on this obligation.

 

   Total 
At December 31, 2021  $37,800 
Accretion during the period January 1 to March 31, which was capitalized   473 
Accretion during the period April 1 to September 30, which was expensed (note 9)   966 
Cash interest paid   (1,439)
 At September 30, 2022  $37,800 
      
Current   15,000 
Non-current   22,800 
   $37,800 

 

23.LEASE OBLIGATIONS

 

The Company has lease contracts for mining equipment, vehicles and buildings. Leases of mining equipment have lease terms of five years, while vehicles and buildings generally have lease terms between three and five years.

 

In July 2021, we entered into a new lease agreement for the use of mining equipment in relation to contract mining at Camino Rojo for a period of five years. The Company makes fixed payments and additional variable lease payments depending on the usage of the assets during the contract period. On commencement of the lease, the Company recognized a $0.9 million right-of-use asset and a $0.5 million lease liability. During the nine months ended September 30, 2022, we made variable lease payments totaling $11.2 million (September 30, 2021 – $0.8 million) based on the usage of the mining equipment. We have elected not to separate the lease component from the non-lease component.

 

Page 19

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

   

(a)Lease obligations

 

   September 30,
2022		   December 31,
2021		 
Beginning of year  $1,401   $273 
Additions   1,825    1,769 
Interest expense   41    32 
Lease payments   (399)   (681)
Due to changes in exchange rates   (94)   8 
End of period  $2,774   $1,401 
           
Current  $627   $372 
Non-current   2,147    1,029 
   $2,774   $1,401 

 

(b)Lease expenses recognized

 

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Interest on lease liabilities  $21   $7   $41   $22 
Variable lease payments not included in the measurement of lease liabilities   4,706    812    11,258    854 
Expenses relating to short-term leases   89    46    131    91 
Expenses relating to leases of low-value assets, excluding short-term leases   17    40    56    124 
   $4,833   $905   $11,486   $1,091 

  

Page 20

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

 

24.SITE CLOSURE PROVISIONS

 

   Camino Rojo   Cerro Quema
Project		   Gold Standard
Ventures		   Total 
At December 31, 2021  $5,117   $343   $—   $5,460 
Acquisition of Gold Standard (note 12)   —    —    1,603    1,603 
Change in estimated cash flows resulting from current activities   488    —    —    488 
Remediation activities conducted during the period   (53)   —    —    (53)
Accretion during the period (note 9(b))   344    —    4    348 
Foreign exchange   61    —    —    61 
At September 30, 2022  $5,957   $343   $1,607   $7,907 
                     
Current (note 17)  $34   $—   $—   $34 
Non-current   5,923    343    1,607    7,873 
   $5,957   $343   $1,607   $7,907 

 

   Camino Rojo   Cerro Quema
Project		   Gold
Standard
Ventures		 
Estimated settlement dates   2033 to 2045    2023     2028 to 2038 
Undiscounted risk-adjusted cash flows  $8,407   $343   $1,724 
Inflation rate   6.7%   —    2.2%
Discount rate   9.8%   —    3.1%

 

25.SHARE CAPITAL

 

(a)Authorized share capital

 

The Company’s authorized share capital consists of an unlimited number of common shares without par value and an unlimited number of preferred shares without par value.

 

On August 12, 2022, the Company issued 43,688,556 Orla Mining Ltd common shares to Gold Standard Ventures Corp shareholders (note 12). The Company incurred issuance costs of C$250,000 ($196,000).

 

Page 21

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

    

(b)Warrants

  

The following summarizes information about the number of warrants outstanding during the period

  

Expiry date   Exercise
price		     December 31
2021		     Exercised     Expired     September 30
2022		  
June 12, 2022   C$ 1.65       4,742,500       (4,742,500 )     —       —  
November 7, 2022   C$ 1.40       3,000,000       —       —       3,000,000  
December 18, 2026   C$ 3.00       32,500,000       (2,955,000 )     —       29,545,000  
Total number of warrants             40,242,500       (7,697,500 )     —       32,545,000  
                                         
Weighted average exercise price           C$ 2.72     C$ 2.17     C$ —     C$ 2.85  

  

Subsequent to the reporting period, the Company issued 3,000,000 common shares for proceeds of C$4,200,000 ($3,055,000) pursuant to the exercise of warrants.

 

26.EARNINGS (LOSS) PER SHARE

 

Earnings (loss) per share has been calculated using the weighted average number of common shares outstanding for the three and nine months ended September 30, 2022 and 2021 as follows:

 

(a)Basic

 

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Income (loss) for the period  $8,895   $(9,554)  $27,080   $(21,260)
Weighted average number of common shares (thousands)   282,476    245,971    261,364    239,298 
Basic earnings (loss) per share  $0.03   $(0.04)  $0.10   $(0.09)

  

Page 22

 

  

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

    

(b)Diluted

  

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Income (loss) for the period  $8,895   $(9,554)  $27,080   $(21,260)
                     
Weighted average number of common shares (thousands)   282,476    245,971    261,364    239,298 
Weighted average shares dilution adjustments:                    
     Warrants   9,441    —    15,320    — 
     Options   3,526    —    4,819    — 
     RSUs   224    —    386    — 
     DSUs   572    —    682    — 
     Bonus shares   500    —    500    — 
Weighted average number of ordinary shares   296,739    245,971    283,071    239,298 
                     
Diluted earnings (loss) per share  $0.03   $(0.04)  $0.10   $(0.09)

 

Potential ordinary shares are not included in the calculation of diluted loss per share for the three and nine months ended September 30, 2021 because their effect would be anti-dilutive.

 

27.SHARE-BASED PAYMENTS

 

The Company has four different forms of share-based payments for eligible recipients – stock options, restricted share units (“RSUs”), deferred share units (“DSUs”), and bonus shares. The bonus shares have fully vested but have not yet been issued.

 

   Three months ended
September 30		   Nine months ended
September 30		 
Share-based payments expense  2022   2021   2022   2021 
Stock options (note 27(a))  $335   $221   $1,083   $1,111 
Restricted share units (note 27(b))   183    195    530    545 
Deferred share units (note 27(c))   —    —    308    241 
Share based payments expense  $518   $416   $1,921   $1,897 

 

(a)Stock options

 

Stock options granted by the Company prior to 2022 typically had a five-year life, with one third each vesting on grant date, and one year and two years after grant date. In 2022, stock options granted by the Company have a five-year life, with one third each vesting one, two, and three years after grant date.

 

Gold Standard stock options that were outstanding at August 12, 2022 were exchanged for Replacement Options at the Exchange Ratio, resulting in the issuance of 1,758,334 Replacement Options (note 12). The Replacement Options held by or on behalf of an individual that will be continuing as a director, officer, employee or consultant of the Company shall be exercisable until the original expiry date of such option, and the Replacement Options held by or on behalf of an individual that will not be continuing as a director, officer, employee or consultant of the Company following the acquisition date, shall be exercisable until the earlier of (1) the date that is 24 months following the acquisition date; and (2) the original expiry date of such options. Except as set out above, all other terms and conditions of the Replacement Options, including the vesting terms and conditions to and manner of exercising, will be the same as the Gold Standard stock option exchanged, and shall be governed by the terms of the Gold Standard Option Plan.

 

Page 23

 

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

    

Stock options outstanding  Number   Weighted
average
exercise price		 
As at December 31, 2021   9,900,874   C$1.86 
Replacement options   1,758,334    8.43 
Granted   1,000,660    5.66 
Exercised   (3,237,319)   1.36 
Forfeited   (83,814)   16.81 
As at September 30, 2022   9,338,735   C$3.55 
           
Vested, December 31, 2021   8,704,157   C$1.63 
Vested, September 30, 2022   8,120,781   C$3.26 

 

The stock options granted during the nine months ended September 30, 2022 had a grant date fair value of C$3,414,000 ($2,660,000) using the following weighted average assumptions:

 

Share price at grant date ranging from C$3.71 to C$5.98, expected volatility – 46%, expected life – 3 years, risk free interest rate – 2.1% and expected dividends – nil.

 

The stock options granted during the nine months ended September 30, 2021 had a grant date fair value of C$1,205,000 ($972,000) using the following weighted average assumptions:

 

Share price at grant date – C$4.80, expected volatility – 45%, expected life – 5 years, risk free interest rate – 0.95% and expected dividends – nil.

 

(b)Restricted Share Units

 

Restricted Share Units (“RSU’s) awarded by the Company typically vest one-third each one, two, and three years after the award date.

 

       Number vesting in the year 
Number of RSUs outstanding:  Total   2022   2023   2024   2025 
Outstanding, December 31, 2021   707,840    444,295    185,179    78,366    — 
Awarded during the period   172,301    —    57,431    57,432    57,438 
Vested and settled during the period   (402,430)   (402,430)   —    —    — 
Forfeitures during the period   (34,444)   —    (21,737)   (8,986)   (3,721)
Outstanding, September 30, 2022   443,267    41,865    220,873    126,812    53,717 

 

RSUs are valued based on the closing price of the Company’s common shares on the trading day immediately prior to award. Certain RSUs may be settled in cash at the option of the Company.

 

The Company elected to settle 365,935 RSUs in cash for $1,732,000 during the nine months ended September 30, 2022.

 

Page 24

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

    

(c)Deferred Share Units

 

The Deferred Share Units (“DSUs”) awarded by the Company to directors typically vest immediately but are not settled until the end of the director’s tenure. They may be settled in cash or common shares at the option of the Company.

 

DSUs outstanding and vested:  Number 
Outstanding, December 31, 2021   707,028 
Awarded during the year to date   69,290 
Settled during the period   (216,593)
Outstanding, September 30, 2022   559,725 
      
DSUs vested at September 30, 2022   559,725 

 

DSUs are valued based on the closing price of the Company’s common shares immediately prior to award.

 

28.TAX EXPENSE

 

Current income tax expense consists of two components - current income tax on taxable income, and 7.5% special mining duty ("SMD") on income subject to SMD.

 
   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Current income tax expense  $9,200   $—   $18,500   $— 
Mexican 7.5% Special Mining Duty   480    —    5,380    — 
Withholding taxes   1,252    —    2,113    — 
Tax expense  $10,932   $—   $25,993   $— 

 

We funded the construction of the Camino Rojo mine with intercompany loans from the Canadian parent company, at market rates of interest. Payment of this interest by the Mexican operating subsidiary to the Canadian parent attracts Mexican withholding tax at 10%, which is included in “tax expense”.

 

29.RELATED PARTY TRANSACTIONS

 

The Company’s related parties include:

 

Related party Nature of the relationship
Key management personnel Key management personnel are the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, Chief Sustainability Officer, the Senior Vice President Exploration, and members of the Board of Directors of the Company.

 

Page 25

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

    

(a)Key Management Personnel

 

Compensation to key management personnel was as follows:

 

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Salaries and short term incentives paid  $331   $239   $3,553   $1,293 
Directors’ fees   69    43    226    135 
Share based payments   396    291    1,582    1,429 
   $796   $573   $5,361   $2,857 

 

(b)Transactions

 

The Company had no other material transactions with related parties other than key management personnel during the three and nine months ended September 30, 2022, and 2021.

 

(c)Outstanding balances at the Reporting Date

 

At September 30, 2022, estimated accrued short term incentive compensation totaled $793,000 and is included in accrued liabilities (December 31, 2021 – $783,000).

 

30.SUPPLEMENTAL CASH FLOW INFORMATION

 

(a)Cash and cash equivalents

 

Cash and cash equivalents consists of bank current accounts and cash on hand.

 

(b)Changes in non-cash working capital

 

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Accounts receivable and prepaid expenses  $(593)  $(212)  $(1,875)  $(1,603)
Inventory   (3,570)   —    (10,761)   — 
Value added taxes recoverable   678    —    (3,804)   — 
Trade and other payables   2,005    (2,562)   (157)   294 
Accrued liabilities   (701)   3,778    168    9,587 
Taxes payable   9,680    —    23,880    — 
Changes in non-cash working capital  $7,499   $1,004   $7,451   $8,278 

 

Page 26

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

    

(c)Non-cash investing and financing activities

 

The non-cash investing and financing activities of the Company, excluded from the consolidated statements of cash flows, include the following:

 

   Three months ended
September 30		   Nine months ended
September 30		 
   2022   2021   2022   2021 
Financing activities                    
Stock options exercised, credited to share capital with an offset to reserves  $89   $39   $2,863   $244 
Warrants exercised, credited to share capital with an offset to reserves   —    119    2,067    2,127 
Common shares issued on maturity of RSUs, credited to share capital with an offset to reserves   —    42    541    487 
Common shares issued on maturity of DSUs, credited to share capital with an offset to reserves   —    —    324    — 
Fresnillo obligation, credited, with an offset to mineral properties   —    —    —    37,800 
                     
Investing activities                    
Common shares issued pursuant to the acquisition of Gold Standard, credited to share capital with an offset to the assets acquired and liabilities assumed (note 12)   149,363    —    149,363    — 
Replacement options issued pursuant to the acquisition of Gold Standard, credited to reserves with an offset to the assets acquired and liabilities assumed (note 12)   1,647    —    1,647    — 
Initial recognition of right of use assets with an offset to lease obligation   1,746    39    1,825    391 

 

31.SEGMENT INFORMATION

 

(a)Reportable segments

 

The operating and reportable segments of the Company are based on the reports which are reviewed by the chief operating decision maker (“CODM”) in making strategic resource allocation decisions. These operating segments are (1) the Mexican project, (2) the Panamanian project, (3) the Nevada projects and (4) the corporate office. The operating segments other than corporate office are each managed by a dedicated General Manager and management team. The corporate office oversees the plans and activities of early stage exploration projects.

 

During the three months ended September 30, 2022, the Company acquired Gold Standard Ventures Corp (note 12), which holds the South Railroad and Lewis projects. For segment reporting, these two projects were combined with the existing Monitor Gold Project and form a new reportable segment called the Nevada projects.

 

During the nine months ended September 30, 2022, Camino Rojo declared commercial production, while the Cerro Quema Project in Panama, and the exploration projects in Nevada were focused on the exploration and evaluation of its mineral properties.

 

Page 27

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

    

(b)Geographic segments

 

We conduct our activities in four geographic areas: Mexico, Panama, Nevada USA, and Canada (Corporate).

 

(i)Income (loss) for the period by segment

 

   Mexico   Panama   Nevada   Corporate   Total 
Nine months ended September 30, 2022                         
  Revenue (note 4)  $136,472   $—   $—   $—   $136,472 
  Cost of sales   (46,797)   —    —    —    (46,797)
  Earnings from mining operations   89,675    —    —    —    89,675 
  General and administrative expenses (note 7)   —    —    —    (8,172)   (8,172)
  Exploration and evaluation expenses (note 8)   (5,734)   (4,796)   (2,486)   (318)   (13,334)
  Depreciation   (11)   (12)   (14)   (125)   (162)
  Share based payments (note 27)   (26)   (52)   —    (1,843)   (1,921)
  Interest income   1,068    —    —    140    1,208 
  Interest and accretion expense   (1,718)   —    (8)   (4,187)   (5,913)
  Loss on early settlement of project loan (note 19)   —    —    —    (13,219)   (13,219)
  Foreign exchange gain   772    —    37    4,096    4,905 
  Other   —    —    —    6   6
  Income taxes   (23,880)   —    —    (2,113)   (25,993)
  Income (loss) for the period  $60,146   $(4,860)  $(2,471)  $(25,735)  $27,080 

 

   Mexico   Panama   Nevada   Corporate   Total 
Nine months ended September 30, 2021                         
  General and administrative expenses (note 7)   —    —    —    (5,333)   (5,333)
  Exploration and evaluation expenses (note 8)  $(7,602)  $(4,276)  $(323)  $(44)  $(12,245)
  Depreciation   —    (32)   —    (88)   (120)
  Share based payments (note 27)   (69)   (39)   —    (1,789)   (1,897)
  Interest and finance costs   (1,166)   —    —    77    (1,089)
  Foreign exchange loss gain (loss)   (1,816)   —    —    403    (1,413)
  Other   222    —    —    615    837 
  Loss for the period  $(10,431)  $(4,347)  $(323)  $(6,159)  $(21,260)

 

(ii)Assets by segment

 

   Mexico   Panama   Nevada   Corporate   Total 
At September 30, 2022                         
  Property, plant and equipment  $221,729   $43   $599   $1,086   $223,457 
  Exploration and evaluation properties   —    82,429    152,803    —    235,232 
  Total assets   329,039    83,472    156,386    22,674    591,571 

 

   Mexico   Panama   Nevada   Corporate   Total 
At December  31, 2021                         
  Equipment  $7,466   $37   $—   $132   $7,635 
  Mineral properties under construction   213,749    —    —    —    213,749 
  Exploration and evaluation properties   —    82,429    314    —    82,743 
  Total assets   267,403    83,162    314    14,016    364,895 

 

Page 28

 

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

    

32.CAPITAL MANAGEMENT

 

(a)Objectives

 

Our objectives when managing capital are to safeguard the Company’s ability to continue as a going concern to pursue the exploration, evaluation, development, and exploitation of our mineral properties and to maintain a flexible capital structure.

 

We manage our capital structure and adjust it considering changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the Company’s capital structure, we may issue new shares, take on additional debt or repay outstanding debt, or acquire or dispose of assets. We currently do not pay regular dividends.

 

Our ability to carry out our long-range strategic objectives in future periods depends on our ability to generate positive cash flows from our mining operations and to raise financing from lenders, shareholders, and new investors. We regularly review and consider financing alternatives to fund the Company’s ongoing operational, exploration and development activities.

 

(b)Investment policy

 

Our investment policy is to invest the Company’s excess cash in low-risk financial instruments such as demand deposits and savings accounts with major Canadian banks. By using this strategy, the Company preserves its cash resources and can marginally increase these resources with low risk through the yields on these investments. Our financial instruments are exposed to certain financial risks, which include currency risk, credit risk, and liquidity risk.

 

(c)Credit facility

 

On April 28, 2022, the Company entered into a Credit Facility which includes a $100 million term facility and a $50 million revolving facility pursuant to which we have drawn $130 million as of September 30, 2022. The agreement includes covenants customary for a facility of this nature, including compliance with customary restrictive covenants and financial covenants related to maintaining a leverage ratio at less than or equal to 3.00, an interest service coverage ratio at greater than or equal to 4, a tangible net worth greater than or equal to $151.6 million and minimum liquidity in an amount greater than or equal to $15 million. As at September 30, 2022, the Company was in compliance with all covenants.

 

Page 29

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

    

33.FINANCIAL INSTRUMENTS

 

(a)Fair value hierarchy

 

To provide an indication of the reliability of the inputs used in determining fair value, we classify our financial instruments into the three levels prescribed by the accounting standards.

 

  Level 1 The fair value of financial instruments traded in active markets (such as publicly traded equity securities) is based on quoted (unadjusted) market prices as at the reporting date. The quoted market price used for financial assets held by the Company is the closing trading price on the reporting date. Such instruments are included in Level 1.

 

  Level 2 The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, we include that instrument in Level 2.

 

  Level 3 If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

 

The carrying value of cash and cash equivalents, accounts receivable, restricted cash, trade payables and accrued liabilities approximates the fair value due to the short-term nature of the instruments. The fair value of the Credit Facility and Fresnillo obligation is determined using discounted cash flows based on the expected amounts and timing of the cash flows discounted using a market rate of interest adjusted for appropriate credit risk.

 

The carrying value of the Credit Facility and Fresnillo obligation approximates the fair value as the discount rates on these instruments approximate the Company’s credit risk.

 

At September 30, 2022, the carrying values and fair values of our financial instruments by category were as follows:

 

          Fair value 
   Classification  Carrying
value		   Level 1   Level 2   Level 3   Short term
nature		   Total fair
value		 
Financial assets                                 
   Cash and cash equivalents  FVTPL  $89,148   $89,148   $—   $—   $—   $89,148 
   Accounts receivable  Amortized cost   323    25    —    —    298    323 
   Restricted cash  Amortized cost   6,476    6,476    —    —    —    6,476 
      $95,947   $95,649   $—   $—   $298   $95,947 
                                  
Financial liabilities                                 
   Trade payables  Amortized cost  $3,294   $—   $—   $—   $3,294   $3,294 
   Accrued liabilities  Amortized cost   8,004    —    —    —    8,004    8,004 
   Lease obligation  Amortized cost   2,774    —    2,774    —    —    2,774 
   Credit facility  Amortized cost   129,734    —    —    129,734    —    129,734 
   Fresnillo obligation  Amortized cost   37,800    —    —    37,800    —    37,800 
      $181,606   $—   $2,774   $167,534   $11,298   $181,606 

 

Page 30

 

 

ORLA MINING LTD. 

Notes to the Condensed Interim Consolidated Financial Statements 

Three and nine months ended September 30, 2022 and 2021 

(Unaudited - United States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)

    

At December 31, 2021, the carrying values and fair values of our financial instruments by category were as follows:

 

          Fair value 
   Classification  Carrying
value		   Level 1   Level 2   Level 3   Short term
nature		   Total fair
value		 
Financial assets                                 
   Cash and cash equivalents  FVTPL  $20,516   $20,516   $—   $—   $—   $20,516 
   Accounts receivable  Amortized cost   299    16    —    —    283    299 
   Restricted cash  Amortized cost   3,680    —    3,680    —    —    3,680 
      $24,495    20,532   $3,680   $—   $283   $24,495 
                                  
Financial liabilities                                 
   Trade payables  Amortized cost  $5,966   $—   $—   $—   $5,966   $5,966 
   Accrued liabilities  Amortized cost   5,659    —    —    —    5,659    5,659 
   Lease obligation  Amortized cost   1,401    —    1,401    —    —    1,401 
   Camino Rojo project loan  Amortized cost   113,260    —    137,746    —    —    137,746 
   Newmont loan  Amortized cost   10,293    —    10,533    —    —    10,533 
   Fresnillo obligation  Amortized cost   37,800    —    37,800    —    —    37,800 
      $174,379   $—   $187,480   $—   $11,625   $199,105 

 

Our policy is to determine whether transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of the reporting period.

 

34.COMMITMENTS AND CONTINGENCIES

 

(a)Commitments

 

The Company has issued purchase orders for construction, equipment purchases, materials and supplies, and other services at Camino Rojo. At September 30, 2022, these outstanding purchase orders and contracts totaled approximately $3,916,000 (December 31, 2021 – $8,560,000), which we expect will be filled within the next 12 months.

 

The Company is committed to making severance payments amounting to approximately $4,000,000 (December 31, 2021 – $3,220,000) to certain officers and management in the event of a change in control. As the likelihood of these events occurring is not determinable, such amounts are not reflected in these condensed interim consolidated financial statements.

 

We may, from time to time, be a party to legal proceedings, which arise in the ordinary course of our business. We are not aware of any pending or threatened litigation that, if resolved against us, would have a material adverse effect on our consolidated financial position, results of operations or cash flows.

 

(b)Discretionary mineral property-related commitments

 

As is customary in mineral exploration, some of the mineral properties held by the Company as exploration and evaluation assets have annual minimum work commitments and lease payments required to maintain these properties in good standing pursuant to their underlying agreements (note 15). We have not presented these as commitments due to their discretionary nature.

 

35. EVENTS AFTER THE REPORTING PERIOD

 

(a)Share issuances

 

Subsequent to the reporting period, the Company issued common shares pursuant to the exercise of warrants (note 25(b)).

 

(b)Restricted cash

 

Subsequent to the reporting period, the Company entered into a new agreement to replace the current Camino Rojo bond agreement, pursuant to which restricted cash of $3.1 million will be released to the Company.

 

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