EXHIBIT 99.1

 

Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited, expressed in thousands of United States dollars, unless otherwise stated)

 

Condensed Consolidated Statements of Financial Position

(Unaudited, expressed in thousands of United States dollars)

		September 30,		December 31,
	Note		2020		2019
Assets
Current assets
Cash and cash equivalents		$	310,719	$	67,716
Trade and other receivables			47,237		27,390
Inventory	5		214,867		46,262
Prepaid expenses and other current assets			23,966		6,681
Restricted cash – current			596		607
			597,385		148,656
Restricted cash			4,903		14,678
Inventory	5		124,100		141,578
Mineral properties, plant and equipment	6		1,841,654		497,944
Exploration and evaluation assets			13,750		13,750
Other assets			22,564		22,744
Total assets		$	2,604,356	$	839,350
Liabilities and Equity
Current liabilities
Accounts payable and accrued liabilities		$	109,027	$	67,204
Current portion of loans and borrowings	7		6,667		61,574
Derivative liabilities – current	8		72,159		-
Other current liabilities			14,200		3,145
			202,053		131,923
Loans and borrowings	7		536,455		202,475
Derivative liabilities	8		122,676		56,146
Reclamation obligations			111,638		29,885
Other long-term liabilities			31,333		5,150
Deferred tax liabilities			222,454		10,712
Total liabilities			1,226,609		436,291
Shareholders’ equity
Share capital	10		1,513,786		505,686
Reserves			39,081		27,959
Deficit			(175,120)		(130,586)
Total equity			1,377,747		403,059
Total liabilities and equity		$	2,604,356	$	839,350
Commitments and contingencies (notes 6, 11 and 21)
The accompanying notes form an integral part of these condensed consolidated interim financial statements.

 2

 

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

(Unaudited, expressed in thousands of United States dollars, except share and per share amounts)

		Three months ended September 30,				Nine months ended September 30,
	Note		2020		2019		2020		2019
Revenue	11	$	244,454	$	91,896	$	589,876	$	162,677
Operating expenses	12		(110,385)		(49,918)		(284,386)		(98,075)
Depreciation and depletion			(36,379)		(11,192)		(88,102)		(19,224)
Earnings from mine operations			97,690		30,786		217,388		45,378
Care and maintenance	13		(12,069)		-		(31,176)		-
Exploration			(2,868)		(943)		(9,461)		(7,030)
General and administration	14		(8,142)		(3,318)		(24,741)		(10,117)
Income from operations			74,611		26,525		152,010		28,231
Finance expense			(12,773)		(5,335)		(31,104)		(12,437)
Finance income			613		78		1,250		1,332
Other expense	15		(39,518)		(9,671)		(117,962)		(24,620)
Net income (loss) before taxes			22,933		11,597		4,194		(7,494)
Current tax expense			(9,324)		(1,811)		(25,391)		(4,824)
Deferred tax (expense) recovery			(1,797)		(1,729)		(23,337)		502
Net income (loss) and comprehensive income (loss)		$	11,812	$	8,057	$	(44,534)	$	(11,816)
Net income (loss) and comprehensive income (loss) attributable to:
Equinox Gold shareholders		$	11,812	$	8,057	$	(44,534)	$	(9,852)
Non-controlling interests			-		-		-		(1,964)
		$	11,812	$	8,057	$	(44,534)	$	(11,816)
Net income (loss) per share, basic and diluted	16	$	0.05	$	0.07	$	(0.22)	$	(0.09)
Weighted average shares outstanding,	16
Basic			241,249,679		113,288,119		202,538,753		111,523,430
Diluted			244,066,116		141,748,278		202,538,753		111,523,430
The accompanying notes form an integral part of these condensed consolidated interim financial statements.

 3

 

Condensed Consolidated Statements of Cash Flows

(Unaudited, expressed in thousands of United States dollars)

		Three months ended September 30,				Nine months ended September 30,
	Note		2020		2019		2020		2019
Cash provided by (used in):
Operations
Net income (loss) for the period		$	11,812	$	8,057	$	(44,534)	$	(11,816)
Adjustments for:
Depreciation and depletion			37,768		11,292		94,352		19,466
Change in fair value of warrants	8(c), 15		8,596		7,408		47,334		11,387
Unrealized loss on gold contracts	8(a)		10,160		-		24,083		-
Tax expense			11,121		3,540		48,728		4,322
Finance expense			12,773		5,335		31,104		12,437
Unrealized loss on foreign exchange contracts	8(b)		2,675		1,594		25,232		1,594
Share-based compensation			2,450		1,017		6,535		3,150
Loss on extinguishment of debt			-		220		-		14,123
Expected credit losses (recovery)	15		(412)		(261)		6,074		(224)
Finance fees paid			(7,229)		(1,696)		(32,068)		(9,553)
Unrealized foreign exchange (gain) loss			4,259		(88)		(14,330)		(1,691)
Income taxes paid			(13,479)		-		(26,604)		-
Other			9,125		1,140		3,903		(3,213)
Operating cash flow before non-cash changes in working capital			89,619		37,558		169,809		39,982
Changes in non-cash working capital:
Accounts receivable, prepaid expenses and deposits			(6,426)		(8,084)		274		(7,152)
Inventory			(18,562)		(4,242)		(15,730)		(23,347)
Accounts payable and accrued liabilities			(3,299)		12,735		(20,768)		11,305
			61,332		37,967		133,585		20,788
Investing
Capital expenditures			(47,668)		(25,267)		(121,991)		(81,751)
Acquisition of Leagold	4		-		-		55,252		-
Mesquite acquisition working capital adjustment			-		-		-		(12,451)
Other			2,500		(111)		(855)		(1,375)
			(45,168)		(25,378)		(67,594)		(95,577)
Financing
Proceeds from option and warrant exercises	10		5,992		293		169,386		1,179
Draw down of loans and borrowings	7		-		20,000		518,958		189,661
Net proceeds from equity financings	10		-		-		39,938		-
Decrease in restricted cash			3,137		-		9,158		1,389
Repayment of loans and borrowings	7		(200,000)		(20,000)		(546,274)		(136,888)
Other			(5,148)		(68)		(8,618)		3,279
			(196,019)		225		182,548		58,620
Effect of foreign exchange on cash and cash equivalents			(3,488)		(369)		(5,536)		838
Increase (decrease) in cash and cash equivalents			(183,343)		12,445		243,003		(15,331)
Cash and cash equivalents, beginning of period			494,062		33,046		67,716		60,822
Cash and cash equivalents, end of period		$	310,719	$	45,491	$	310,719	$	45,491
Supplemental cash flow information (note 17)
The accompanying notes form an integral part of these condensed consolidated interim financial statements.

 4

 

Condensed Consolidated Statements of Changes in Equity

(Unaudited, expressed in thousands of United States dollars, except share amounts)

	Share Capital
	Shares	Amount		Reserves		Deficit		Total
December 31, 2019	113,452,363	$	505,686	$	27,959	$	(130,586)	$	403,059
Shares and options issued for acquisition of Leagold (note 4)	94,635,765		732,042		19,777		-		751,819
Shares issued in financings (note 10)	6,472,491		40,000		-		-		40,000
Shares issued on exercise of shareholder anti-dilution right (note 10)	461,947		2,855		-		-		2,855
Equity component of Convertible Notes (note 7(b))	-		-		8,322		-		8,322
Shares issued on exercise of warrants, stock options and RSUs (note 10)	26,847,608		233,265		(20,489)		-		212,776
Share-based compensation	-		-		3,512		-		3,512
Share issue costs	-		(62)		-		-		(62)
Net loss and comprehensive loss	-		-		-		(44,534)		(44,534)
September 30, 2020	241,870,174	$	1,513,786	$	39,081	$	(175,120)	$	1,377,747

	Share Capital
	Shares	Amount		Reserves		Deficit		Non-controlling interests		Total
December 31, 2018	110,425,401	$	491,100	$	15,402	$	(111,723)	$	14,519	$	409,298
Shares issued to settle Debenture	2,227,835		10,110		-		-		-		10,110
Equity component of Convertible Notes	-		-		10,217		-		-		10,217
Shares issued on exercise of warrants, stock options and RSUs	748,361		4,173		(2,708)		-		-		1,465
Share-based compensation	-		-		3,151		-		-		3,151
Changes in non-controlling interest from equity offerings and other	-		-		-		(503)		3,949		3,446
Deconsolidation of Solaris Resources	-		-		-		-		(16,504)		(16,504)
Net loss and comprehensive loss	-		-		-		(9,852)		(1,964)		(11,816)
September 30, 2019	113,401,597	$	505,383	$	26,062	$	(122,078)	$	-	$	409,367
The accompanying notes form an integral part of these condensed consolidated interim financial statements.

 5

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

1.Nature of operations

Equinox Gold Corp. (the “Company” or “Equinox Gold”) was incorporated under the Business Corporations Act of British Columbia on March 23, 2007. Equinox Gold’s primary listing is on the Toronto Stock Exchange (“TSX”) in Canada where its common shares trade under the symbol “EQX” and its warrants trade under the symbol “EQX.WT”. The Company’s shares also trade on the NYSE American Stock Exchange (“NYSE-A”) in the United States under the symbol “EQX” and its warrants also trade on the OTC Markets in the United States under the symbol “EQXWF”.

Equinox Gold is a gold mining company engaged in the operation, acquisition, exploration and development of mineral properties. On March 10, 2020, the Company completed its acquisition of Leagold Mining Corporation (“Leagold”). The results of operations of Leagold are included in these financial statements from March 10, 2020 (note 4).

All of the Company’s properties are located in the Americas, with one property in Mexico, two in the United States and five in Brazil. Each property is wholly-owned by the Company. The Company’s producing assets are the Los Filos Mine Complex (“Los Filos”) in Mexico, the Mesquite Mine (“Mesquite”) in the United States, and the Aurizona Mine (“Aurizona”), Fazenda Mine (“Fazenda”), RDM Mine (“RDM”) and Pilar Mine (“Pilar”) in Brazil. The Company’s development-stage assets are the Castle Mountain Mine (“Castle Mountain”) in the United States, which is in the late stages of commissioning, and the Santa Luz Mine (“Santa Luz”) in Brazil which is on care and maintenance and for which the Company is in the late stage of completing an updated feasibility study.

2.Basis of preparation

(a)Basis of presentation

These condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting, and do not include all of the information required for full annual financial statements prepared using International Financial Reporting Standards (“IFRS”). These condensed consolidated interim financial statements should be read in conjunction with the Company’s most recent annual audited financial statements for the year ended December 31, 2019. Except as described in note 2(d), the accounting policies applied in these condensed consolidated interim financial statements are the same as those applied in the Company’s annual audited consolidated financial statements for the year ended December 31, 2019.

These condensed consolidated interim financial statements were approved and authorized for issuance by the Board of Directors on November 5, 2020.

(b)Basis of consolidation

These condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries.  Subsidiaries are entities controlled by the Company. Control is defined as Equinox Gold having power over the entity, rights to variable returns from its involvement with the entity, and the ability to use its power to affect the amount of returns. All intercompany transactions and balances are eliminated on consolidation.  

 6

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

2.Basis of preparation (continued)

At September 30, 2020, the Company’s material subsidiaries include the following:
	Company	Location	Ownership Interest
	Castle Mountain Venture	USA	100%
	Desarrollos Mineros San Luis S.A. de C.V.	Mexico	100%
	Fazenda Brasileiro Desenvolvimento Mineral Ltda	Brazil	100%
	Mineração Aurizona S.A.	Brazil	100%
	Mineração Riacho Dos Machados Ltda	Brazil	100%
	Pilar de Goias Desenvolvimento Mineral Ltda	Brazil	100%
	Santa Luz Desenvolvimento Mineral Ltda	Brazil	100%
	Western Mesquite Mines, Inc.	USA	100%
(c)Functional currency and presentation currency
Except as otherwise noted, these financial statements are presented in United States dollars (“US dollars”), the functional currency of the Company and its subsidiaries. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate prevailing at the date of the statement of financial position. Non-monetary assets and liabilities are translated at historical exchange rates, unless the item is carried at fair value, in which case it will be translated at the exchange rate in effect at the date when the fair value was determined. Resulting foreign exchange gains and losses are recognized in income or loss. Foreign currency gains and losses are reported on a net basis.
(d)Significant accounting policies
Depletion of mineral properties
The carrying amounts of mineral properties are amortized using the units-of-production method over the estimated recoverable ounces, which is the estimated total ounces to be extracted in current and future periods based on proven and probable reserves, and, in the case of certain underground mines, certain measured and indicated resources.
(e)Adoption of new accounting standards
The following amendment to existing standards has been issued but not yet adopted by the Company:
IAS 16, Property, plant and equipment – proceeds before intended use
On May 14, 2020, the IASB published a narrow scope amendment to IAS 16 Property, Plant and Equipment - Proceeds before Intended Use. The amendment prohibits deducting from the cost of property, plant and equipment amounts received from selling items produced while preparing the asset for its intended use. Instead, amounts received will be recognized as sales proceeds and related cost in profit or loss. The effective date is for annual periods beginning on or after January 1, 2022. The Company is assessing the effect of the narrow scope amendment on its consolidated financial statements.

 7

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

3.Use of judgements and estimates

In preparing these condensed consolidated interim financial statements, management has made judgements, estimates and assumptions that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses.  Actual results may differ.  Significant judgements made by management in applying the Company’s accounting policies and key sources of estimation uncertainty were the same as those applied in the most recent annual audited consolidated financial statements for the year ended December 31, 2019 except as follows:

(a)Acquisitions

On the acquisition of a set of assets and liabilities, a company must determine whether what was acquired includes the inputs, processes and outputs necessary to constitute a business as defined in IFRS 3 – Business Combinations. If an acquired set of assets and liabilities includes goodwill, the set is presumed to be a business. Based on an assessment of the relevant facts and circumstances, the Company concluded that the acquisition of Leagold on March 10, 2020 met the criteria of a business combination and that Equinox Gold was the acquirer.  

(b)Fair value of assets and liabilities acquired

Accounting for acquisitions requires estimates with respect to the fair value of the assets and liabilities acquired. Such estimates require valuation methods, including discounted cash flows, depreciated replacement costs and other methods. The models used in these valuation methods use forecasted cash flows, discount rates, current replacement costs and other assumptions. Changes in these assumptions changes the value assigned to the acquired assets and liabilities and goodwill, if any.

Significant assumptions related to the Company’s acquisition of Leagold are disclosed in note 4.

(c)Commencement of commercial production

Management considers several factors in determining when a mining property is capable of operating at levels intended by management.  Until a mine is capable of operating at levels intended by management, costs incurred are capitalized as part of the costs of the related mining properties and proceeds from mineral sales are offset against costs capitalized.  Depletion of capitalized costs for mining properties begins when the mine is capable of operating at levels intended by management. Amongst other quantitative and qualitative factors, plant utilization, stacking rates and irrigation rates over a specified period were utilized in determining the appropriate timing for a heap leach operation.

 8

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

4.Acquisition of Leagold

On March 10, 2020, the Company completed the acquisition of Leagold (the “Leagold Acquisition” or “Transaction”). Leagold was a gold mining company with four operating mines, one development project and one expansion project, all located in the Americas, including Los Filos in Mexico, and Fazenda, RDM, Pilar and Santa Luz in Brazil.  The acquisition supported the Company’s growth strategy and enhanced the Company’s production profile.

Under the terms of the Transaction, the Company acquired 100% of the issued and outstanding shares of Leagold at an exchange ratio of 0.331 of an Equinox Gold share for each Leagold share.  Holders of Leagold options, warrants performance share units (“PSUs”) and deferred share units (“DSUs”) received equivalent Equinox Gold options, warrants, PSUs and DSUs with the number of such securities issuable adjusted by the 0.331 exchange ratio.

By virtue of the Company issuing equity instruments and relative voting rights of Equinox Gold shareholders, including significant minority shareholders post-merger, among other factors, the Company has been identified as the acquirer in the transaction and has accounted for the transaction as a business combination. Transaction costs incurred in respect of the acquisition totaling $3.9 million, of which $2.6 million were incurred in 2020, were expensed and presented within professional fees in general and administration expense in the statement of income (loss) and comprehensive income (loss).

The acquisition date fair value of the consideration transferred consisted of the following:
	Purchase price:
	Share consideration(1)	$	732,042
	Option consideration(2)		19,777
	Warrant consideration(3)		8,543
	PSU and DSU consideration(4)		3,721
	Total consideration	$	764,083
(1)The fair value of 94,635,765 common shares issued to Leagold shareholders was determined using the Company’s share price of C$10.51 per share on the acquisition date. (2)The fair value of 5,728,647 replacement options issued was determined using the Black-Scholes option pricing method with the following weighted average assumptions: exercise price of C$7.77, expected life of 2.07 years, annualized volatility of 60.2%, dividend yield of 0.0%, and discount rate of 0.54%. (3)The fair value of 16,626,569 replacement warrants issued was determined using the Black-Scholes option pricing method with the following weighted average assumptions: exercise price of C$11.14, expected life of 0.32 years, annualized volatility of 44.1%, dividend yield of 0.0%, and discount rate of 0.69%. (4)The fair value of 369,919 replacement PSUs and 319,288 replacement DSUs issued was determined using the Leagold share price of C$3.49 on the acquisition date, adjusted for the 0.331 exchange ratio.

 9

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

4.Acquisition of Leagold (continued)

The Company retained an independent appraiser to determine the fair value of assets acquired and liabilities assumed. The allocation is preliminary as there has not been sufficient time to complete the valuation process. The fair values are subject to change as the valuation work is finalized in the twelve months following the acquisition date. During the three months ended September 30, 2020, the Company reviewed its estimates of conversion costs for heap leach inventory and useful lives of certain plant and equipment at Los Filos as of the acquisition date. As a result of this review, the fair value of inventory at the acquisition date increased by $34.3 million, mineral properties, plant and equipment decreased by $44.2 million and deferred tax liabilities decreased by $9.8 million. The impact of these adjustments has been applied retrospectively and therefore, certain previously reported figures have been updated to reflect these adjustments.
		Reported as of March 31, 2020		Adjustments		Reported as of September 30, 2020
	Net assets (liabilities) acquired:
	Cash and cash equivalents	$	55,252	$	-	$	55,252
	Trade and other receivables		33,524		-		33,524
	Inventory		90,082		34,332		124,414
	Mineral property, plant and equipment		1,350,794		(44,157)		1,306,637
	Other assets		21,432		-		21,432
	Accounts payable and accrued liabilities		(88,490)		-		(88,490)
	Loans and borrowings and accrued interest		(323,870)		-		(323,870)
	Derivative liabilities		(78,526)		-		(78,526)
	Reclamation obligations		(69,487)		-		(69,487)
	Deferred tax liabilities		(195,628)		9,825		(185,803)
	Other liabilities		(31,000)		-		(31,000)
	Fair value of net assets acquired	$	764,083	$	-	$	764,083
In accordance with the acquisition method of accounting, the acquisition cost has been allocated on a preliminary basis to the underlying assets acquired and liabilities assumed, based primarily upon their estimated fair values at the date of acquisition. The preliminary fair values of mineral properties have been estimated using discounted cash flow models and the preliminary fair values of plant and equipment have been estimated using a replacement cost approach. Expected future cash flows are based on estimates of future gold prices and projected future revenues, estimated quantities of ore reserves and mineral resources, expected future production costs and capital expenditures based on life of mine plans at the acquisition date. As of the date of these condensed consolidated interim financial statements, the allocation of the Leagold Acquisition purchase price has not been finalized. Mineral properties, plant and equipment, tax contingencies in Brazil and Mexico, and deferred taxes are all subject to change. Any further adjustments made will be recognized in the period determined retrospectively and previous periods information will be revised.
Consolidated revenue for the three and nine months ended September 30, 2020 includes revenue from the assets acquired in the Leagold Acquisition of $121.3 million and $247.4 million, respectively.  Consolidated net income for the three months ended September 30, 2020 includes net income before tax from Leagold of $7.5 million, and for the nine months ended September 30, 2020 consolidated net loss includes net income before tax from Leagold of $16.0 million.  Had the transaction occurred on January 1, 2020, pro-forma unaudited consolidated revenue and net loss before tax for the nine months ended September 30, 2020 would have been approximately $680 million and $31 million, respectively.

 10

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

5.Inventory
			September 30, 2020		December 31, 2019
	Heap leach ore (current and non-current)	$	268,826	$	158,598
	Less: Non-current portion of heap leach ore		(124,100)		(141,578)
	Current portion of heap leach ore		144,726		17,020
	Stockpiles		9,331		9,776
	Work-in-process		17,704		6,366
	Supplies		38,393		12,329
	Finished goods		4,713		771
	Current inventory	$	214,867	$	46,262
Non-current inventory relates to heap leach ore at Mesquite not expected to be recovered in the next year.

6.Mineral properties, plant and equipment
		Mineral properties(1)		Plant and equipment(1)		Construction in-progress(1)		Other			Total
	Cost
	Balance – December 31, 2018	$	86,740	$	80,234	$	153,171	$	555	$	320,700
	Additions		26,132		(900)		63,108		1,633		89,973
	Transfers		53,473		131,918		(195,328)		-		(9,937)
	Transfer from exploration and evaluation assets		133,060		-		-		-		133,060
	Disposals		-		(1,758)		-		(74)		(1,832)
	Change in reclamation cost asset		6,080		-		-		-		6,080
	Balance – December 31, 2019	$	305,485	$	209,494	$	20,951	$	2,114	$	538,044
	Leagold Acquisition		874,555		403,238		28,525		319		1,306,637
	Additions		50,033		32,261		40,627		179		123,100
	Disposals		(2)		(2,330)		-		-		(2,332)
	Change in reclamation cost asset		23,919		-		-		-		23,919
	Balance – September 30, 2020	$	1,253,990	$	642,663	$	90,103	$	2,612	$	1,989,368
	Accumulated depreciation
	Balance – December 31, 2018	$	326	$	3,363	$	-	$	100	$	3,789
	Additions		12,682		24,136		-		294		37,112
	Disposals		-		(766)		-		(35)		(801)
	Balance – December 31, 2019	$	13,008	$	26,733	$	-	$	359	$	40,100
	Additions		44,269		64,109		-		519		108,897
	Disposals		-		(1,283)		-		-		(1,283)
	Balance – September 30, 2020	$	57,277	$	89,559	$	-	$	878	$	147,714
	Net book value:
	At December 31, 2019	$	292,477	$	182,761	$	20,951	$	1,755	$	497,944
	At September 30, 2020	$	1,196,713	$	553,104	$	90,103	$	1,734	$	1,841,654
(1)Cost balances as at December 31, 2018, 2019 cost additions, and 2019 cost transfers have been reclassified to conform with the current period presentation.

 11

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

6.   MINERAL PROPERTIES, PLANT AND EQUIPMENT (continued)

During the nine months ended September 30, 2020, the Company capitalized to construction-in-progress $38.6 million and $2.0 million of costs at Castle Mountain and Los Filos, respectively (nine months ended September 30, 2019 – $3.4 million for Castle Mountain).
Certain of the Company’s mining properties are subject to royalty arrangements based on their net smelter returns (“NSR”s) or gross revenues.  At September 30, 2020, the Company’s significant royalty arrangements were as follows:
	Mineral property	Royalty arrangements
	Mesquite	0.5%-7% NSR
	Los Filos	3% of gross sales at Xochipala concession
	Aurizona	1.5% of gross sales; 3%-5% sliding scale NSR based on gold price
	Fazenda	0.75%-1.5% of gross sales
	RDM	1%-1.5% of gross sales
	Pilar	0.75-1.5% of gross sales
	Castle Mountain	2.65% NSR

7.  Loans and borrowings
		Note		September 30, 2020		December 31, 2019
	Credit Facility	7(a)	$	289,169	$	116,625
	2019 Convertible Notes			127,952		125,850
	2020 Convertible Notes	7(b)		126,001		-
	Standby Loan			-		12,000
	Debenture			-		9,574
				543,122		264,049
	Less: Current portion of loans and borrowings			(6,667)		(61,574)
	Non-current portion of loans and borrowings		$	536,455	$	202,475
(a)Credit Facility
On March 10, 2020, in conjunction with the Leagold Acquisition, the Company amended its $130 million corporate revolving credit facility with a syndicate of lenders led by The Bank of Nova Scotia, Société Générale, Bank of Montreal and ING Capital LLC. The amended credit facility is comprised of a $400 million revolving loan (the “Revolving Facility”) and $100 million amortizing term loan (the “Term Loan”) (together, the “Credit Facility”). On close of the Leagold Acquisition and concurrent financing, the Company drew the full amount of the Term Loan and an additional $100 million from the Revolving Facility. Proceeds from the draws were used to repay Leagold debt outstanding on the acquisition date. On March 24, 2020, the Company drew the remaining $180 million available under the Revolving Facility as a cautionary measure given the uncertainty regarding the potential impact of the COVID-19 pandemic on the Company’s operations. The Credit Facility bears interest at an annual rate of LIBOR plus 2.5% to 3.75%, subject to certain leverage ratios. The Revolving Facility matures on March 8, 2024, at which date it must be repaid in full and the Term Loan matures on March 10, 2025 with quarterly repayments equal to 6.67% of principal beginning September 30, 2021 through to maturity. The Company determined that amending the corporate revolving credit facility to become the Credit Facility was a non-substantial modification of the existing outstanding debt. The Company recognized a gain on modification of debt of $2.6 million to reflect the adjusted amortized cost of the drawn portion of the Revolving Facility, recorded within other expense. Additional transaction costs of $9.2 million were incurred in relation to the Credit Facility and are recorded as a reduction to the carrying value of debt.

 12

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

7.loans anD borrowings (continued)

In August 2020, the Company repaid $200 million principal under the Revolving Facility and recorded $2.7 million in finance expense due to accelerated recognition of deferred financing costs as a result of the change in timing of cash flows. The revised carrying value of debt outstanding is accreted to the principal amount over the respective terms of the Revolving Facility and Term Loan using a weighted average effective interest rate of 4.4%.

The Credit Facility is secured by first-ranking security over all present and future property and assets of the Company. The Credit Facility is subject to standard conditions and covenants, including maintenance of debt service coverage ratio, leverage ratio and minimum liquidity of $50 million. As at September 30, 2020, the Company is in compliance with these covenants.

(b)2020 Convertible Notes

On March 10, 2020, the Company issued $130 million in Convertible Notes to Mubadala Investment Company (“Mubadala”) and on April 9, 2020, pursuant to a pre-existing investor rights agreement, the Company issued $9.3 million in additional convertibles notes (referred to together with the Mubadala notes as the “2020 Notes”) to Pacific Road Resources Funds (“Pacific Road”). Proceeds from the 2020 Notes and Credit Facility (note 7(a)) were used to repay $323.9 million principal and accrued interest outstanding under Leagold’s debt facilities (note 4) at the acquisition date.

The 2020 Notes mature on March 10, 2025 and bear interest at a fixed rate of 4.75% per year payable quarterly in arrears. The 2020 Notes are convertible at the holder’s option into common shares of the Company at a fixed conversion price of $7.80 per share. Holders may exercise their conversion option at any time, provided that the holder owns less than 20% of the outstanding common shares of the Company. On or after March 10, 2023, the Company has a call right that may be exercised if the 90-day volume weighted average price (“VWAP”) of the Company’s shares exceeds $10.14 for a period of 30 consecutive days. If the call right is exercised, the holders would be required to either (i) exercise the conversion option on the remaining principal outstanding or (ii) demand cash payment from the Company subject to a predetermined formula based on the conversion price of $7.80 per share and the Company’s share price at the time of redemption.

Gross proceeds from the 2020 Notes of $139.3 million was allocated to the debt and equity components. The fair value of the debt portion of $128.1 million was estimated using a discounted cash flow model based on an expected term of 5 years and a discount rate of 6.9%. The residual of $8.6 million ($11.7 million net of deferred tax expense of $3.1 million) was recognized in other equity reserves. The debt component is recorded at amortized cost, net of transaction costs, and is accreted to the principal amount over the term of the 2020 Notes using an effective interest rate of 7.3%. Transaction costs of $3.3 million were incurred and allocated on a pro-rata basis with $3.0 million allocated to the debt component and $0.3 million allocated to the equity component.

Security for the 2020 Notes includes a charge on all assets of the Company and is subordinate to the Credit Facility.

 13

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

7.loans anD borrowings (continued)

(c)	Loans and borrowings continuity
In June 2020, the Company repaid in full the aggregate $24.1 million in principal and accrued interest due related to its Standby Loan and Debenture. The repayment of loan principal of $12.0 million and $1.7 million of accrued interest to the Company’s Chairman, Ross Beaty, is a related party transaction. The following is a summary of the changes in loans and borrowings arising from investing and financing activities for the nine months ended September 30, 2020:
	Balance – December 31, 2019	$	264,049
	Debt assumed in Leagold Acquisition, including accrued interest		323,870
	Modification gain and transaction costs incurred on Credit Facility		(4,839)
	$380 million draw from Credit Facility, net of deferred financing costs		372,682
	Debt component of Convertible Notes, net of deferred financing costs		124,622
	Repayment of debt and accrued interest		(547,463)
	Accretion and accrued interest		10,201
	Balance – September 30, 2020	$	543,122

8.     derivative financial instruments

(a)	Gold collars and forward contracts
	As part of the Leagold Acquisition (note 4), the Company assumed gold collar and forward contracts. The gold collars have put and call strike prices of $1,325 and $1,430 per ounce, respectively, for 3,750 ounces per month from acquisition to September 2022 for a total of 116,250 ounces. The forward swap contracts cover 4,583 ounces per month from acquisition to September 2022 for a total of 142,083 ounces, at an average fixed gold price of $1,350 per ounce. As of September 30, 2020, the Company had 90,000 ounces and 110,000 ounces remaining to be delivered under collars and forwards, respectively. The gold collars and forward swap contracts have not been designated as hedges and are recorded at fair value at the end of each reporting period with changes in fair value recognized in other expense. The fair value of gold collars and forward swap contracts at September 30, 2020 was a liability of $102.6 million, of which $51.0 million was recorded as current derivative liabilities. For the three and nine months ended September 30, 2020, the Company recognized the following within other expense (note 15):
		Three months ended September 30,				Nine months ended September 30,
			2020		2019		2020		2019
	Realized loss on settlement of gold contracts	$	13,398	$	-	$	23,019	$	-
	Unrealized loss on revaluation of gold contracts outstanding		10,160		-		24,083		-
		$	23,558	$	-	$	47,102	$	-

 14

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

8.     DERIVATIVE FINANCIAL INSTRUMENTS (continued)

(b)	Foreign exchange contracts
As at September 30, 2020, the Company had in place USD:BRL and USD:MXP put and call options with the following notional amounts, weighted average maturity dates and rates:
		USD notional amount							Call options’ weighted average strike price				Put options’ weighted average strike price
	Currency		Within 1 year		1-2 years
	BRL	$	126,441	$	30,337				4.42				5.04
	MXP		22,000		8,000				21.75				26.01
The foreign exchange contracts have not been designated as hedges and are recorded at fair value at the end of each reporting period with changes in fair value recognized in other expense. The Company entered into these contracts at no premium and therefore incurred no investment costs at inception. The fair value of foreign exchange contracts at September 30, 2020 was a liability of $23.6 million, of which $21.2 million was recorded as current derivative liabilities. For the three and nine months ended September 30, 2020, the Company recognized the following within other expense (note 15):
						Three months ended September 30,					Nine months ended September 30,
							2020			2019		2020					2019
	Realized loss on settlement of foreign exchange contracts					$	334	$		543	$	584				$	543
	Unrealized loss on revaluation of foreign exchange contracts outstanding						2,675			1,594		25,232					1,594
						$	3,009	$		2,137	$	25,816				$	2,137
(c)	Warrant liability
The functional currency of the Company is the US dollar. As the exercise price of the Company’s share purchase warrants (note 10(d)) is fixed in Canadian dollars, these warrants are considered a derivative as a variable amount of cash in the Company’s functional currency will be received on exercise. Accordingly, these share purchase warrants are classified and accounted for as a derivative liability at fair value through net income or loss. The fair value of the warrants is determined using the Black Scholes option pricing model at the period-end date or the market price on the TSX for warrants that are trading.
	Balance – December 31, 2018													$	18,861
	Warrants exercised														(868)
	Change in fair value														38,153
	Balance – December 31, 2019														56,146
	Issued in Leagold Acquisition														8,543
	Warrants exercised														(43,389)
	Change in fair value														47,334
	Balance – September 30, 2020													$	68,634

 15

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

8.    DERIVATIVE FINANCIAL INSTRUMENTS (continued)

The fair value of non-traded warrants was calculated with the following weighted average assumptions:
		September 30, 2020		December 31, 2019
	Risk-free rate		0.2%	1.7%
	Warrant expected life		1.2 years	1.2 years
	Expected volatility		52.0%	45.1%
	Expected dividend		0%	0.0%
	Share price (C$)		$16.19	$10.16
The fair value of traded warrants was based on the market price of C$0.82 per warrant on September 30, 2020 (December 31, 2019 – C$0.42).

9.     Leases
(a)	Right-of-use assets
			Plant and equipment		Computer and office equipment
	Balance – December 31, 2018	$	-	$	229
	Additions		782		537
	Depreciation		(202)		(225)
	Balance – December 31, 2019		580		541
	Recognized in Leagold Acquisition		10,386		318
	Additions		13,613		-
	Depreciation		(5,522)		(240)
	Balance – September 30, 2020	$	19,057	$	619
(b)	Lease liabilities
			September 30, 2020		December 31, 2019
	Current lease liabilities included in other current liabilities	$	8,230	$	501
	Non-current lease liabilities included in other long-term liabilities		13,479		848
		$	21,709	$	1,349
In June 2020, the Company entered into a new lease agreement for the use of mining equipment in relation to contract mining at Castle Mountain for a period of four 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 $13.4 million right-of-use asset and related lease liability.

 16

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

10.SHARE CAPITAL

(a)	Authorized and issued
	The Company is authorized to issue an unlimited number of common shares with no par value.
(b)	Share issuances
	During the nine months ended September 30, 2020, the Company issued 26,847,608 common shares for warrants and options exercised and received proceeds of $174.8 million.
	On March 10, 2020, in conjunction with the acquisition of Leagold and concurrent financings, the Company closed a non-brokered private placement for 6,472,491 common shares of the Company at a price of $6.18 per share for gross proceeds of $40 million, including $36.0 million in common shares issued to the Company’s Chairman, Ross Beaty, which is a related party transaction.  The Company incurred $0.1 million in share issuance costs.
	Pacific Road exercised its anti-dilution option pursuant to its investor rights agreement with the Company in relation to the issuance of shares for the acquisition of Leagold.  On April 9, 2020, the Company issued 461,947 common shares to Pacific Road at a price of $6.18 per common share for proceeds of $2.9 million.
(c)	Share based compensation plans
	The following table summarizes non-cash share-based compensation for the period:
		Three months ended September 30,				Nine months ended September 30,
			2020		2019		2020		2019
	Share purchase option expense	$	188	$	362	$	432	$	1,070
	RSU expense		1,036		547		2,418		1,971
	PSU expense		1,102		-		3,113		-
	DSU expense		124		-		572		-
	Total compensation expense	$	2,450	$	909	$	6,535	$	3,041
	Compensation expense included in:
	General and administration	$	2,035	$	909	$	5,341	$	3,041
	Operating expenses		317		-		898		-
	Exploration		98		-		296		-
		$	2,450	$	909	$	6,535	$	3,041
(i)	Share purchase options
	During the nine months ended September 30, 2020, the Company granted 156,200 (nine months ended September 30, 2019 – 359,210) share purchase options to directors, officers and employees of the Company.  The fair value of options granted was determined using the Black-Scholes option pricing model using the following weighted average assumptions:
							2020		2019
	Exercise price (C$)						$11.80		$5.30
	Risk-free interest rate						0.4%		1.8%
	Volatility						65.2%		65.7%
	Dividend yield						0%		0.0%
	Expected life						5.0 years		5.0 years

 17

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

10.SHARE CAPITAL (continued)

A summary of the Company’s share purchase options is as follows:
		Shares issuable on exercise of options	Weighted average exercise price (C$)
	Outstanding, December 31, 2018	2,776,302	$	6.35
	Granted	359,210		5.30
	Exercised	(240,895)		2.85
	Expired/forfeited	(219,504)		10.97
	Outstanding, December 31, 2019	2,675,113	$	5.99
	Issued in Leagold Acquisition	5,728,647		7.77
	Granted	156,200		11.80
	Exercised	(5,246,178)		7.33
	Expired/forfeited	(68,457)		10.09
	Outstanding, September 30, 2020	3,245,325	$	6.90

At September 30, 2020, the Company had the following options issued and outstanding:

Options Outstanding					Options Exercisable
Range of exercise price (C$)	Number of options		Weighted average exercise price (C$)	Weighted average remaining contractual life (years)	Number of options		Weighted average exercise price (C$)
$1.89 - $2.99	615,025	$	2.33	0.91	615,025	$	2.33
$3.00 - $4.99	11,730		3.99	1.59	11,730		3.99
$5.00 - $6.99	1,473,434		5.80	2.19	1,332,143		5.86
$7.00 - $8.99	687,374		8.37	1.51	687,374		8.37
$9.00 - $17.15	457,762		14.47	2.11	301,562		15.86
	3,245,325				2,947,834

The weighted average exercise price of options exercisable at September 30, 2020, was C$5.92.

(ii)Restricted share units

Equity settled RSUs

During the nine months ended September 30, 2020, the Company granted 373,847 (nine months ended September 30, 2019 – 607,360) RSUs to directors, officers and employees with a fair value of $3.0 million (2019 – $1.8 million) based on the Company’s share price on the date of grant.

During the nine months ended September 30, 2020, the Company granted 213,600 (nine months ended September 30, 2019 – 123,740) pRSUs to officers and employees of the Company with a fair value of $2.1 million (2019 – $0.8 million) based on the Company’s share price on the date of grant. The pRSUs vest in two tranches and the number of shares issued will range from 0% to 200% based on the achievement of gold production targets and total shareholder return compared to the S&P Gold Miners Index over a three-year period.

 18

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

10.SHARE CAPITAL (continued)

	A continuity table of the equity settled RSUs and pRSUs outstanding is as follows:
		RSUs	pRSUs
	Outstanding, December 31, 2018	543,276	1,142,544
	Granted	488,560	143,740
	Settled	(220,289)	(129,706)
	Forfeited	(8,500)	(44,200)
	Outstanding, December 31, 2019	803,047	1,112,378
	Granted	373,847	213,600
	Settled	(416,569)	(151,006)
	Forfeited	(4,750)	(740)
	Outstanding, September 30, 2020	755,575	1,174,232
	Cash settled RSUs
	A continuity table of the cash settled RSUs outstanding is as follows:
			RSUs outstanding
	Outstanding, December 31, 2018		-
	Granted		168,800
	Outstanding, December 31, 2019		168,800
	Granted		78,900
	Settled		(65,900)
	Forfeited		(37,000)
	Outstanding, September 30, 2020		144,800
	The total fair value of cash settled RSUs outstanding as at September 30, 2020 was $1.2 million (December 31, 2019 – $0.2 million) and is included in other liabilities.
(iii)	Performance share units
	As part of the Leagold Acquisition (note 4), the Company issued 369,915 replacement performance share units (“PSUs”) under Leagold’s PSU plan. The PSUs vest in three tranches based on the achievement of certain gold production targets at the Los Filos, Fazenda, RDM, Pilar and Santa Luz mines and are payable in cash. All unvested PSUs expire on December 31 of the third year following the calendar year in which the PSUs were granted. The fair value of the PSUs is based on the current share price and reflects management’s best estimates of the probability that gold production targets will be achieved.

A continuity table of the PSUs outstanding is as follows:
	PSUs outstanding
Outstanding, December 31, 2019	-
Issued in Leagold Acquisition	369,915
Settled	(72,533)
Forfeited	(14,506)
Outstanding, September 30, 2020	282,876
The total fair value of PSUs outstanding as at September 30, 2020 was $2.8 million (December 31, 2019 – $nil) and is included in other liabilities.

 19

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

10.SHARE CAPITAL (continued)

(iv)	Deferred share units
	As part of the Leagold Acquisition (note 4), the Company issued 319,286 replacement deferred share units (“DSUs”) to non-executive directors of Leagold. The DSUs are redeemable for 90 days from the date a director ceases to be a member of the Board.  Units are settled in cash based on the common share price at the date of settlement.
	A continuity table of the DSUs outstanding is as follows:
		DSUs outstanding
	Outstanding, December 31, 2019	-
	Issued in Leagold Acquisition	319,286
	Issued	8,266
	Redeemed	(173,773)
	Outstanding, September 30, 2020	153,779
	The total fair value of DSUs outstanding as at September 30, 2020 was $1.8 million (December 31, 2019 – $nil) and is included in other liabilities.

(d)	Share purchase warrants
	A continuity of the Company’s share purchase warrants is as follows:

	Shares issuable on exercise of warrants	Weighted average exercise price (C$)
Outstanding, December 31, 2018	24,565,862	$	11.90
Exercised	(363,235)		5.36
Expired	(151,437)		14.60
Outstanding, December 31, 2019	24,051,190	$	12.00
Issued in Leagold Acquisition	16,626,569		11.14
Exercised	(20,881,989)		9.48
Expired	(667,480)		13.14
Outstanding, September 30, 2020	19,128,290	$	13.95

At September 30, 2020, the Company had the following share purchase warrants issued and outstanding:

Range of exercise price (C$)(1)	Shares issuable on exercise of warrants	Weighted average exercise price (C$)(1)		Expiry dates
$3.67 - $4.99	317,454	$	3.67	May 2021
$5.00 - $9.99	910,543		5.67	March 2021 – May 2023
$10.00 - $14.99	1,872,407		10.93	December 2020 – March 2022
$15.00	16,027,886		15.00	October 2021
	19,128,290

(1) 17,804,286 warrants with a weighted average exercise price of $14.21 are exercisable into one common share of Equinox Gold and one-quarter of a share of Solaris Resources Inc. (“Solaris”). Equinox Gold will receive nine-tenths of the proceeds from the exercise of each of these warrants and the remaining proceeds will be paid to Solaris.

 20

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

11.   REvenue
	Revenues from contracts with customers disaggregated by metal were as follows:
		Three months ended September 30,				Nine months ended September 30,
			2020		2019		2020		2019
	Gold	$	243,929	$	91,896	$	588,807	$	162,677
	Silver		525		-		1,069		-
	Total revenue	$	244,454	$	91,896	$	589,876	$	162,677
	(a) Gold offtake arrangement
As part of the Leagold Acquisition, the Company assumed offtake arrangements with Orion Mine Finance (“Orion”) that provides for gold offtake of 50% of the gold production from Los Filos and 35% of the gold production from the Fazenda, RDM, Pilar and Santa Luz mines at market prices, until a cumulative delivery of 1.1 million ounces and 0.7 million ounces, respectively, to Orion. As at September 30, 2020, a total of 0.3 million ounces had been delivered to Orion under the terms of the offtake arrangements.
	(b) Silver streaming arrangement
As part of the Leagold Acquisition, the Company assumed a silver streaming agreement with Wheaton Precious Metals Corp. (“WPM”) under which the Company must sell to WPM a minimum of 5 million payable silver ounces produced by Los Filos from August 5, 2010 to the earlier of the termination of the agreement or October 15, 2029 at the lesser of $3.90 per ounce or the prevailing market price, subject to an inflationary adjustment.  The contract price is revised each year on the anniversary date of the contract, which at acquisition was $4.43 per ounce. As at September 30, 2020, a total of 1.9 million ounces had been delivered to WPM under the terms of the streaming agreement.

12.   operating expenses
Operating expenses consist of the following components by nature:
		Three months ended September 30,				Nine months ended September 30,
			2020		2019		2020		2019
	Raw materials and consumables	$	49,721	$	25,317	$	116,783	$	60,253
	Salaries and employee benefits		27,089		10,839		59,510		23,861
	Contractors		22,998		9,502		54,557		15,460
	Repairs and maintenance		10,109		4,474		24,749		13,450
	Site administration		13,865		3,813		29,114		6,255
	Royalties		6,416		3,447		16,062		5,346
			130,198		57,392		300,775		124,625
	Less: Change in inventories		(19,813)		(7,474)		(16,389)		(26,550)
	Total operating expenses	$	110,385	$	49,918	$	284,386	$	98,075

 21

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

13.   Care and Maintenance

The Company’s Santa Luz Mine is on care and maintenance. During the three and nine months ended September 30, 2020, the Company incurred $0.8 million and $1.8 million, respectively, in care and maintenance costs at Santa Luz (three and nine months ended September 30, 2019 – $nil).

Included in care and maintenance for the nine months ended September 30, 2020 was $18.2 million in mine standby costs (three months ended September 30, 2020 and three and nine months ended September 30, 2019 – $nil) resulting from government mandated shutdowns due to the COVID-19 pandemic at its operations in Mexico (three months ended September 30, 2020 – $nil; nine months ended September 30, 2020 – $15.3 million) and certain mines in Brazil (three months ended September 30, 2020 – $nil; nine months ended September 30, 2020 – $2.9 million).

In September 2020, the Company temporarily suspended operations at Los Filos as a result of a community blockade. During the three and nine months ended September 30, 2020, the Company incurred $11.2 million in care and maintenance costs related to the temporary suspension.

14.General and administration
General and administration expenses for the Company consists of the following components by nature:
			Three months ended September 30,				Nine months ended September 30,
		Note		2020		2019		2020		2019
	Salaries and benefits		$	2,224	$	775	$	5,589	$	2,829
	Share-based compensation	10(c)		2,035		909		5,341		3,041
	Professional fees	4		1,623		602		7,185		1,521
	Office and other expenses			2,035		932		5,985		2,483
	Amortization			225		100		641		243
	Total general and administration		$	8,142	$	3,318	$	24,741	$	10,117

15.   Other income (expense)
Other income (expense) consists of the following components:
			Three months ended September 30,				Nine months ended September 30,
		Note		2020		2019		2020		2019
	Foreign exchange gain (loss)		$	738	$	(58)	$	14,130	$	1,371
	Realized and unrealized losses on gold contracts	8(a)		(23,558)		-		(47,102)		-
	Change in fair value of warrants	8(c)		(8,596)		(7,408)		(47,334)		(11,387)
	Realized and unrealized losses on foreign exchange contracts	8(b)		(3,009)		(2,137)		(25,817)		(2,137)
	Expected credit (losses) recovery			412		261		(6,074)		224
	Loss from equity investment			(857)		(330)		(2,282)		(330)
	Other			(4,647)		1		(3,483)		(12,361)
	Total other expense		$	(39,517)	$	(9,671)	$	(117,962)	$	(24,620)

 22

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

16.Basic and diluted earnings per share
Earnings (loss) per share, calculated on a basic and diluted basis, is as follows:
		Three months ended
		September 30, 2020					September 30, 2019
		Weighted average shares outstanding	Net income		Earnings per share		Weighted average shares outstanding		Net Income			Earnings per share
	Basic EPS	241,249,679	$	11,812	$	0.05	113,288,119		$		8,057	$		0.07
	Dilutive share options	1,996,020		-			1,071,023				-
	Dilutive RSUs	820,416		-			787,106				-
	Convertible notes	-		-			26,602,030				1,746	$
	Diluted EPS	244,066,116	$	11,812	$	0.05	141,748,278		$		9,803	$		0.07
		Nine months ended
		September 30, 2020						September 30, 2019
		Weighted average shares outstanding	Net loss		Loss per share			Weighted average shares outstanding		Net loss			Loss per share
	Basic and diluted EPS	202,538,753	$	(44,534)	$	(0.22)		111,523,430		$	(9,852)		$	(0.09)

For the three months ended September 30, 2020, 19.1 million warrants, 0.2 million options and 44.5 million shares issuable for convertible notes (three months ended September 30, 2019 – 24.2 million warrants and 0.5 million options) were anti-dilutive.

17.   Supplemental Cash Flow Information
During the three and nine months ended September 30, the Company conducted the following non-cash investing and financing transactions:
		Three months ended September 30,				Nine months ended September 30,
			2020		2019		2020		2019
	Shares, options, warrants, DSUs and PSUs issued in acquisition of Leagold	$	-	$	-	$	764,083	$	-
	Non-cash changes in accounts payable in relation to capital expenditures		(10,532)		(9,221)		(14,587)		(15,574)
	Recoverable taxes reclassified from mineral property, plant and equipment to accounts receivable and other assets		-		(8,641)		-		(8,641)
	Shares issued to settle debt		-		-		-		10,110
	Non-cash proceeds from sale of Elk Gold		-		-		-		4,431
	Right-of-use assets recognized		167		-		13,613		537

 23

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

18.   Segment information
The Company manages its operating segments by operating mines and development projects.  Results from operations for these segments are summarized below:
	Three months ended September 30, 2020
		Revenue		Operating expenses		Depreciation and depletion		Exploration expenses		Other expenses		Income (loss) from operations
	Mesquite	$	59,639	$	(30,399)	$	(4,142)	$	-	$	-	$	25,098
	Aurizona		63,469		(22,460)		(10,620)		(1,631)		-		28,758
	Los Filos		37,217		(19,559)		(5,368)		(55)		(11,230)		1,005
	RDM		35,747		(15,834)		(7,084)		(9)		-		12,820
	Other operating mines(1)		48,382		(22,133)		(9,165)		-		-		17,084
	Development projects(2)		-		-		-		(1,173)		(845)		(2,018)
	Corporate and other		-		-		-		-		(8,136)		(8,136)
		$	244,454	$	(110,385)	$	(36,379)	$	(2,868)	$	(20,211)	$	74,611
	Three months ended September 30, 2019
		Revenue		Operating expenses		Depreciation and depletion		Exploration expenses		Other expenses		Income (loss) from operations
	Mesquite	$	46,194	$	(25,662)	$	(3,865)	$	-	$	-	$	16,667
	Aurizona		45,702		(24,255)		(7,328)		(252)		-		13,867
	Development projects(2)		-		-		-		(691)		-		(691)
	Corporate and other		-		-		-		-		(3,318)		(3,318)
		$	91,896	$	(49,917)	$	(11,193)	$	(943)	$	(3,318)	$	26,525
(1)Includes Fazenda and Pilar, which were both acquired March 10, 2020. (2)Includes Castle Mountain and Santa Luz, which was acquired on March 10, 2020.

 24

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

18.segment information (CONTINUED)

	Nine months ended September 30, 2020
		Revenue		Operating expenses				Depreciation and depletion				Exploration expenses				Other expenses			Income (loss) from operations
	Mesquite	$	184,458	$		(98,735)		$	(14,411)			$	-			$	-		$	71,312
	Aurizona		158,023			(69,076)			(29,933)				(3,609)				-			55,405
	Los Filos		79,461			(39,008)			(9,112)				(159)				(26,500)			4,682
	RDM		72,498			(30,580)			(15,653)				-				(937)			25,328
	Other operating mines(1)		95,436			(46,987)			(18,993)				-				(1,945)			27,511
	Development projects(2)		-			-			-				(5,693)				(1,794)			(7,487)
	Corporate and other		-			-			-				-				(24,741)			(24,741)
		$	589,876	$		(284,386)		$	(88,102)			$	(9,461)			$	(55,917)		$	152,010
	Nine months ended September 30, 2019
		Revenue		Operating expenses				Depreciation and depletion				Exploration expenses				Other expenses			Income (loss) from operations
	Mesquite	$	116,975	$		(73,820)		$	(11,896)			$	-			$	-		$	31,259
	Aurizona		45,702			(24,255)			(7,328)				(757)				-			13,362
	Development projects(2)		-			-			-				(4,270)				-			(4,270)
	Corporate and other(3)		-			-			-				(2,003)				(10,117)			(12,120)
		$	162,677	$		(98,075)		$	(19,224)			$	(7,030)			$	(10,117)		$	28,231
(1)Includes Fazenda and Pilar, which were both acquired March 10, 2020. (2)Includes Castle Mountain and Santa Luz, which was acquired on March 10, 2020. (3)Includes results for Gold Mountain, which was disposed of in May 2019 and Solaris, which was deconsolidated effective June 30, 2019.
Information about the carrying amount of the Company’s assets and liabilities by operating segment is detailed below:
							Total assets								Total liabilities
							September 30,			December 31,					September 30,			December 31,
							2020				2019				2020				2019(1)
	Los Filos				$		1,019,252			$	-			$	(274,240)			$	-
	Aurizona						322,663				380,641				(47,655)				(55,625)
	Mesquite						248,740				247,797				(33,333)				(38,190)
	RDM						181,127				-				(25,951)				-
	Other operating mines						214,013				-				(66,038)				-
	Development projects						429,028				158,127				(28,134)				(11,231)
	Corporate and other						189,533				52,785				(751,258)				(331,245)
					$		2,604,356			$	839,350			$	(1,226,609)			$	(436,291)
(1)Total liabilities balances as at December 31, 2019 for Mesquite and Corporate and other have been reclassified to conform with the current period presentation.

 25

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

18.SEGMENT INFORMATION (continued)

Information about the Company’s non-current assets by jurisdiction is detailed below:
			September 30,	December 31,
			2020		2019
	Mexico	$	869,612	$	-
	Brazil		741,544		310,241
	United States		378,113		347,784
	Canada		17,702		32,669
		$	2,006,971	$	690,694

19.Financial risk Management

The Company’s activities expose it to a variety of financial risks. Significant changes to the Company’s financial risks and overall risk management program as at September 30, 2020 are as follows:  

(a)Interest rate risk

Interest on the Company’s Revolving Facility and Term Loan is variable based on LIBOR.  Borrowings at variable rates of interest expose the Company to interest rate risk.  At September 30, 2020, $200 million is outstanding under the Revolving Facility and $100 million is outstanding under the Term Loan.  A 100-basis point change in interest rates at the reporting date would have a $2.6 million impact on net income on an annualized basis.

(b)Liquidity risk

Liquidity risk is the risk that the Company will not be able to meets its financial obligations as they become due.  In March 2020, the Company drew $180 million under its Revolving Facility as a cautionary measure given the uncertainty regarding the impact of the COVID-19 pandemic.  The Company had no immediate need for the funds and in August 2020, the Company repaid $200 million principal on the Revolving Facility. However, management cannot accurately predict the impact COVID-19 will have on the Company’s operations, the fair value of the Company’s assets, its ability to obtain financing, third parties’ ability to meet their obligations with the Company and the length of travel and quarantine restrictions imposed by governments of the countries in which the Company operates.  

20.Fair value measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value hierarchy establishes three levels in which to classify the inputs of valuation techniques used to measure fair values.

Level 1 – quoted market prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly, such as prices, or indirectly (derived from prices).

Level 3 – inputs are unobservable (supported by little or no market activity) such as non-corroborative indicative prices for a particular instrument provided by a third party.  

 26

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

20.fair value measurements (continued)

As at September 30, 2020, marketable securities and traded warrants are measured at fair value using Level 1 inputs and non-traded warrants, gold collars and forwards and foreign exchange contracts are measured at fair value using Level 2 inputs. The fair values of the long-term receivables, Convertible Notes, Debenture, Credit Facility, and Standby Loan, for disclosure purposes, are determined using Level 2 inputs. The carrying values of cash and cash equivalents, accounts receivable, reclamation bond, and accounts payable and accrued liabilities approximate fair value due to their short terms to maturity. The Company has no financial instruments classified as Level 3. The fair value of marketable securities is measured based on the quoted market price of the related common shares at each reporting date, and changes in fair value are recognized in net income (loss). The fair value of the traded warrants is measured based on the quoted market price of the warrants at each reporting date. The fair value of the non-traded warrants is determined using an option pricing formula (note 8(c)). The fair value of gold collars and forward swaps and foreign exchange contracts are measured based on forward gold prices and forward foreign exchange rates, respectively. There were no transfers between fair value levels during the year.
The following table provides the fair value of each classification of financial instrument:
			September 30,		December 31,
			2020		2019
	Financial assets not measured at FVTPL:
	Cash and cash equivalents	$	310,719	$	67,716
	Restricted cash		4,903		15,285
	Trade receivables		7,619		-
	Receivable from Serabi		9,266		12,033
	Long-term receivables		5,300		11,986
	Reclamation bonds and other receivables		136		577
	Financial assets at FVTPL:
	Marketable securities		2,479		988
	Foreign exchange contracts		-		1,640
	Total financial assets	$	340,422	$	110,225
	Financial liabilities at FVTPL:
	Traded warrants	$	49,322	$	26,056
	Non-traded warrants		19,311		30,090
	Gold collars and forwards		102,609		-
	Foreign exchange contracts		23,592		-
	Other:
	Accounts payable and accrued liabilities		99,805		67,047
	Convertible Notes		365,344		137,995
	Credit Facility		300,907		120,225
	Debenture		-		10,061
	Standby Loan		-		13,252
	Other liabilities		-		1,795
	Total financial liabilities	$	960,890	$	406,521

 27

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

21.Commitments and contingencies
At September 30, 2020, the Company had the following contractual obligations outstanding which are expected to be settled in the time periods indicated:
			Total		Within 1 year		1-2 years		2-3 years		3-4 years		4–5 years		Thereafter
	Loans and borrowings and accrued interest	$	687,111	$	31,931	$	56,128	$	56,077	$	385,570	$	157,405	$	-
	Accounts payable and accrued liabilities		101,739		101,739		-		-		-		-		-
	Reclamation obligations(1)		147,139		5,230		6,768		9,861		7,892		8,476		108,912
	Purchase commitments		52,144		43,441		8,420		206		62		7		8
	Gold contracts		102,609		50,991		51,618		-		-		-		-
	Foreign exchange contracts		23,592		21,168		2,424		-		-		-		-
	Lease commitments		17,018		5,675		4,284		4,264		2,793		2		-
	Total	$	1,131,352	$	260,175	$	129,642	$	70,408	$	396,317	$	165,890	$	108,920
(1)Amount represents undiscounted future cash flows.
Due to the nature of the Company’s operations, various legal, tax, environmental and regulatory matters are outstanding from time to time. By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of contingencies inherently involves the exercise of significant judgement and estimates of the outcome of future events. While the outcomes of these matters are uncertain, based upon the information currently available, the Company does not believe that these matters in aggregate will have a material adverse effect on its consolidated financial statements. In the event that management’s estimate of the future resolution of these matters changes, the Company will recognize the effects of these changes in its consolidated financial statements in the period in which such changes occur. The Company is a defendant in various lawsuits and legal actions, including for alleged fines, taxes and labour related matters in the jurisdictions in which it operates. Management regularly reviews these lawsuits and legal actions with outside counsel to assess the likelihood that the Company will ultimately incur a material cash outflow to settle the claim. To the extent management believes it is probable that a cash outflow will be incurred to settle the claim, a provision for the estimated settlement amount is recorded. At September 30, 2020, the Company recorded a legal provision for these items totaling $12.3 million (December 31, 2019 – $4.0 million) which is included in other long-term liabilities. The Company is contesting federal income and municipal VAT assessments in Brazil. Brazilian courts often require a taxpayer to post cash or a guarantee for the disputed amount before hearing a case. It can take up to five years to complete an appeals process and receive a final verdict. At September 30, 2020, the Company recorded restricted cash of $4.1 million (December 31, 2019 – $13.9 million) in relation to insurance bonds for tax assessments in the appeals process. The Company may in the future have to post security, by way of cash, insurance bonds or equipment pledges, with respect to certain federal income and municipal tax assessments being contested, the amounts and timing of which are uncertain. The Company and its advisor believe that the federal income and municipal tax assessments which are under appeal are wholly without merit and no provision has been recorded with respect to these matters. The Company is reviewing tax contingencies in relation to compliance with certain pre-export finance and other loans in Brazil. The outcome of these matters is not readily determinable at this time but could have a material impact on the Company.

 28

 

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, tables expressed in thousands of United States dollars, except share and per share amounts)

For the three and nine months ended September 30, 2020 and 2019

21.commitments and contingencies (continued)

In certain jurisdictions where the Company operates, entities that are exporters are permitted to maintain offshore bank accounts and are required to register all transactions resulting in deposits into and payments out of those accounts. The Company has identified that in certain instances it has not registered all transactions prior to 2017. The Company has been advised by its tax and foreign trade legal advisors that material fines that could result from non-compliance are imposable under statute with a five-year statute of limitations.

If the Company is unable to resolve all these matters favorably, there may be an adverse impact on the Company’s financial performance, cash flows and results of operations.

The Company will continue to closely monitor the COVID-19 situation. Should the duration, spread or intensity of the pandemic further develop in 2020 and 2021, the Company’s supply chain, market pricing, operations and customer demand could be affected. These factors may further impact the Company’s operating plan, its liquidity and cash flows, and the valuation of its long-lived assets. The COVID-19 situation continues to evolve. The magnitude of its effects on the economy, and on the Company’s financial and operational performance, is uncertain at this time.

 29