VERIS GOLD CORP. Management’s Discussion and Analysis

Transcription

VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
The following management’s discussion and analysis (‘‘MD&A’’) is intended to supplement the condensed
consolidated interim financial statements of Veris Gold Corp. (the “Company” or “Veris”) for the three month
period ended September 30, 2014, and related notes thereto, which have been prepared in accordance with IAS
34 – Interim Financial Reporting of the International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (”IASB”).
Readers are encouraged to consult the Company’s audited consolidated financial statements and corresponding
notes to the financial statements for the year ended December 31, 2013 for additional details. Readers are
cautioned that the MD&A contains forward-looking statements and that actual events may vary from
management’s expectations. All figures are in United States dollars unless otherwise noted. The MD&A has
been prepared as of November 14, 2014.
The Company’s shares were listed on the TSX and the Frankfurt Stock Exchange (trading symbol – “NG6A”) but
were delisted from both exchanges on July 18, 2014 as a result of the Creditor Protection Proceedings (trading
symbol – “VG”) and at November 14, 2014 the Company had 154,378,365 shares outstanding. The Company
continues to be listed on the OTC under the trading symbol “YNGFF” however trading continues to be halted at
this time.
RECENT DEVELOPMENTS
Creditor Protection Proceedings
On June 3, 2014, the Company received Notices of Early Termination Date from Deutsche Bank AG (“DB”)
requiring the Company to make payments totaling $89.4 million under the terms of the Senior Secured Gold
Forward Facility (“Gold Facility”). Failing to make payments by June 9, 2014 would allow DB to take such steps
as necessary to enforce its rights against the Company.
The Notices of Early Termination Date operated to
terminate the Senior Secured Gold Facility.
On June 9, 2014, the Company commenced proceedings under the Companies’ Creditors Arrangement Act
(“CCAA”), establishing an initial stay of proceedings until July 8, 2014, in the Supreme Court of British Columbia
(the “Court”) and received a temporary restraining order under Chapter 15 of the United States Bankruptcy Code
in the United States Bankruptcy Court for the District of Nevada (“US Court”). The Company, Veris Gold Corp.,
and the wholly owned subsidiaries of the Company are parties to the CCAA and Chapter 15 proceedings
(collectively, the “Creditor Protection Proceedings”). On July 23, 2014 the US Court granted provisional relief
under Section 1519 of the Bankruptcy Code in the United States. This ruling recognizes the Canadian
proceeding of Companies' Creditors Arrangement Act ("CCAA") and as a result protects the assets of the
Company and the interests of the creditors until such time as a ruling on the Petition for Recognition and Chapter
15 Relief is granted. The Company received CCAA extension orders on July 4, August 1, September 12, and
October 10, 2014 extending the stay of proceedings granted by the Court to February 2, 2015.
The Company’s decision to commence CCAA proceedings was made after extensively exploring alternatives
following thorough consultation with the Company’s legal and financial advisors. As well, the Company has for
some time been working diligently on the restructuring and refinancing efforts. The Company sought protection
primarily to forestall actions that could have been taken subsequent to the demands for payment made by DB on
June 3 but also to address near term liquidity issues arising from declining gold prices, higher than anticipated
production costs, and unexpected shut downs including the January 2014 shutdown resulting from the December
2013 fire as well as the extended maintenance shutdown taken in March of 2014 while the Company waited for
the approval of a new Class 1 (Title V) Air Quality Operating Permit.
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In these circumstances, the Company's Board of Directors determined that a CCAA proceeding would provide
the most prudent and effective way to carry on business and maximize value for the Company's stakeholders.
The Company has continued to pursue operational restructuring alternatives while under CCAA protection,
including reducing or restructuring its obligations and reducing operating costs. During the Creditor Protection
Proceedings, the Company has continued with day-to-day operations, and employee obligations and any trade
payables incurred are expected to be paid or satisfied in the ordinary course. The Company will continue to incur
significant costs associated with the restructuring and the Creditor Protection Proceedings. The amount of these
expenses is expected to significantly affect the financial position and results of operations however the full
amount of this impact cannot be estimated at this time. During the third quarter the Company continued to
advance the restructuring plan as outlined further below.
On August 6, 2014, the Company retained William LeClair as a Chief Restructuring Officer (“CRO”) under the
terms of an interim cash collateral agreement reached with DB on July 29, 2014, to assist in the restructuring
efforts of the Company. This appointment was granted in an order by the Court on August 7, 2014. Under the
terms of the interim agreement the Company also retained an independent technical advisor, SRK Consulting
(U.S.), Inc. (“SRK” or also referred to as “technical advisor”), to review the Company’s existing mine plans and
assist in the optimization of the operations.
This engagement was intended to provide validation of the
Company’s data and, if requested, alternative mining plans that could assist in increasing production and/or
reducing costs on a per ounce basis. This work has largely been completed, providing significant support for the
quality of the existing data as well as several alternative mining scenarios that the Company continues to
evaluate in conjunction with their mining contractor.
On August 24, 2014 the Company finalized the terms for a Final Cash Collateral Order (CCO) with DB and this
agreement was filed with the US Bankruptcy Court on August 25, 2014 and subsequently approved in a hearing
in Reno, Nevada on August 29, 2014. The terms of the CCO required a number of milestones be met and
agreed to by the Company in order to continue to use the cash collateral (as defined under the US Bankruptcy
code but which would include cash on hand and gold inventories). The significant milestones were as follows:

On or before August 31, 2014 – the Company retains an Investment Bank acceptable to DB to conduct
a sale process for all or substantially all of the Company’s assets with a closing no later than January
30, 2015;
o
This work is to commence internally on September 1, 2014 however the sales process will not
commence externally until November 1, 2014 unless written notice is provided by September
30, 2014 from the Monitor and the CRO that there are no reasonable prospects for the
purchase of the DB Gold Facility at which point the sales process commences October 1,
2014;

On or before September 30, 2014 - Completion of Independent Technical Review by the technical
advisor including a review of the underlying assumptions of the CCO budget;
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
On or before October 31, 2014 – the Company must close a refinancing transaction sufficient to repay
the indebtedness to DB at an agreed upon price or the Company commences the sales process as
outlined above on November 1, 2014;

On or before November 10, 2014 – the Company is to file a motion seeking approval of the procedures
for the sale process into the Court and the US Court;
o

The orders approving the sales process are to be received no later than December 10, 2014;
December 31, 2014 is the closing date for bid documents under the sales process;
o
Subsequently the agreement requires the commencement of an auction process by January
15, 2015 with Court and US Court approving the agreed sale by January 22, 2015 and
expected closing by January 31, 2015.
Pursuant to the CCO outlined above, the Company engaged Moelis & Co. as the investment banker for the
purposes of conducting a sales process for the Company’s assets. In their role they will assist in identifying and
evaluating candidates for a purchase transaction and contact potential acquirers commencing on November 1,
2014. This process does not preclude the Company from continuing to explore opportunities to refinance the
senior and subordinated debts at the same time.
On September 3, 2014 the Court granted an order recognizing the CCO and giving full force and effect to the
CCO in the Creditor Protection Proceedings.
In September the Company recognized that, in light of the current changes in the gold price and the ongoing
costs of the Creditor Protection Proceedings as well as required capital spending required in the short term,
additional financing may be required to ensure the Company had sufficient liquidity to operate through the next
four months. In working with the Company’s financial advisors, Raymond James, a $12 million revolving Debtorin-Possession facility (“DIP loan”) was secured from Whitebox Advisors which could be drawn on to fund cash
requirements based on the 13 week cashflow forecast the Company had prepared for the Creditor Protection
Proceedings. The Court granted an order approving the DIP loan on October 3, 2014 and the Company has
drawn $7.5 million since that time, primarily to fund required capital spend and the ongoing professional fees as
well as bonding requirements.
The Company did not exercise its option to purchase the DB Gold Facility by October 31, 2014 and, as of
November 1, 2014, is in a formal sale process with respect to its assets. While restructuring efforts are ongoing,
the sale process may result in the sale of some or all of the Company’s assets.
The Company continues to pursue a restructuring through a plan of compromise and arrangement (the “Plan”)
under the CCAA, which will be subject to creditor and Court approval, and ancillary proceedings under Chapter
15 of the United States Bankruptcy Code for recognition of the CCAA proceedings. The Company is working
under the timeline noted above which is expected to required several months to complete however the outcome
and timing of the Creditor Protection Proceedings and the implementation of a successful restructuring plan,
including obtaining a new and adequate secured credit facility to finance our business activities on an ongoing
basis, is not assured or determinable at this time. The Plan that will be implemented as part of Creditor
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Protection Proceedings could materially alter the classifications and amounts reported in the consolidated
financial statements, which do not give effect to any adjustments to the carrying values of assets or amounts of
liabilities that might be necessary as a consequence of confirmation of such plan, or the effect of any operational
changes that may be implemented
Going Concern
The Company’s financial liquidity condition and the resulting commencement of the Creditor Protection
Proceedings cast substantial doubt about the Company’s ability to continue as a going concern. Due to ongoing
liquidity issues, the Company has failed to meet certain financial obligations and liabilities, including interest and
principal payments on both Senior and subordinated debt obligations. The Company is dependent on the
outcome of the Creditor Protection Proceedings and requires additional financing in order to complete the
restructuring of the various debt obligations and fund required capital expenditures.
The accompanying condensed consolidated financial statements have been prepared on the assumption the
Company will continue as a going concern, which contemplates continuity of operations, realization of assets and
the satisfaction of liabilities in the normal course of business for the 12-month period following the date of the
consolidated financial statements. This is contingent upon the Company completing the necessary steps to
restructure the existing debt obligations and obtain the Court’s approval of a plan of compromise and
arrangement as well as the management’s ability to successfully implement such plan and obtain exit financing,
among other things. As a result of the Creditor Protection Proceedings, the realization of assets and the
satisfaction of liabilities are subject to uncertainty. As of November 1, 2014 the Company has engaged in a
formal sale process with respect to its assets. While restructuring efforts are ongoing, the sale process may
result in a sale of some or all of the assets.
Further, the plan of compromise and arrangement could materially change the amounts and classifications of
assets and liabilities reported in the historical consolidated financial statements. The accompanying consolidated
financial statements do not include any adjustments relating to the recoverability and classification of assets and
their carrying amounts, or the amount and classification of certain liabilities that may result should the Company
be unable to continue as a going concern or as a consequence of the Creditor Protection Proceedings.
Ketza River Status
On September 25, 2014, the Company received a letter from the Yukon Government Department of Energy,
Mines and Resources (“Yukon Government”) notifying the Company that it intended to begin undertaking the
contracting of maintenance work on access road bridges and seepage control and stabilization of surface water
diversion structures at the Ketza River Project property.
On September 29, 2014, the Yukon Government
withdrew the $2.7 million of restricted funds on deposit with Toronto Dominion Bank to fund this maintenance
work. The Company, having already completed initial scoping for some of the work utilizing local resources, is
now continuing to work with the Yukon Government to ensure the most efficient and cost effective completion of
the works.
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2014 THIRD QUARTER OPERATING HIGHLIGHTS

The Jerritt Canyon operations produced 44,319 payable ounces in the three month period ending
September 30, 2014 (“Q3-14”), representing an 18% increase from the 37,544 ounces produced in the three
month period ending September 30, 2013 (“Q3-13”).

Total mine production for Q3-14 was 319,513 tons containing an estimated 51,678 ounces of gold, a 16%
increase from the 275,825 tons mined in Q3-13 and a 11% increase in contained ounces of gold compared
with 46,637 ounces mined in Q3-13. The primary contributor to the increase in tons as well as contained
ounces arose from the significant increase in mined ore produced from the Starvation Canyon mine,
approximately 32,478 tons (57%) higher than Q3-13. With the transition to contract mining in the SSX-Steer
the Company focused primarily on placing the necessary backfill during the quarter to recover from the
deficit built up however this mine continued to produce at levels comparable to the 2013 quarter.

In Q3-14, the Jerritt Canyon roaster facility achieved total average throughput of 3,590 tons per day (“TPD”),
5% more than the 3,419 TPD achieved in Q3-13 which included a 10 day shutdown.

The Company continued the development of Saval 4, the fourth underground mine at Jerritt Canyon,
throughout the third quarter of 2014, completing the primary access portal and substantially completing the
secondary access to allow for the commencement of production. The Company will mine the Saval 4 using
existing equipment and crews at a scheduled mining rate between 250 and 350 tons per day grading
approximately 0.22 opt. Commercial production, determined based on the mine achieving these planned
tonnage rates on a consistent basis, is expected to be achieved late in the fourth quarter of 2014.
Key financial information

The Company sold 45,216 ounces in Q3-14, a 6% increase from the 42,760 ounces sold in Q3-13 primarily
due to the improvement in mining at Starvation Canyon and improved overall mill recoveries.

The Company recorded a net loss of $6.5 million, during Q3-14, which represented a $11.7 million
decreased loss from the $18.2 million net loss recorded in Q3-13. Gold sales revenue in Q3-14 was $57.3
million compared to $57.0 million in Q3-13, driven by an 6% increase in gold ounces sold offset by a 4%
decrease in the price-per-ounce of gold sold in Q3-14 compared to Q3-13.
OVERVIEW
Veris Gold Corp. (“Veris” or the “Company”) is engaged in gold mining and related activities, including
exploration and acquisition of gold-bearing properties, extraction, processing and reclamation. The Company’s
gold production and exploration activities are carried out in the United States and Canada. Gold is produced in
the form of doré, which is shipped to refineries for final processing. The profitability and operating cash flow of
Veris is affected by various factors, including the amount of gold produced, the market price of gold, operating
costs, interest rates, regulatory and environmental compliance, the extent of exploration activity and capital
expenditures, general and administrative costs, and other discretionary costs. Veris is also exposed to
fluctuations in foreign currency exchange rates and varying levels of taxation that can impact profitability and
cash flow. The Company seeks to manage the risks associated with its business operations; however, many of
the factors affecting these risks are beyond the Company’s control.
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Veris receives its revenues through the sale of gold in U.S. dollars, while costs are incurred in both U.S. and
Canadian currencies. Therefore, movements in the exchange rate between the Canadian and the U.S. dollars
have an impact on profitability.
Jerritt Canyon
The Jerritt Canyon operation consists of a roaster milling facility and three underground mines, Starvation
Canyon, Smith and SSX-Steer, and is located in Nevada, U.S.
Jerritt Canyon Operating Highlights
(dollars in thousands except for per ounce amounts)
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Gold (troy ounces)
Payable Ounces Produced
44,319
44,295
26,434
33,533
Gold Ounces Sold
45,216
40,795
27,597
31,557
Gold sales (2)
$
57,252
$
52,528
$
35,631
$
40,622
Cost of gold sold
$
48,491
$
49,304
$
35,418
$
46,023
Average gold price per ounce
$
1,279
$
1,288
$
1,291
$
1,281
Amended
Q2 2013 (2)
Q3 2013
Q1 2013
Q4 2012
Gold (troy ounces)
Payable Ounces Produced
37,544
38,018
30,461
Gold Ounces Sold
42,760
36,590
29,776
Gold sales (2)
Cost of gold sold
Average gold price per ounce
(1)
(1)
31,754
32,198
$
56,993
$
44,936
$
45,360
$
51,799
$
49,095
$
42,141
$
44,944
$
36,265
$
1,331
$
1,388
$
1,625
$
1,703
From Q3-2011 to Q2-2013 the calculated average gold price per ounce includes an adjustment for the amount of
consideration ($850 per ounce) that is withheld by DB as repayment of the forward gold purchase agreement. With the
change in accounting in Q3-2013 this adjustment is no longer required.
(2)
Gold Sales amount does not include either (a) toll milling revenue, which commenced in Q2-2013 (Q3-2014: $nil, Q22014: $0.8 million, Q1-14: $nil, Q4-2013: $3.1 million, Q3-2013: $3.3 million, Q2-2013: $1.7 million); nor (b) gold produced
from mines treated as development stage assets for accounting purposes which includes gold produced and sold from
Starvation Canyon during Q2-2013 (2,453 ounces or $3.5 million gold sales) and gold produced and sold from Saval
during Q3-2014 (458 ounces or $0.6 million gold sales).
Mining
The Company mined a total of 319,513 tons, including 5,075 Saval development tons and 9,975 tons from
remote stockpiles, in Q3-14, containing an estimated 51,678 ounces. This mining production represents a 16%
increase from 275,825 tons of mine production in Q3-13; and is a 11% increase from the estimated 46,637
ounces mined in Q3-13. The majority of this increased mine production in Q3-14, compared to Q3-13, resulted
primarily from increased tonnage from Starvation Canyon as the production rate in the comparative 2013 quarter
continued to ramp up to current levels as well as improved tonnage from the SSX-Steer with the transition to
contract mining.
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In Q3-14 Small Mine Development, LLC (“SMD”) delivered approximately 134,127 tons of ore containing an
estimated 22,202 ounces of gold from the Smith mine. This represents mine production of 1,458 tons-per-day
(“TPD”) in Q3-14, above the targeted 1,200 TPD. This is a decrease of mined ore from the Smith mine from Q313, which was 141,369 tons mined, containing an estimated 22,518 ounces, an average of 1,537 TPD for that
quarter. The estimated average blended grade achieved at the Smith mine was 0.17 ounces-per-ton (“OPT”) in
Q3-14, an increase from the 0.16 OPT achieved in Q3-13.
In Q3-14 SMD delivered approximately 89,158 tons of ore from the Starvation Canyon mine containing an
estimated 17,108 ounces, an average grade of 0.19 OPT. This mining rate translates to 969 TPD for the quarter,
well above the 700 TPD that was targeted. This is also an increase of mined ore from the 56,680 tons, or 616
TPD, mined in Q3-13 containing an estimated 12,234 ounces, the first full quarter of operations at Starvation
Canyon, an average grade of 0.22 OPT.
Mine production at the SSX-Steer mine was 81,178 tons for Q3-14, containing and estimated 10,903 ounces.
This is approximately 882 TPD in Q3-14, slightly less than the 1,000 TPD targeted but greater than the 845 TPD
achieved in Q3-13. This is a 4% increase from the 77,776 tons mined from the SSX-Steer mine in Q3-13 but an
8% decrease in contained ounces with an estimated 11,885 ounces delivered.
This improvement in production
was achieved despite SMD’s efforts to improve backfill and development to further improve mining rates going
forward however the lower overall grade (0.13 OPT in Q3-14 versus 0.15 OPT in Q3-13) was a result of this
focus.
Mining production rates continue to improve since the transition to contract mining at SSX-Steer mine in Q2-14.
The Company is in a good position to achieve the 2014 production targets as it expects continued improvement
in mining production which will be supplemented by mining at Saval mine upon the commencement of
production.
The Company exited the third quarter of 2014 with a stockpile of 70,624 wet tons containing
approximately 7,969 ounces. Mine production from Starvation Canyon continues to exceed targets and Smith
mine is above expected tonnage rates as well. The backfill and development deficit that has been built up at the
SSX-Steer will be completely caught up by Q1-15, however, production rates will continue to improve throughout
that time period.
Processing
The Jerritt Canyon roaster facility processed approximately 330,300 tons in Q3-14, a 5% increase from the
approximately 314,506 tons processed through the roasters in Q3-13. The Company continued to optimize mill
throughput and took minimal scheduled down periods during the quarter which accounted for the improvement in
Q3-14 compared to Q3-13.
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Exploration
Underground Definition Drilling (Contractor and Veris) – Smith, SSX-Steer, Starvation Canyon, and Saval
4 Mines
For the Q3-14 a total of 205 cubex reverse circulation definition drill holes totaling 26,310 feet were completed at
the Smith, SSX-Steer, Starvation Canyon (“Starv”), and Saval 4 underground mines by Veris and SMD. SMD
continued drilling underground definition drill holes using their own cubex (RC) drill in the Smith mine, focusing
on Zones 4, 7, and 8 where a total of 11,135 feet in 117 drill holes were completed. SMD drilled a total of 9,680
feet in 58 cubex drill holes in the SSX-Steer mine at Zone 7. Included in the SSX-Steer drill hole total are 28
exploration drill holes totaling 5,380 feet. At Starvation Canyon mine, SMD completed 23 exploration cubex drill
holes totaling 4,665 feet at the following headings: 7110 xc24, 7110xcC, 7110N decline, and 7000 xc18. No
delineation drilling occurred at Starvation during Q3-14. Underground RC cubex drilling commenced at the Saval
4 mine in September where a total of 7 definition drill holes totaling 830 feet were completed by the Company in
heading 7225 xc5.
Underground Diamond Drilling (Contractor)
No underground contract diamond drilling was done during Q3-14. Two drill stations have been developed in the
SSX-Steer Zone 1 exploration drift in preparation for recommencement of these core drilling operations once the
Company restructuring is completed and the required funds become available.
The underground diamond
drilling ceased in late November to conserve cash and focus on other mine development priorities. Five diamond
drill hole assays were received in Q3-14 from the Jerritt Canyon assay lab. Nineteen of the SSX-Steer diamond
drill holes completed in 2013 have assays still in progress at the ALS commercial lab.
The goal of the 2013
underground diamond drilling program was to convert resources to reserves and to explore for additional
resources in order to extend the current 6 year Life of Mine plan (as identified in the current December 31, 2012
NI 43-101 Technical Report).
During Q3-14, there was no additional excavation on the planned 1,000+ foot long SSX-Steer exploration drift
from Zone 1 to Zone 9. Since the exploration drift excavation work started on March 31, 2013 the drift face has
advanced a total of 310 feet from the initial base point. Additional excavation of this drift is planned in the future
and will eventually become a development drift. This drift is critical in order to help convert resources to reserves
at the northeastern Zone 9 West Mahala inferred resource pod and to allow additional near-mine exploration
from several new drill stations as well as expand access for mining in Zone 1. Drilling will start from the drift
once the Company restructuring is completed and the monies are secured and approved by Management.
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Surface Exploration
The Company did not conduct any surface exploration drilling at Jerritt Canyon during Q3-14.
The 2014
Exploration budget has not been implemented due to the present condition of the Company. Detailed planning
continues for the future 2015 surface exploration program. Drilling targets are being prioritized and will focus on
near-mine underground resource conversion. SSX-Steer (including West Mahala), and Smith will be the primary
areas for the resource conversion drilling. If money and time allows, some surface drilling will also focus on
priority stand-alone targets including West Starvation Canyon, Mahala Basin, the ND Fault Zone (Bidart), and
Warm Creek.
Modeling
Geological modelling and updated block models were completed at the three active underground mines in Q32014 to support the mining operations.
Current drill hole databases in each mine area were used to generate
these model updates.
Environmental
During Q4-13 the Company and the NDEP negotiated and executed a second modified consent decree (the
“Second Modified CD”), removing many of the completed requirements included in the previous modified
Consent Decree. The primary focus in Q2-14 was on compliance and completion of key components of the
Second Modified CD. During Q1-14 submittal and subsequent approval of the engineering design changes
(EDCs) for treatment at the Snow Canyon and Gracie RDAs along with plans to rejuvenate the existing treatment
at Marlboro Canyon RDA was completed. The Company received approval on all EDCs, a significant step
towards the extinguishment of the Second Modified Consent Decree. A Bid Request was submitted to multiple
contractors and the Company was able to accept a bid that was on target with the original engineer’s estimate.
With a contractor chosen and approval from both the NDEP and Forest Service during Q3-14, the Company
began and has nearly completed the rejuvenation of the Marlboro Canyon RDA. Rejuvenation of the RDA
included removing an approximately 180 foot section of the initial trench and installing new media. The media is
comprised of wood chips, sawdust, straw, limestone, and manure that formed part of the original trench.
The Company has continued operation of the DASH water treatment plant. The treatment plant addresses
multiple methods for sulfate and TDS removal from various water streams including reverse osmosis (RO)
membrane treatments and an active method that involves lime and barium carbonate addition. RO was not
tested at bench scale, so operation of the pilot system will yield initial results for RO as a water treatment option.
Testing of the active lime and barium addition process was further evaluated during Q3-14 at the DASH water
treatment plant. The main problem currently is feeding the chemicals into the system. The Company’s staff is in
the process of refining the chemical addition process before results of the effectiveness can be evaluated.
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The Company made additional efforts to extinguish the CD by ensuring all required operating permits are in
place. In addition to receiving the Air Quality Permit on March 31, 2014, The Company successfully completed
and submitted the renewal application for the Water Pollution Control Permit (WPCP). The WPCP is still under
review, but the Company did receive notification that the application was deemed complete and review is
underway.
The Q3-14 bathymetric survey that was conducted on September 22, 2014 calculated approximately 195,000
gallons of solution in Tailings Storage Facility 1 (TSF1). This survey confirmed that The Company had met the
Second Modified CD requirement to be below 10 million gallons by September 30, 2014. Since this survey, The
Company has continued to see a reduction and at current, there is no standing water in TSF1. Further, The
Company has also begun closure of TSF1 which involves moving material from the Heap Leach Pad to TSF1 to
act as cover. Closure of TSF1 also addresses closure of the Heap Leach Pad.
Additional items included in the Company’s Schedule of Compliance (SOC) have been addressed as well.
Testing of the Corrective Action Plan relating to mill-site groundwater contamination began in Q2-14. During Q314, the well addressed in the Corrective Action Plan dried out and pumping could not continue. Because of the
lack of water, the Company has been unable to complete the testing of the Pump and Treat system however the
Company will continue to monitor the water levels and restart pumping if the situation arises. The results
gathered from the pilot system will determine if a full-scale carbon treatment system is appropriate.
The Company also completed the SOC item to install eight piezometers surrounding Tailings Storage Facility 2
(TSF2). The installation of these wells is due to the high volume of water removal in between the primary liner
and the secondary liner. The eight piezometers were installed to verify the integrity of the secondary liner of
TSF2. Of the eight piezometers, seven were dry. One well had and continues to have water but the water is
clean water with characteristics of meteoric water.
Another SOC work was conducted on the East Water Storage Reservoir (EWSR). The Company was required to
complete repairs on the EWSR prior to continuing use of the pond. The liner repairs have been completed. The
Company is currently in the process of verifying the liner repairs by monitoring the pumping rates from between
the primary and secondary liners. The Company completed transfer of the water from the West Water Storage
Reservoir (WWSR) to the EWSR and is currently working on the liner repairs for the WWSR.
Other work completed by the Company included the submission of an EDC for replacement of the CIL Courtyard
as the containment is compromised. The EDC was approved by the NDEP during Q3-14 and the Company will
begin construction after winter due to the fact that the cold temperatures can compromise the integrity of the
concrete. The Company also upgraded and replaced several process pond fences. The Nevada Division of
Wildlife (NDOW) has requirements set forth regarding fence regulations surrounding process ponds. The
Company had noted some deficiencies. These deficiencies were corrected in Q3-14 and NDOW were pleased
with the work the Company had completed.
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The Company also completed the Title V Air Quality Operating Permit testing requirements during Q3-14. The
testing was completed in two separate trips and some of the results are pending.
The Company has continued discussions with both the NDEP and the USFS regarding the incremental bonding
requirements arising from the 2014 Annual Work Plan (“AWP”) submitted in June 2014.
In the AWP the
Company provided engineering estimates for the cost of reclamation for the rock disposal areas, the last
remaining item for completion under the 2009 Consent Decree, totalling $5,047,888 which was accepted and
acknowledged by the NDEP. This bonding along with a number of other items identified by the NDEP as
residing on public lands were transferred to the jurisdiction of the USFS in their bond determination letter. The
total proposed bonding from the NDEP required an increase to the existing private lands bonding of $4,073,464
however a number of items (such as the removal of Calomel which is substantially complete) were negotiated
out of this and the final private lands bonding requirement for 2014 settled at $1,086,497 and a payment plan
established and accepted to fulfill this requirement by June 30, 2015. The NDEP has requested the Company
provide further details in support of the use of the seepage remediation trenches (“SRT’s”) to be used for the
remediation of the water runoff from the RDA’s and the Company has supplied significant supporting
documentation in recent letters with further details to be provided in upcoming weeks.
The public lands bonding requirement under the USFS requires a total of $10,040,627 of bonding, $6,802,496 of
which pertains to the original estimate for the reclamation of the RDA’s with a 35% indirect cost provision top up.
The remaining increase is a result of the application of the indirect costs to other bonding that had been
transferred to the USFS from the NDEP. The Company has proposed to the USFS that the bonding for the RDA
be reduced by the $3,185,916 estimated construction cost included as this work is to be carried out in 2015,
leaving just the $2,513,662 for 20 years of operating and maintenance of the SRT’s and also the construction of
the East Dash SRT which is currently not scheduled while the Company continues testing a the existing water
treatment facility. The Company requested deferral of this bonding requirement until further work was carried out
in 2015 to refine the estimates. The remaining bonding requirement was proposed to be paid in 4 installments
commencing on March 31, 2015.
The Company has yet to hear from the USFS but has had ongoing
conversations to date that have been largely supportive of this arrangement.
Subsequent to September 30, 2014, $22.9 million of the Company’s funds on deposit with Chartis, which were
restricted for reclamation and mine closure obligations with the NDEP and the US Forestry Service, were
transferred to the NDEP.
VERIS GOLD CORP.
Ketza River
The Company did not conduct any exploration drilling in Q3-14 at Ketza River. During the quarter, the Company
continued to collect additional environmental baseline data to support the company’s permitting activities,
including water quality and flow data. The Company is still pursuing a water license for the existing tailings pond.
Maintenance activities and environmental monitoring associated with the existing tailings pond is ongoing with
some activities mandated by regulatory authorities. In light of the current Creditor Protection Proceedings the
Company has curtailed any significant expenditures at Ketza River except for those focused on maintaining the
facilities and ensure ongoing environmental compliance obligations are maintained.
SUMMARY OF QUARTERLY RESULTS
(in thousands of dollars, except for share and per share amounts)
Q3 2014
Statement of Operations
Gold Sales
Toll Milling
Revenue
Cost of gold sold
Gross margin before D&D (1)
(Loss) income from operations
(Loss) income before taxes
Net (loss) income
Basic net (loss) income per share
Weighted average # of shares
outstanding (000's)
Statement of Financial Position
Cash and cash equivalents
Total assets
(1)
$
Q2 2014
57,252 $
57,252 $
48,491
8,761
(1,817)
(6,529)
(6,529)
(0.04)
$
154,378
$
3,740
302,556
Q1 2014
52,528 $
826
53,354 $
49,304
4,050
(4,824)
(8,092)
(8,092)
(0.05)
154,378
$
2,793
307,163
$
Q4 2013
Amended
Q2 2013
Q3 2013
35,631 $
35,631 $
35,418
213
(7,085)
(13,448)
(13,819)
(0.09)
40,622 $
3,054
43,676 $
44,705
(1,029)
(41,336)
(57,536)
(47,797)
(0.31)
56,993 $
3,304
60,297 $
49,095
11,202
4,504
(18,178)
(18,170)
(0.15)
154,378
154,265
117,609
1,503
315,113
$
1,161
312,951
$
643
347,283
Q1 2013
44,936 $
1,710
46,646 $
42,141
4,505
(2,733)
5,848
5,856
0.05
107,641
$
5,241
339,908
45,360
45,360
44,944
416
(5,528)
(5,436)
(6,542)
(0.06)
107,641
$
7,103
341,215
Gross margin before depreciation & depletion (“D&D”) is a non-GAAP measure that the Company
considers to be a good indicator of the Company’s achieved operating results before being adjusted for
non-cash D&D to arrive at mine operating earnings.
RESULTS OF OPERATIONS
The Company had a net loss of $6.5 million during the quarter ended September 30, 2014 (“Q3-14”), an $11.7
million decreased loss from the net loss of $18.2 million in the third quarter of 2013 (“Q3-13”). The reduced loss
in 2014 is primarily the result of the following:

$6.3 million reduced income from operations due primarily to a $2.4 million decreased gross margin
before D&D resulting from lower gold prices despite increased gold sales; a $2.3 million increase in
depreciation and depletion driven by the commissioning and improved mining of the Starvation Canyon
mine and the commissioning second tailing facility in mid-2013; and a $1.6 million increase in G&A from
increased professional fees and directors fees incurred since the Company entered creditor protection, on
June 9, 2014, under the Companies’ Creditors Arrangement Act (“CCAA”), offset by a lower realized
exchange rate on the Canadian dollar, reduced salaries and benefits as well as business development
costs;
VERIS GOLD CORP.

$2.9 million in decreased interest expense due primarily to a $2.4 million reduction in interest from the
decreased time to maturity of the Senior Secured Gold Facility (“SSG”), $0.3 million decrease in interest
on the convertible debt from the reduced time to maturity, $0.1 million reduction in interest on forward
contracts which are currently included in the Creditor Protection Proceedings, and $0.1 million reduction
in accretion from a reduction in short term interest rates.
The decline in gross-margin before D&D in Q3-14 compared to Q3-13 is primarily attributable to the reduction in
toll milling revenue from $3.3 million in Q3-14 to $nil Q3-14. The average price of gold realized declined from
$1,331 per ounce, in Q3-13, to $1,279 per ounce in Q3-14. This diminished gold price resulted in the equivalent
loss of Q3-14 gold revenues of approximately $2.3 million.
Revenue:
For Q3-14, the Company realized gold sales of $57.3 million on the sale of approximately 45,216 ounces of gold,
this compares to $57.0 million on sales of approximately 42,760 ounces of gold sold in Q3-13. The primary
driver of the increased revenue in Q3-14 versus Q3-13 was a 6% increase in the number of gold ounces sold
offset by a 4% decline in the market price for gold.
The Company had $nil in toll milling revenue in Q3-14 compared with $3.3 million in toll milling in Q3-13 as the
Company maintained a focus on allocating the majority of available milling capacity to process the Company’s
increased high grade ore stockpiles.
Gross-margin before D&D:
In Q3-14, the Company had a Gross Margin of $8.8 million before depreciation and depletion compared to $11.2
million in Q3-13. As previously discussed, this $2.4 million decline was primarily driven by reduction in toll milling
revenue from $3.3 million in Q3-14 to $nil Q3-14. The Company was able to offset the 4% reduction in gold
revenue per ounce with a 6% increase in gold ounces sold. The successes of the Company’s cost reduction
programs were evidenced by a 7% reduction in cash costs per ounce from $1,148 per ounces in Q3-13 to $1,072
per ounce in Q3-14.
The most significant contributor to this decreased mining cost resulted from a continued improvement in
production rates at Starvation Canyon as the current quarter benefited from a year of production compared to
Q3-13 which was the first quarter of production since the mine had been commissioned.
Depreciation and depletion (“D&D”):
The Company had $7.8 million in depreciation and depletion in Q3-14 compared to $5.5 million in Q3-13. The
increase in D&D resulted from an increase in the depreciable and depletable asset base, primarily from the
commissioning of the Second Tailing Facility midway through Q3-13 as well as increased depletion from the
improved mining results at the Company’s Starvation Canyon mine.
VERIS GOLD CORP.
G&A expense:
In Q3-14 the Company incurred G&A expense of $2.8 million compared to the $1.2 million incurred in Q3-13.
Share based payment expenses included in G&A fell from $0.1 million in Q3-13 to $nil in Q3-14.
These
expenses are for corporate head office and transactions costs and are primarily comprised of salary and benefit
costs as well as professional and consulting fees, predominantly incurred in Canadian dollars. The $1.6 million
increase in Q3-14 from Q3-13 is primarily from increased professional fees incurred since the Company entered
creditor protection, on June 9, 2014, under the Companies’ Creditors Arrangement Act (“CCAA”) combined with
increased directors fees, offset by a lower realized exchange rate on the Canadian dollar as well as reduced
salaries and business development costs.
Interest expense:
Interest expense is comprised of:
Interest on senior secured gold facility
Interest on convertible debt
Accretion of decommissioning and
rehabilitation provisions
Interest on finance leases
Interest on forward contracts
Interest on net smelter returns royalty
facility
Other interest (expense) income
$
$
Three months ended
September 30,
2014
2013
(2,254) $
(4,631)
(1,473)
(1,768)
(416)
(89)
-
(471)
(105)
(127)
(144)
(51)
(205)
(4,427) $
(7,307)
Interest expense in Q3-14 was $4.4 million compared to $7.3 million in Q3-13. The $2.9 million decrease in
interest expense is primarily from a $2.4 million reduction in interest due to the decreased time to maturity of the
Senior Secured Gold Facility and a $0.3 million reduction in interest on convertible debt from the reduced time to
maturity, $0.1 million reduction in interest on forward contracts which are currently included in the Creditor
Protection Proceedings, and $0.1 million reduction in accretion from a reduction in short term interest rates.
Finance and transaction costs:
Finance and transaction costs in Q3-14 were $0.1 million compared to the $0.8 million in Q3-13. As described
above, these costs are comprised of the expensed portion of costs incurred on financing activities undertaken in
the period; as well as the amortization of previously deferred transactions costs, incurred on financing activities.
The most significant decrease in these costs was due to an absence of financing activities in Q3-14 compared to
a public offering and private placement completed, with associated transaction costs, in Q3-13.
VERIS GOLD CORP.
Derivative gain (loss):
Derivative gains (losses) are comprised of:
Gain (loss) on warrants
Gain (loss) on convertible debt embedded derivatives
Gain on senior secured gold embedded derivatives
Loss on net smelter returns royalty embedded derivatives
Loss on recognition of senior secured gold facility
$
$
Three months ended
September 30,
2014
2013
191 $
(2,356)
6
(222)
47
201
31
(12,119)
275 $
(14,496)
Non-cash derivative gains in Q3-14 were $0.3 million compared with losses of $14.5 million in Q3-13. Warrants
denominated in Canadian dollars are revalued at each reporting period with change in fair value recorded to net
income. Warrants accounted for gains of $0.2 million in Q3-14 compared to losses of $2.4 million in Q3-13. The
gains in Q3-14 were driven by a reduction in the time to maturity, while the losses in Q3-13 were the result of an
appreciation in the Company’s share price during that period.
There was a non-cash loss of $12.1 million in Q3-13 which resulted from the revaluation of the Senior Secured
Gold Facility The Senior Secured Gold Facility represents a debt-host contract which was recorded at fair value
as of July, 2013 and subsequently measured at amortized cost using the effective interest rate method. There
was no such revaluation with resulting loss recognized in Q3-14.
Environmental costs:
Environmental rehabilitation costs are those required to complete reclamation of historic environmental
disturbance that was determined and incurred during the current year. Environmental rehabilitation costs of $0.8
million in Q3-14 were elevated from the $0.2 million incurred in Q3-13 as a result of the removal of calomel waste
from prior year’s production as well as the commencement of construction of the SRT at Marlboro Canyon.
LIQUIDITY
Cash and cash equivalents increased from $1.2 million at December 31, 2013 to $3.7 million at September 30,
2014.
As at September 30, 2014 the Company had a working capital deficiency of $187.0 million compared to
a working capital deficiency of $167.1 million at December 31, 2013.
This decrease in working capital is
primarily the result of: a $3.1 million decrease in inventory due to reductions in supply and gold inventory; a $2.8
million increase in accounts payable; a $8.1 million increase in the revalued Senior Secured Gold Facility using
the effective interest method; a $0.3 million increase in forward contracts from interest on outstanding balances;
a $9.2 million increase in current convertible debt resulting primarily from reclassification of the long term portion
given all convertible debt is due immediately as a result of the Creditor Protection Proceedings; a $1.2 million
increase in current obligations from the issuance of the NSR; offset by a $2.6 million increase in cash from the
issuance of the NSR and improved cash flow from operations; a $1.2 million increase in accounts receivable and
other due to an increase in prepayments made to continue supplier relationships through the Creditor Protection
Proceedings; a $0.8 million reduction in finance lease obligations from payments made during the year; and a
$0.3 million decrease in embedded derivative liabilities as a result of the decline in the Company’s share price.
VERIS GOLD CORP.
Operating:
During the quarter ended September 30, 2014 the Company recorded a net loss of $6.5 million, which, after
adjusting for non-cash items and positive changes in working capital of $0.4 million, resulted in operating cash
inflows of $5.4 million.
This compares to the quarter ended September 30, 2013 where the Company generated a net loss of $18.2
million, which, after subtracting non-cash items; and negative changes in working capital of $1.7 million, resulted
in operating cash inflows of $4.9 million.
The $0.4 million positive change in non-cash working capital in Q3-14 is the result of a $3.7 million decrease in
inventories; offset by a $2.6 million increase in accounts receivable; and a $0.7 million decrease in accounts
payable. The $1.7 million negative change in non-cash working capital in Q3-13 was the result of a $4.0 million
increase in accounts receivable; a $5.3 million increase in inventories; offset by a $7.6 million increase in
accounts payable.
Investing:
Capital cash expenditures
(in thousands)
Mineral Properties
Property, plant and equipment
Three months ended September 30, 2014
Jerritt Canyon Ketza River
Corporate
Total
$
3,092 $
350 $
$
3,442
1,463
1,463
$
(in thousands)
Mineral Properties
Property, plant and equipment
4,555 $
350 $
-
$
Jerritt Canyon Ketza River
Corporate
Total
$
6,707 $
681 $
$
7,388
3,984
3,984
$
10,691 $
681 $
-
$
Significant property, plant and equipment capital expenditures in Q3 2014 include the following:

4,905
Mill facilities and equipment ($1.5 million)
Significant property, plant and equipment capital expenditures in Q3 2013 include the following:

Various mill related equipment ($3.1 million)

Capital lease payments on mobile and other mining equipment ($0.7 million);

Environmental and new tailings facility infrastructure ($0.2 million)
Nevada mineral property expenditures during Q3-14 included the approximate amounts: Smith mine
development ($0.9 million); Starvation Canyon mine development, ($0.2 million); SSX-Steer mine development,
($0.8 million) and $1.5 million for the development of Saval, including the completion of the primary access and
substantial completion of the secondary egress as well.
11,372
VERIS GOLD CORP.
Exploration at Ketza River remained minimal and consistent with prior quarters as the Company continued
existing monitoring and remediation programs while continuing to compile available data for the preparation of
responses regarding the YESAB proposal.
Financing:
During the second quarter of 2014 the Company closed financing in the form of the sale of a 0.5% Net Smelter
Returns royalty for proceeds of $7.5 million. Proceeds were delivered to Veris Gold at the date of closing, April
10, 2014. The royalty relates to the production of gold and silver from the Company’s Jerritt Canyon mines and
processing plant, operated by Veris Gold USA Inc. The royalty is applied, at a fixed rate of 0.5%, against
proceeds from gold and silver products after deducting treatment, refining, transportation, insurance, and taxes
as well as levies charges.
In Q1-14 the Company entered into a gold sales contract which specified that 3,500 troy ounces of refined gold
would be sold to the counterparty by April 30, 2014. The Company received 90% of the purchase price, or $4.0
million cash, in Q1-14 and the remaining $0.4 million was received upon final gold delivery in Q2-14. The
Company settled the contract and delivered 3,500 troy ounces in Q2-14.
During the second quarter of 2013 the Company closed a financing in the form of an eight-month senior
unsecured promissory note (the "Note") with a principal sum of $10.0 million. In connection with the Note, the
Company issued 3.4 million common share purchase warrants with an exercise price of US$1.80 per warrant,
which have a 5 year life. The Note originally had a maturity date of April 12, 2013 but the Company entered into
an agreement to extend the maturity date of the Note to January 12, 2014. Up to the date of maturity the Note
had an interest rate of 9% however subsequent to the maturity on the Note (which was extended in Q4-13 to
January 12, 2014) the interest rate increased to 21% per annum.
Liquidity risk:
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The
Company manages liquidity risk through the preparation of annual budgets along with quarterly updates to
identify funding requirements, if any, as well as daily forecasting of its cash flows from operations as well as
investing and financing activities to anticipate pending treasury requirements.
The Company had a loss from operations of $1.8 million for the three months ended September 30, 2014 (2013
– income of $4.5 million), and a $5.4 million inflow of cash from operations for the same period (2013 – $4.9
million inflow).
At September 30, 2014 the Company had a working capital deficiency of $187.0 million
(December 31, 2013 – $167.1 million) and an accumulated deficit of $474.0 million (December 31, 2013 –
$445.6 million). On December 31, 2014 the Company missed a gold delivery payment and on January 28, 2014,
unable to correct this gold delivery shortfall, either through the delivery of 4,980 ounces or through payment of
the cash equivalent, the Company went into default on the DB Senior Secured Gold Facility (“Senior Facility”).
As noted previously on June 3, 2014 DB set an early termination date of June 9, 2014 for the Senior Facility
requiring payment of $89.4 million on that date. In order to prevent DB from possibly realizing on security on
June 9, 2014 the Company has applied and been granted creditor protection from the Court under CCAA and
VERIS GOLD CORP.
under ancillary proceedings in the US Court under Chapter 15. The Company expects this process to last
several months however during this period ongoing discussions with the creditors is occurring as well as possible
new sources of financing to provide for the plan of arrangement needed for exiting CCAA.
Throughout the year senior management is actively involved in the review and approval of planned expenditures
and typically ensures that it has sufficient cash on hand to meet expected operating expenses for 60 days.
During the creditor protection proceedings the Company prepares and submits to the Monitor and DB a weekly
operational and capital budget which forms the basis of the monthly Cash Collateral budget agreed to in the
CCO. This weekly forecast is used to identify potential funding shortfalls within a 3 to 4 month period and allow
time to pursue financing or make adjustments to the existing plans.
The unexpected shutdown in December 2013 and January 2014 as well as the 21 day shutdown which occurred
in March of 2014 significantly increased liquidity issues facing the Company and ultimately resulted in the early
termination notice received from DB and the Company’s entry into CCAA protection. The Company is continuing
to pursue financing needed to restructure the existing senior and subordinated debts as well as finance future
capital requirements to ensure continuity of operations. The Company intends to restructure the debts on the
balance sheet through the Plan as discussed previously and continues to work towards achieving that objective.
There can be no assurance that the Company will successfully complete and implement a plan of compromise
and arrangement or that the Plan will be approved by the Court and possibly the creditors of the Company. Also,
if the Company is unable to maintain stable operations and generate positive cash flows and if the existing DIP
financing proves inadequate to support these activities, the Company will need to curtail operations activities.
The following are the contractual maturities of the undiscounted cash flows of financial liabilities at September
30, 2014:
Less than 3
months
Accounts payable and
accrued liabilities
Finance lease obligations
Convertible debt
Forward contracts
Senior secured debt facility
At September 30, 2014
$
87,174
823
19,168
24,428
85,421
217,014
4 to 12
months
$
1,730
1,730
1 to 2 years
$
553
553
Greater than
2 years
$
Total
-
$
87,174
3,106
19,168
24,428
85,421
219,297
CAPITAL RESOURCES:
The Company had a cash balance of $3.7 million as of September 30, 2014. The Company has a total of $56.3
million of cash classified as restricted at September 30, 2014 (December 31, 2013 - $56.4 million), primarily
related to cash restricted under the existing bonding requirements for the future reclamation at the Jerritt Canyon
property.
VERIS GOLD CORP.
The Company invested the funds from the December 2013 public offering to assist with payments to the Senior
Secured Gold Facility, to upgrade and refurbish the dry mill equipment at its Jerritt Canyon mill operations, and to
fund general working capital.
The Company invested the funds from the August 2013 public offering and
September 2013 private placement into the refurbishment of its Jerritt Canyon mill operations; continued
development of the underground mine facilities at the existing mines as well as at the Saval 4 Gold Mine; to fund
bonding required for future reclamation obligations; to ensure that debt payments are met; and for general
working capital purposes. Proceeds from the Flow-Through Units have been used to fund exploration activities at
the Company's Ketza River property in the Yukon however the Company has utilized the proceeds as well to
support working capital requirements. Proceeds from the NSR were used for working capital purposes to support
the restart activities subsequent to the 21 day shutdown in March 2014. These activities required significant
payments to vendors to ensure continuity of supply of both services and supplies, with a primary focus on
providing funding to the mining contractor on site.
The Company invested the funds from the December 2012 public offering primarily into the development of the
Starvation Canyon mine but also for funding required bonding obligations and general working capital purposes.
The Company further funded the commencement of development on Saval 4 and completed the development of
Starvation Canyon with $8 million drawn from the performance reserve funds relating to the August 2011
Forward Gold Purchase Agreement in February 2013; along with $10 million in proceeds obtained from an eightmonth senior unsecured promissory note received in April, 2013, described in detail below in the Commitments
section of the MD&A.
With development work completed, and the full ramp up of the mine’s operations, it is
expected that sufficient funds will be generated to support the ongoing sustaining capital requirements.
Throughout 2013 the Company pursued opportunities to restructure the existing debt commitments, primarily
focusing on increasing the duration of the existing facilities, either by extending the existing terms or through the
buyout of the debt under new terms, enabling it to invest further funds into existing operations or pursue further
improvements to the capital structure. Due to the events of December and the resulting shutdown and default on
the Senior Facility, the Company accelerated the need for a complete refinancing of the capital structure,
including a Company led buyout of the Senior Facility. In February 0f 2014 the Board of Directors of the
Company appointed a Special Committee, comprised of two independent and one non-independent Director, to
review the current options and work with the appointed advisor to develop and explore restructuring alternatives.
Although the Company is currently in CCAA these efforts are ongoing and negotiations with the senior lender,
DB, as well as the subordinated lenders are ongoing as the Company works to develop the Plan to allow for an
exit from the Creditor Protection Proceedings by early 2015.
VERIS GOLD CORP.
COMMITMENTS
On August 12, 2011, the Company entered into a Forward Gold Purchase Agreement (the “Agreement”) with
Deutsche Bank, AG, London Branch, which holds more than 10% of the Company’s issued and outstanding
common shares.
Under the Agreement the Company received a gross prepayment of $120 million (the
“Prepayment”), of which net cash proceeds of $73.5 million were received on August 12, 2011. Under the terms
of the Agreement, the Company has sold to DB, a Contract Quantity of Gold in the amount of 173,880 ounces to
be delivered to DB over a forty-eight month term commencing September 2011. The scheduled future gold
deliveries to DB are: (i) 1,000 ounces per month during the first nine months of the term; (ii) 2,000 ounces per
month for the following nine months of the term; and, (iii) 4,330 ounces per month for the final thirty-nine months
of the term. On February 7, 2012, the Company entered into a Second Forward Gold Purchase Agreement with
DB (the “Second Agreement”). Under this agreement, the Company received a gross prepayment of $20 million,
of which net cash proceeds of $18.9 million were received on February 8, 2012, in exchange for the future
delivery of 650 ounces of gold per month, over a forty-three month term commencing March 31, 2012,
representing total future delivery of 27,950 ounces of gold.
As previously discussed, on January 28, 2014, the Company received a notice of default from Deutsche, with
respect to payment defaults under the forward gold purchase Agreements. The Notice of Default relates to the
failure to make the monthly December gold delivery, or pay the cash equivalent of the gold delivery shortfall, for
December, 2013, under each of the Agreements. As noted above, the Senior Facility has now been terminated
as of June 9, 2014 and the entire $89.4 million is due effective immediately. As the Company is currently under
a Court ordered stay this debt, along with all other debts incurred prior to June 9, 2014, are stayed from further
payment until a plan of compromise and arrangement is approved by the Court.
On January 12, 2012, the Company entered into a forward sales contract with a related party (Note 10) which
required delivery of 3,665 ounces of gold by June 12, 2012 or a cash payment of $6.0 million at the option of the
related party. In June 2012 the Company and the counterparty agreed that the gold delivery required to settle
the contract would be extended to August 30, 2012, resulting in an agreed upon late-settlement charge of 2.25%
per month on the outstanding balance being imposed on the Company. This resulted in an additional charge of
$0.4 million, or an estimated 165 ounces being due on August 30, 2012. During the second quarter of 2013, the
Company and the counterparty agreed to extend settlement of the contract to June 30, 2013. Under the terms of
the extension, the counterparty received the option to receive an amount of $6.6 million, or alternatively the right
to receive 3,839 troy ounces of refined gold. No settlement was made on either June 30, 2013, or since. As part
of the ongoing extension and renegotiation discussions since June 30, 2013, the Company made a payment of
$0.5 million to the counterparty in September, 2013, this payment being almost entirely accrued interest. The fair
value of the January 2012 forward contract as at September 30, 2014 was $7.1 million (December 31, 2013 $6.8 million). The Company incurs certain contractor and lease expenses which are charged to the related party,
and to date these charges remain unpaid ($1.0 million as at September 30, 2014). The Company is evaluating
the legal alternatives with respect to such non-payment however believes that these charges may ultimately form
the basis for the final settlement under the current Creditor Protection Proceedings.
VERIS GOLD CORP.
On November 25, 2010, the Company entered into a gold sales contract which specifies that 6,255 troy ounces
of refined gold would be sold to the counterparty by May 30, 2011. In return, the Company received an upfront
payment of $7.0 million cash. No refined gold was delivered to the counterparty by May 30, 2011, and several
extensions of the delivery date have been accepted by the counterparty since that date. As at June 30, 2014,
the contract had not been settled. Since May, 2011, the Company has been accruing a late payment penalty of
2.25% per month until the last known maturity date, and has been considering a possible cash payment in lieu of
a delivery of physical gold. The Company does not acknowledge any liability to pay interest at the accrued rate.
The recorded value based on a mark-to-market valuation of the November 2010 forward contract as at
September 30, 2014 was $17.3 million (December 31, 2013 - $17.3 million) however the Company believes that,
based on the underlying legal documentation in place, this value is a reflection of the maximum potential liability
and that the reasonable amount of the liability is approximately $10.5 million. As at September 30, 2014, no
payments have been made for this forward agreement and the repayment of the gold forward is stayed under the
current Creditor Protection Proceedings.
The Company issued unsecured convertible debentures on June 15, 2012, July 19, 2012, and October 11, 2012
for gross proceeds of C$6.0 million, C$4.0 million, and C$2.0 million, respectively (collectively, the
"Debentures").
The Debentures bear interest at a rate of 11% per annum and have December 15, 2015,
January 19, 2016, and April 11, 2016 maturity dates (the "Maturity Date"), respectively. At the option of the
holder, the principal amount of the Debentures, and all interest accrued thereon, will be convertible into common
shares of the Company (the "Shares") at any time after expiry of the four month hold period of the Debentures
and prior to the close of business on the Maturity Date, based on a conversion price equal to the greater of: (a)
$1.50; and, (b) the market price of the Shares, as defined in the TSX Company Manual, discounted by 5% per
Share.
The convertible debentures became payable immediately upon the Company entering Creditor
Protection Proceedings but is stayed under those same proceedings.
On April 12, 2013, the Company entered into a senior unsecured promissory note, which was amended on May
15, 2013 (the “Note”) with a principal sum of US$10.0 million. The Note bears an interest at a rate of 9% per
annum and will mature on December 12, 2013, then January 12, 2014.
In connection with the Note, the
Company issued to the counterparty (the “Lender”) 3.4 million five-year common share purchase warrants with
an exercise price of $1.80 per warrant. In connection with the Note transaction, the Company also paid a finder’s
fee equal to 4% of the aggregate gross proceeds to Casimir Capital Ltd. (“Casimir”) and also issued Casimir
100,000 common share purchase warrants with an exercise price of $1.85 and a term of two years from the
Closing Date. The Note provides that from and after the maturity date or at the election of the Lender an Event
of Default (as defined in the Note), the principal may be converted, in minimum increments of $500,000 and no
more than 20% of the original principal of the amended Note in any one 30-day period, into common shares of
the Company based on a conversion price equal to the greater of: (a) US$0.50, provided that if the US$0.50 floor
price would cause the Lender’s ownership interest in the Company to be greater than 19.9% of the Company’s
issued and outstanding common shares, the floor price shall be the price that would cause the Lender’s
ownership interest in the Company to be equal to 19.9% of the Company issued and outstanding common
shares; and (b) the Market Price (as defined in the TSX Company Manual) of the Company’s common shares
VERIS GOLD CORP.
discounted by 10% per share. The ability of the Lender to exercise its option to convert the principal into
common shares remains subject to TSX approval at the time of the conversion. In addition, pursuant to the
terms of the Note, the Company issued to the Lender an additional 500,000 common share purchase warrants
with an exercise price of US$1.80 and an expiry date of April 12, 2018. The Company used the proceeds of the
Note to complete development of the Starvation Canyon Mine, which commenced preproduction on April 6,
2013. As of December 31, 2013 the US $10 million principal, and accrued interest of $0.5 million, had not been
paid and remained outstanding. Subsequent to December 31, 2013 the Company entered into an agreement
with the Lender to extend the maturity date of the Note to January 12, 2014, and to amend the exercise price of
the related warrants from US$1.80 to CAD$0.50. The amendment to the exercise price of the warrants became
effective as of February 14, 2014. The principal amount was not settled on the extended January 12, 2014
maturity date, this resulted in the Company incurring interest on the outstanding balance at a rate of 21% per
annum, payable monthly. As at September 30, 2014, no further payments have been made for principal or
interest due under this note and any further payments are stayed under the current Creditor Protection
Proceedings.
On April 9, 2014, the Company closed financing in the form of the sale of a 0.5% Net Smelter Returns royalty for
proceeds of $7.5 million. Proceeds were delivered to Veris Gold at the date of closing, April 10, 2014. The
royalty relates to the production of gold and silver from the Company’s Jerritt Canyon mines and processing
plant, operated by Veris Gold USA Inc. The royalty is applied, at a fixed rate of 0.5%, against proceeds from gold
and silver products after deducting charges for treatment, refining, transportation, insurance, taxes and levies.
The Company retains the right to buy-back the royalty until June 30, 2015 for the purchase price plus a premium
based on the price of gold or alternatively if the Company enters into another royalty with an arms-length third
party the buyback is calculated based on the sale price of the new royalty.
OUTLOOK:
As a result of the events leading up to, and including, the initiation of the Creditor Protection Proceedings, the
Company has significantly curtailed non-essential capital expenditures. As discussed below, due to the lack of
liquidity available to fund these expenditures during the Creditor Protection Proceedings the Company has not
performed any drilling other than development related activities and has deferred any significant non-essential
expenditures although the Company has commenced dewatering activities as options requiring minimal capital
have been identified. However, this curtailment of capital expenditures, if continued, will eventually result in a
decline in production levels although the Company believes it can maintain current production levels for an
extended period of time. To support this level of production the Company is evaluating areas within Jerritt
Canyon where reserves can be accessed in the near term, to supplement production from the existing
underground mines. The Company is also in discussions with third parties for toll treatment of their ores and has
recently signed an agreement with Anova Metals USA, LLC, for potential ore deliveries commencing in mid2015. The Company is having continued discussions with Newmont USA Ltd. and continues to believe that will
be the primary source of third party ore.
VERIS GOLD CORP.
Despite the operational setbacks and lack of available liquidity the Company believes it can sustain a production
level of between approximately 145,000 an 155,000 ounces from its three existing underground mines (including
Starvation Canyon mine) with increases coming from the fourth new mine, Saval 4, recently permitted for
production in October 2014 with the completion of the secondary access portal.
The Company has substantially completed all items under the Consent Decree, including extensive air emissions
control equipment for mercury and other particulates at a number of emission sources at the roaster facility. With
the signing of a second modified Consent Decree with the NDEP, the timelines have been revised for completing
the remaining items (primarily the RDA seepage treatment) and ongoing requirements have been clearly defined.
Testing of treatment methods for RDA seepage commenced in 2013 but will require several seasons to
determine the most effective solution and also determine what potential bonding would be needed to secure the
completion of that work. At Marlboro Canyon the Company substantially completed the construction of one of
the three SRT’s approved by the NDEP and required for the water treatment from historical RDA’s resurfaced by
the Company in 2012 and 2013.
The Company was unable to post the required $10 million of bonding in lieu of possible penalties (totaling $10.6
million) by May 31, 2014 related to the establishment of the RDA seepage treatment system, hence the penalties
became due and payable to the State under the second modified CD. This penalty now forms part of the
unsecured creditor class of obligations recorded in the Creditor Protection Proceedings. The Company prepared
and submitted the final Annual Work Plan to the State and the US Forest Service in June 2014 and has received
preliminary notification related to the updated bonding requirements.
The amounts required, totally
approximately $11 million currently and detailed previously, are subject to further refinement and discussion,
primarily with the USFS as the bonding pertains to the proposed SRT’s on the 3 RDA sites, and the Company
has proposed installment plans for providing the required bonding.
The consolidated financial statements are prepared on the basis that the Company will continue as a going
concern. The Company’s ability to continue as a going concern and recover its investment in property, plant,
and equipment and mineral properties is dependent on its ability to obtain additional financing in order to meet its
planned business objectives, primarily for executing the Plan required to exit CCAA and fund expected capital
requirements, and generate positive cash flows. However, there can be no assurance that the Company will be
able to obtain additional financial resources or achieve profitability or positive cash flows. Failure to continue as a
going concern would require that the Company's assets and liabilities be restated on a liquidation basis, which
values could differ significantly from the going concern basis.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements as of September 30, 2014.
SUBSEQUENT EVENTS
Subsequent to September 30, 2014, the Company entered into a debtor-in-possession financing agreement
("DIP Agreement") pursuant to which an aggregate amount of up to USD$12 million will be available to support
the continued operations during the CCAA proceedings.
As of the date of filing, November 14, 2014, the
Company had drawn USD$7.5 million pursuant to the terms of the DIP Agreement.
VERIS GOLD CORP.
RELATED PARTY TRANSACTIONS
During the three months ended September 30, 2014, the Company was charged a total of $0.1 million (2013 $0.1 million) in legal fees by a law firm in which the corporate secretary of the Company is a partner. The
amount owing at September 30, 2014 is $0.1 million (as at December 31, 2013 – $0.1 million).
In January 2012 the Company entered into a gold forward contract with a company related by common directors.
The fair value of this liability was $7.1 million as at September 30, 2014 (December 31, 2013 - $6.8 million). For
the three months ended September 30, 2014, there were no revaluation gains or losses or interest expense
recognized (2013 – $nil and $0.1 million interest expense). The Company also charged a total of $0.1 million
(2013 - $0.2 million) for contractor and lease expenses to the same company during the three months ended
September 30, 2014. The amount receivable at September 30, 2014 is $1.0 million (December 31, 2013 - $0.7
million)
In July 2011 the Company entered into a royalty agreement with a company owned by a director of the
Company. The royalty agreement, based on tons processed through the roaster facility, arose in connection with
the use of proprietary mercury emissions technology, owned by the related party, at Jerritt Canyon. During the
three months ended September 30, 2014, a total of $0.1 million was charged to the Company under this
agreement (2013 – $nil). The amount owing at September 30, 2014 is $0.4 million (December 31, 2013 – $0.2
million).
The amounts outstanding are unsecured and will be settled in cash. No expense has been recognized for bad or
doubtful debts in respect of the amounts owed by related parties.
Compensation of key management personnel:
The remuneration of directors and other members of key management personnel during the periods were as
follows:
Three months ended
September 30,
2014
2013
Salaries and short-term benefits
Directors fees
Special committee fees¹
Share-based payments
$
$
1
243
60
240
543
$
$
388
88
163
639
Remuneration (including accrued) of the Directors and CEO for their services on the special committee, during the three
months ended September 30, 2014, were as follows: (a) Directors: $120 thousand and (b) CEO: $120 thousand, and includes
some charges related to their activity in the prior quarter as well.
The remuneration of directors and key executives is determined by the compensation committee and is
dependent upon the performance of individuals, the performance of the Company, and external market trends.
VERIS GOLD CORP.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and judgments that affect the amounts reported in the financial statements. By
their nature, these estimates and judgments are subject to management uncertainty and the effect on the
financial statements of changes in such estimates in future periods could be significant.
Critical accounting estimates that have the most significant effect on the amounts recognized in the financial
statements are:
Capitalization of long-term mine development costs
The Company capitalizes mining and drilling expenditures that are deemed to have economic value beyond a
one-year period. The magnitude of this capitalization involves a certain amount of judgment and estimation by
the mine engineers. The magnitude of this capitalization makes this a critical accounting estimate.
Impairment testing of long-lived assets
At each reporting date, the Company reviews the carrying amounts of its long-lived assets to determine whether
there is any indication that those assets are impaired. If such impairment exists, the recoverable amount of the
asset is estimated in order to determine the extent, if any, of the impairment. Where the asset does not generate
cash inflows that are independent from other assets, the Company estimates the recoverable amount of the cash
generating unit (“CGU”) to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which estimates of
future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying
amount of the asset is reduced to its recoverable amount. An impairment is recognized immediately as an
expense.
All capitalized exploration and evaluation expenditures are monitored for indications of impairment. Where a
potential impairment is indicated, assessments are performed for each area of interest.
Where an impairment subsequently reverses, the carrying amount of the asset (or CGU) is increased to the
revised estimate of its recoverable value, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment been recognized for the asset (or CGU) in prior
years. A reversal of an impairment is recognized as income immediately.
A National Instrument 43-101 compliant estimate of proven and probable reserves and measured, indicated &
inferred resources for each mineral property is a critical estimate in evaluating long-lived assets for impairment.
In addition, estimates such as the future price of gold and certain capital and operating cost estimates are critical
estimates in the evaluation of potential impairment of long-lived assets.
VERIS GOLD CORP.
Decommissioning and rehabilitation provisions
Reclamation costs are estimated at their fair value based on the estimated timing of reclamation activities and
management’s interpretation of the current regulatory requirements in the jurisdiction in which the Company
operates. Changes in regulatory requirements and new information may result in revisions to these estimates.
The estimated asset retirement obligations on both the Jerritt Canyon property and the Ketza River property are
fully funded at this date.
Income taxes
Deferred taxation is recognized using the liability method, on unused tax losses, unused tax credits, and
temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for taxation purposes. However, the deferred taxation is not recognized for if it arises from
initial recognition of an asset or liability in a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit nor loss. Deferred taxation is determined using tax rates
and laws that have been enacted or substantively enacted by the reporting date and are expected to apply when
the related deferred taxation asset is realized or the deferred taxation liability is settled.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and
assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on
different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets
and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available
against which the on unused tax losses, unused tax credits, and temporary difference can be utilized. Deferred
tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the
related tax benefit will be realized.
Share based payments and valuation of warrants
The fair value of stock options granted, measured using the Black-Scholes option pricing model, is used to
measure share-based compensation expense. The Black-Scholes option pricing model requires the usage of
certain estimates, which includes the estimated outstanding life of stock options granted.
When the Company issues Units that are comprised of a combination of common shares and warrants, the value
is assigned to common shares and warrants based on their relative fair values. The fair value of the common
shares is determined by the closing price on the date of the transaction and the fair value of the warrants is
determined based on a Black-Scholes option pricing model. Those warrants which are denominated in a
currency other than the Company’s functional currency are recognized on the statement of financial position as
derivative instruments.
Derivative Instruments
All financial instruments that meet the definition of a derivative are recorded on the statement of financial position
at fair value. Changes in the fair value of derivatives are recorded in the statement of operations. Management
applies significant judgment in estimating the fair value of those derivatives linked to the price of gold.
VERIS GOLD CORP.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements issued are as follows:
Accounting standards adopted January 1, 2014
i)
IFRIC 21 - Levies (“IFRIC 21”)
In May 2013, the IASB issued IFRIC 21 – Levies (“IFRIC 21”), an interpretation of IAS 37 – Provisions,
Contingent Liabilities and Contingent Assets (“IAS 37”), on the accounting for levies imposed by
governments. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for
the entity to have a present obligation as a result of a past activity or event (“obligating event”)
described in the relevant legislation that triggers the payment of the levy. IFRIC 21 was effective
January 1, 2014 and was applied retrospectively. The adoption of this interpretation did not have a
significant impact on the Company’s condensed interim consolidated financial statements.
Accounting standards effective January 1, 2015 or later
ii)
IFRS 9 - Financial Instruments (“IFRS 9”)
The IASB intends to replace IAS 39 – Financial Instruments: Recognition and Measurement in its
entirety with IFRS 9 – Financial Instruments (“IFRS 9”) which is intended to reduce the complexity in the
classification and measurement of financial instruments. In February 2014, the IASB tentatively
determined that the revised effective date for IFRS 9 would be January 1, 2018. The Company is
currently evaluating the impact the final standard is expected to have on its consolidated financial
statements.
Outlook on Future Earnings
Future net earnings will be primarily impacted by gold production. For 2014, the Company has targeted revised
production of 145,000 to 155,000 ounces of gold. The Company is forecasting mining production at its mines to
increase in 2014 to over 3,500 tons per day once targeted production levels are reached the new Saval 4
underground mine, scheduled to commence operations late in the third quarter of 2014.
Items also impacting net earnings include the market price of gold price, and changes in fair values of the
Company’s share purchase warrants with an exercise price denominated in Canadian dollars. Changes in the
fair value of the share purchase warrants are primarily influenced by the Company’s share price as well as the
Canadian to USD exchange rate. Generally, if either the share price or the volatility increase, or the Canadian
dollar strengthens against the USD, with other factors remaining constant, the fair value of the warrant liability
will increase and the Company will record an expense in its future earnings.
The IASB has a work plan in effect which continues to amend and add to current IFRS standards. The Company
will monitor the progress of this work plan and assess the impact of the changes on the Company on a timely
basis.
VERIS GOLD CORP.
FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash and cash equivalents, receivables, restricted funds,
accounts payable and accrued liabilities, borrowings, and derivative liabilities.
The Company’s derivative
liabilities include forward contracts, the embedded gold derivative component of borrowings, and warrants.
The Company’s financial assets and liabilities are classified as FVTPL and therefore are carried at fair value with
changes in fair value recorded in income. Interest income and expense are both recorded in income. The
Company’s financial assets and liabilities include cash and cash equivalents, restricted funds, and derivative
assets and liabilities. The Company’s derivative liabilities are comprised of: (a) Warrants (considered derivatives
due to being denominated in Canadian dollars, a different currency than the Company’s U.S. dollar functional
currency); (b) derivative Forward Contracts; and, (c) the gold derivative embedded within the convertible
debentures (the “Embedded Derivative”). The fair value of derivative forward contracts are made by reference to
the gold spot price at period end. The fair value of the company’s share purchase warrants and embedded
derivatives is determined using option pricing models.
Accounts receivables are classified as loans and receivables. Accounts payable and accrued liabilities, as well
as the debt component of borrowings are classified as other liabilities and are measured at amortized cost, using
the effective interest method. The fair values of accounts receivables, accounts payable and accrued liabilities
approximate the carrying value because of the short term nature of these instruments.
RISK ASSESSMENT
There are numerous risks involved with gold mining and exploration companies and the Company is subject to
these risks. The Company’s major risks and the strategy for managing these risks are as follows:
Gold price volatility
The price of gold has been historically volatile and this volatility will likely continue both near-term and long-term.
Management’s strategy in dealing with this volatility is to expose gold produced by Jerritt Canyon to this volatility
(i.e. sell gold at market rates as produced), thus participating in upward movements in price of gold, while also
being exposed to downward movements in the price of gold. The Company has currently entered into two
derivative forward contracts whereby future settlement will be determined by the future market price of gold. As
repayment of these obligations is referenced to the gold spot price, increases in the price of gold will increase the
cost of payment.
Further, the Senior Secured Gold Facility with DB, entered into on August 12, 2011 and February 7, 2012
includes the obligation to deliver gold, and/or make net-cash settlements that are a derivative of the market price
of gold on the date of the scheduled delivery amount.
Estimates of reserves and resources
Resource estimates involve a certain level of interpretation and professional judgment. In the past the Company
opted to utilize the services of Practical Mining LLC and other experienced Independent Consultantsin the
National Instrument 43-101 work for both the Jerritt Canyon mine and the Ketza River project. This ensures a
consistent methodology is utilized from property to property.
VERIS GOLD CORP.
Environmental risk
Environmental factors must be taken into account at all stages of project development and during mining
operations. The Company understands that it is critical to long-term success to operate in an environmentally
conscious manner. The operations in Nevada are subject to close environmental regulation from the NDEP and
the Company is currently operating under the terms of a Consent Decree signed in October 2009. The Company
must continue to comply with the terms and deadlines of the Consent Decree or be subject to further fines until it
returns to compliance.
Safety risk
The mining business can present some significant safety risks during all phases of project/mine life. The
Company has undertaken several safety related capital improvements to the Jerritt Canyon facilities since
acquiring the property in 2007 to mitigate the impact of these risks. These safety related improvements continue
to be a component of the capital budget.
Liquidity risk (ability to raise capital)
The availability of capital is dependent on both macroeconomic factors and the Company’s track record in
utilizing capital. The industry continues to go through a period of credit tightening, with heightened security
requirements and lowered funding expectations, which present significant challenges to companies attempting to
obtain financing. The ability to obtain regular debt financing continued to prove difficult for companies without a
sufficient history of sustainable earnings.
The Company was able to obtain funds financing in 2013 and 2012 through both debt and equity markets. The
Company was able to raise equity financing with both a public offering and a private placement during 2013.
Debt financing in 2013 was done by way of issuing the $10 million Note. 2013 experienced downward pressures
on market metal prices, with significant declines in precious metal prices. The fall in the gold price resulted in the
exodus of capital in gold equities, and as with most gold-mining companies directly impacted the Company’s
market capitalization thus increasing the difficulty to do any significant forms of equity financing without incurring
significant dilution. Management attempts to use capital resources as efficiently as possible, while being aware
of the need to invest money in the finding and developing future gold-bearing ore bodies. The Company’s
previously discussed default status with certain creditors has increased the risk relating to the ability to raise
capital.
Exploration for future gold resources and reserves
Exploration can be a very capital intensive undertaking for the Company. Management understands this risk and
attempts to use available resources as efficiently as possible. The Company determines an appropriate level of
exploration expenditures during the budgeting process and the results of these programs are assessed to
determine future level of exploration activity.
VERIS GOLD CORP.
OUTSTANDING SHARE DATA
The following is the outstanding share information for Veris as of November 14, 2014:
Common shares issued and outstanding
# Outstanding (000')
154,378
Outstanding equity instruments
Warrants
Stock options
# Outstanding (000')
44,550
2,964
Weighted average Weighted average
Exercise price
Years to expiration
$
1.50
1.6
$
3.34
1.1
DISCLOSURE CONTROLS AND PROCEDURES
Based upon the evaluation of the effectiveness of the disclosure controls and procedures regarding the
Company’s consolidated financial statements for the year ended December 31, 2013 and this MD&A, the
Company’s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and
procedures were effective to ensure that material information relating to the Company was made known to others
within the Company particularly during the period in which this report and accounts were being prepared, and
such controls and procedures were effective to ensure that information required to be disclosed by the Company
in the reports that it files or submits under regulatory rules and securities laws is recorded, processed,
summarized and reported, within the time periods specified. Refer below to Internal Control Over Financial
Reporting. Management of the Company recognizes that any controls and procedures can only provide
reasonable assurance, and not absolute assurance, of achieving the desired control objectives, and
management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management, including the Chief Executive Officers and Chief Financial Officer, has assessed:
(i)
the design and evaluated the effectiveness of the Company’s disclosure controls and procedures and
(ii) the design of the company’s internal control over financial reporting as of December 31, 2013 pursuant
to the certification requirements of National Instrument 52-109. Management has satisfied itself that no
material misstatements exist in the Company’s financial reporting at September, 2013.
ADDITIONAL INFORMATION
Additional information may be examined or obtained through the internet by accessing the Company’s website at
www.verisgold.com or by accessing the Canadian System for Electronic Data Analysis and Retrieval (SEDAR)
website at www.sedar.com.
VERIS GOLD CORP.
FORWARD LOOKING STATEMENTS
This report contains “forward-looking statements”, including all statements that are not historical facts, and
forward looking information within the meaning of the United States Private Securities Litigation Reform Act of
1995 and applicable Canadian Securities legislation. Forward-looking statements include, but are not limited to,
statements with respect to the future price of gold, the realization of mineral reserve estimates, the timing and
amount of estimated future production, costs of production, capital expenditures, costs and timing of the
development of deposits, success of exploration activities, permitting time lines, currency exchange rate
fluctuations, requirements for additional capital, government regulation of mining operations, environmental risks,
unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. Generally,
these forward-looking statements can be identified by the use of forward-looking terminology such as “plans”,
“expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”,
“anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain
actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”.
With respect to forward-looking statements and the information included in this MD&A, we have made numerous
assumptions, including, among other things, assumptions about the price of gold, anticipated costs and
expenditures and our ability to achieve our goals, even though our management believes that the assumptions
made and the expectations represented by such statements or information will prove to be accurate. By their
nature, forward-looking statements and information are based on assumptions and involve known and unknown
risks, uncertainties and other factors that may cause our actual results, performance or achievements, or
industry results, to be materially different from future results, performance or achievements expressed or implied
by such forward-looking information. Such risks, uncertainties and other factors include among other things the
following: gold price volatility; discrepancies between actual and estimated production and mineral reserves and
resources; the speculative nature of gold exploration; mining operational and development risk; and regulatory
risks. See our Annual Information Form for additional information on risks, uncertainties and other factors related.
Although the Company has attempted to identify important factors that could cause actual results to differ
materially from those contained in forward-looking statements, there may be other factors that cause results not
to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be
accurate, as actual results and future events could differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not
undertake to update any forward-looking statements that are incorporated by reference herein, except in
accordance with applicable securities laws.
Condensed Interim Consolidated Financial Statements
(Expressed in United States Dollars)
VERIS GOLD CORP.
For the three and nine months ended September 30, 2014 and 2013
Condensed Interim Consolidated Statements of Financial Position
(In thousands of US dollars - Unaudited)
ASSETS
Current assets:
Cash
Accounts receivable and other
Inventories
Note
$
7
Restricted funds
Mineral property, plant and equipment
Other assets
Total Assets
8
9
$
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities
Senior secured gold facility
Forward contracts
Convertible debt
Net smelter returns royalty facility
Embedded derivative liabilities
$
13
11
14
17
15
13,14,15
Warrants
Convertible debt
Net smelter returns royalty facility
Deferred tax liabilities
Decommisioning and rehabilitation provisions
12
14
15
16
17
EQUITY
Share capital
Share based payments reserve
Accumulated other comprehensive income
Deficit
18
18
Total Liabilities and Equity
$
September 30,
December 31,
2014
2013
3,740
7,557
21,505
32,802
56,299
212,803
652
302,556
87,174
85,421
24,428
19,168
2,396
1,165
219,752
1,264
6,599
745
56,109
649
$
$
$
1,161
6,407
24,643
32,211
56,369
223,600
652
312,832
84,373
77,309
24,086
10,000
3,174
393
199,335
3,322
5,521
785
54,970
2,414
285,118
266,347
453,534
37,510
443
(474,049)
17,438
453,534
37,510
1,050
(445,609)
46,485
302,556
$
312,832
See accompanying notes to consolidated financial statements.
Nature of operations and going concern – Note 1
Commitments and contingencies – Note 23
Subsequent events – Note 25
Approved on behalf of the Board on November 14, 2014:
“Gerald Ruth”
Director
”Francois Marland”
Director
VERIS GOLD CORP.| 2
Condensed Interim Consolidated Statements of Operations and
Comprehensive Loss
For The Three and Nine Months Ended September 30, 2014 and 2013
(In thousands of US dollars, except for share and per share amounts - Unaudited)
Three months ended
September 30,
2014
2013
Note
Revenue
Cost of sales
Gross margin before depreciation and depletion
Depreciation and depletion
Income (loss) from mine operations
General and administrative expenses
(Loss) income from operations
Other (expense) income:
Interest expense
Finance and transaction costs
Derivative gain (loss)
Environmental costs
Other income
Foreign exchange income (loss)
20
$
4
5
6
Loss before income taxes
Income tax (expense) recovery
Current
Deferred
Loss for the period
Other Comprehensive Loss, net of tax:
Items that may be reclassified subsequently to loss:
Foreign currency translation adjustments
Total Comprehensive Loss
Loss per share – basic
Loss per share – diluted
Weighted average number of shares outstanding
Basic
Diluted
$
22
22
57,252
48,491
8,761
7,791
970
2,787
(1,817)
$
Nine months ended
September 30,
2014
2013
60,297
49,095
11,202
5,502
5,700
1,196
4,504
$ 146,237
133,213
13,024
20,383
(7,359)
6,367
(13,726)
$ 152,303
136,180
16,123
14,591
1,532
5,289
(3,757)
(4,427)
(100)
275
(810)
91
259
(4,712)
(6,529)
(7,307)
(824)
(14,496)
(174)
95
24
(22,682)
(18,178)
(15,013)
(404)
2,417
(1,771)
159
269
(14,343)
(28,069)
(10,289)
(2,426)
(179)
(1,129)
77
(63)
(14,009)
(17,766)
(6,529)
8
(18,170)
(371)
(28,440)
(1,090)
(18,856)
(553)
(7,082) $
483
(17,687) $
(607)
(29,047) $
(808)
(19,664)
(0.15)
(0.15)
(0.18)
(0.18)
(0.04)
(0.04)
154,378,365
154,378,365
117,609,351
117,609,351
154,378,365
154,378,365
(0.17)
(0.17)
110,976,229
110,976,229
VERIS GOLD CORP.| 3
Condensed Interim Consolidated Statements of Shareholders’ Equity
For The Nine Months Ended September 30, 2014 and 2013
(In thousands of US dollars and thousands of common shares - Unaudited)
Share Capital, Note 18
Note
Balance at January 1, 2013
Total comprehensive loss
Net loss
Other comprehensive loss
Share based payment expense
Issued on public offering
Issued on private placement
Issued with convertible debt
Balance at September 30, 2013
Balance at January 1, 2014
Total comprehensive loss
Net loss
Other comprehensive loss
Balance at September 30, 2014
18(d)
18(c)(ii)
18(c)(iii)
18(c)(i)
Share
Accumulated
based
other
payments comprehensive
Deficit
reserve
(loss) income
$ 36,663 $
2,642 $ (378,957) $
Number
107,641
Amount
$ 438,313
-
-
-
16,058
15,375
139,074
5,381
5,646
$ 449,340
567
137
180
58
$ 37,605
154,378
$ 453,534
$ 37,510
-
-
-
154,378
$ 453,534
$ 37,510
-
(808)
(808)
(18,856)
(18,856)
Total
98,661
(18,856)
(808)
(19,664)
$
1,834 $ (397,813) $
567
5,518
5,826
58
90,966
$
1,050 $ (445,609) $
46,485
(607)
(607)
$
(28,440)
(28,440)
443 $ (474,049) $
(28,440)
(607)
(29,047)
17,438
VERIS GOLD CORP.| 4
Condensed Interim Consolidated Statements of Cash Flows
(In thousands of US dollars - Unaudited)
Note
Operating activities
Net loss for the period
Items not affecting cash:
Depreciation and depletion
Recognition of deferred revenue
Loss on recognition of senior secured
Gold Facility
Finance cost (income)
Deferred tax (recovery) expense
Mark to market on embedded derivatives
Loss on disposal of assets
Share based payments
Unrealized foreign exchange (loss) gain
Change in non cash working capital
Cash settlement of deferred revenue
$
13
13
19
Investing activities
Development stage gold sales
Property, plant and equipment expenditures
Proceeds from sale of property, plant and
equipment
Restricted funds
Mineral property expenditures
Financing activities
Proceeds from net smelter returns
royalty facility
Proceeds from derivative gold forward
15
11
Settlement of derivative gold forward contracts 11
Proceeds from units issued on public
offering, net of transaction costs
Proceeds from units issued on private
placement, net of transaction costs
Proceeds from issuance of convertible
debentures, net of transactions costs
14
Repayment of senior secured gold facility
Effect of exchange rate changes on cash
Increase (decrease) in cash
Cash, beginning of period
Cash, end of period
Amended
(Note 24)
Three months ended
September 30,
Amended
(Note 24)
Nine months ended
September 30,
2014
2014
2013
(6,529) $
(28,440) $
20,383
-
(18,856)
7,791
-
5,502
-
1,946
2,254
(84)
(404)
386
5,360
12,119
5,209
1,671
(8)
(201)
163
162
212
(1,735)
4,924
4,411
8,112
(388)
(446)
5,391
9,023
12,119
(4,023)
1,671
1,090
(201)
163
567
150
10,963
(4,233)
(830)
587
(1,463)
(3,984)
587
(4,810)
3,517
(9,151)
(92)
(3,442)
(4,410)
225
(6,673)
(7,388)
(17,820)
(110)
(9,468)
(13,801)
225
(291)
(19,832)
(25,532)
(450)
7,500
4,445
(4,591)
(450)
-
$
(18,170) $
2013
14,591
(14,831)
-
7,251
-
7,251
-
7,319
-
7,319
(3)
947
2,793
3,740 $
(5,781)
8,339
(41)
(4,598)
5,241
643 $
7,354
3
2,579
1,161
3,740
$
9,555
(5,781)
17,894
(184)
(8,652)
9,295
643
Supplemental cash flow information (Note 19)
VERIS GOLD CORP.| 5
Notes to Condensed Interim Consolidated Financial Statements
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
1.
Nature of operations and going concern
Veris Gold Corp (the “Company” or “Veris”) is a gold metal producer engaged in the mining, exploration and
development of mineral properties located in Canada and the United States. The Company is incorporated under
the laws of the Province of British Columbia, Canada and its shares were listed on the Toronto Stock Exchange
and the Frankfurt Exchange prior to the Filing Date, as described below.
The Company’s registered address is 999 West Hastings Street, Suite 1040, Vancouver, British Columbia,
Canada V6C 2W2.
The condensed interim consolidated financial statements of the Company as at September 30, 2014, and
December 31, 2013, and for the three and nine months ended September 30, 2014 and 2013, comprise the
Company and its wholly owned subsidiaries (Note 2(c)).
On January 28, 2014, the Company received a Notice of Default under the terms of the Senior Secured Gold
Facility held with Deutsche Bank AG, London Branch (“Deutsche Bank”). The Notice of Default arose from the
failure of the Company to deliver the required gold as at December 31, 2013 or pay the cash equivalent of the
gold delivery shortfall as required under the Forward Gold Purchase Agreements dated August 12, 2011 and
February 7, 2012 (the “Senior Secured Gold Forward Facility”) (Note 13). The Company has not delivered any
gold or made cash payments to Deutsche Bank at any time since the Notice of Default.
On June 3, 2014, the Company received Notices of Early Termination Date from Deutsche Bank requiring the
Company to make payments totaling $89.4 million under the terms of the Senior Secured Gold Forward Facility.
Failing to make payments by June 9, 2014 would allow Deutsche Bank to take such steps as necessary to
enforce its rights against the Company.
On June 9, 2014, the Company sought creditor protection under the Companies’ Creditors Arrangement Act (the
“CCAA”) and the British Columbia Supreme Court (the “Court”) issued an order granting the Company’s
application for creditor protection. The CCAA proceedings cover the Company and its wholly-owned subsidiaries,
Queenstake Resources Ltd., Ketza River Holdings Ltd., and Veris Gold USA, Inc.. Ernst & Young Inc. (the
“Monitor”) has been appointed by the Court as monitor in the CCAA proceedings and will be responsible for
reviewing Veris’ ongoing operations, liaising with creditors and other stakeholders and reporting to the Court. On
June 9, 2014, the Company also filed a Chapter 15 case in the United States Bankruptcy Court for the District of
Nevada (the “US Court”). The Company, Veris Gold Corp., and the wholly owned subsidiaries of the Company
are parties to the CCAA and Chapter 15 proceedings (collectively, the “Creditor Protection Proceedings”). The
US Court agreed to a temporary restraining order and the Company had been granted provisional relief under
Section 1519 of the US Bankruptcy Code as of June 9, 2014 and the US Court entered a formal order on July 23,
2014.
On August 29, 2014, the US Court held a hearing and granted an order recognizing the CCAA
proceedings as the foreign main proceedings pursuant to Chapter 15 of the US Bankruptcy Code and also
extended the provisional relief. As a result, the United States creditors are restrained from taking action against
the Company and the other CCAA Petitioners, including Veris Gold USA, Inc.
On July 4, 2014, the Company obtained an order from the Court extending the period of the Court-ordered stay of
proceedings against Veris and its subsidiaries under CCAA up to and including July 31, 2014. The Company
obtained further extensions of the stay period, with the last order dated October 9, 2014, in which the Company
obtained an extension of the period of the Court-ordered stay of proceedings up to and including February 2,
2015.
VERIS GOLD CORP.| 6
Trading in the Company’s common stock on the Toronto Stock Exchange (“TSX”) was halted on June 9, 2014,
and the Company’s common stock was subsequently delisted on July 18, 2014. The delisting was a direct result
of the Creditor Protection Proceedings the Company commenced on June 9, 2014 and the Company is currently
not exploring alternative listings at this time as the listed securities would likely continue to be suspended under
the new listing. Upon completion of the Creditor Protection Proceedings, the Company will evaluate options to
relist on the TSX or other possible exchanges.
While under CCAA protection, Veris will continue attempting to restructure its financial affairs under the
supervision of the Monitor. The Company will seek input from its creditors and other stakeholders, with a view to
developing a comprehensive restructuring plan (the “Restructuring Plan”) to return the Company to viability or to
maximize value for all stakeholders.
Any such restructuring will be undertaken for the purpose of further
enhancing the Company’s long term financial health, liquidity and competitiveness. The Restructuring Plan will
likely include strategic, operation, financial, and corporate elements.
The successful emergence of the Company from the Creditor Protection Proceedings and full implementation of
any Restructuring Plan are expected to be subject to numerous conditions and approvals from key creditors,
stakeholders, the Court and the US Court. There can be no assurance that all required conditions will be met
and all required approvals obtained nor that the Company will ultimately emerge from the Creditor Protection
Proceedings. If the Company fails to implement the Restructuring Plan within the time granted by the Court,
substantially all of the debt obligations become immediately due and payable, potentially leading to the liquidation
of the Company’s assets.
The condensed interim consolidated financial statements for the three and nine months ended September 30,
2014 have been prepared using International Financial Reporting Standards (“IFRS”), as applied by the Company
prior to the Creditor Protection Proceedings. While the Company and its subsidiaries have filed for and been
granted creditor protection under the Creditor Protection Proceedings, these condensed interim consolidated
financial statements do not purport to reflect or provide for any of the consequences of the Creditor Protection
Proceedings and have been prepared on a going concern basis, which assumes that the Company will be able to
realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
However, it is not possible to predict the outcome of the Creditor Protection Proceedings and, as such, there is
substantial doubt regarding the realization of the assets and discharge of liabilities.
The Creditor Protection Proceedings provide the Company with a period of time to stabilize its operations and
financial condition and develop a comprehensive Restructuring Plan. Management believes that these actions
make the going concern basis appropriate. However, it is not possible to predict the outcome of the Creditor
Protection Proceedings and accordingly substantial doubt exists as to whether the actions taken in any
restructuring will result in improvements to the financial condition of the Company sufficient to allow it to continue
as a going concern. If a Restructuring Plan is not approved and the Company fails to emerge from the Creditor
Protection Proceedings, the Company could be forced into bankruptcy resulting in the liquidation of the
Company’s and its subsidiaries’ assets. Under a liquidation scenario, adjustments would be necessary to the
carrying amounts and/or classification of assets and liabilities in these condensed interim consolidated financial
statements. If the going concern assumption were not appropriate for such financial statements, then significant
adjustments would be necessary in the carrying amounts and/or classification of assets and liabilities. As of
November 1, 2014 the Company has engaged in a formal sale process with respect to its assets. While
restructuring efforts are ongoing, the sale process may result in a sale of some or all of the assets.
VERIS GOLD CORP.| 7
For properties other than the producing mine at Jerritt Canyon, Nevada, the Company is in the process of mineral
exploration and has yet to determine whether these properties contain reserves that are economically
recoverable. The recoverability of the amount shown for these mineral properties is dependent upon the
existence of economically recoverable reserves, confirmation of the Company's ownership interest in the mining
claims, the ability of the Company to obtain necessary financing to complete the development, and upon future
profitable production or proceeds from the disposition of the mineral properties.
The Company had a loss from operations of $13.7 million for the nine months ended September 30, 2014 (2013
– $3.8 million loss), and a $9.0 million inflow of cash from operating activities for the same period (2013 – outflow
of $0.8 million (Amended, Note 24)). At September 30, 2014 the Company had a working capital deficiency of
$187.0 million (December 31, 2013 – $167.1 million) and an accumulated deficit of $474.0 million (December 31,
2013 – $445.6 million). The factors discussed above reflect the existence of material uncertainties that cast
significant doubt about the Company’s ability to continue as a going concern. The Company will be required to
raise funds through the issuance of equity or debt and successfully develop and implement a Restructuring Plan
in the CCAA proceedings. Realization values may be substantially different from carrying values as shown and
the Company’s condensed interim consolidated financial statements do not give effect to adjustments that would
be necessary to the carrying values and classification of assets and liabilities should the Company be unable to
continue as a going concern. Further, a Court-approved Restructuring Plan in the CCAA proceedings could
materially change the carrying amounts and classifications reported in the condensed interim consolidated
financial statements.
2.
Basis of preparation
(a) Statement of compliance
These condensed interim consolidated financial statements have been prepared in accordance with IAS 34 –
Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”).
Accordingly, certain disclosures included in annual financial statements prepared in accordance with the
International Financial Reporting Standards (“IFRSs”) as issued by the IASB have been condensed or
omitted and these unaudited condensed interim consolidated financial statements should be read in
conjunction with the Company’s audited consolidated financial statements for the year ended December 31,
2013.
The preparation of financial statements in accordance with IFRS requires the use of certain critical
accounting estimates and judgments when applying the Company’s accounting policies. The areas involving
a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the
financial statements are disclosed in note 2(d).
VERIS GOLD CORP.| 8
(b) Comparative information
During the nine months ended September 30, 2014, the Company changed the presentation of its financial
statements in order to provide financial statement users with more relevant information.
Prior period
comparative figures have been amended to conform to the current period’s presentation. In prior periods,
included in finance and transactions costs, as presented on the condensed interim consolidated statement of
operations and comprehensive income, were the following items: interest expense, including accretion of
decommissioning and rehabilitation provisions; environmental costs; finance and transaction costs; and,
other expenses. These items are all now separately presented on the condensed interim consolidated
statement of operations and comprehensive loss. Similarly, in prior periods derivative gains and losses,
including those on derivative warrant liabilities, were included in interest and other income as was presented
on the condensed interim consolidated statement of operations and comprehensive loss, these derivative
gains and losses are now presented separately on the condensed interim consolidated statement of
operations and comprehensive loss. Further, in prior periods the current portion of finance lease obligations
was included in accounts payable and accrued liabilities as was presented on the condensed interim
consolidated statements of financial position and this item is now separately presented. There was no
impact on total loss before income taxes in periods presented.
(c) Basis of consolidation
These condensed interim consolidated financial statements include the accounts of the Company and its
subsidiaries. Subsidiaries are entities controlled by the Company. Control exists when the Company has
power over an investee, when the Company is exposed, or has rights, to variable returns from the investee
and when the Company has the ability to affect those returns through its power over the investee.
Subsidiaries are included in the consolidated financial results of the Company from the effective date of
acquisition up to the effective date of disposition or loss of control.
The principal subsidiaries of the
Company and their geographic locations at September 30, 2014 were as follows:
Property
Ketza River Holdings Ltd.
Veris Gold U.S.A. Inc.
Location
Yukon
Nevada
Ownership
100%
100%
(d) Significant judgments and estimates
IFRS requires management to make estimates and judgments that affect the amounts reported in the
financial statements.
By their nature, these estimates and judgments are subject to measurement
uncertainty and the effect on the financial statements of changes in such estimates in future periods could be
significant. Estimates are reviewed continually and adjusted as needed based on historical experience and
other factors. Revisions to estimates and the resulting impacts on the carrying amounts of the Company’s
assets and liabilities are accounted for prospectively. The critical judgments and estimates applied in the
preparation of the Company’s condensed interim consolidated financial statements for the three and nine
months ended September 30, 2014 are consistent with those applied and disclosed in notes 3 and 4 of the
Company’s audited consolidated financial statements for the year ended December 31, 2013.
VERIS GOLD CORP.| 9
3.
Changes in accounting standards
Accounting standards adopted January 1, 2014
i)
IFRIC 21 - Levies (“IFRIC 21”)
In May 2013, the IASB issued IFRIC 21 – Levies (“IFRIC 21”), an interpretation of IAS 37 – Provisions,
Contingent Liabilities and Contingent Assets (“IAS 37”), on the accounting for levies imposed by
governments. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the
entity to have a present obligation as a result of a past activity or event (“obligating event”) described in the
relevant legislation that triggers the payment of the levy. IFRIC 21 was effective January 1, 2014 and was
applied retrospectively. The adoption of this interpretation did not have a significant impact on the
Company’s condensed interim consolidated financial statements.
Accounting standards effective January 1, 2015 or later
ii)
IFRS 9 - Financial Instruments (“IFRS 9”)
The IASB intends to replace IAS 39 – Financial Instruments: Recognition and Measurement in its entirety
with IFRS 9 – Financial Instruments (“IFRS 9”) which is intended to reduce the complexity in the
classification and measurement of financial instruments. In February 2014, the IASB tentatively determined
that the revised effective date for IFRS 9 would be January 1, 2018. The Company is currently evaluating
the impact the final standard is expected to have on its consolidated financial statements.
4.
Interest expense
Interest expense is comprised of:
Interest on convertible debt
Interest on trade payables
Accretion of decommissioning and
rehabilitation provisions
Interest on finance leases
Interest on forward contracts
Interest on net smelter returns royalty
facility
Other interest expense
Note
13 $
14
Three months ended
September 30,
2014
2013
(2,254) $
(4,631) $
(1,473)
(1,768)
-
Nine months ended
September 30,
2014
2013
(8,112) $
(4,631)
(3,977)
(3,739)
(477)
-
16
17
11
(416)
(89)
-
(471)
(105)
(127)
(1,319)
(288)
(342)
(1,224)
(334)
(127)
15
(144)
(51)
(205)
(264)
(234)
(234)
(4,427) $
(7,307) $
(15,013) $
$
(10,289)
5.
Finance and transaction costs are comprised of:
Note
Transaction costs recognized on senior
senior secured gold facility
$
13
$
6.
Three months ended
September 30,
2014
2013
(100) $
(824) $
-
(100) $
(824) $
Nine months ended
September 30,
2014
2013
(404) $
(1,459)
(404) $
(967)
(2,426)
Derivative gain (loss)
Derivative gain (loss) is comprised of:
Gain (loss) on warrants
(Loss) gain on revaluation of gold
forwards
Gain (loss) on convertible debt
embedded derivatives
Gain on senior secured gold
embedded derivatives
Gain on net smelter returns
royalty embedded derivatives
Loss on recognition of senior secured
gold facility
Note
(i) $
(ii)(a)
-
-
Nine months ended
September 30,
2014
2013
2,175 $
7,214
(146)
4,004
(ii)(b)
6
(222)
159
521
(ii)(c)
47
201
229
201
(ii)(d)
31
-
-
-
-
(12,119)
-
(12,119)
275 $
(14,496) $
13
$
(i)
Three months ended
September 30,
2014
2013
191 $
(2,356) $
2,417 $
(179)
The warrants denominated in Canadian dollars are revalued at each reporting period and the change in fair
value recorded in net income (Note 12).
(ii) Gain (loss) on derivatives is comprised of:
a.
Three gold forward contracts entered into in November 2010, January 2012, and March 2014 are
accounted for as derivatives.
The fair value of the November 2010 forward contract as at September 30, 2014 was $17.3 million
(December 31, 2013 - $17.3 million) with no resulting revaluation gains or losses being recognized
in the three and nine months ended September 30, 2014 (2013 – $nil and $4.2 million revaluation
gain, respectively) (Note 11).
The fair value of the January 2012 forward contract as at September 30, 2014 was $7.1 million
(December 31, 2013 - $6.8 million) with $nil and $342 thousand in interest expense and no resulting
revaluation gains or losses being recognized, respectively, in the three and nine months ended
September 30, 2014 (2013 – $127 thousand and $127 thousand interest expense and $nil and
$152 thousand revaluation loss, respectively). As at September 30, 2014, the Company and the
counterparty were in ongoing negotiations to extend the settlement date of this forward contract.
The March 2014 forward contract was settled upon delivery of 3,500 troy ounces of gold in April
2014, with $nil and $146 thousand resulting revaluation losses being recognized, respectively, in
the three and nine months ended September 30, 2014 (Note 11).
b.
The share conversion option within the convertible debts issued on June 15, 2012, July 19, 2012,
October 11, 2012, and April 12, 2013 (Note 14) represents an embedded derivative liability for
accounting purposes. These embedded derivatives are bifurcated from the convertible debenture
contracts and are recorded at fair value both at inception and at each reporting period based on
quoted market prices for the common stock of the Company, with changes in fair value being
recognized through other income or loss. On September 30, 2014 the fair value of the embedded
derivatives was $nil (December 31, 2013 - $164 thousand) with revaluation gains of $6 thousand
and $159 thousand being recognized, respectively, in the three and nine months ended September
30, 2014 (2013 - $223 thousand revaluation loss and $521 thousand revaluation gain, respectively).
c.
The variable nature of gold payments, represented by the minimum and maximum prices on future
gold deliveries (the “Collars”) relating to the Senior Secured Gold Facility, were determined to be
embedded derivatives (Note 13). The fair value of the Collars was $nil at September 30, 2014
(December 31, 2013 - $229 thousand) resulting in a gain of $47 thousand and $229 thousand being
recognized, respectively, in the three and nine months ended September 30, 2014 (2013 - $201
thousand gain for the three and nine months ended September 30, 2013) (Note 13).
d. The Buy-Back option within the Net Smelter Return Royalty represents an embedded derivative
liability for accounting purposes due to the variable nature of the gold price used to determine the
buy-back option premium. The fair value of the Buy-Back option was $nil at inception and $nil as at
September 30, 2014, resulting in a gain of $31 thousand and $nil being recognized, respectively, in
the three and nine months ended September 30, 2014 (Note 15).
7.
Inventories
Finished goods
Stockpiled ore
Work in progress
Materials and supplies
September 30,
2014
$
3,557
5,683
5,267
6,998
$
21,505
December 31,
2013
$
1,696
9,178
5,229
8,540
$
24,643
All of the Company’s inventories on hand are located at the Jerritt Canyon mine in Nevada, USA.
As at
September 30, 2014 there is a net realizable value provision recorded against materials and supplies inventory of
$0.7 million (December 31, 2013 - $0.7 million).
8.
Restricted funds
Chartis commutation account
Chartis money market account
Gold forward sale performance reserve
Water use license letter of credit
Cash pledged as security for letters of credit
Note
(a)
(a)
(c)
(b)
September 30,
2014
$
25,563
25,273
2,000
2,748
715
$
56,299
December 31,
2013
$
25,538
25,272
2,000
2,895
664
$
56,369
(a) The Company purchased from American Insurance Group (AIG), now known as Chartis, an environmental
risk transfer program (the “ERTP”). As part of the ERTP, $25.6 million is on deposit in an interest-bearing
account with AIG (the Commutation Account). The Commutation Account principal plus interest earned on
the principal is used to fund Jerritt Canyon mine’s ongoing reclamation and mine closure obligations (Note
16).
During 2010 the Company was required to provide further surety to the Nevada Division of Environmental
Protection (“NDEP”) and the US Forestry Service to fund the ongoing reclamation and mine closure
obligations. To meet this additional surety requirement, as at September 30th, 2014, the Company had on
deposit $23.6 million in money market accounts with Chartis. Subsequent to September 30, 2014, $22.9
million of the deposit was transferred to the NDEP.
During the year ended December 31, 2013, the Company made a payment of $1.7 million to fund obligations
with the ERTP and a payment of $1.7 million to fund additional surety bond requirements with the NDEP.
During the three and nine months ended September 30, 2014, the Company earned interest in the amount of
$nil from the commutation and money market accounts (2013 - $nil and $0.1 million).
(b) As required by The Yukon Territorial Government (“Yukon”), the Company has $2.7 million of funds on
deposit in an interest-bearing account with Toronto Dominion Bank reserved for future exploration work in
the Yukon related to the Ketza River project. On September 25, 2014, Yukon issued a demand letter to the
Toronto Dominion Bank for the deposit to be transferred to the Yukon account. This demand was issued
pursuant to the letter of credit issued under the Water Act.
On September 25, 2014, the Company received a letter from the Yukon Government Department of Energy,
Mines and Resources (“Yukon Government”) notifying the Company that it intended to begin undertaking the
contracting of maintenance work on access road bridges and seepage control and stabilization of surface
water diversion structures at the Ketza River Project property.
On September 29, 2014, the Yukon
Government withdrew the $2.7 million of restricted funds on deposit with Toronto Dominion Bank to fund this
maintenance work.
(c) As part of the Senior Secured Gold Facility agreement dated August 12, 2011, the Company was required to
deposit $10 million in an escrow account held in the Company’s name. These funds were to be made
available when defined production targets were met (Note 13). The Company met the defined production
targets and $8 million of the funds held in escrow were received in February, 2013, the final $2 million
originally to be released upon settlement of the final scheduled monthly gold delivery.
With the early
termination date of the facility on June 9, 2014 the use of the final $2 million will be dealt with in connection
with the Restructuring Plan.
9.
Mineral property, plant and equipment
Mineral property, plant and equipment comprise:
Cost
December 31, 2012
Additions
Disposals
Commenced Use (d)
Development stage
gold sales (c)(i)
Production
commencement, (c)
Foreign exchange
December 31, 2013
Additions
Disposals
Development stage
gold sales (c)(ii)
Foreign exchange
September 30, 2014
Mineral Properties
Nondepletable Depletable
Land and Plant and Construction
Buildings Equipment in Progress
$ 91,881
16,837
-
$ 52,214
-
(3,517)
(12,890)
(5,219)
87,092
3,640
-
$ 21,719
11,920
12,890
46,529
5,700
-
(117)
52,097
-
$116,547 $
4,285
(460)
34,357
-
Other
35,062 $
8,247
(34,357)
-
(93)
154,636
232
(47)
1,805
14
-
8,952
1,553
-
(31)
1,788
-
$319,228
41,303
(460)
(3,517)
(5,460)
351,094
11,125
(47)
(587)
(4,037)
$ 86,108 $ 52,229
(87)
(56)
$ 52,010 $154,765 $
$ 31,763 $ 2,008
7,859
31,708
(3,060)
60,411
9,867
7,758
(3,084)
57,327
17,625
$ 12,201 $ 28,375 $
646
13,031
(72)
1,564
23
(3)
(89)
14,408
41,268
1,322
11,194
(47)
(87)
(56)
15,643
52,359
December 31, 2012
$ 60,118
$ 19,711
$ 40,013
$ 88,172
$
35,062
$
526
$243,602
December 31, 2013
$ 26,681
$ 36,662
$ 37,689
$113,368
$
8,952
$
248
$223,600
September 30, 2014
$ 28,781
$ 34,604
$ 36,367
$102,406
$
10,505
$
140
$212,803
Accumulated
depreciation &
Impairment
December 31, 2012
Depreciation & depletion
Disposals
Impairment (b)
Foreign exchange
December 31, 2013
Disposals
Foreign exchange
September 30, 2014
10,505
Total
-
$
$
-
(587)
(4)
(4,184)
1,784 $357,401
1,279 $ 75,626
272
21,808
(72)
5
33,300
(16)
(3,168)
1,540
127,494
108
20,382
(47)
(4)
(3,231)
1,644
144,598
Carrying Value
Jerritt Canyon
(c)/(d)/(e)
Net book value
December 31, 2012
Additions
Disposals
Development stage
gold sales (c)(i)
Depletion/depreciation
Impairment (b)
Foreign exchange
December 31, 2013
$
$
Additions
Development stage
gold sales (c)(ii)
Depletion/depreciation
Foreign exchange
September 30, 2014
$
Ketza River
(a)
Other
Total
191,546 $
38,760
(388)
51,841 $
2,529
-
215 $
14
-
243,602
41,303
(388)
(3,517)
(21,593)
204,808 $
(120)
(33,300)
(2,277)
18,673 $
(95)
(15)
119 $
(3,517)
(21,808)
(33,300)
9,144
1,981
-
11,125
(587)
(20,361)
-
(953)
(21)
-
(587)
(20,382)
(953)
193,004 $
19,701
$
98
$
(2,292)
223,600
212,803
(a) Ketza River property, Yukon:
The Company has a 100% interest in the Ketza River property including 802 mining claims and leases, a mill
and all associated equipment.
(b) During the three and nine months ended September 30, 2014 and year ended December 31, 2013 the
Company assessed the carrying values of its mineral properties for indications of impairment. During the
three and nine months ended September 30, 2014 the Company did not record any impairment charge as
there were no indications of impairment. During the year ended December 31, 2013 the Company believed
that certain indicators such as the recent downturn in the resource industry, specifically in relation to
exploration and development phase mining projects and the volatility in the global economy, which had
negatively affected precious metals prices, have contributed to the decrease in the Company’s share price.
As a result, the Company determined that the carrying value of its Yukon exploration properties exceeded
the expected net present value of its future cash flows. The Company recorded an impairment charge of
$33.3 million as at December 31, 2013. For the purposes of the impairment assessment, the Company
projected a long term gold price per ounce of $1,300 and assessed the recoverable amount at fair value less
cost of disposal.
(c) Jerritt Canyon properties:
(i). Starvation Canyon, Nevada:
In June 2013 it was determined that the Starvation Canyon mine was producing at a level intended by
management, and as such became a production stage asset for accounting purposes. Various factors
were considered in making this determination including: 1. major mine infrastructure had been
completed; 2. designed and targeted production levels had been achieved; and 3. indicators were
observed that suggested operating results would continue at levels designed and targeted. Prior to this
determination the Starvation Canyon mine produced an estimated 3,003 ounces of gold, approximately
2,453 of which were recovered and sold. Prior to the attainment of commercial production, an estimated
$3.5 million was generated from the sale of these ounces, the proceeds from which were credited to the
carrying value of the Starvation Canyon mineral property asset.
(ii). Saval, Nevada:
The Saval mine is a development stage asset in accordance with the Company’s mineral properties
accounting policy. For the three and nine months ended September 30, 2014, the Saval mine produced
an estimated 526 ounces of gold, approximately 458 of which were recovered and sold. An estimated
$0.6 million was generated from the sale of these ounces for the three and nine months ended
September 30, 2014 (2013 - $nil), the proceeds from which were credited to the carrying value of the
Saval mineral property asset.
(d) In September 2013 various assets, the most significant being the second tailings facility and water storage
reservoir, were commissioned and put into use.
(e) The Senior Secured Gold Facility (Note 13) is guaranteed by the Company and involves the registration of
various charges to secure a direct and indirect interest in the Jerritt Canyon properties in Nevada.
10. Related party transactions
During the three and nine months ended September 30, 2014, the Company was charged a total of $0.1 million
and $0.4 million, respectively (2013 - $0.1 million and $0.3 million, respectively) in legal fees by a law firm in
which the corporate secretary of the Company is a partner. The amount owing at September 30, 2014 is $0.1
million (as at December 31, 2013 – $0.1 million).
In January 2012 the Company entered into a gold forward contract with a company related by common directors.
The fair value of this liability was $7.1 million as at September 30, 2014 (December 31, 2013 - $6.8 million). For
the three and nine months ended September 30, 2014, there were no revaluation gains or losses and interest
expense of $nil and $342 thousand was recognized, respectively (2013 – $nil and $0.2 million revaluation loss
and $0.1 million and $0.1 million interest expense, respectively) (Note 11).
During the three and nine months ended September 30, 2014, the Company charged a total of $0.1 million and
$0.4 million, respectively (2013 - $0.2 million and $0.5 million, respectively), for contractor and lease expenses to
a company with common directors and management. The amount receivable at September 30, 2014 is $1.0
million (December 31, 2013 - $0.7 million).
In July 2011 the Company entered into a royalty agreement with a company owned by a director of the
Company. The royalty agreement arose in connection with the use of proprietary mercury emissions technology,
owned by the related party, at Jerritt Canyon. During the three and nine months ended September 30, 2014, a
total of $0.1 million and $0.3 million, respectively, was charged to the Company under this agreement (2013 –
$nil and $0.3 million, respectively). The amount owing at September 30, 2014 is $0.4 million (December 31,
2013 – $0.2 million).
The amounts outstanding are unsecured and will be settled in cash. No expense has been recognized for bad
or doubtful debts in respect of the amounts owed by related parties.
a)
Compensation of key management personnel
The remuneration of directors and other members of key management personnel during the periods were as
follows:
Three months ended
September 30,
2014
2013
Salaries and short-term benefits
Directors fees
Special committee fees¹
Share-based payments
$
$
1
243
60
240
543
$
$
Nine months ended
September 30,
2014
2013
388
88
163
639
$
886
225
360
$ 1,471
$ 1,142
377
462
$ 1,981
Remuneration (including accrued) of the Directors and CEO for their services on the special committee, during the three
and nine months ended September 30, 2014, were as follows: (a) Directors: $120 thousand and $240 thousand,
respectively and (b) CEO: $120 thousand and $120 thousand, respectively.
The remuneration of directors and key executives is determined by the compensation committee and is
dependent upon the performance of individuals, the performance of the Company, and external market
trends.
11. Forward contracts
On January 12, 2012, the Company entered into a forward sales contract with a related party (Note 10) which
required delivery of 3,665 ounces of gold by June 12, 2012 or a cash payment of $6.0 million at the option of the
related party. In June 2012 the Company and the counterparty agreed that the gold delivery required to settle the
contract would be extended to August 30, 2012, resulting in an agreed upon late-settlement charge of 2.25% per
month on the outstanding balance being imposed on the Company. This resulted in an additional charge of $0.4
million, or an estimated 165 ounces being due on August 30, 2012. During the second quarter of 2013, the
Company and the counterparty agreed to extend settlement of the contract to June 30, 2013. Under the terms of
the extension, the counterparty received the option to receive an amount of $6.6 million, or alternatively the right
to receive 3,839 troy ounces of refined gold. No settlement was made on either June 30, 2013, or since. As part
of the ongoing extension and renegotiation discussions since June 30, 2013, the Company made a payment of
$0.5 million to the counterparty in September, 2013, this payment being almost entirely comprised of accrued
interest.
The fair value of the January 2012 forward contract as at September 30, 2014 was $7.1 million
(December 31, 2013 - $6.8 million) with $nil and $342 thousand in interest expense and no resulting revaluation
gains or losses being recognized in the three and nine months ended September 30, 2014 (2013 – $0.1 million
and $0.1 million interest expense and $nil and $0.2 million revaluation losses, respectively). As at September 30,
2014, the contract had not been settled and the Company and the counterparty were in ongoing negotiations to
extend the settlement date of this forward contract (Note 6(ii)(a)). The Company incurs certain contractor and
lease expenses which are charged to the related party and the ultimate settlement of those unpaid charges ($1.0
million as at September 30, 2014) will be deducted from the final settlement amounts.
On November 25, 2010, the Company entered into a gold sales contract which specifies that 6,255 troy ounces of
refined gold would be sold to the counterparty by May 30, 2011. In return, the Company received an upfront
payment of $7.0 million cash. No refined gold was delivered to the counterparty by May 30, 2011, and several
extensions of the delivery date have been accepted by the counterparty since that date. As at September 30,
2014, the contract had not been settled. Since May, 2011, the Company has been accruing a late payment
penalty of 2.25% per month until the last known maturity date, and has been considering a possible cash
payment in lieu of a delivery of physical gold. The Company does not acknowledge any liability to pay interest at
the accrued rate or to make any cash payment in lieu of physical gold. The forward contract has been assessed
to be a derivative liability and the value is adjusted to market price at each reporting date. The value of the
November 2010 forward contract as at September 30, 2014 was $17.3 million (December 31, 2013 - $17.3
million) with no resulting revaluation gains or losses being recognized in the three and nine months ended
September 30, 2014 (2013 – gain of $nil and $4.2 million, respectively) (Note 6(ii)(a)). As at September 30,
2014, the Company and the counterparty were in ongoing negotiations to determine the settlement amount and
the amount payable in the event that there is a final outcome of those negotiations could differ significantly from
the amount recorded.
On March 27, 2014, the Company entered into a gold sales contract which specifies that 3,500 troy ounces of
refined gold would be sold to the counterparty by April 30, 2014. The Company received 90% of the purchase
price, or $4.0 million cash, upfront with $0.4 million received upon final gold delivery in April 2014. The Company
settled the contract and delivered 3,500 troy ounces in April 2014 reducing the liability to $nil with $nil and $146
thousand resulting revaluation losses being recognized, respectively, in the three and nine months ended
September 30, 2014.
12. Warrants
(a) Equity Warrants
Equity warrants issued to brokers as compensation related to debt and equity financings are considered to
be share-based payments and are thus included as a component of equity (“Equity Warrants”) and are not
classified as derivative instruments.
(b) Derivative Liability Warrants
As the Company’s functional currency is the US dollar, and the issued and outstanding warrants have an
exercise price denominated in Canadian dollars, the warrants are therefore classified as derivative
instruments. The warrants have been recognized as a liability in the statement of financial position with the
movement in fair value recorded in net income (loss) at each reporting date.
As at September 30, 2014 the following warrants were outstanding:
Derivative liability warrants
Expiry date
February 8, 2015
May 23, 2015
June 15, 2015¹
July 19, 2015²
October 11, 2015²
December 18, 2016
April 12, 2018
July 5, 2018
August 16, 2016
August 16, 2016
September 18, 2016
December 2, 2016
Note
13
14(a)
14(a)
14(a)
14(b)
14(b)
18(c)(ii)
18(c)(ii)
18(c)(iii)
18(c)(iv)
In thousands
Exercise
price
December
(C$)
31, 2013
4.40
4.00
1.95
1.95
1.95
2.35
0.50³
0.50³
0.60
0.65
0.60
0.50
Derivative liability warrant total
Warrants
issued
Fair Value Fair Value
as at
as at
Warrants
exercised/ September December September
30, 2014
31, 2013
expired
30, 2014
4,000
3,908
2,010
1,333
670
3,600
3,400
500
4,675
3,197
7,500
7,502
-
-
42,295
-
-
4,000
3,908
2,010
1,333
670
3,600
3,400
500
4,675
3,197
7,500
7,502
42,295 $
8
15
32
23
15
148
329
53
516
336
869
978
3,322 $
3
8
8
6
56
201
31
181
118
300
352
1,264
Equity warrants
Expiry date
Dec 18, 2014
Dec 18, 2016
April 12, 2015
August 16, 2015
September 18, 2016
September 18, 2016
Equity warrant total
Warrant total
Note
14(b)
18(c)(ii)
18(c)(iii)
18(c)(iii)
Exercise
price
December
(C$)
31, 2013
2.10
2.35
1.85
0.60
0.60
0.65
Warrants
issued
Equity
Equity
Warrants
Value as at Value as at
exercised/ September December September
expired
30, 2014
30, 2014
31, 2013
432
152
100
708
188
675
-
-
432 $
152
100
708
188
675
171 $
81
58
137
40
140
171
81
58
137
40
140
2,255
44,550
-
-
2,255 $
44,550
627 $
627
1
Warrant holders exercised their option to amend the exercise price from $3.00 to $1.95 on January 14, 2013.
2
Warrant holders exercised their option to amend the exercise price from $3.00 to $1.95 on February 14, 2013.
3
On January 31, 2014 the Company entered into an extension agreement in which the exercise price was amended from
US$1.80 to CAD$0.50 (Note 14(b)).
The fair value of the liability warrants was $1.3 million as at September 30, 2014 (December 31, 2013 - $3.3
million) and all warrants were long-term in nature. During the three and nine months ended September 30, 2014,
a $0.2 million and $2.2 million gain, respectively was recognized in the consolidated statement of operations and
comprehensive loss as a result of changes in the fair value of the warrants (2013 - $2.4 million loss and $7.2
million gain, respectively), and $nil was recognized in share capital as a result of the fair value of warrants
exercised during the period (2013 - $nil).
The warrants were fair valued using an option pricing model with the following assumptions: no dividends are
paid, weighted average volatilities of the Company’s share price of 126%, weighted average expected lives of the
warrants of 1.8 years, and weighted average annual risk-free rates of 1.11%.
13. Senior secured gold facility
On August 12, 2011, the Company entered into a Forward Gold Purchase Agreement (the “First Agreement”)
with Deutsche Bank. Under the First Agreement the Company received a gross prepayment of $120 million (the
“Prepayment”), of which net cash proceeds of $73.5 million were received on August 12, 2011. The net cash
proceeds represent the $120 million Prepayment net of: (i) $10 million deposited into an escrow account in the
Company’s name to be made available upon the Company achieving defined production targets (Note 8(c)); (ii)
the $29.9 million settlement of the outstanding senior secured notes; and, (iii) $6.6 million in transaction and legal
costs. The February 2013 obligations under the Agreements were net cash settled contemporaneously with the
release of $8 million of previously restricted performance reserve funds (Note 8(c)). The First Agreement is
guaranteed by the Company and involves the registration of various charges against certain assets of the
Company in favour of Deutsche Bank.
On February 7, 2012, the Company entered into a second Forward Gold Purchase Agreement (the “Second
Agreement”) with Deutsche Bank. Under the Second Agreement the Company received a gross prepayment of
$20 million (the “Second Prepayment”), of which net cash proceeds of $18.9 million were received on February 8,
2012. The net cash proceeds represent the $20 million Second Prepayment net of $1.1 million in transaction and
legal costs. The Second Agreement is guaranteed by the Company and involves the registration of various
charges against certain assets of the Company in favour of Deutsche Bank.
Under the terms of the First and Second Agreements (together, the “Agreements”), the Company has sold to
Deutsche Bank, a Contract Quantity of Gold. As at September 30, 2014, the Company is obligated to make
settlements equivalent to gold deliveries of 4,980 ounces per month (the “Future Gold Deliveries”).
As of
September 30, 2014, the Company has made the following settlements and has the following obligations for
future deliveries:
September 30, 2014
Au oz's
Au oz's
Settled
Future Delivery
Senior Secured Gold
Facility
96,600
105,230
December 31, 2013
Au oz's
Au oz's
Settled
Future Delivery
96,600
105,230
Pursuant to the terms of the Agreements, in July and August of 2013 the Company elected to net-cash settle the
two $4.23 million obligations due for those two months. These cash payments represented the $850 per ounce
due on the monthly 4,980 ounce gold delivery scheduled for those months. The election to cash settle was
indicative that the Agreements were no longer held for the purpose of delivering gold in accordance with the
Company’s expected requirements. As such, the cash-settlement election (the “Triggering Event”) triggered the
need to reassess the deferred revenue accounting treatment originally adopted for the Agreements. Under the
original deferred revenue treatment the initial proceeds received by the Company from the Agreements, less the
$9.9 million attributable warrants issued along with the Second Agreement, were being recognized from deferred
revenue liabilities into revenue on a per-ounce basis, as the ounces were delivered.
The reassessment of the Agreements required by the Triggering Event resulted in the Company concluding that
as of July 1, 2013 the Agreements were financial liabilities. Further, the variable pricing used for the additional
gold payments, represented by the minimum and maximum prices on future gold deliveries, the Collars were
determined to be derivatives embedded within the Agreements, thus making the Agreements financial liabilities.
It was determined that for accounting purposes upon the Triggering Event, the embedded derivative Collars be
initially recognized at fair value and then subsequently measured at fair value through profit or loss.
The initial and subsequent fair value of the Collars is determined by reference to the aggregated value of certain
gold calls with pricing and settlement dates similar to (i) the Collars’ pricing; and (ii) the Agreements’ scheduled
future gold delivery obligation dates. The initial fair value of these embedded derivative liabilities was determined
to be $0.9 million. The fair value of this embedded derivative as of September 30, 2014 was $nil (December 31,
2013 - $229 thousand), resulting in a $47 thousand and $229 thousand gain, respectively, (2013 - $201 thousand
and $201 thousand, respectively) from derivatives being recognized in the three and nine months ended
September 30, 2014 (Note 6(ii)(c)).
The Senior Secured Gold Facility, which represents the debt-host contract of the Agreements, excluding the
separately valued and accounted for embedded derivative liabilities, is a financial liability that was also recorded
initially at fair value as of July, 2013; and, has been subsequently measured at amortized cost using the effective
interest method. The initial fair-value of this financial liability was $92.0 million, which was determined by using
an effective interest rate of 18% applied to the anticipated monthly cash-flows attributable to the scheduled
monthly gold delivery obligations of the Agreements. A $12.1 million loss was recognized in the three and nine
months ended September 30, 2013 as a result of recording the Senior Secured Gold Facility (Note 6) at fair value
as of July 1, 2013. Interest expense of $2.3 million and $8.1 million was recognized, respectively, for the three
and nine months ended September 30, 2014 (2013 - $4.6 million and $4.6 million, respectively) (Note 4).
As of September 30, 2014, the Senior Secured Gold Facility had the following carrying values:
September 30, 2014
Current
Long Term
Senior Secured Gold
Facility
$
85,421
$
December 31, 2013
Current
Long Term
-
$
77,309
$
-
The Company incurred $8.7 million of fees to parties involved in the Agreements, of which $1.7 million was
expensed as transaction costs and the balance of $7.0 million paid to Deutsche Bank was originally deferred
based on the direct relationship the fees have with the revenue expected to be recognized in future periods.
These previously deferred transaction costs were contemplated as part of the revaluation of the Senior Secured
Gold Facility and, as of the July 2013 revaluation date, are no longer separately presented and amortized.
On June 3, 2014, the Company received a notice of early termination date from Deutsche Bank for failure to
make the full scheduled delivery as of December 31, 2013 or any amount in cash corresponding to the gold
delivery shortfall. On June 9, 2014, the Company commenced Creditor Protection Proceedings (Note 1) in order
to seek protection to address near term liquidity issues and demands from payments under the existing Deutsche
Bank senior secured gold facility.
14. Convertible debt
(a) Convertible debentures
The Company issued unsecured convertible debentures on June 15, 2012 (the “June Debentures”), July 19,
2012 (the “July Debenture”), October 11, 2012 (the “October Debenture”), for gross proceeds of C$6.0 million,
C$4.0 million, and C$2.0 million, respectively (collectively, the "Debentures"). The June, July, and October
Debentures bear interest at a rate of 11% per annum and have December 15, 2015, January 19, 2016, and April
11, 2016 maturity dates (the "Maturity Date"), respectively.
At the option of the holder, the principal amount of the Debentures, and all interest accrued thereon, will be
convertible into common shares of the Company (the "Shares") at any time prior to the close of business on the
Maturity Date, based on a conversion price equal to the greater of: (a) $1.50; and, (b) the market price of the
Shares, as defined in the TSX Company Manual (the “Market Price”), discounted by 5% per Share (the
"Conversion Option").
Upon the Maturity Date, the Debentures and all interest accrued thereon may, at the Company's discretion, be
paid in cash, Shares (up to a maximum of 75%), or any combination of cash and Shares (up to a maximum of
75% Shares). The Company may only elect to convert all or any part of the Debentures outstanding in Shares if
the market price for the Shares is greater than $2.00 for at least five out of the ten trading days preceding the
date in which the Company delivers the Shares to the holder (such date not to be less than twenty days prior to
the Maturity Date). The holder will have the option to require early repayment in the event of default by the
Company.
For the June, July, and October Debentures, the Company also issued 201,011; 133,332; and, 66,956 common
shares, respectively of the Company (the "Structuring Shares"), and 2,010,125; 1,333,333; and, 669,568
common share purchase warrants (the "Warrants"), respectively, to the Debenture holders.
Each Warrant
entitles the holder to purchase one Share at an exercise price of $3.00 and will expire three years following the
Closing Date. On January 14, 2013 the holders of the June Debentures exercised their option to amend the
exercise price of the June Warrants from $3.00 to $1.95. On February 14, 2013 the holders of the July and
October Debentures exercised their option to amend the exercise price of the July and October Warrants from
$3.00 to $1.95.
Upon commencement of the Creditor Protection Proceedings (Note 1), the Company defaulted on the
Debentures in accordance with the bankruptcy provisions within the agreement. As a result, the long-term
portion of the convertible debenture balances has been reclassified to current liabilities as the principal and
interest on the Debentures are due immediately upon default.
(b) Convertible note
On April 12, 2013, the Company entered into a senior unsecured promissory note, which was amended on May
15, 2013 (the “Note”) with a principal sum of US$10.0 million. The Note bears an interest at a rate of 9% per
annum and matured on December 12, 2013.
In connection with the Note, the Company also issued to the lender 3,400,000 five-year common share purchase
warrants with an exercise price of US$1.80 per warrant. In connection with the Note transaction, the Company
also paid a finder’s fee equal to 4% of the aggregate gross proceeds to Casimir Capital Ltd. (“Casimir”), and also
issued Casimir 100,000 common share purchase warrants with an exercise price of C$1.85 and a term of two
years from the Closing Date.
The Note provides that from and after the maturity date or at the election of the Lender in an Event of Default (as
defined in the Note), the principal may be converted, in minimum increments of $500,000 and no more than 20%
of the original principal of the amended Note in any one 30-day period, into common shares of the Company
based on a conversion price equal to the greater of: (a) US$0.50, provided that if the US$0.50 floor price would
cause the Lender’s ownership interest in the Company to be greater than 19.9% of the Company’s issued and
outstanding common shares, the floor price shall be the price that would cause the Lender’s ownership interest
in the Company to be equal to 19.9% of the Company issued and outstanding common shares; and (b) the
Market Price (as defined in the TSX Company Manual) of the Company’s common shares discounted by 10%
per share. The ability of the Lender to exercise its option to convert the principal into common shares remains
subject to TSX approval at the time of the conversion. In addition, pursuant to the terms of the Note, on July 5,
2013, the Company issued the Lender an additional 500,000 common share purchase warrants with an exercise
price of US$1.80 and an expiry date of July 5, 2018.
As a result of the conversion option features in the Debentures and the Note, both convertible debt instruments
are recorded as compound financial liabilities. For accounting purposes the conversion options are embedded
derivative liabilities which are initially bifurcated from the debt host contracts (the Debentures and the Note), are
measured separately at fair value, and subsequently re-measured at fair value through other (expense) income
(Note 6) at each reporting date.
The debt component of the Debentures and the Note are measured at
amortized cost, and is accreted over the expected term to maturity using the effective interest method.
As of September 30, 2014 the US $10 million principal had not been paid and remained outstanding. In January
2014 the Company entered into an agreement with the Lender to extend the maturity date of the Note to January
12, 2014, and to amend the exercise price of the related warrants from US$1.80 to CAD$0.50. The amendment
to the exercise price of the warrants became effective as of February 14, 2014. The principal amount was not
settled on the extended January 12, 2014 maturity date, this resulted in the Company incurring interest on the
outstanding balance at a rate of 21% per annum, payable monthly.
The table below provides a summary of the allocation on the initial recognition of the issued convertible debt:
Initial value
Components
Embedded
Equity
Derivative
Debt
CAD
June 15, 2012
July 20, 2012
October 11, 2012
April 12, 2013
$
USD
June 15, 2012
July 20, 2012
October 11, 2012
April 12, 2013
$
1,947
846
569
7,344
10,706
1,901
840
578
7,247
10,566
$
$
152
141
71
459
823
148
140
69
453
810
$
$
Warrant Liability
Note 12
584
453
213
1,250
570
450
214
1,234
$
$
3,317
2,560
1,147
2,331
9,355
3,238
2,539
1,169
2,300
9,246
Total
$
$
6,000
4,000
2,000
10,134
22,134
5,857
3,969
2,030
10,000
21,856
The Debentures had a total of $1.3 million of transactions costs incurred with the issuance which were allocated
to the components noted above on a pro-rata basis. The Debentures had a $0.6 million portion attributed to the
debt components which have been deferred and will be amortized over the term of the Debentures; $0.1 million
portion attributed to the Structuring shares which was recorded in equity net of the allocated proceeds; and the
remainder was included in expensed transaction costs (Note 5).
As at September 30, 2014 the carrying value of the embedded derivative and debt components of the convertible
debt instruments was as follows:
Carrying value
June 15, 2012
July 20, 2012
October 11, 2012
April 12, 2013
Current portion
Embedded Derivative
September 30,
December 31,
2014
2013
$
$
148
9
5
1
163
$
$
163
Debt
September 30,
December 31,
2014
2013
$
3,708 $
2,830
2,583
1,763
1,271
928
11,606
10,000
19,168
15,521
(19,168)
(10,000)
$
$
5,521
15. Net smelter returns royalty facility
On April 9, 2014, the Company closed financing in the form of the sale of a 0.5% Net Smelter Returns Royalty for
proceeds of $7.5 million. Proceeds were delivered to Veris at the date of closing, April 10, 2014. The royalty
relates to the production of gold and silver from the Company’s Jerritt Canyon mines and processing plant,
operated by Veris Gold USA Inc.. The royalty is applied, at a fixed rate of 0.5%, against proceeds from gold and
silver products after deducting treatment, refining, transportation, insurance, and taxes and levies charges.
The Company retains the right to buy-back the royalty until June 30, 2015 for the purchase price plus a premium
based on the price of gold or alternatively if the Company enters into another royalty with an arms-length third
party the buyback is calculated based on the sale price of the new royalty.
The variable pricing used in
calculating the buy-back premium was determined to be an embedded derivative, and is initially bifurcated from
the debt host contract (the “Net Smelter Return Royalty Facility” or “NSR”), measured separately at fair value,
and subsequently re-measured at fair value through other (expense) income (Note 6). The fair value of this
embedded derivative as of September 30, 2014 was $nil, resulting in a $31 thousand and $nil mark-to-market
gain being recognized for the three and nine months ended September 30, 2014, respectively (Note 6 (ii)(d)).
The NSR, which represents the debt component of the financing agreement, is a financial liability that was also
recorded initially at fair value as of April 2014. The NSR has been subsequently measured at amortized cost
using the effective interest rate method.
The fair value at inception was equal to $7.5 million, which was
determined by using an effective interest rate of 9.14% applied to the anticipated monthly cash-flows attributable
to the NSR royalty payments of the agreement. Interest expense of $0.1 million and $0.3 million was recognized
for the three and nine months ended September, 30, 2014 (Note 4). As at September 30, 2014, the amortized
cost of the NSR was $7.8 million, of which $1.2 million was short-term in nature and included in current liabilities.
16. Decommissioning and rehabilitation provisions
Changes in reclamation obligations:
Balance, beginning of period
Accretion expense
Foreign exchange
Reclamation spending
Revisions in estimates of liabilities and additional obligations
September 30,
2014
$ 54,970
1,319
(180)
$ 56,109
December 31,
2013
$ 54,629
1,707
(238)
(1,128)
$ 54,970
As at September 30, 2014 and December 31, 2013, all of the decommissioning and rehabilitation provisions were
long-term in nature.
The Company’s decommissioning and rehabilitation provisions consist of reclamation and closure costs for both
active mines and exploration activities. The present value of obligations relating to active mines is currently
estimated at $52.7 million (2013 - $51.5 million) reflecting payments for approximately the next 24 years. The
present value of obligations relating to exploration activity are currently estimated at $3.4 million (2013 - $3.5
million) reflecting payments for approximately the next 10 years. Significant reclamation and closure activities
include land and water rehabilitation, demolition of buildings and mine facilities, ongoing care and maintenance,
and other costs.
The undiscounted value of this liability is $74.0 million (2013 - $74.2 million). Inflation rate assumptions of 1.7%
and discount rates of 2.5% – 3.6% have been used to determine the present value of the obligation. The 2013
revision in estimates of liabilities and reduction in obligations is primarily due to the recognition of additional future
reclamation obligations offset by increased discount rates (2012 increased due to recognition of additional future
reclamation obligations). The majority of future estimated decommissioning and rehabilitation work has been
funded through cash deposits held at various financial and government institutions (Note 8).
17. Finance lease obligations
The Company has finance lease obligations at the Queenstake Resources U.S.A., Inc. subsidiary for equipment
used for the Jerritt Canyon operations. The net carrying amount of the leased equipment included in mobile plant
and equipment was $7.8 million at September 30, 2014 (December 31, 2013 - $8.7 million) (Note 9).
Maturity analysis of finance leases:
Current
Non-current
Reconciliation of minimum lease payments
Less than a year
2 years
3 years
Less: future finance charges
Present value of minimum lease payments
September 30,
2014
$
2,396
649
$
3,045
December 31,
2013
$
3,174
2,414
$
5,588
September 30,
2014
$
2,553
553
3,106
(61)
$
3,045
December 31,
2013
$
3,660
1,945
340
5,945
(357)
$
5,588
18. Share capital and share based payments
(a) Authorized share capital consists of an unlimited number of common shares
(b) On October 9, 2012, the Company completed a ten for one consolidation (the “Consolidation”) of the
Company's common shares. On October 9, 2012, the 996,901,669 common shares issued and outstanding
were consolidated to approximately 99,689,930 common shares. The Company's outstanding stock options
and listed warrants were adjusted on the same basis with proportionate adjustments being made to the stock
option exercise prices and warrant exercise prices respectively. All comparative period information has been
adjusted to reflect this Consolidation.
(c) Common shares issued and outstanding
(i)
On April 12, 2013, the Company issued 100,000 broker compensation warrants concurrently with the
issuance of convertible note (Note 14). The broker compensation warrants had a fair value of $0.1
million at issuance which was recorded in equity (Note 12).
(ii) On August 16, 2013, the Company closed a public offering of 9,349,362 Units at a price of C$0.52 per
Unit and 6,393,310 Flow-Through Units at a price of C$0.55 per Unit for gross proceeds of $8.1 million.
Each Unit and Flow-Through Unit is comprised of one common share of the Company and one half of
one common share purchase warrant. Each Unit Warrant has an exercise price of C$0.60 and entitles
the holder thereof to acquire one common share of the Company until August 16, 2016. Each whole
Flow-Through Unit warrant has an exercise price of C$0.65 and entitles the holder thereof to acquire
one common share of the Company until August 16, 2016. Of the gross proceeds $6.1 million was
attributed to common shares and recorded in equity, $0.2 million was attributed to the flow-through
share premium and recorded in deferred tax liabilities, and $1.8 million was attributed to the warrants
and recorded in warrant liability.
The Company paid agents fees equivalent to 7% ($0.9 million) of the public offering. The agents’ fees
were satisfied with $0.6 million in cash, and 314,853 common shares of the Company. The shares had
a value of $0.2 million. 78% of the agents fees were recorded in equity and 22% were recorded in
transaction costs and finance fees (Note 5).
The Company also issued agents 708,420 broker compensation warrants with a fair value of $0.1
million. 78% of the broker compensation warrants were recorded in equity and 22% were recorded in
Each broker compensation warrant consisted of one
common share purchase option exercisable to purchase one additional common share in the Company
at a price of C$0.60 per share until August 16, 2015.
(iii) On September 18, 2013, the Company closed a private placement for gross proceeds of $7.6 million,
from the issuance of an aggregate of 15,000,000 units at price of C$0.52 per unit. Each unit consisted
of one common share and one half of one share purchase warrant exercisable to purchase one
additional common share at a price of C$0.60 per share until September 18, 2016.
Of the gross
proceeds, $6.0 million was attributed to common shares and recorded in equity, and $1.6 million was
attributed to the warrants and recorded in warrant liability.
The Company paid agents fees equivalent to 5% ($0.4 million) of the private placement. The agents
fees were satisfied with $0.2 million in cash, and 375,000 units under the same terms as the private
placement. 79% of the agents fees were recorded in equity and 21% were recorded in transaction costs
and finance fees (Note 5).
The Company also issued agents 675,000 broker compensation warrants with a fair value of $0.1
million. 79% of the broker compensation warrants were recorded in equity and 21% were recorded in
Each broker compensation warrant consisted of one
common share purchase option exercisable to purchase one additional common share in the Company
at a price of C$0.65 per share until September 18, 2016.
(iv) On December 2, 2013, the Company closed a public offering of 8,488,780 Units at a price of C$0.405
per Unit and 6,515,628 Flow-Through Units at a price of C$0.43 per Unit for gross proceeds of $5.9
million. Each Unit and Flow-Through Unit is comprised of one common share of the Company and one
half of one common share purchase warrant. Each whole Unit and whole Flow-Through Unit Warrant
has an exercise price of C$0.50 and entitles the holder thereof to acquire one common share of the
Company until December 2, 2016. Of the gross proceeds $4.6 million was attributed to common shares
and recorded in equity, $0.2 million was attributed to the flow-through share premium and recorded in
deferred tax liabilities, and $1.1 million was attributed to the warrants and recorded in warrant liability.
The Company paid agents fees equivalent to 6% ($0.5 million) of the public offering. The agents fees
were satisfied with $0.4 million in cash, and 300,088 common shares of the Company. The shares had
a value of $0.1 million. 81% of the agents fees were recorded in equity and 19% were recorded in
(d) Stock options
The Company has a stock option plan (the “Plan”) in place under which the Board of Directors may grant
options to acquire common shares of the Company to directors, employees and service providers. Under
the terms of the Plan, the number of securities issuable to insiders cannot exceed 10% of the issued and
outstanding securities. The options vest over a variable period of time up to three years dependent upon the
individual’s role and any specified performance criteria. The company is currently restricted from issuing
new stock options pending the completion of regulatory compliance matters pertaining to the Company’s
most recently approved Stock Option Plan.
The total fair value of the stock based compensation recognized during the three and nine months ended
September 30, 2014 was $nil and $nil, respectively (2013 - $0.2 million and $0.6 million, respectively). The
fair value of stock options granted during the three and nine months ended September 30, 2014 was
calculated using the Black-Scholes option pricing model with the following weighted average assumptions:
Weighted average fair value at grant date ($)
Expected dividend yield (%)
Average risk-free interest rate (%)
Expected life (years)
Expected volatility (%)
Forfeiture rate (%)
$
Three months ended
September 30,
2014
2013
$
-
-
$
Nine months ended
September 30,
2014
2013
$
1.22
0%
1.2%
5.0
128%
0%
Continuity of stock options outstanding is as follows:
At December 31, 2012
Granted
Expired
Forfeited
Granted
Exercised
Expired
Forfeited
Options
outstanding (000's)
6,246
515
(1,043)
(198)
5,520
(2,551)
(5)
2,964
Weighted average
exercise price
(C$/option)
$
2.97
1.44
3.42
1.84
$
2.78
2.13
3.00
3.34
The following information pertains to the options outstanding at September 30, 2014:
Options Outstanding
Exercise Price (C$)
1.42 - 2.50
2.51 - 3.50
3.51 - 4.50
4.51 - 7.40
Options
outstanding
(000's)
100
2,403
161
300
2,964
Vested
Weighted
Weighted
average
average
remaining
exercise price contractual
(C$/option)
life (years)
$
2.20
2.62
3.09
1.01
4.50
1.95
5.12
1.64
$
3.34
1.18
Options
outstanding
(000's)
100
2,403
161
300
2,964
Weighted
Weighted
average
average
remaining
exercise price contractual
(C$/option)
life (years)
$
2.20
2.62
3.09
1.01
4.50
1.95
5.12
1.64
$
3.34
1.18
19. Supplemental cash flow information
Amended
(Note 24)
Three months ended
September 30,
2014
2013
Change in operating working capital
Accounts receivable and other
Inventories
$
$
(2,670) $
3,740
(684)
386 $
Amended
(Note 24)
Nine months ended
September 30,
2014
2013
(4,012) $
(5,287)
7,564
(1,735) $
Three months ended
September 30,
2014
2013
Operating activities include the
following cash paid:
Interest paid
Income taxes paid
$
$
113
113
$
$
2,685
113
2,798
(1,216) $
3,137
3,470
5,391 $
(717)
(4,238)
15,918
10,963
Nine months ended
September 30,
2014
2013
$
$
75
394
469
$
$
2,685
233
2,918
20. Segmented information
All of the Company’s operations, involve the acquisition, exploration and production of gold (within the mining
sector), in North America. As of September 30, 2014, the Company had one producing gold property located in
Nevada, USA and exploration properties in Canada (Yukon) and the USA. For the three and nine months ended
September 30, 2014 and 2013, the Company’s gold production was sold through more than one broker.
The Company’s operating segments reflect the Company’s geographical operations and are reported in a manner
consistent with the internal reporting provided to the chief operating decision maker, the Chief Operating Officer.
September 30, 2014
Current assets
Non current assets
Total assets
Current liabilities
Non current liabilities
Total liabilities
December 31, 2013
Current assets
Non current assets
Total assets
Current liabilities
Non current liabilities
Total liabilities
Nine months ended September 30, 2014
Mining sales
Toll milling sales
Cost of sales (excluding depreciation & depletion)
Income tax expense (recovery)
Net income (loss)
Capital expenditures
Mining sales
Toll milling sales
Net income (loss)
Mining sales
Toll milling sales
Net income (loss)
$
$
$
$
Canada
2,490
23,249
25,739
26,627
5,400
32,027
Canada
1,594
22,340
23,934
16,205
13,126
29,331
$
$
$
$
Canada
$
$
$
21
(2,060)
1,981 $
Canada
$
$
71
1,090
2,187
2,032
$
$
Canada
$
$
-
$
4
(1,869)
1,047 $
USA
30,312
246,505
276,817
193,125
59,966
253,091
USA
30,617
258,281
288,898
183,130
53,886
237,016
$
$
$
$
Consolidated
32,802
269,754
302,556
219,752
65,366
285,118
Consolidated
32,211
280,621
312,832
199,335
67,012
266,347
USA
Consolidated
145,411 $
145,411
826
826
133,213
133,213
20,362
20,383
371
371
(26,380)
(28,440)
9,144 $
11,125
USA
Consolidated
147,288 $
147,288
5,015
5,015
136,180
136,180
14,520
14,591
1,090
(21,043)
(18,856)
32,382 $
34,414
USA
Consolidated
57,252 $
57,252
48,491
48,491
7,787
7,791
(4,660)
(6,529)
3,868 $
4,915
Mining sales
Toll milling sales
Net income (loss)
Canada
$
$
$
25
(8)
(4,343)
668 $
USA
Consolidated
56,993 $
56,993
3,304
3,304
49,095
49,095
5,477
5,502
(8)
(13,827)
(18,170)
10,782 $
11,450
21. Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, receivables, restricted funds,
accounts payable and accrued liabilities, borrowings, and derivative liabilities.
The Company’s derivative
liabilities include forward contracts, the embedded gold derivative component of borrowings, and warrants.
a)
Financial assets and liabilities classified as Fair Value Through Profit or Loss (FVTPL)
The Company’s financial assets and liabilities classified as FVTPL are carried at fair value with changes in
fair value recorded in income. Interest income and expense are both recorded in income.
The Company’s derivative financial assets and liabilities classified as FVTPL are as follows:
September 30,
2014
Notes
Current derivative liabilities
Derivatives embedded in convertible debt
Derivatives embedded in senior secured gold facility
Derivatives embedded in net smelter return royalty
Forward contracts
14
13
15
11
Non-current derivative liabilities
Warrants
12
$
$
b)
24,428
24,428
1,264
1,264
December 31,
2013
$
$
164
229
24,086
24,479
3,322
3,322
Other categories of financial instruments
Accounts receivables are classified as loans and receivables. Accounts payable and accrued liabilities, as
well as the debt component of borrowings are classified as other liabilities and are measured at amortized
cost, using the effective interest method. The fair values of accounts receivables, accounts payable and
accrued liabilities approximate the carrying value because of the short term nature of these instruments.
The fair value of borrowings was determined using discounted cash flows at prevailing market rates and the
fair value is approximately equal to the carrying value of the debt.
c)
Fair value measurements of financial assets and liabilities
The categories of fair value hierarchy that reflect the significance of inputs used in making fair value
measurements are as follows:

Level 1 – quoted prices in active markets for identical assets or liabilities;

Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or

liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
Level 3 – inputs for the asset or liability that are not based on observable market data.
There have been no transfers between fair value levels during the reporting period.
An assessment of the Company’s financial instruments carried at fair value is set out below:
September 30, 2014
Level 1
Level 2
Financial Assets
Restricted funds
$
Financial Liabilities
Derivatives embedded in
convertible debt
Derivatives embedded in net
smelter returns royalty
Derivatives embedded in senior
gold facility
Warrants
Forward contracts
$
3,740
56,299
60,039
$
December 31, 2013
Level 1
Level 2
-
$
1,161
56,369
57,530
$
-
-
-
-
164
-
-
-
-
-
1,264
24,428
-
229
3,322
24,086
-
$
25,692
$
-
$
27,801
The fair value measurement methodologies used for the level 2 inputs were as follows:
The fair value of the derivative liability forward contracts (Note 11) are calculated using quoted forward gold
curve prices applied to the amount of ounces the Company is obligated to deliver under the terms of the
forward contract liability;
The fair value of derivative liability warrants (Note 12) is calculated using an option pricing model with the
following assumptions: no dividends are paid, weighted average volatilities of the Company’s share price of
126%, weighted average expected lives of the warrants of 1.8 years, and weighted average annual risk-free
rates of 1.11%;
The fair value of the embedded derivative liabilities represented by the equity conversion options included in
the convertible debt instruments (Note 14) is determined through forecasted conversion option values
determined through Monte Carlo simulation analysis;
The fair value of the embedded derivative liabilities arising from the Collars included in the Deutsche Bank
Agreements (Note 13) is determined by reference to the aggregated value of certain gold calls with pricing
and settlement dates similar to (i) the Collars’ pricing; and (ii) the Agreements’ scheduled future gold delivery
obligation dates; and,
The fair value of the embedded derivative liability arising from the Net Smelter Return Royalty buy-back
option (Note 15) is determined by reference to market gold prices applied against the initial proceeds
received.
At September 30, 2014 there were no financial assets or financial liabilities recognized at fair value on a nonrecurring basis.
d)
Financial Risk Management
The Company is exposed to the certain risks through its use of financial instruments, including market risk
(currency risk, interest rate risk and commodity price risk), credit risk, and liquidity risk.
The Company manages its exposure to risk through the identification and analysis of risks faced by the
Company, setting appropriate risk limits and controls, and monitoring those risks and adherence to the limits
and controls that are established.
Risk management is carried out by senior management under the
approval of the Board of Directors.
Risk management practices are reviewed regularly by senior
management and the Audit Committee to reflect changes in market conditions and the Company’s activities.
Market risk
Market risk is the risk that changes in market factors, such as foreign exchange rates, interest rates or
commodity prices which will affect the fair values or future cash flows of the Company.
(i) Currency risk
Results are reported in US dollars. The majority of the Company’s operating and capital expenditures are
denominated and settled in US dollars. The largest single exposure the Company has is to the Canadian
dollar through cash holdings and corporate administration costs. Consequently, fluctuations in the US
dollar exchange rate against the Canadian dollar increases the volatility of corporate administration costs
and overall net earnings, when translated into US dollars.
The Company manages this risk by
maintaining funds in Canadian dollars to support the cash requirements of those operations.
The
Company does not use any foreign exchange contracts to hedge these currency risks.
The Company is exposed to currency risk through the following financial assets and liabilities
denominated in Canadian dollars:
In thousands of CAD
Accounts receivable
Restricted funds
September 30,
2014
$
76
1,774
3,880
(8,359)
December 31,
2013
$
1,144
3,786
(6,428)
Based on the above net exposures as at September 30, 2014, a 10% appreciation or depreciation in the
Canadian dollar against the US dollar, assuming all other variables remain constant, would result in $240
thousand (2013 - $146 thousand) increase or decrease, respectively, in operating results and
shareholders’ equity.
(ii) Interest rate risk
Interest rate risk is the risk that the fair values and future cash flows of the Company will fluctuate
because of changes in market interest rates. The Company is exposed to interest rate risk on its cash
and cash equivalents. The Company’s cash and cash equivalents contain highly liquid investments that
earn interest at market rates. Fluctuations in market interest rates do not have a significant impact on the
Company’s results from operations due to the short term to maturity of the investments held.
The Company is not exposed to interest rate risk on any borrowings because they are all held at fixed
interest rates.
(iii) Commodity price risk
The Company sells its gold production in the world market. The market prices of gold are the primary
drivers of the Company’s profitability and ability to generate free cash flow.
All of the future gold
production is unhedged in order to provide shareholders with full exposure to changes in the market gold
price.
The Company is also exposed to fluctuations in the market prices of gold through the Company’s
derivative and non-derivative forward gold contracts as increases in the market prices of gold will
increase the value of gold used for settlement of these contracts.
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial
instrument fails to meet its contractual obligations. Credit risk arises from cash and cash equivalents,
restricted funds, and trade and other receivables. For cash and cash equivalents, restricted funds, and
trade and accounts receivable, credit risk exposure equals the carrying amount on the statement of
financial position.
(i) Cash and cash equivalents
The Company manages its credit risk on cash and cash equivalent balances by maintaining balances
with Tier 1 Canadian banks with a Standard & Poor’s rating of AA.
(ii) Restricted funds
The Company has funds of $50.8 million included in restricted funds (Note 8) with a third party insurer
with a Standard & Poor’s rating of A+ to fund future reclamation costs at Jerritt Canyon. The Company
maintains title to these funds should the third party be in default of its obligations or enters into
bankruptcy protection.
Also included in restricted funds is $2.0 million in an escrow account held in the Company’s name at a
European bank with a Standard & Poor’s rating of A (Note 8). These funds relate to the senior secured
gold facility (Note 13), and will be made available to the Company when defined production targets are
achieved.
The Company has $2.7 million in restricted funds at September 30, 2014, which relate to a water use
license letter of credit and cash pledged as security for letters of credit (Note 8), are held as short term
deposits with a Tier 1 Canadian bank with a Standard & Poor’s rating of AA-.
Liquidity risk
Liquidity risk is the risk of loss from not having sufficient funds to meet financial obligations as they fall
due. The Company manages liquidity risk through forecasting its cash flows from operations and
anticipating investing and financing activities. Senior management is actively involved in the review and
approval of planned expenditures and typically ensures that it has sufficient cash on demand to meet
expected operating expenses.
The following are the contractual maturities of the undiscounted cash flows of derivative and non-derivative
liabilities:
Less than 3
months
accrued liabilities
Convertible debt
Forward contracts
accrued liabilities
Convertible debt
Forward contracts
e)
$
$
4 to 12
months
1 to 2 years
87,174 $
823
19,168
24,428
85,421
217,014
$
1,730
1,730
84,373
1,043
10,000
24,086
89,446
208,948 $
2,617
2,617 $
Greater than
2 years
553
553
1,945
6,511
8,456 $
$
Total
- $
-
87,174
3,106
19,168
24,428
85,421
219,297
340
7,813
8,153
84,373
5,945
24,324
24,086
89,446
228,174
Managing Capital
The Company manages capital so as to support the capital required for the ongoing operations, and for
development of the Company’s mineral properties. The capital of the Company consists of shareholders’
equity; debt and convertible debt instruments; and, cash.
The capital structure of the Company is evaluated by management on an ongoing basis and is adjusted as
changes occur in both the economic conditions of the industry in which the Company operates, and the
capital markets available to the Company. A component of managing capital includes planning, budgeting
and forecasting processes to determine the Company’s capital requirements. As part of the management of
capital, subsequent to December 31, 2013, the Company appointed a Restructuring Special Committee (the
"Special Committee") to investigate strategic refinancing alternatives, and to plan the financial restructuring
of the Company. The Special Committee, which is comprised of two independent Directors and one nonindependent Director, has engaged, Raymond James Inc. as its sole investment banking advisor to assist
with identifying and evaluating refinancing alternatives.
22. Earnings per share
As a result of the net loss incurred during the three and nine months ended September 30, 2014, the effect of the
convertible debt and convertible note (Note 14), 44,550,000 warrants (2013 – 37,047,502 warrants) (Note 12), and
2,964,000 options (2013 – 5,975,551 options) (Note 18) outstanding was anti-dilutive, and therefore excluded from the
computation of diluted net loss per share.
23. Commitments and contingencies
The complex nature of the Company’s operations, as well as the regulatory environment in which it operates can
result in occasional claims; investigatory matters; and, legal and tax proceedings that arise from time to time. Each of
these matters is subject to various uncertainties and may ultimately be resolved with terms unfavorable to the
Company. This being the case, certain conditions may exist as of the date the financial statements are issued, which
could result in a loss to the Company. In the opinion of management none of these matters are expected to have a
material effect on the results of operations, or the financial condition, of the Company. In the event of a change in
management’s estimate of the future resolution of such matters, the Company will recognize the effects of the change
in its consolidated financial statements at that time.
a)
On April 22, 2009, the Company received a notice of complaint from the U.S. Department of Justice (“DOJ”)
representing the Environmental Protection Agency (“EPA”), alleging the Company had violated specific
provisions of the Resource Conservation and Recovery Act relating to the generation, storage, handling, and
disposal of hazardous wastes at the Jerritt Canyon facility. The Company responded to the allegations and
had numerous discussions with the EPA on the matter in order to determine the nature of the violations. In
December of 2013 the Company negotiated a tentative settlement with the DOJ and the EPA which involves
entering into a Consent Decree (“CD”) outlining the ongoing reporting requirements of the Company and,
once this CD is ultimately and duly entered by a court of competent jurisdiction, a settlement payment of $1.1
million will be due within 60 days thereof. No admission of fault has been made with respect to these
matters. Based on numerous factors, including economic considerations such as the ultimate cost and time
required to prepare a defense of this matter, the Company made the decision that it would be better served
with a settlement arrangement in this manner. A provision of $1.1 million relating to these matters has been
made as of September 30, 2014.
b) On September 30, 2013, the EPA filed an administrative complaint in EPA Region IX against the Company
alleging violations of the Emergency Planning and Community Right-to-Know Act for the alleged failure to
properly file Toxic Release Inventory Form Rs. The Company responded to the EPA and had been engaged
in ongoing discussions with the EPA in order to determine the nature of the alleged violations. In October
2014, the Company negotiated a settlement with the EPA in the form of a Consent Agreement and Final
Order (“CAFO”). Once the final order in the CAFO is filed, a settlement payment of $0.2 million will be
included as an allowed general unsecured claim in any plan of reorganization submitted in the CCAA
proceedings. No admission of fault has been made with respect to these matters. Based on numerous
factors, including economic considerations such as the ultimate cost and time required to prepare a defense
of this matter, the Company made the decision that it would be better served with a settlement arrangement
in this manner. A provision of $0.2 million relating to these matters has been made as of September 30,
2014.
c)
During the fourth quarter of 2013 the Company and the NDEP negotiated and executed a second modified
consent decree (the “Second Modified CD”), modifications were made to remove all the completed items
included in the previous consent decree; and, to refine the timelines for the remaining restoration projects,
primarily the engineering, design and implementation of facilities for the treatment of water seepage from the
resurfaced RDA sites. In conjunction with these revised timelines for the water treatment plans, the Second
Modified CD includes an agreement by the Company to secure $10 million of bonding before May 30, 2014
to provide surety for the potential solutions that will be put in place. By securing this bonding the Company
can avoid all outstanding penalties and interest amounts potentially due to the NDEP, which could total as
much as $10.5 million. Subsequent to year end, the Company was unable to fund the bonding necessary
and the NDEP has assessed the Company with $10.6 million for penalties, pursuant to the Second Modified
CD.
d)
The Company is required to incur $2.7 million on exploration in Canada before January 1, 2015 in order to
be able to satisfy its obligations to renounce the related tax benefit as required by flow-through share
financings closed in the three months ended March 31, 2014. The Company would record a provision after
January 1, 2015, of $1.6 million, to satisfy flow-through share obligations in the event that the Company did
not incur and renounce further exploration expenditures in Canada after March 31, 2014.
e)
Lease Commitments
The Company is committed under various operating leases to the following annual minimum payments:
2014
2015
September 30, December 31,
2014
2013
$
72 $
316
193
210
$
265 $
526
24. Reclassification of prior period
Subsequent to the November 13, 2013 filing of the Company’s Condensed Consolidated Interim Financial Statements
for the three and nine months ended September 30, 2013, the Company discovered a misclassification in the mineral
properties and property, plant and equipment held in accounts payable which resulted in no change to overall cash
flow but understated mineral property cash expenditures offset by an overstatement of property, plant and equipment
cash expenditures and operating cash expenditures for the three months ended September 30, 2013. For the nine
months ended September 30, 2013, the misclassification resulted in understated mineral property and property, plant
and equipment cash expenditures offset by overstatement of operating cash expenditures for the three and nine
months ended September 30, 2013. The correction of this misclassification resulted in the following changes to the
consolidated statement of operations for the three and nine months ended September 30, 2013:
(in thousands of US dollars, except for per share amounts)
As initially
reported
$
(4,503)
Amendment
$
(5,591)
(3,013)
As Amended
2,768 $
(1,735)
1,607
(4,375)
(3,984)
(7,388)
(in thousands of US dollars, except for per share amounts)
As initially
reported
$
2,596
(8,048)
(12,568)
Amendment
$
8,367
(1,103)
(7,264)
As Amended
$
10,963
(9,151)
(19,832)
25. Subsequent events
Subsequent to September 30, 2014, the Company entered into a debtor-in-possession financing agreement ("DIP
Agreement") pursuant to which an aggregate amount of up to USD$12 million will be available to support the
continued operations during the CCAA proceedings. As of the date of filing, November 14, 2014, the Company
had received USD$7.5 million pursuant to the terms of the DIP Agreement.
Form 52-109F2
Certification of Interim Filings - Full Certificate
I, François Marland, Chief Executive Officer of Veris Gold Corp., certify the following:
1.
Review: I have reviewed the interim financial report and interim MD&A (together, the “interim
filings”) of Veris Gold Corp. (the “issuer”) for the interim period ended September 30, 2014.
2.
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the
interim filings do not contain any untrue statement of a material fact or omit to state a material
fact required to be stated or that is necessary to make a statement not misleading in light of the
circumstances under which it was made, with respect to the period covered by the interim filings.
3.
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim
financial report together with the other financial information included in the interim filings fairly
present in all material respects the financial condition, financial performance and cash flows of
the issuer, as of the date of and for the periods presented in the interim filings.
4.
Responsibility: The issuer’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (DC&P) and internal control over financial
reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of
Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5.
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other
certifying officer and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable
assurance that
i.
material information relating to the issuer is made known to us by others, particularly
during the period in which the interim filings are being prepared; and
ii.
information required to be disclosed by the issuer in its annual filings, interim filings
or other reports filed or submitted by it under securities legislation is recorded,
processed, summarized and reported within the time periods specified in securities
legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with the issuer’s GAAP.
5.1
Control framework: The control framework the issuer’s other certifying officer and I used to
design the issuer’s ICFR is COSO Financial Controls Framework.
5.2
ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for
each material weakness relating to design existing at the end of the interim period
(a) a description of the material weakness;
(b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and
(c) the issuer’s current plans, if any, or any actions already undertaken, for remediating the
material weakness.
5.3
Limitation on scope of design: N/A
6.
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the
issuer’s ICFR that occurred during the period beginning on July 1, 2014 and ended on September
30, 2014 that has materially affected, or is reasonably likely to materially affect, the issuer’s
ICFR.
Date: November 14, 2014
/s/ François Marland____________
François Marland, Chief Executive Officer
2
Form 52-109F2
Certification of Interim Filings - Full Certificate
I, Shaun Heinrichs, Chief Financial Officer of Veris Gold Corp., certify the following:
1.
Review: I have reviewed the interim financial report and interim MD&A (together, the “interim
filings”) of Veris Gold Corp. (the “issuer”) for the interim period ended September 30, 2014.
2.
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the
interim filings do not contain any untrue statement of a material fact or omit to state a material
fact required to be stated or that is necessary to make a statement not misleading in light of the
circumstances under which it was made, with respect to the period covered by the interim filings.
3.
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim
financial report together with the other financial information included in the interim filings fairly
present in all material respects the financial condition, financial performance and cash flows of
the issuer, as of the date of and for the periods presented in the interim filings.
4.
Responsibility: The issuer’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (DC&P) and internal control over financial
reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of
Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5.
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other
certifying officer and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable
assurance that
i.
material information relating to the issuer is made known to us by others, particularly
during the period in which the interim filings are being prepared; and
ii.
information required to be disclosed by the issuer in its annual filings, interim filings
or other reports filed or submitted by it under securities legislation is recorded,
processed, summarized and reported within the time periods specified in securities
legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with the issuer’s GAAP.
5.1
Control framework: The control framework the issuer’s other certifying officer and I used to
design the issuer’s ICFR is COSO Financial Controls Framework.
5.2
ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for
each material weakness relating to design existing at the end of the interim period
(a) a description of the material weakness;
(b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and
(c) the issuer’s current plans, if any, or any actions already undertaken, for remediating the
material weakness.
5.3
Limitation on scope of design: N/A
6.
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the
issuer’s ICFR that occurred during the period beginning on July 1, 2014 and ended on September
30, 2014 that has materially affected, or is reasonably likely to materially affect, the issuer’s
ICFR.
Date: November 14, 2014
/s/ Shaun Heinrichs______________
Shaun Heinrichs, Chief Financial Officer
2

VERIS GOLD CORP. Management’s Discussion and Analysis

Transcription

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