UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(MARK ONE)
FOR THE QUARTERLY PERIOD ENDED
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(STATE OR OTHER JURISDICTION OF | (I.R.S. EMPLOYER | |
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Large accelerated filer ◻ | Accelerated filer ◻ |
Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
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At August 5, 2021,
GOLDEN MINERALS COMPANY
FORM 10-Q
QUARTER ENDED JUNE 30, 2021
INDEX
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 24 | |
35 | ||
36 | ||
37 | ||
37 | ||
37 | ||
37 | ||
37 | ||
37 | ||
38 | ||
39 | ||
2
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
GOLDEN MINERALS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in United States dollars)
(Unaudited)
June 30, | December 31, | ||||||
| 2021 |
| 2020 |
| |||
(in thousands, except share data) |
| ||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents (Note 3) | $ | | $ | | |||
Short-term investments (Note 3) | | | |||||
Lease receivables |
| — |
| | |||
Inventories, net (Note 5) |
| |
| | |||
Value added tax receivable, net |
| |
| | |||
Prepaid expenses and other assets (Note 4) | | | |||||
Total current assets |
| |
| | |||
Property, plant and equipment, net (Note 7) |
| |
| | |||
Other long term assets (Note 8) |
| |
| | |||
Total assets | $ | | $ | | |||
Liabilities and Equity | |||||||
Current liabilities | |||||||
Accounts payable and other accrued liabilities (Note 9) | $ | | $ | | |||
Deferred revenue, current (Note 17) | | | |||||
Other current liabilities (Note 11) |
| |
| | |||
Total current liabilities |
| |
| | |||
Asset retirement and reclamation liabilities (Note 12) |
| |
| | |||
Other long term liabilities (Note 11) |
| |
| | |||
Total liabilities |
| |
| | |||
Commitments and contingencies (Note 20) | |||||||
Equity (Note 15) | |||||||
Common stock, $ |
| |
| | |||
Additional paid in capital |
| |
| | |||
Accumulated deficit |
| ( |
| ( | |||
Shareholders' equity |
| |
| | |||
Total liabilities and equity | $ | | $ | | |||
The accompanying notes form an integral part of these condensed consolidated financial statements.
3
GOLDEN MINERALS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in United States dollars)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
(in thousands except per share data) | (in thousands, except per share data) | |||||||||||
Revenue: | ||||||||||||
Sale of metals (Note 16) | $ | | $ | — | $ | | $ | — | ||||
Oxide plant lease (Note 17) | — | | — | | ||||||||
Total revenue | | | | | ||||||||
Costs and expenses: | ||||||||||||
Cost of metals sold (exclusive of depreciation shown below) (Note 16) | ( | — | ( | — | ||||||||
Oxide plant lease costs (Note 17) |
| — |
| ( |
| — |
| ( | ||||
Exploration expense |
| ( |
| ( |
| ( |
| ( | ||||
El Quevar project expense |
| ( |
| ( |
| ( |
| ( | ||||
Velardeña care and maintenance costs |
| ( |
| ( |
| ( |
| ( | ||||
Administrative expense |
| ( |
| ( |
| ( |
| ( | ||||
Stock based compensation |
| ( |
| ( |
| ( |
| ( | ||||
Reclamation expense |
| ( |
| ( |
| ( |
| ( | ||||
Other operating income (expense), net |
| |
| ( |
| |
| ( | ||||
Depreciation and amortization |
| ( |
| ( |
| ( |
| ( | ||||
Total costs and expenses |
| ( |
| ( |
| ( |
| ( | ||||
Loss from operations |
| ( |
| ( |
| ( |
| ( | ||||
Other income (expense): | ||||||||||||
Interest and other expense, net (Note 18) |
| ( |
| ( |
| ( |
| ( | ||||
Gain (loss) on foreign currency transactions |
| |
| ( |
| |
| ( | ||||
Total other income (loss) | | ( | ( | ( | ||||||||
Loss from operations before income taxes |
| ( |
| ( |
| ( |
| ( | ||||
Income taxes (Note 14) | ( | — | ( | — | ||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Net loss per common share — basic | ||||||||||||
Loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average Common Stock outstanding - basic (1) |
| |
| | |
| | |||||
(1)Potentially dilutive shares have not been included for loss periods because to do so would be anti-dilutive. Potentially dilutive shares at June 30, 2021 consist of
The accompanying notes form an integral part of these condensed consolidated financial statements.
4
GOLDEN MINERALS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States dollars)
(Unaudited)
Six Months Ended June 30, | |||||||
| 2021 |
| 2020 |
| |||
(in thousands) |
| ||||||
Cash flows from operating activities: | |||||||
Net cash used in operating activities (Note 19) | $ | ( | $ | ( | |||
Cash flows from investing activities: | |||||||
Proceeds from sale of assets |
| |
| — | |||
Acquisitions of property, plant and equipment |
| ( |
| ( | |||
Net cash used in investing activities | $ | ( | $ | ( | |||
Cash flows from financing activities: | |||||||
Proceeds from issuance of common stock, net of issuance costs |
| |
| | |||
Proceeds from related party loan (Note 22) | — | | |||||
Net cash from financing activities | $ | | $ | | |||
Net decrease in cash and cash equivalents |
| ( |
| ( | |||
Cash and cash equivalents, beginning of period |
| |
| | |||
Cash and cash equivalents, end of period | $ | | $ | | |||
See Note 19 for supplemental cash flow information.
The accompanying notes form an integral part of these condensed consolidated financial statements.
5
GOLDEN MINERALS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Expressed in United States dollars)
(Unaudited)
|
|
|
|
|
|
| |||||||||
| |||||||||||||||
Additional |
| ||||||||||||||
Common Stock | Paid-in | Accumulated | Total |
| |||||||||||
Shares | Amount | Capital | Deficit | Equity |
| ||||||||||
(in thousands except share data) |
| ||||||||||||||
Balance, December 31, 2019 |
| | $ | | $ | | $ | ( | $ | | |||||
Stock compensation accrued (Note 15) | — | — | | — | | ||||||||||
Shares issued under the at-the-market offering agreement, net (Note 15) | | | | — | | ||||||||||
Shares issued under the Lincoln Park commitment purchase agreement, net (Note 15) | | | | — | | ||||||||||
Net loss | — | — | — | ( | ( | ||||||||||
Balance, March 31, 2020 | | $ | | $ | | $ | ( | $ | | ||||||
Stock compensation accrued (Note 15) | — | — | | — | | ||||||||||
Subscription agreement (Note 15) | | | | — | | ||||||||||
2020 Offering and private placement transaction (Note 15) | | | | — | | ||||||||||
Net loss | — | — | — | ( | ( | ||||||||||
Balance, June 30, 2020 | | $ | | $ | | $ | ( | $ | | ||||||
Balance, December 31, 2020 | | $ | | $ | | $ | ( | $ | | ||||||
Stock compensation accrued (Note 15) | — | — | | — | | ||||||||||
Shares issued under the at-the-market offering agreement, net (Note 15) | | | | — | | ||||||||||
Warrants exercised (Note 15) | | | | — | | ||||||||||
Net loss | — | — | — | ( | ( | ||||||||||
Balance, March 31, 2021 | | $ | | $ | | $ | ( | $ | | ||||||
Stock compensation accrued and restricted stock awards granted (Note 15) | | | | — | | ||||||||||
Net loss | — | — | — | ( | ( | ||||||||||
Balance, June 30, 2021 | | $ | | $ | | $ | ( | $ | | ||||||
The accompanying notes form an integral part of these condensed consolidated financial statements
6
GOLDEN MINERALS COMPANY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
(Unaudited)
1. Basis of Preparation of Financial Statements and Nature of Operations
Golden Minerals Company (the “Company”), a Delaware corporation, has prepared these unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). The interim condensed consolidated financial statements do not include all disclosures required by GAAP for annual financial statements, but in the opinion of management, include all adjustments necessary for a fair presentation. Certain prior period amounts may have been reclassified to conform to current classifications. Interim results are not necessarily indicative of results for a full year; accordingly, these interim financial statements should be read in conjunction with the annual financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and filed with the SEC on February 18, 2021.
The Company is a mining company, holding a
The Company is primarily focused on mining operations at the Rodeo Property as well as further studies of a restart plan for the Velardeña mine, including use of bio-oxidation to improve the payable gold recovery. The Company is also focused on (i) advancing our El Quevar exploration property in Argentina through the Earn-in Agreement with Barrick and (ii) continuing to evaluate and search for mining opportunities in North America (including Mexico) with near-term prospects of mining, and particularly for properties within reasonable haulage distances of our processing plants at the Velardeña Properties. The Company is also reviewing strategic opportunities, focusing primarily on development or operating properties in North America, including Mexico.
The Company began mining activities at the Rodeo Property during December 2020 and began processing mined material from Rodeo at the Velardeña plant in January 2021. The employees at the Rodeo and Velardeña Properties, in addition to those that operate the plant that processes the Rodeo mined material, include an operations group, an administrative group and an exploration group to continue to advance the Company’s plans in Mexico and to provide oversight for corporate compliance activities as well as maintaining and safeguarding the longer-term value of the Velardeña Properties assets.
The Company is considered an exploration stage company under SEC criteria since it has not yet demonstrated the existence of proven or probable mineral reserves, as defined by SEC Industry Guide 7, at any of its properties. Until such time, if ever, that the Company demonstrates the existence of proven or probable reserves pursuant to SEC Industry Guide 7, we expect to remain as an exploration stage company.
2. | New Accounting Pronouncements |
In December 2019, the FASB issued No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). The guidance removes certain exceptions to the general principles of ASC 740 and simplifies several other areas. ASU 2019-12 is effective for public business entities for annual reporting periods beginning after December 15, 2020, and interim periods within those reporting periods. The Company has adopted ASU 2019-12 beginning in 2021. One of the amendments within ASU 2019-12 eliminates a limitation on the amount of income tax benefit that can be recognized in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The Company has applied this guidance in the calculation of the tax benefit included in “Income taxes” in the Condensed
7
Consolidated Statements of Operations. The adoption of this guidance did not result in a material impact on the Company’s consolidated financial position or results of operations.
During the first quarter 2020, the Company adopted ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 modifies the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. The adoption of this update did not result in a material impact on the Company’s consolidated financial position or results of operations.
On April 12, 2021, the SEC published a statement relating to accounting and reporting considerations for warrants issued by Special Purpose Acquisition Companies (SPACs). The SEC statement raised accounting and reporting considerations for all reporting entities that restrict the use of the exception under ASC 815-40-25-7 thru 8 that allows for equity treatment, under certain conditions, for warrants that allow cash settlement in certain change of control transactions. The restriction put forth by the SEC would prevent equity treatment in cases where cash is received disproportionately between shareholders and warrant holders in such transactions. All of the outstanding warrants granted by the Company are recorded in equity at June 30, 2021 and December 31, 2020 following the guidance established by ASC Topic 815-40. The Company’s warrants allow for the potential settlement in cash if certain extraordinary events are effected by the Company, including a 50% or greater change of control in the Company’s common stock. Since those events have been deemed to be within the Company’s control, the Company continues to apply equity treatment for these warrants.
3. Cash and Cash Equivalents and Short-term Investments
Of the $
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Short-term investments include investments with maturities greater than three months, but not exceeding 12 months, or highly liquid investments with maturities greater than 12 months that the Company intends to liquidate during the next 12 months for working capital needs.
The following tables summarize the Company's short-term investments at June 30, 2021 and December 31, 2020:
|
| Estimated |
| Carrying |
| |||||
June 30, 2021 | Cost | Fair Value | Value |
| ||||||
(in thousands) | ||||||||||
Investments: | ||||||||||
Short-term: | ||||||||||
Trading securities | $ | | $ | | $ | | ||||
Total trading securities |
| |
| |
| | ||||
Total short term | $ | | $ | | $ | | ||||
December 31, 2020 | ||||||||||
Investments: | ||||||||||
Short-term: | ||||||||||
Trading securities | $ | | $ | | $ | | ||||
Total trading securities |
| |
| |
| | ||||
Total short term | $ | | $ | | $ | | ||||
The short-term investments at June 30, 2021 and December 31, 2020 consist of
8
claims located in Chihuahua, Mexico (see Note 7). The
Credit Risk
The Company invests substantially all of its excess cash with high credit-quality financial institutions or in U.S. government or debt securities. Credit risk is the risk that a third party might fail to fulfill its performance obligations under the terms of a financial instrument. For cash and equivalents and investments, credit risk represents the carrying amount on the balance sheet. The Company mitigates credit risk for cash and equivalents and investments by placing its funds and investments with high credit-quality financial institutions, limiting the amount of exposure to each of the financial institutions, monitoring the financial condition of the financial institutions and investing only in government and corporate securities rated “investment grade” or better. The Company invests with financial institutions that maintain a net worth of not less than $
4. Prepaid Expenses and Other Assets
Prepaid expenses and other current assets at June 30, 2021 and December 31, 2020 consist of the following:
| June 30, |
| December 31, | ||||
2021 |
| 2020 | |||||
(in thousands) |
| ||||||
Prepaid insurance | $ | | $ | | |||
Recoupable deposits and other |
| |
| | |||
$ | | $ | | ||||
The June 30, 2021 recoupable deposits and other includes a receivable from Barrick for reimbursement of costs of approximately $
5. Inventories, net
Inventories at the Rodeo operation at June 30, 2021 and December 31, 2020 consist of the following:
June 30, | December 31, |
| |||||
| 2021 |
| 2020 |
| |||
(in thousands) | |||||||
Doré inventory | $ | | $ | ||||
In-process inventory |
| |
| ||||
Material and supplies | $ | | $ | | |||
$ | | $ | | ||||
Doré and in-process inventories, recorded at book value, include $
The materials and supplies inventories at June 30, 2021 and December 31, 2020 are primarily related to the Rodeo operation and are reduced by a $
6.Value added tax receivable, net
The Company has recorded a net value added tax (“VAT”) paid in Mexico of $
9
The Company has also paid VAT in Mexico as well as other countries, primarily related to exploration projects, which has been charged to expense as incurred because of the uncertainty of recoverability.
8.
7. Property, Plant and Equipment, Net
The components of property, plant and equipment are as follows:
June 30, | December 31, | ||||||
| 2021 |
| 2020 |
| |||
(in thousands) |
| ||||||
Mineral properties | $ | | $ | | |||
Exploration properties | | | |||||
Royalty properties |
| |
| | |||
Buildings |
| |
| | |||
Mining equipment and machinery |
| |
| | |||
Other furniture and equipment |
| |
| | |||
Construction in progress | — | | |||||
Asset retirement cost |
| |
| | |||
| |
| | ||||
Less: Accumulated depreciation and amortization |
| ( |
| ( | |||
$ | | $ | | ||||
El Quevar Earn-In Agreement
On April 9, 2020, the Company and several of its directly and indirectly wholly-owned subsidiaries entered into the Earn-in Agreement with Barrick, pursuant to which Barrick has acquired an option (the “Option”) to earn a
In connection with the Earn-in Agreement, the Company and Barrick also entered into a Subscription Agreement (the “Subscription Agreement”) dated as of April 9, 2020 pursuant to which Barrick purchased
Sale of Santa Maria Property
On July 14, 2020, the Company entered into a binding letter of intent (“Letter of Intent”) with Fabled for a potential transaction pursuant to which Fabled would acquire the Company’s option to earn a
10
underlying option agreements between the owners and the Company, and to make all payments and perform all other requirements needed to maintain the Concessions in good standing. As of June 30, 2021, there was approximately $
8.Other Long-Term Assets
Other long-term assets at June 30, 2021 and December 31, 2020 consist of the following:
| June 30, |
| December 31, | ||||
2021 | 2020 | ||||||
(in thousands) |
| ||||||
Deferred offering costs | $ | | $ | | |||
Right of use assets |
| |
| | |||
$ | | $ | | ||||
The deferred offering costs at June 30, 2021 are associated with the ATM Agreement (see Note 15). The deferred offering costs at December 31, 2020 were associated with the ATM Agreement and the Commitment Purchase Agreement (see Note 15). The Commitment Purchase Agreement expired during June 2021, and as of March 31, 2021 the Company had written off the remaining balance of $
The right of use assets at June 30, 2021 include approximately $
The Company took possession of new office space and began a new long-term lease for its principal headquarters office with an effective commencement date of June 1, 2019. The new office lease will expire full calendar months following the commencement date. There are no options to extend the lease beyond the stated term. The Company recorded a right of use asset of approximately $
The Company also has long-term office leases in Mexico and Argentina that expired in 2019 and recorded a combined lease liability of approximately $
In December 2020, the Company’s wholly-owned subsidiary, Minera de Cordilleras S. de R.L. de C.V., entered into an agreement with Triturados del Guadiana, S.A de C.V. (“Trigusa”), whereby Trigusa will carry out mining activities at the Rodeo Property. Per the terms of the mining agreement, Trigusa will provide services for the
The lease liabilities noted above have been included in “Other liabilities”, short term and long term (Note 11), in the Company’s Consolidated Balance Sheets at June 30, 2021 and December 31, 2020.
11
9. Accounts Payable and Other Accrued Liabilities
The Company’s accounts payable and other accrued liabilities consist of the following:
June 30, | December 31, | ||||||
2021 | 2020 |
| |||||
(in thousands) |
| ||||||
Accounts payable and accruals | $ | | $ | | |||
Accrued employee compensation and benefits | | | |||||
$ | | $ | | ||||
June 30, 2021
Accounts payable and accruals at June 30, 2021 are primarily related to amounts due to contractors and suppliers, denominated in US dollars, in the amounts of $
Accrued employee compensation and benefits at June 30, 2021 consist of $
December 31, 2020
Accounts payable and accruals at December 31, 2020 are primarily related to amounts due to contractors and suppliers, denominated in US Dollars, in the amounts of $
Accrued employee compensation and benefits at December 31, 2020 consist of $
10. Debt – Related Party
On March 30, 2020, in response to potential economic and market uncertainties caused by the COVID-19 pandemic, the Company entered into a Short-Term Loan Agreement (the “Loan Agreement”) with Sentient Global Resources Fund IV , L.P., a Cayman Islands exempted limited partnership (“Sentient”), pursuant to which Sentient granted to the Company an unsecured loan in an amount equal to $
11. Other Liabilities
Other Current Liabilities
The following table sets forth the Company’s other current liabilities at June 30, 2021 and December 31, 2020:
June 30, | December 31, | |||||
| 2021 | 2020 | ||||
(in thousands) | ||||||
Premium financing | $ | | $ | | ||
Office lease liability |
| |
| | ||
Mining equipment lease liability | | | ||||
$ | | $ | | |||
12
The premium financing at June 31, 2021 consists of the remaining balance, plus accrued interest, related to premiums payable for the Company’s directors and officers insurance and general liability insurance. In June 2020, the Company financed $
The premium financing at December 31, 2020 consists of the remaining balance, plus accrued interest, related to premiums payable for the Company’s directors and officers insurance of $
The office lease liability is related to lease liabilities for office space at the Company’s principal headquarters in Golden, Colorado and in Mexico and Argentina.
The mining equipment lease liability is related to equipment used by the contract miner at our Rodeo property (see Note 8).
Other Long-Term Liabilities
Other long-term liabilities of $
Other long-term liabilities of $
12. Asset Retirement Obligation and Reclamation Liabilities
The Company retained the services of a mining engineering firm to prepare a detailed closure plan for the Velardeña Properties. The plan was completed during the second quarter 2012 and indicated that the Company had an ARO and offsetting ARC of approximately $
The Company will continue to accrue additional estimated ARO amounts based on an asset retirement plan as activities requiring future reclamation and remediation occur. During the first six months of 2021, the Company recognized approximately $
The following table summarizes activity in the Velardeña Properties ARO:
Six Months Ended |
| ||||||
June 30, | |||||||
| 2021 |
| 2020 |
| |||
(in thousands) |
| ||||||
Beginning balance | $ | | $ | | |||
Changes in estimates, and other |
| ( |
| | |||
Accretion expense |
| |
| | |||
Ending balance | $ | | $ | | |||
The change in estimates of the ARO recorded during 2021 and 2020 are primarily the result of changes in assumptions related to inflation factors used in the determination of future cash flows.
The asset retirement obligation and reclamation liability set forth on the accompanying Condensed Consolidated Balance Sheets at June 30, 2021 and December 31, 2020 also includes a nominal amount of reclamation liability related to activities at the El Quevar project in Argentina. Environmental costs at the Rodeo Property will be expensed as incurred.
13
There were
13. Fair Value Measurements
Financial assets and liabilities and nonfinancial assets and liabilities are measured at fair value under a framework of a fair value hierarchy which prioritizes the inputs into valuation techniques used to measure fair value into three broad levels. This hierarchy gives the highest priority to quoted prices (unadjusted) in active markets and the lowest priority to unobservable inputs. Further, financial assets and liabilities should be classified by level in their entirety based upon the lowest level of input that was significant to the fair value measurement. The three levels of the fair value hierarchy per ASC 820 are as follows:
Level 1: Unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2: Quoted prices in inactive markets for identical assets or liabilities, quoted prices for similar assets or liabilities in active markets, or other observable inputs either directly related to the asset or liability or derived principally from corroborated observable market data.
Level 3: Unobservable inputs due to the fact that there is little or no market activity. This entails using assumptions in models which estimate what market participants would use in pricing the asset or liability.
The following table summarizes the Company’s financial assets and liabilities at fair value on a recurring basis at June 30, 2021 and December 31, 2020, by respective level of the fair value hierarchy:
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| |||||
(in thousands) |
| ||||||||||||
At June 30, 2021 |
| ||||||||||||
Assets: | |||||||||||||
Cash and cash equivalents | $ | | $ | — | $ | — | $ | | |||||
Short-term investments |
| |
| — |
| — |
| | |||||
$ | | $ | — | $ | — | $ | | ||||||
At December 31, 2020 | |||||||||||||
Assets: | |||||||||||||
Cash and cash equivalents | $ | | $ | — | $ | — | $ | | |||||
Short-term investments |
| |
| — |
| — |
| | |||||
$ | | $ | — | $ | — | $ | | ||||||
The Company’s cash equivalents, comprised principally of U.S. treasury securities, are classified within Level 1 of the fair value hierarchy.
The Company’s short-term investments consist of the common stock in Fabled and are classified within Level 1 of the fair value hierarchy (see Note 3).
At June 30, 2021 and December 31, 2020, the Company did
Non-recurring Fair Value Measurements
There were
14. Income Taxes
The Company accounts for income taxes in accordance with the provisions of ASC 740, “Income Taxes” (“ASC 740”), on a tax jurisdictional basis. In accordance with ASC 740, the interim provision for taxes was calculated by using the estimated annual effective tax rate applied to the year-to-date income or losses on a jurisdictional basis. Although the
14
Company has generated ordinary losses on a year-to-date basis, the Company has projected taxable income by year end in certain tax jurisdictions, for which an annual effective tax rate has been calculated. For the six months ended June 30, 2021, the Company recognized $
In accordance with ASC 740, the Company presents deferred tax assets net of its deferred tax liabilities on a tax jurisdictional basis on its Condensed Consolidated Balance Sheets. As of June 30, 2021, the Company had no net deferred tax assets or net deferred tax liabilities on the Condensed Consolidated Balance Sheets, and as of December 31, 202
The Company, a Delaware corporation, and its subsidiaries file tax returns in the United States and in various foreign jurisdictions. The tax rules and regulations in these countries are highly complex and subject to interpretation. The Company’s income tax returns are subject to examination by the relevant taxing authorities and in connection with such examinations, disputes can arise with the taxing authorities over the interpretation or application of certain tax rules within the country involved. In accordance with ASC 740, the Company identifies and evaluates uncertain tax positions, and recognizes the impact of uncertain tax positions for which there is less than a more-likely-than-not probability of the position being upheld upon review by the relevant taxing authority. Such positions are deemed to be “unrecognized tax benefits” which require additional disclosure and recognition of a liability within the financial statements. The Company had
15. Equity
Public offering
On July 21, 2020, the Company entered into an Amended and Restated Underwriting Agreement (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC as representative of the underwriters named therein (the “Underwriters”), providing for the issuance and sale by the Company in a firm commitment offering (the “Offering”) of
Subscription agreement
In connection with the Earn-in Agreement (see Note 7), the Company and Barrick entered into the Subscription Agreement dated as of April 9, 2020 pursuant to which Barrick purchased
Offering and private placement
On April 20, 2020, the Company entered into a securities purchase agreement with certain institutional investors providing for the issuance and sale of
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exceptions; provided, however, that with respect to the Series B warrants, the adjusted exercise price will not be less than $
The net proceeds of the Offering were recorded in equity. Total costs for the Offering were approximately $
Commitment purchase agreement
On May 9, 2018, the Company entered into a commitment purchase agreement (the “Commitment Purchase Agreement”) with LPC, pursuant to which the Company, at its sole discretion, had the right to sell up to $
During the six months ended June 30, 2021, the Company did not sell any shares of common stock to LPC under the Commitment Purchase Agreement. In anticipation of the June 2021 expiration of the agreement, the Company wrote off the remaining balance of $
During the six months ended June 30, 2020, the Company sold
At the Market Offering Agreement
In December 2016, the Company entered into an at-the-market offering agreement (as amended from time to time, the “ATM Agreement”) with H. C. Wainwright & Co., LLC (“Wainwright”), under which the Company may, from time to time, issue and sell shares of the Company’s common stock through Wainwright as sales manager in an at-the-market offering under a prospectus supplement for aggregate sales proceeds of up to $
The common stock will be distributed at the market prices prevailing at the time of sale. As a result, prices of the common stock sold under the ATM Program may vary as between purchasers and during the period of distribution. The ATM Agreement provides that Wainwright will be entitled to compensation for its services at a commission rate of
During the first six months of 2021, the Company sold an aggregate of
16
During the first six months of 2020, the Company sold an aggregate of
There is currently approximately $
Equity Incentive Plans
Under the Company’s Amended and Restated 2009 Equity Incentive Plan (the “Equity Plan”), awards of the Company’s common stock may be made to officers, directors, employees, consultants and agents of the Company and its subsidiaries. The Company recognizes stock-based compensation costs using a graded vesting attribution method whereby costs are recognized over the requisite service period for each separately vesting portion of the award.
The following table summarizes the status of the Company’s restricted stock grants issued under the Equity Plan at June 30, 2021 and the changes during the six months then ended:
|
| Weighted |
| |||
Average Grant |
| |||||
Date Fair |
| |||||
Number of | Value Per |
| ||||
Restricted Stock Grants | Shares | Share |
| |||
Outstanding at December 31, 2020 | | $ | | |||
Granted during the period |
| |
| | ||
Restrictions lifted during the period |
| ( |
| | ||
Forfeited during the period |
|
| ||||
Outstanding June 30, 2021 | | $ | | |||
For the six months ended June 30, 2021, the Company recognized approximately $
Also, pursuant to the Equity Plan, the Company’s Board of Directors adopted the Non-Employee Director’s Deferred Compensation and Equity Award Plan (the “Deferred Compensation Plan”). Pursuant to the Deferred Compensation Plan, non-employee directors receive a portion of their compensation in the form of Restricted Stock Units (“RSUs”) issued under the Equity Plan. The RSUs generally vest on the first anniversary of the grant and each vested RSU entitles the director to receive
The following table summarizes the status of the RSU grants issued to Directors of the Company under the Deferred Compensation Plan at June 30, 2021 and the changes during the six months then ended:
|
| Weighted | |||
Average Grant | |||||
Date Fair | |||||
Number of | Value Per | ||||
Restricted Stock Units | Shares | Share | |||
Outstanding at December 31, 2020 | | $ | | ||
Granted during the period |
| |
| | |
Restrictions lifted during the period |
|
| |||
Forfeited during the period |
|
| |||
Outstanding June 30, 2021 | | $ | | ||
For the six months ended June 30, 2021, the Company recognized approximately $
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the RSU grants of approximately $
During the six months ended June 30, 2021, the Company granted a consultant
Key Employee Long-Term Incentive Plan
The Company’s 2013 Key Employee Long-Term Incentive Plan (the “KELTIP”) provides for the grant of units (“KELTIP Units”) to certain officers and key employees of the Company, which units will, once vested, entitle such officers and employees to receive an amount, in cash or in Company common stock (such method of settlement at the sole discretion of the Board of Directors) issued pursuant to the Company’s Equity Plan, measured generally by the price of the Company’s common stock on the settlement date. KELTIP Units are not an actual equity interest in the Company and are solely unfunded and unsecured obligations of the Company that are not transferable and do not provide the holder with any stockholder rights. Payment of the settlement amount of vested KELTIP Units is deferred generally until the earlier of a change of control of the Company or the date the grantee ceases to serve as an officer or employee of the Company.
The Company intends to settle all the KELTIP Units in common stock of the Company, an option that the Board of Directors holds in its sole discretion so long as sufficient shares remain available under the Equity Plan. As a result, all outstanding KELTIP Units are recorded in equity at June 30, 2021 and December 31, 2020.
During the six-month period ended June 30, 2021, the Company granted
Common stock warrants
The following table summarizes the status of the Company’s common stock warrants at December 31, 2020 and June 30, 2021, and the changes during the twelve and six months then ended, respectively:
Weighted |
| |||||
Number of | Average Exercise | |||||
Underlying | Price Per | |||||
Common Stock Warrants | Shares | Share | ||||
Outstanding at December 31, 2019 | | $ | | |||
Granted during the period: |
| |||||
April 2020 Series A warrants | | | ||||
April 2020 Series B warrants | | | ||||
Exercised during period |
|
| ||||
April 2020 Series A warrants | ( | | ||||
April 2020 Series B warrants | ( | | ||||
Outstanding at December 31, 2020 | | | ||||
Exercised during period | ||||||
July 2019 Series A warrants | ( | | ||||
July 2019 Series B warrants | ( | | ||||
April 2020 Series A warrants |
| ( |
| | ||
Outstanding June 30, 2021 | | $ | | |||
The warrants relate to prior registered offerings and private placements of the Company’s stock.
As discussed above under “Equity – Offering and private placement”, on April 20, 2020, the Company entered into a securities purchase agreement with certain institutional investors providing for the issuance and sale of
18
year ended December 31, 2020, and the six months ended June 30, 2021,
On July 17, 2019, the Company issued
In May 2016, the Company issued
All outstanding warrants are recorded in equity at June 30, 2021 and December 31, 2020 following the guidance established by ASC Topic 815-40. The Company’s warrants allow for the potential settlement in cash if certain extraordinary events are effected by the Company, including a 50% or greater change of control in the Company’s common stock. Since those events have been deemed to be within the Company’s control, the Company continues to apply equity treatment for these warrants.
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16. Sale of Metals and Related Costs
During the six months ended June 30, 2021 the Company sold gold and silver contained in doré bars related to the Rodeo operation and recorded revenue of approximately $
Costs related to the sale of metals products include direct and indirect costs incurred to mine, process and market the products.
During the six months ended June 30, 2020 the Company did
17. Oxide Plant Lease Revenue and Related Costs
For the six months ended June 30, 2020, the Company recorded revenue of approximately $
On July 7, 2020, the Company received notification from Hecla terminating the Lease Agreement pursuant to the Third Amendment, effective November 30, 2020. Therefore, during the six months ended June 30, 2021 the Company did not record any income or costs associated with the lease of the oxide plant to Hecla.
18. Interest and Other Expense, Net
For the six months ended June 30, 2021, the Company recognized approximately $
20
19. Supplemental Cash Flow Information
The following table reconciles net loss for the period to cash used in operations:
Six Months Ended June 30, |
| ||||||
| 2021 |
| 2020 |
| |||
(in thousands) |
| ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation and amortization |
| |
| | |||
Accretion of asset retirement obligation |
| |
| | |||
Decrease in derivative at fair value, net | — | | |||||
Gain on trading securities |
| ( |
| — | |||
Asset write off |
| ( |
| | |||
Gain on sale of assets |
| ( |
| — | |||
Stock compensation |
| |
| | |||
Changes in operating assets and liabilities from continuing operations: | |||||||
Decrease in lease receivable | — | | |||||
Decrease (increase) in prepaid expenses and other assets |
| |
| ( | |||
(Increase) decrease in inventories |
| ( |
| | |||
Increase in value added tax recoverable, net |
| ( |
| ( | |||
Decrease in other long-term assets |
| |
| | |||
Decrease in reclamation liability |
| ( |
| ( | |||
Increase (decrease) in accounts payable and accrued liabilities |
| |
| ( | |||
Decrease in other current liabilities | ( | ( | |||||
Decrease in deferred revenue | ( | ( | |||||
Decrease in other long-term liabilities |
| ( |
| ( | |||
Net cash used in operating activities | $ | ( | $ | ( | |||
The following table sets forth supplemental cash flow information and non-cash transactions:
Six Months Ended June 30, |
| ||||||
| 2021 |
| 2020 |
| |||
(in thousands) |
| ||||||
Supplemental disclosure: | |||||||
Interest paid | $ | | $ | | |||
Income taxes paid | $ | — | $ | | |||
Supplemental disclosure of non-cash transactions: | |||||||
Deferred equity offering costs amortized | $ | | $ | | |||
Deferred equity offering costs written off | $ | | $ | — | |||
Capital expenditures accrued | $ | | $ | — | |||
20. Commitments and Contingencies
During April 2021, the Company became aware of a lawsuit in Mexico against one of the Company’s Mexican subsidiaries, Minera William, S.A. de C.V. (“Minera William”). The plaintiff in the matter is Unifin Financiera, S.A.B de C.V. (“Unifin”). The lawsuit was assigned to the Fifth Specialized Commercial District Court. Although the Company has knowledge of the existence and content of the lawsuit filed by Unifin, the Court has not officially served Minera William with the complaint as of the date of this report. Unifin is alleging that a representative of Minera William signed certain documents in July 2011 purporting to bind Minera William as a guarantor of payment obligations owed by a third party to Unifin in connection with that third party’s acquisition of certain drilling equipment. At the time the documentation was allegedly signed, Minera Williams was a subsidiary of ECU Silver Mining prior to the Company’s acquisition of ECU in September 2011. As a preemptive measure, Unifin has obtained a preliminary court order freezing Minera William’s bank accounts in Mexico, which has limited the Company’s and Minera William’s ability to access
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approximately US$
On April 23, 2021, a new labor law was made official in Mexico that will impact companies that utilize subcontractor structures, effective beginning August 1, 2021. The Company utilizes subcontractor structures in Mexico, as is common practice among companies in the mining and other industries in Mexico. The law will disallow a deduction in computing income taxes for labor outsourcing costs, unless the arrangement falls within certain narrowly defined exceptions. The new law does provide for annual caps on the amount of employee profit sharing a company would be required to pay, which is designed to even out the profit sharing liability over several years. The Company continues to evaluate the new law and has begun a process to reorganize the functions performed by its various Mexican subsidiaries to comply with the new law. The Company estimates its profit sharing liability in Mexico will increase for the full year 2021 as a result of the new law taking effect and the completion of the Company’s reorganization process and has accrued approximately $
At December 31, 2020, the Company had
21. Segment Information
The Company’s sole activity is the mining, construction and exploration of mineral properties containing precious metals. The Company’s reportable segments are based upon the Company’s revenue producing activities and cash consuming activities. The Company reports
The financial information relating to the Company’s segments is as follows:
| ||||||||||||||||||||||
Exploration, El |
| |||||||||||||||||||||
Costs | Depreciation, | Quevar, Velardeña |
| |||||||||||||||||||
Three Months Ended | Applicable | Depletion and | and Administrative | Pre-Tax (gain) | Capital |
| ||||||||||||||||
June 30, 2021 |
| Revenue |
| to Sales |
| Amortization |
| Expense |
| loss |
| Total Assets |
| Expenditures |
| |||||||
Mexico Operations | $ | | $ | | $ | | $ | | $ | ( |
| $ | | |||||||||
Corporate, Exploration and Other | — | — | | | | | ||||||||||||||||
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | | |||||
Six Months Ended | ||||||||||||||||||||||
June 30, 2021 | ||||||||||||||||||||||
Mexico Operations |
| $ | | $ | | $ | | $ | | $ | ( | $ | |
| $ | | ||||||
Corporate, Exploration and Other | — |
| — |
| |
| |
| |
| | | ||||||||||
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | | ||
Three Months Ended | ||||||||||||||||||||||
June 30, 2020 | ||||||||||||||||||||||
Mexico Operations |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | — | ||||
Corporate, Exploration and Other | — | — | | | | | ||||||||||||||||
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | | |||||
Six Months Ended | ||||||||||||||||||||||
June 30, 2020 | ||||||||||||||||||||||
Mexico Operations |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | | |
Corporate, Exploration and Other | — | — | | | | | | |||||||||||||||
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | | ||
22
22. Related Party Transactions
The following sets forth information regarding transactions between the Company (and its subsidiaries) and its officers, directors and significant stockholders.
Administrative Services, Lease of Equipment:
Beginning in August 2016, the Company began providing limited accounting and other administrative services to Minera Indé, an indirect subsidiary of Sentient. At June 30, 2021, Sentient, through the Sentient executive funds, holds approximately
Debt – Related Party
On March 30, 2020, the Company entered into a short-term loan agreement with Sentient whereby the Company received an unsecured loan in the amount of $
23. Subsequent Events
COVID-19
On March 11, 2020, the World Health Organization declared the outbreak of the respiratory disease caused by the new coronavirus as “pandemic”. As of the date of issuance of the condensed consolidated financial statements, the Company’s financial condition has not been significantly impacted; however, the Company continues to monitor the situation. No impairments were recorded as of the condensed consolidated balance sheet date; however, due to uncertainty surrounding the situation, management’s judgment regarding this could change in the future. In addition, while the Company’s results of operation, cash flows, and financial condition could be negatively impacted, the extent of the impact cannot be reasonably estimated at this time.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Our Company
We were incorporated in Delaware in March 2009 under the Delaware General Corporation Law. During the six months ended June 30, 2021, our principal source of revenue was from the sale of gold and silver from our Rodeo Property in Durango, Mexico. We incurred net operating losses for the six months ended June 30, 2021 and 2020.
We remain focused on mining operations at the Rodeo Property as well as further studies of a restart plan for Velardeña including the use of bio-oxidation to improve the payable gold recovery. We also continue to evaluate and search for mining opportunities in North America (including Mexico) with near-term prospects of mining, and particularly for properties within reasonable haulage distances of our Velardeña Properties. We are also focused on advancing our El Quevar exploration property in Argentina through the Earn-In Agreement with Barrick and on advancing selected properties in our portfolio of approximately 12 properties, located in Mexico, Nevada and Argentina. We are reviewing strategic opportunities, focusing primarily on development or operating properties in North America, including Mexico.
This discussion should be read in conjunction with Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 18, 2021.
2021 Highlights
COVID-19 uncertainties
We undertook several initiatives and installed multiple safety practices in response to the COVID-19 pandemic and have continued to carry out these initiatives and practices in 2021. We will continue to follow World Health Organization protocols and local government rules and recommendations at all of our projects and corporate offices. Office employees continue to work remotely wherever possible. Activities at the Rodeo Property and the Velardeña Properties, including mining and processing, were not interrupted as a result of the pandemic during the first six months of 2021.
Rodeo Property
We began mining activities at the Rodeo Property, using a contract miner, in December 2020. In November 2020 we received the final necessary permits for us to commence mining at the Rodeo Property from SEMARNAT, the environmental protection agency in Mexico. We began hauling the mined material, also using a contractor, for processing at our Velardeña oxide plant beginning in January 2021. We provide the overall mine management and engineering, which includes in-pit technicians who determine whether material is suitable for process or placement on the waste dump. We also employ and supervise the workforce responsible for processing activities at our oxide plant. Our assay lab, located in Velardeña, Durango, Mexico is used for the project’s assaying requirements. We poured our first doré bar at the end of January 2021 and completed our first shipment of doré to a refinery located in the United States in March 2021.
We installed a new regrind mill circuit at the plant specifically designed to process the harder mined material coming from the Rodeo Property, which was completed in April at a total cost of approximately $1.2 million. The new circuit, which was fully operational at the end of April, allowed us to increase daily throughput of Rodeo material in the oxide plant to at least 500 tonnes per day. Mill throughput in May and June combined averaged slightly more than 500 tonnes per day, and at that higher throughput level, the current life of the Rodeo mine is estimated to run through the first quarter of 2023 (approximately 2.25 years from initial mining), unless additional resources are discovered.
Assays from processing at the oxide plant indicate the doré produced to date are comprised of approximately 20 to 25 percent gold and 65 to 75 percent silver and are of a quality that is readily marketable and saleable to refineries located either in Mexico or internationally, consistent with standard commercial terms. We entered into a refining agreement with a third party in February 2021 and have completed thirteen shipments of doré as of August 5, 2021.
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The table below sets forth the key processing and sales statistics for the Rodeo operation for the three and six months ended June 30, 2021:
Rodeo Operations Statistics | ||||
(in thousands except per unit amounts) | ||||
Three Months Ended | Six Months Ended | |||
June 30, 2021 |
| June 30, 2021 | ||
Total tonnes mined (1) | 164,954 | 336,859 | ||
Total tonnes in stockpiles awaiting processing (2) | 9,215 | 9,215 | ||
Total tonnes in low grade stockpiles (3) | 49,552 | 49,552 | ||
Tonnes processed | 38,814 | 57,605 | ||
Average tonnes per day processed | 427 | 318 | ||
Gold grade processed (grams per tonne) | 3.6 | 3.4 | ||
Silver grade processed (grams per tonne) | 10.0 | 11.4 | ||
Plant recovery - gold (%) | 78.0 | 80.0 | ||
Plant recovery - silver (%) | 83.9 | 84.8 | ||
Payable gold produced in doré (ounces) | 3,452 | 4,841 | ||
Payable silver produced in doré (ounces) | 12,323 | 23,612 | ||
Payable gold equivalent produced in doré (ounces) (4) | 3,634 | 5,186 | ||
Gold sold in doré (ounces) | 3,064 | 3,973 | ||
Silver sold in doré (ounces) | 11,225 | 20,923 | ||
Gold equivalent sold in doré (ounces) (4) | 3,230 | 4,284 | ||
Realized price, before refining and selling costs | ||||
Gold (dollar per ounce) | $1,843 | $1,815 | ||
Silver (dollar per ounce) | $27.20 | $26.53 | ||
(1) Includes all mined material transported to the plant, stockpiled or designated as waste | ||||
(2) Includes mined material stockpiled at the mine or transported to the plant awaiting processing in the plant | ||||
(3) Material grading between 2 g/t (current cut off grade) and 1 g/t Au held for possible future processing | ||||
(4) Gold equivalents based on realized $ Au and $ Ag price | ||||
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The following table highlights additional non-GAAP cost and revenue statistics related to the Rodeo operations:
Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | ||||||
(in thousands except per unit amounts) | |||||||
Total cash operating costs | $ | 3,383 | $ | 6,209 | |||
Treatment and refining costs |
| 79 |
| 109 | |||
Silver by-product credits | (305) | (555) | |||||
Total cash costs, net of by-product credits | $ | 3,157 | $ | 5,763 | |||
Total cash cost per unit | |||||||
Payable gold ounces produced in doré |
| 3,452 |
| 4,841 | |||
Total cash operating costs | $ | 980 | $ | 1,283 | |||
Treatment and refining charges |
| 23 |
| 23 | |||
Silver by-product credits |
| (88) |
| (115) | |||
Total cash costs, net of by-product credits, per payable gold ounce (1) | $ | 915 | $ | 1,191 | |||
Tonnes Processed in plant | 38,814 | 57,605 | |||||
Total cash operating costs per tonne processed | $ | 87 | $ | 108 | |||
(1) Cash costs, net of by-product credits, per payable ounce of gold is a non-GAAP financial measure | |||||||
Total cash operating costs for the six months ended June 30, 2021, as depicted in the table above, include all production costs during the period, including mining, milling and general and administrative costs related to the initial start-up of operations and associated build-up of mined material stockpiles as well as in-solution inventories at the plant. Unit costs decreased significantly during the three months ended June 30, 2021 as production continued to ramp up.
We anticipate total tonnes processed for the full year 2021 will be approximately 135,000 to 140,000, which is higher than the previously forecast range of 125,000 to 135,000. However, due primarily to lower projected full year 2021 mill recoveries for gold of approximately 82%, as compared to our previous projections based on PEA results of approximately 85%, payable production for the full year 2021 is expected to remain consistent with prior guidance at approximately 12,000 to 14,000 ounces of gold and 25,000 to 30,000 ounces of silver. Gold recoveries have been slightly lower year to date as we continue to balance the operating performance of the plant between higher throughput and recovery.
Using an assumed gold price of $1,800/oz and an assumed silver price of $25.00/oz (our realized prices for the second quarter 2021, as shown above, were $1,843 and $27.20 for gold and silver, respectively), estimated operating margin for the full year 2021 from the Rodeo Property (defined as revenue from the sale of metals less the cost of metals sold) is estimated at approximately $10.0 million to $11.5 million with after-tax cash flow for the full year, net of capital expenditures and working capital, estimated at approximately $8.0 million to $9.0 million. Our estimated range for operating margin is slightly lower than prior guidance of $10.5 million to $12.0 million due primarily to higher unit costs resulting from lower gold recoveries, as noted above. Our estimated range for net cash flow from the Rodeo operation is lower than prior guidance of $9.0 million to $10.5 million due to the lower operating margin, as noted above, and also a projected buildup of $1.0 million in VAT receivables beyond previous estimates. The Company is experiencing slower than expected recoveries of VAT than previously estimated, resulting in an increased investment in working capital related to the Rodeo operation. Mexico law allows for certain VAT payments to be recovered through ongoing applications for refunds, but unanticipated delays in the normal refund process are occurring, primarily due to the ongoing Covid-19 pandemic in Mexico.
The estimates detailed above are based primarily on the actual results of operations through June 30, 2021. Actual future results from production at Rodeo may vary significantly based upon, among other things, unanticipated variations
26
in grade, unexpected challenges associated with our proposed mining plan, volatility in commodity prices, variations in expected recoveries, increases in projected operating costs, working capital or capital costs or delays in commencement of or interruptions in production. See “Risk Factors – Risk Factors related to our Mining and Processing Activities” as described in our Form 10-K for the period ended December 31, 2020.
Non-GAAP Financial Measures
Non-GAAP financial measures are intended to provide additional information only and do not have any standard meaning prescribed by generally accepted accounting principles. These measures should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP.
“Total cash costs, net of by-product credits, per payable gold ounce”, and “All-in sustainable costs, net of by-product credits, per payable gold ounce”, are non-GAAP financial measures calculated by the Company as set forth below and may not be comparable to similar measures reported by other companies.
“Total cash costs, net of by-product credits, per payable gold ounce,” includes all direct and indirect operating cash costs associated with the physical activities that would generate doré products for sale to customers, including mining to gain access to mineralized materials, mining of mineralized materials and waste, milling, third-party related treatment, refining and transportation costs, on-site administrative costs and royalties. Total cash costs do not include depreciation, depletion, amortization, exploration expenditures, reclamation and remediation costs, sustaining capital, financing costs, income taxes, or corporate general and administrative costs not directly or indirectly related to the Rodeo project. By-product credits include revenues from silver contained in the products sold to customers during the period. “Total cash costs, net of by-product credits”, are divided by the number of payable gold ounces generated by the plant for the period to arrive at “Total cash costs, net of by-product credits, per payable gold ounce.”
“All-in sustainable costs per payable gold ounce, net of by-product credits” begins with “Total cash costs, net of by-product credits, per payable gold ounce”, and includes capital and sustaining capital.
“Cost of metals sold”, reported as a separate line item in our Condensed Consolidated Statements of Operations for the six-month period ended June 30, 2021, is the most comparable financial measure, calculated in accordance with GAAP, to “Total cash costs, net of by-product credits”. “Cost of metals sold” includes adjustments for changes in inventory and excludes third-party related treatment and refining costs, which are reported as part of revenue in accordance with GAAP. The following table presents a reconciliation for the six months ended June 30, 2021 between the non-GAAP measure of “Total cash cost, net of by-product credits” to the most directly comparable GAAP measure, “Cost of metals sold”.
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Reconciliation of Cash Costs to Cost of Metals Sold
Reconciliation of Costs of Metals Sold (GAAP) to Total Cash Costs, net of By-product Credits (Non-GAAP) | |||||
(in thousands) | |||||
Three Months Ended June 30, 2021 | |||||
Total cash costs, net of by-product credits |
| $ | 3,157 | ||
Reconciliation to GAAP measure: | |||||
Treatment and refining costs | $ | (79) | |||
Silver by-product credits | 305 | ||||
Change in inventory (excluding depreciation, depletion and amortization) |
| (55) | |||
Cost of metals sold |
| $ | 3,328 | ||
Six Months Ended June 30, 2021 | |||||
Total cash costs, net of by-product credits |
| $ | 5,763 | ||
Reconciliation to GAAP measure: | |||||
Treatment and refining costs | $ | (109) | |||
Silver by-product credits | 555 | ||||
Write down of inventories to net realizable value |
| 17 | |||
Change in inventory (excluding depreciation, depletion and amortization) |
| (1,362) | |||
Cost of metals sold |
| $ | 4,864 | ||
Rodeo Exploration
In March 2021, we began an exploration drilling program at Rodeo aimed at expanding the resource. The program will encompass approximately 2,000 meters of exploration drilling at selected near-surface targets located immediately adjacent to the current pit. In June 2021, we announced the first results from the drilling program, which included several potentially resource-grade intercepts on the north side of the currently planned open pit. We have continued the drilling and have now completed about half of the initially planned drill meterage. To accelerate the program, we are adding a reverse circulation drill because the progress of core drilling has been slower than expected due to the highly silicified nature of the host rock. The program has the potential to extend the life of the Rodeo mine beyond the currently estimated life of around 2.25 years. Further results will begin to be available within the next several months and any newly-added resources will be incorporated into the Company’s production plans.
Velardeña
The Velardeña Properties contain two underground mines that were last operated in late 2015, at which point mining activities were suspended when a combination of low metals prices, mining dilution and metallurgical challenges rendered operations unprofitable. We elected to preserve the asset for future use, and since that time we have evaluated and tested various mining methods and processing alternatives that could enable sustainable profitable operations.
The recent rise in precious metals prices, the advancement of alternative processing technologies in the industry, and the results of our testing activities prompted us to pursue the preparation of an updated preliminary economic assessment (PEA) based partly on projected increased gold recoveries from a proposed bio-oxidation circuit to treat gold- bearing pyrite concentrates. In April 2020, we announced positive results from the updated PEA.
In June we began limited scale mining activities at our Velardeña underground mine to obtain further bulk samples for use in final optimization of the bio-oxidation plant design and for use in additional flotation separation studies that will indicate how we can best separate the gold-bearing minerals into the pyrite-arsenopyrite concentrate that is proposed for processing in the bio-oxidation circuit. We are also testing mining methods to ensure that we can effectively control
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mining dilution to obtain the head grades that we expect based on our PEA study. We expect to have the results of these studies in Q4 2021. No development decision has yet been made regarding a potential restart of the Velardeña mines.
Yoquivo
In September 2020, we began a 3,400-meter, 15-hole drill program to test the most promising portions of certain veins in the Yoquivo property in Chihuahua, Mexico. We completed the drill program in December 2020 and identified four separate vein systems in which surface sampling has returned grades up to 4,050 g/t silver and 27.7 g/t gold from surface. Complete results from the drill program were announced in our press release dated January 27, 2021. Of substantial interest is the discovery of a new vein parallel to and east of the Pertenencia vein. While the other principal veins have been partially mined from surface to the water table (up to 130 meters) in the case of San Francisco and Pertenencia, and over a much less extensive vertical interval in the case of El Dolar and Esperanza, the new vein is unmined from surface. We are planning a second phase drill program, which is expected to start after we have completed the Rodeo Exploration core drilling, now likely in Q4 2021.
El Quevar
On April 2020, we entered into the Earn-in Agreement with Barrick, pursuant to which Barrick has acquired an option to earn a 70% interest in the Company’s El Quevar project located in the Salta Province of Argentina (the “Option”). For a description of the Earn-In Agreement, see our Annual Report Form 10-K for the year ended December 31, 2020. During the earn-in period, in addition to the exploration spending, Barrick will fund the holding costs of the property, which will qualify as work expenditures. Barrick will reimburse us for expenses related to maintaining the exploration camp, which will initially be run by us under a service agreement and which will also qualify as work expenditures. Through June 30, 2021, approximately $0.7 million of expenses incurred by us have been or are expected to be reimbursable under the Earn-in Agreement.
Sarita Este
In December 2019 we paid $150,000 to enter into an option agreement with Cascadero Minerals Corporation (“Cascadero”) to acquire a 51% interest in the gold/copper Sarita Este concession, located in the northwest portion of the Province of Salta, Argentina, located near the Taca Taca project owned by First Quantum Minerals. The option agreement calls for us to spend at least $0.3 million in exploration expenditures and complete a 2,000 meter drill program by the end of 2021, another $0.5 million by the end of 2022, and another approximately $1.6 million by 2023 for a total $2.5 million.
We began an approximate 3,000 meter drill program on the Sarita Este property in June 2021 and have now completed approximately 1,000 meters of diamond drilling in 5 holes. The fifth hole is still in progress. We are targeting a copper porphyry system with some similarities to Taca Taca in the northeast portion of the Sarita Este claim at the Kachi target and a high sulfidation gold-silver system in the southern portion of the concession at the Sico target. To date, one hole to 400 meters depth was completed in the copper target with a second hole now underway. Three holes each to approximately 150 meters depth have been drilled in the gold-silver target. Sample results are pending for all holes. We expect to release data for those holes completed and our plans for continuing exploration at Sarita Este later in the third quarter 2021.
Financial Results of Operations
For the results of continuing operations discussed below, we compare the results from operations for the three and six months ended June 30, 2021, to the results from operations for the three and six months ended June 30, 2020.
Three Months Ended June 30, 2021
Revenue from the sale of metals. We recorded $5.9 million in revenue from doré sales for the three months ended June 30, 2021. We did not record any revenue from doré sales for the three months ended June 30, 2020.
Costs of metals sold. For the three months ended June 30, 2021 we recorded $3.3 million of costs of metals sold. We did not record any cost of metals sold during the three months ended June 30, 2020.
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Revenue from oxide plant lease. We recorded revenue of $1.2 million during three-month period ended June 30, 2020, related to the lease of our Velardeña oxide plant to a third party. The Velardeña oxide plant lease was terminated in November 2020. We did not record any revenue during the three-month period ended June 30, 2021.
Oxide plant lease costs. We recorded $0.4 million of costs related to the oxide plant lease during the three-month period ended June 30, 2020. The costs consist primarily of reimbursable labor and utility costs which for accounting purposes are also included in revenue from the oxide plant lease. The Velardeña oxide plant lease was terminated in November 2020. We did not record any costs related to the oxide plant lease during the three-month period ended June 30, 2021.
Exploration expense. Our exploration expense, including property holding costs and allocated administrative expenses, totaled $1.1 million and $0.8 million for the three months ended June 30, 2021, and June 30, 2020, respectively. The higher exploration expense for 2021 is primarily related to increased exploration at our Rodeo operation in Mexico during the period.
Velardeña care and maintenance costs. We recorded $0.1 million and $0.2 million for the three-month periods ended June 30, 2021 and June 30, 2020, respectively, for expenses related to care and maintenance at our Velardeña Properties as the result of the suspension of mining and processing activities in November 2015. The reduced costs for 2021 are primarily the result of costs associated with activities at the Velardeña Properties being allocated to the Rodeo operation.
El Quevar project expense. We incurred $0.1 million and $0.2 million for the three-month periods ended June 30, 2021, and June 30, 2020, respectively, related to holding and evaluation costs for the Yaxtché deposit at our El Quevar project in Argentina. During the three months ended June 30, 2021, approximately $0.2 million of costs actually incurred were offset by an anticipated reimbursement by Barrick, as discussed above.
Administrative expense. Administrative expenses totaled $1.0 million for the three months ended June 30, 2021. Administrative expenses, including costs associated with being a public company, are incurred primarily by our corporate activities in support of the Rodeo Property, Velardeña Properties, El Quevar project and our exploration portfolio. The $1.0 million of administrative expenses we incurred during the three months ended June 30, 2021, is comprised of $0.5 million of employee compensation and directors’ fees, $0.2 million of professional fees and $0.3 million of insurance, rents, travel expenses, utilities and other office costs. Administrative expenses totaled $0.8 million for the three months ended June 30, 2020. The $0.8 million of administrative expenses we incurred during the three months of 2020 is comprised of $0.4 million of employee compensation and directors’ fees, $0.3 million of professional fees and $0.1 million of insurance, rents, travel expenses, utilities and other office costs.
Stock based compensation. During the three months ended June 30, 2021, we incurred approximately $1.0 million of expense related to stock-based compensation. During the three months ended June 30, 2020, we incurred approximately $0.6 million of expense related to stock-based compensation. Stock based compensation varies from period to period depending on the number and timing of shares granted, the type of grant, the market value of the shares on the date of grant and other variables. Stock based compensation was higher in the 2021 period due primarily to stock awards granted to executives and a consultant.
Reclamation and accretion expense. During each of the three months ended June 30, 2021 and June 30, 2020 we incurred approximately $0.1 million of reclamation expense related to the accretion of an asset retirement obligation at the Velardeña Properties and environmental liabilities associated with the Rodeo operation.
Other operating income (expense), net. We recorded $0.1 million of other operating income for the three months ended June 30, 2021, primarily related to the amortization of deferred income related to the option agreement for the sale of the Santa Maria property, as discussed above. We recorded $0.1 million of other operating expense for the three months ended June 30, 2020, related to the write-off of a non-strategic exploration property in Mexico.
Depreciation, depletion and amortization. During the three-month periods ended June 30, 2021, and June 30, 2020, we incurred depreciation, depletion and amortization expense of approximately $0.2 million and $0.3 million, respectively.
Interest and other expense, net. We recorded a nominal amount of interest and other expense, net for both the three-month periods ended June 30, 2021 and June 30, 2020.
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Gain (Loss) on foreign currency losses. We recorded a foreign currency gain of approximately $0.1 million for the three months ended June 30, 2021. We recorded a nominal foreign currency loss for the three months ended June 30, 2020. Foreign currency gains and losses are primarily related to the effect of currency fluctuations on monetary transactions incurred by our foreign subsidiaries that are denominated in currencies other than US dollars.
Income taxes. We recorded a $67,000 tax expense for the three months ended June 30, 2021 and no income tax expense or benefit for the three months ended June 30, 2020.
Six Months Ended June 30, 2021
Revenue from the sale of metals. We recorded $7.6 million in revenue for the six months ended June 30, 2021, all from the sale of gold and silver bearing doré from the Rodeo Operation in Mexico. We did not record any revenue from doré sales for the six months ended June 30, 2020.
Costs of metals sold. For the six months ended June 30, 2021, we recorded $4.9 million of costs of metals sold. We did not record any cost of metals sold during the six months ended June 30, 2020.
Revenue from oxide plant lease. We recorded revenue of $2.4 million during six-month period ended June 30, 2020, related to the lease of our Velardeña oxide plant to a third party. The Velardeña oxide plant lease was terminated in November 2020. We did not record any costs related to the oxide plant lease during the six-month period ended June 30, 2021.
Oxide plant lease costs. We recorded $1.0 million of costs related to the oxide plant lease during the six-month period ended June 30, 2020. The costs consist primarily of reimbursable labor and utility costs which for accounting purposes are also included in revenue from the oxide plant lease. The Velardeña oxide plant lease was terminated in November 2020. We did not record any costs related to the oxide plant lease during the six-month period ended June 30, 2021.
Exploration expense. Our exploration expense, including work at Rodeo and other properties, property holding costs and allocated administrative expenses, totaled $1.9 million and $2.5 million for the six months ended June 30, 2021, and June 30, 2020, respectively. The increase in exploration expense for 2020 is primarily related to a drilling program at our Sand Canyon project in Nevada during the first six months of 2020.
El Quevar project expense. For the six months ended June 30, 2021, and June 30, 2020, we incurred $0.2 million and $0.5 million, respectively related to holding and evaluation costs for the Yaxtché deposit at our El Quevar project in Argentina. During the six months ended June 30, 2021, and June 30, 2020, approximately $0.3 million and $0.1 million of costs were reimbursed by Barrick, respectively as discussed above.
Velardeña care and maintenance costs. We recorded $0.3 million and $0.7 million for the six months ended June 30, 2021 and 2020, respectively, for expenses related to shut down and care and maintenance at our Velardeña Properties as the result of the suspension of mining and processing activities in November 2015. The reduced costs for 2021 are primarily the result of costs associated with activities at the Velardeña Properties being allocated to the Rodeo operation.
Administrative expense. Administrative expenses totaled $2.5 million and $1.9 million for the six months ended June 30, 2021, and June 30, 2020, respectively. Administrative expenses, including costs associated with being a public company, are incurred primarily by our corporate activities in support of the Velardeña Properties, El Quevar project and our exploration portfolio. The $2.5 million of administrative expenses we incurred during the six months of 2021 is comprised of $1.3 million of employee compensation and directors’ fees, $0.6 million of professional fees and $0.6 million of insurance, rents, travel expenses, utilities and other office costs. The $1.9 million of administrative expenses we incurred during the six months of 2020 is comprised of $0.7 million of employee compensation and directors’ fees, $0.6 million of professional fees and $0.6 million of insurance, rents, travel expenses, utilities and other office costs. Compensation expense was higher in the 2021 period due primarily to cash bonuses paid to executives.
Stock based compensation. During the six months ended June 30, 2021, we incurred approximately $1.4 million of expense related to stock-based compensation. During the six months ended June 30, 2020, we incurred approximately $0.7 million of expense related to stock-based compensation. Stock based compensation varies from period to period depending on the number and timing of shares granted, the type of grant, the market value of the shares on the date of grant and other
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variables. Stock based compensation was higher in the 2021 period due primarily to stock awards granted to executives and a consultant.
Reclamation and accretion expense. During each of the six-month periods ended June 30, 2021, and 2020 we incurred approximately $0.1 million of reclamation expense related to the accretion of an asset retirement obligation at the Velardeña Properties.
Other operating income (expense), net. We recorded $0.3 million of other operating income for the six months ended June 30, 2021, primarily related to the amortization of deferred income related to the option agreement for the sale of the Santa Maria property, as discussed above. We recorded $0.1 million of other operating expense for the six months ended June 30, 2020, related to the write-off of a non-strategic exploration property in Mexico.
Depreciation, depletion and amortization. During the six-month periods ended June 30, 2021, and June 30, 2020, we incurred depreciation, depletion and amortization expense of approximately $0.3 million and $0.5 million, respectively.
Interest and other expense, net. We recorded approximately $0.3 million of interest and other expense, net for the six-month period ended June 30, 2021, primarily related to write-off of deferred costs related to the Lincoln Park Capital program. We recorded approximately $0.1 of interest and other expense, net for the six months ended June 30, 2020, primarily related to a refundable deposit due to Autlán.
Gain (Loss) on foreign currency. We recorded a $0.1 million foreign currency gain and a $0.1 million foreign currency loss for the six months ended June 30, 2021, and June 30, 2020, respectively. Foreign currency gains and losses are primarily related to the effect of currency fluctuations on monetary transactions incurred by our foreign subsidiaries that are denominated in currencies other than US dollars.
Income taxes. We recorded a $15,000 tax expense for the six months ended June 30, 2021 and no income tax expense or benefit for the six months ended June 30, 2020.
Liquidity, Capital Resources and Going Concern
At June 30, 2021, our aggregate cash and cash equivalents totaled $6.9 million, compared to the $9.7 million in similar assets held at December 31, 2020. The June 30, 2021 balance is due in part from the following expenditures and cash inflows for the six months ended June 30, 2021. Expenditures totaled $8.3 million from the following:
| ● | $1.9 million for exploration expenditures at the Rodeo, Yoquivo and other properties; |
| ● | $1.2 million for capital expenditures primarily related to construction of the new regrind mill circuit related to the Rodeo operation; |
| ● | $0.3 million in care and maintenance costs at the Velardeña Properties; |
| ● | $0.2 million in exploration and evaluation activities, care and maintenance and property holding costs at the El Quevar project, net of reimbursements from Barrick; |
| ● | $2.5 million in general and administrative expenses; and |
| ● | $2.2 million related to a net working capital increase due primarily to an increase in inventories and value added tax receivables associated with the Rodeo operation, partially offset by an increase in accounts payable and other accrued liabilities, also related to the Rodeo operation. |
The foregoing expenditures were offset by cash inflows of $5.5 million from the following:
| ● | $2.7 million of net operating margin from the Rodeo operation (defined as revenue from the sale of metals less the cost of metals sold). |
| ● | $1.8 million, net of fees from the ATM Program (as further described above in Note 15); and |
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| ● | $1.0 million from the exercise of warrants issued in prior offerings (as further described above in Note 15). |
In addition to the $6.9 million cash balance at June 30, 2021, we expect to receive approximately $11.0 million to $13.0 million in net operating margin from the Rodeo Property (defined as revenue from the sale of metals less the cost of metals sold) during the twelve months ending June 30, 2022, assuming an average gold and silver price during that period of $1,800 and $25.00 oz respectively (the approximate average London Fix PM prices for the year to date period ended June 30, 2021, as reported by Kitco, were $1,807 and $26.49 for gold and silver, respectively). Our forecasted cash inflows during the twelve months ending June 30, 2022 do not include the anticipated second installment of $1.5 million from the sale of the Santa Maria property to Fabled, scheduled to be paid in December 2021, as discussed above. At this time, given the uncertainties associated with the eventual outcome of exploration activities at Santa Maria initiated by Fabled, and the associated timing of the start-up of operations at Santa Maria, we are not currently including the additional installment in our liquidity analysis.
Our forecasted expenditures during the twelve months ending June 30, 2022, apart from Rodeo cost of metals sold, which is already included in our forecast of net operating margin, total approximately $8.5 million as follows:
| ● | Approximately $3.8 million on exploration activities and property holding costs related to our portfolio of exploration properties located in Mexico, Argentina and Nevada, including project assessment and evaluation costs relating to additional exploration at Rodeo, Yoquivo, and other properties; |
| ● | Approximately $0.6 million at the Velardeña Properties for care and maintenance; |
| ● | Approximately $0.4 million at the El Quevar project to fund care and maintenance and property holding costs, net of reimbursement from Barrick; and |
| ● | Approximately $3.7 million on general and administrative costs |
Our forecasted cash resources of approximately $18.0 to $20.0 million, which includes cash on hand at June 30, 2021 and the forecasted net operating margin from the Rodeo Property, are greater than our forecasted expenditures of approximately $8.5 million. The actual net operating margin received from the Rodeo Property could be negatively impacted if further interruptions due to COVID-19 occur in Mexico. The actual amount of cash receipts that we receive during the period from the Rodeo operation may also vary significantly from the amounts specified above due to, among other things: (i) unanticipated variations in grade, (ii) unexpected challenges associated with our proposed mining plan, (iii) decreases in commodity prices below those used in calculating the estimates shown above, (iv) variations in expected recoveries, (v) increases in operating costs above those used in calculating the estimates shown above, or (vi) interruptions in production at Rodeo. The actual amount of cash expenditures that we incur during the twelve-month period ending June 30, 2022 may vary significantly from the amounts specified above and will depend on a number of factors, including variations in the anticipated care and maintenance costs at the Velardeña Properties or at El Quevar, and costs for continued exploration, project assessment, and development at our other exploration properties. Likewise, if cash expenditures are greater than anticipated or if cash receipts are less than anticipated, we may need to take certain actions to maintain sufficient cash balances over the next twelve months, including additional asset dispositions or raising additional equity capital through sales under the ATM Program or otherwise.
The condensed consolidated financial statements have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the normal course of business. However, our continuing long-term operations are dependent upon our ability to secure sufficient funding and to generate future profitable operations. The underlying value and recoverability of the amounts shown as property, plant and equipment in our condensed consolidated financial statements are dependent on our ability to generate positive cash flows from operations and to continue to fund exploration and development activities that would lead to profitable mining and processing activities or to generate proceeds from the disposition of property, plant and equipment.
There can be no assurance that we will be successful in generating future profitable mining and processing activities or securing additional funding in the future on terms acceptable to us or at all. We believe the cash on hand, anticipated positive net operating margins from the Rodeo operation, the potential use of the ATM Program, and the potential for additional asset dispositions make it probable that we will have sufficient cash to meet our financial obligations and continue our business strategy beyond one year from the filing of our condensed consolidated financial statements for the period ended June 30, 2021.
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Recent Accounting Pronouncements
In December 2019, the FASB issued No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). The guidance removes certain exceptions to the general principles of ASC 740 and simplifies several other areas. ASU 2019-12 is effective for public business entities for annual reporting periods beginning after December 15, 2020, and interim periods within those reporting periods. The Company has adopted ASU 2019-12 beginning in 2021. One of the amendments within ASU 2019-12 eliminates a limitation on the amount of income tax benefit that can be recognized in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The Company has applied this guidance in the calculation of the tax benefit included in “Income taxes” in the Condensed Consolidated Statements of Operations. The adoption of this guidance did not result in a material impact on our consolidated financial position or results of operations.
During the first quarter 2020, we adopted ASU No. 2016-13. ASU 2016-13 modifies the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the timelier recognition of losses. As our principle credit risk is related to its lease receivables, the adoption of this update did not result in a material impact on our consolidated financial position or results of operations.
On April 12, 2021, the SEC published a statement relating to accounting and reporting considerations for warrants issued by Special Purpose Acquisition Companies (SPACs). The SEC statement raised accounting and reporting considerations for all reporting entities that restrict the use of the exception noted above under ASC 815-40-25-7 thru 8 that allows for equity treatment, under certain conditions, for warrants that allow cash settlement in certain change of control transactions. The restriction put forth by the SEC would prevent equity treatment in cases where cash is received disproportionately between shareholders and warrant holders in such transactions. All of the outstanding warrants granted by us are recorded in equity at June 30, 2021 and December 31, 2020 following the guidance established by ASC Topic 815-40. Our warrants allow for the potential settlement in cash if certain extraordinary events are effected by us, including a 50% or greater change of control in our common stock. Since those events have been deemed to be within our control, we continue to apply equity treatment for these warrants.
Forward-Looking Statements
Some information contained in or incorporated by reference into this Quarterly Report on Form 10-Q may contain forward-looking statements. These statements include comments relating to: (i) the Rodeo project, including anticipated timing, scope, and impact of the exploration drilling program and future mining activities, anticipated capital requirements, production forecasts, the projected future payable from production and the projected future cash flow from production, and the anticipated life of the Rodeo mine; (ii) our plans regarding further advancement of the El Quevar project; (iii) potential future drillings at Yoquivo; (iv) the timeline for receiving results of the Velardeña studies; (v) the anticipated timing for releasing data and plans for exploration at Sarita Este; (vi) our plans to defend ourself against Unifin if served with notice of a lawsuit; (vii) expectations pertaining to the recovery of VAT refunds from the Mexican government; (viii) estimates of additional ARO that we expect to accrue; (ix) the estimated impact of the new 2021 Mexican labor law on our profit sharing liability in Mexico; (x) estimated future stock compensation expenses related to awards under the Equity Plan; and (xi) statements concerning our financial condition, business strategies and business and legal risks.
The use of any of the words “anticipate,” “continues,” “likely,” “estimate,” “expect,” “may,” “will,” “project,” “should,” “could,” “believe” and similar expressions are intended to identify uncertainties. We believe the expectations reflected in those forward-looking statements are reasonable. However, we cannot assure that these expectations will prove to be correct. Actual results could differ materially from those anticipated in these forward-looking statements as a result of the factors set forth below and other factors set forth in, or incorporated by reference into this report:
| ● | Timing duration and overall impact of the COVID-19 pandemic, including potential future suspension of activities at Rodeo or the Velardeña Properties in the event of future orders of the Mexican Federal Government; |
| ● | Deviations from the projected timing, amount of estimated production and project costs at Rodeo due to unanticipated variations in grade, unexpected challenges associated with our proposed mining plan, volatility in |
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| commodity prices, variations in expected recoveries, increases in projected operating or capital costs or delays in commencement of or interruptions in production; |
| ● | Higher than anticipated care and maintenance costs at the Velardeña Properties in Mexico or at El Quevar in Argentina; |
| ● | Risks related to the El Quevar project in Argentina, including unfavorable results from our evaluation activities and whether the option with respect to the El Quevar project is exercised pursuant to the terms of the Earn-in Agreement; |
| ● | Decreases or insufficient increases in silver and gold prices; |
| ● | Unfavorable results from exploration at the Santa Maria, Yoquivo, Sand Canyon or other exploration properties and whether we will be able to advance these or other exploration properties; |
| ● | The Rodeo project, including inaccuracies in our assumptions and projections contained in the Rodeo PEA (including life of mine and production expectations), and our plans for further exploration drilling; |
| ● | Variations in the nature, quality and quantity of any mineral deposits that are or may be located at the Velardeña Properties or our exploration properties, changes in interpretations of geological information, unfavorable results of metallurgical and other tests, and the timing and scope of our further evaluation activities at the Velardeña Properties; |
| ● | Potential delays in our exploration activities or other activities to advance properties towards mining resulting from environmental consents or permitting delays or problems, accidents, problems with contractors, disputes under agreements related to exploration properties, unanticipated costs and other unexpected events; |
| ● | Our ability to retain key management and mining personnel necessary to successfully operate and grow our business; |
| ● | Economic and political events affecting the market prices for gold, silver, zinc, lead and other minerals that may be found on our exploration properties; |
| ● | Political and economic instability in Mexico, Argentina, and other countries in which we conduct our business and future actions of any of these governments with respect to nationalization of natural resources or other changes in mining or taxation policies; |
| ● | Volatility in the market price of our common stock; and |
| ● | The factors discussed under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020. |
Many of these factors are beyond our ability to control or predict. You should not unduly rely on these forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we are not obligated to publicly release any revisions to these forward-looking statements to reflect future events or developments.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We invest substantially all of our excess cash in U.S. government and debt securities rated “investment grade” or better. The rates received on such investments may fluctuate with changes in economic conditions. Based on the average cash and investment balances outstanding during the first six months of 2021, a 1% decrease in interest rates would have resulted in only a nominal reduction in interest income for the period.
Foreign Currency Exchange Risk
Although most of our expenditures are in U.S. dollars, certain purchases of labor, supplies and capital assets are denominated in other currencies, primarily in Mexico. As a result, currency exchange fluctuations may impact the costs of our exploration and mining activities. To reduce this risk, we maintain minimum cash balances in foreign currencies and complete most of our purchases in U.S. dollars.
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Commodity Price Risk
We are primarily engaged in the exploration and mining of properties containing gold, silver, zinc, lead and other minerals. As a result, decreases in the price of any of these metals have the potential to negatively impact our ability to establish reserves and mine on our properties. We currently hold no commodity derivative positions.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2021, (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During April 2021, we became aware of a lawsuit in Mexico against one of our Mexican subsidiaries, Minera William, S.A. de C.V. (“Minera William”). The plaintiff in the matter is Unifin Financiera, S.A.B de C.V. (“Unifin”). The lawsuit was assigned to the Fifth Specialized Commercial District Court. Although we have knowledge of the existence and content of the lawsuit filed by Unifin, the Court has not officially served Minera William with the complaint as of the date of this report. Unifin is alleging that a representative of Minera William signed certain documents in July 2011 purporting to bind Minera William as a guarantor of payment obligations owed by a third party to Unifin in connection with that third party’s acquisition of certain drilling equipment. At the time the documentation was allegedly signed, Minera Williams was a subsidiary of ECU Silver Mining prior to our acquisition of ECU in September 2011. As a preemptive measure, Unifin has obtained a preliminary court order freezing Minera William’s bank accounts in Mexico, which has limited our and Minera William’s ability to access approximately US$153,000 according to current currency exchange rates. Notwithstanding this action, the restrictions imposed on Minera Williams’ bank accounts do not impact our ability to operate the Rodeo mine, which is held through a different Mexico subsidiary, or continue with our evaluation plans for a potential Velardeña mine restart or move forward with any of our other exploration programs in Mexico. Unifin is seeking recovery for as much as US$12.5 million. We believe there is no basis for this claim and will defend ourselves if and when we are formally served with notice of the lawsuit. As such, we have not accrued an amount for this matter in our Condensed Consolidated Balance Sheets or Statements of Operations as of June 30, 2021.
Item 1A. Risk Factors
The risk factors for the six months ended June 30, 2021, are substantially the same as those set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.* |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.* |
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101.INS | Inline XBRL Instance Document* |
101.SCH | Inline XBRL Taxonomy Extension Schema Document* |
101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document* |
101.DEF | Inline XBRL Taxonomy Definition Document* |
101.LAB | Inline XBRL Taxonomy Label Linkbase Document* |
101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document* |
104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document) |
* Filed herewith ** Furnished herewith | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GOLDEN MINERALS COMPANY
Date: | August 5, 2021 | By: | /s/ Warren M. Rehn |
Warren M. Rehn | |||
President and Chief Executive Officer | |||
Date: | August 5, 2021 | By: | /s/ Robert P. Vogels |
Robert P. Vogels | |||
Senior Vice President and Chief Financial Officer | |||
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