Gold Reserve Ltd 40-F for FY2020
Gold Reserve Ltd (GDRZF)
About this 40-F
Gold Reserve Ltd filed this 40-F on April 8, 2021, covering the fiscal year ended December 31, 2020 (FY2020).
Headline figures
Fiscal year ended December 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $11.52M
- compared with a net loss of $13.15M a year earlier
Exhibit 99.2 – Audited Consolidated Financial Statements
Management's Annual Report on Internal Control over Financial Reporting
The accompanying audited consolidated financial statements of Gold Reserve Inc. were prepared by management in accordance with accounting principles generally accepted in the United States, consistently applied and within the framework of the summary of significant accounting policies contained therein. Management is responsible for all information in the accompanying audited consolidated financial statements.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the U.S. Internal control over financial reporting includes:
| · | maintaining records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| · | providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with U.S. generally accepted accounting principles; |
| · | providing reasonable assurance that receipts and expenditures are made in accordance with authorizations of our executive officers; and |
| · | providing reasonable assurance that unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. |
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Management, including the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2020.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
| /s/ Rockne J. Timm | /s/ Robert A. McGuinness |
| Chief Executive Officer | Vice President-Finance and Chief Financial Officer |
| April 8, 2021 | April 8, 2021 |
| 1 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Gold Reserve Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Gold Reserve Inc. and its subsidiaries (together, the Company) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, changes in shareholders' equity, and cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
| 2 |
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Recognition of the receivable associated with the Venezuelan arbitration
As described in Notes 1 and 3 to the consolidated financial statements, in July 2016, the Company signed the July 2016 settlement agreement, (as amended, the "Settlement Agreement") with the Bolivarian Republic of Venezuela ("Venezuela"), whereby Venezuela agreed to pay the Company a total of approximately $1.032 billion which is comprised of $792 million to satisfy the arbitral award (the “Award”) (including interest) and $240 million for the purchase of the Company’s mining data related to the Brisas project (the "Mining Data") to be settled in a series of payments ending on or before June 15, 2019. The Company has received approximately $254 million pursuant to the Settlement Agreement with the remainder unpaid. As specified in the Settlement Agreement, the first $240 million received by the Company from Venezuela has been recognized as proceeds from the sale of the Mining Data. Any future payments received by Venezuela are made in relation to the Award. As of December 31, 2020, the amount owing to the Company in relation to the Award is approximately $778 million, excluding interest. The Company has not recognized an Award receivable or associated liabilities which include taxes, bonus plan and contingent value right payments in accordance with the Settlement Agreement, as management has not yet determined that payment from Venezuela is probable. The Award receivable and any associated liabilities will be recognized when, in management’s judgment, it is probable that payment from Venezuela will occur.
The principal considerations for our determination that performing procedures relating to the recognition of the receivable associated with the Venezuelan arbitration is a critical audit matter is that there was significant judgment made by management when determining if recognition was required, which in turn led to a higher degree of subjectivity in performing audit procedures to evaluate management’s assessment of the probability of future payments from Venezuela.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s process of assessing the basis for recognizing the Award receivable and associated liabilities under the Settlement Agreement. These procedures also included, among others, evaluating how management formulated their judgement as to the likelihood of future payments being made by Venezuela. This included considering publicly available information such as sanctions imposed against Venezuela by both the United States and Canadian governments, the current economic and political instability in Venezuela and the history of non-payment by Venezuela under the terms of the Settlement Agreement.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, Canada
April 8, 2021
We have served as the Company's auditor since 2001.
| 3 |
GOLD RESERVE INC.
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars)
|
December 31, 2020 |
December 31, 2019 | ||||||
| ASSETS | |||||||
| Current Assets: | |||||||
| Cash and cash equivalents (Note 4) | $ | $ | |||||
| Marketable securities (Note 5) | |||||||
| Income tax receivable (Note 10) | |||||||
| Prepaid expense and other | |||||||
| Total current assets | |||||||
| Property, plant and equipment, net (Note 6) | |||||||
| Right of use asset | |||||||
| Total assets | $ | $ | |||||
| LIABILITIES | |||||||
| Current Liabilities: | |||||||
| Accounts payable and accrued expenses (Note 3) | $ | $ | |||||
| Lease liability | |||||||
| Contingent value rights (Note 3) | |||||||
| Total current liabilities | |||||||
| Lease liability | |||||||
| Total liabilities | |||||||
| SHAREHOLDERS' EQUITY | |||||||
| Serial preferred stock, without par value | |||||||
| Authorized: | Unlimited | ||||||
| Issued: | |||||||
| Common shares (Note 11) | |||||||
| Class A common shares, without par value | |||||||
| Authorized: | Unlimited | ||||||
| Issued and outstanding: | 2020… | 2019… | |||||
| Contributed surplus | |||||||
| Stock options (Note 9) | |||||||
| Accumulated deficit | ( |
( | |||||
| Total shareholders' equity | |||||||
| Total liabilities and shareholders' equity | $ | $ | |||||
Contingencies (Note 3)
The accompanying notes are an integral part of the audited consolidated financial statements.
Approved by the Board of Directors:
/s/ James Michael Johnston /s/ James P. Geyer
| 4 |
GOLD RESERVE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in U.S. dollars)
| For the Years Ended | ||||
| December 31, | ||||
| 2020 | 2019 | |||
| INCOME (LOSS) | ||||
| Interest income | ||||
| Loss on disposition of property, plant and equipment (Note 6) | ( |
|||
| Gain (loss) on marketable equity securities | ( | |||
| Foreign currency gain | ||||
| EXPENSES | ||||
| Corporate general and administrative (Notes 3 and 9) | ||||
| Contingent value rights (Note 3) | ||||
| Siembra Minera Project costs (Note 7) | ||||
| Write-down of property, plant and equipment (Note 6) | ||||
| Exploration costs | ||||
| Legal and accounting | ||||
| Arbitration and settlement (Note 3) | ||||
| Equipment holding costs | ||||
| Net loss before income tax benefit | ( |
( | ||
| Income tax benefit (Note 10) | ||||
| Net loss and comprehensive loss for the year | $ | ( |
$ | ( |
| Net loss per share, basic and diluted | $ | ( |
$ | ( |
| Weighted average common shares outstanding | ||||
| Basic | ||||
| Diluted | ||||
The accompanying notes are an integral part of the audited consolidated financial statements.
| 5 |
GOLD RESERVE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2020 and 2019
(Expressed in U.S. dollars)
| Contributed Surplus | Stock Options | Accumulated Deficit | ||||||||||
| Common Shares | ||||||||||||
| Number | Amount | |||||||||||
| Balance, December 31, 2018 | $ |
$ |
$ |
$( |
||||||||
| Net loss for the year | – | ( |
||||||||||
| Stock option compensation (Note 9) | – | |||||||||||
| Return of capital (Note 11) | – | ( |
||||||||||
| Balance, December 31, 2019 | ( |
|||||||||||
| Net loss for the year | – | ( |
||||||||||
| Stock option compensation (Note 9) | – | |||||||||||
| Balance, December 31, 2020 | $ |
$ |
$ |
$( |
||||||||
The accompanying notes are an integral part of the audited consolidated financial statements.
| 6 |
GOLD RESERVE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. dollars)
| For the Years Ended | ||||
| December 31, | ||||
| 2020 | 2019 | |||
| Cash Flows from Operating Activities: | ||||
| Net loss for the year | $ | ( |
$ | ( |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
||||
| Stock option compensation | ||||
| Depreciation | ||||
| Write-down of property, plant and equipment | ||||
| Loss on disposition of property, plant and equipment | ||||
| Loss (gain) on marketable equity securities | ( |
) | ||
| Income tax recovery | ( |
( | ||
| Changes in non-cash working capital: | ||||
| Decrease in income tax receivable | ||||
| Net decrease (increase) in prepaid expense and other | ||||
| Net increase in accounts payable and accrued expenses | ||||
| Net cash used in operating activities | ( |
( | ||
| Cash Flows from Investing Activities: | ||||
| Proceeds from disposition of marketable equity securities | ||||
| Proceeds from sale of property, plant and equipment | ||||
| Purchase of property, plant and equipment | ( |
( | ||
| Net cash provided by (used in) investing activities | ( | |||
| Cash Flows from Financing Activities: | ||||
| Return of capital | ( | |||
| Net cash used in financing activities | ( | |||
| Change in Cash and Cash Equivalents: | ||||
| Net decrease in cash and cash equivalents | ( |
( | ||
| Cash and cash equivalents - beginning of year | ||||
| Cash and cash equivalents - end of year | $ | $ | ||
The accompanying notes are an integral part of the audited consolidated financial statements.
| 7 |
Note 1. The Company and Significant Accounting Policies:
Gold Reserve Inc. ("Gold Reserve," the "Company," "we," "us," or "our") is engaged in the business of acquiring, exploring and developing mining projects and was incorporated in 1998 under the laws of the Yukon Territory, Canada and continued to Alberta, Canada in September 2014.
Gold Reserve Inc. is the successor issuer to Gold Reserve Corporation which was incorporated in 1956. Management's primary activities are focused on the execution of the July 2016 settlement agreement, (as amended, the "Settlement Agreement") with the Bolivarian Republic of Venezuela ("Venezuela") in regards to the payment of the Award (as defined herein) and the acquisition of our Mining Data by Venezuela, identifying our legal options associated with the collection of the unpaid balance of the Award and developing our future operational strategies associated with post-sanctions development of the Siembra Minera Project.
The U.S. and Canadian governments have imposed various sanctions targeting Venezuela (the "Sanctions"). The Sanctions implemented by the U.S. government generally block all property of the Venezuelan government and state-owned/controlled entities such as Siembra Minera. In addition, U.S. Sanctions prohibit U.S. Persons (as defined by U.S. Sanction statutes) from dealing with Specially Designated Nationals ("SDNs") and targets corruption in, among other identified sectors, the gold sector of the Venezuela economy. The Sanctions implemented by the Canadian government generally include asset freezes and impose prohibitions on dealings, by Canadian entities and/or citizens as well as other individuals in Canada, with certain named Venezuelan officials under the Special Economic Measures (Venezuela) Regulations of the Special Economic Measures Act and the Justice for Victims of Corrupt Foreign Officials Regulations of the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law). In addition, on March 26, 2020, the U.S. government indicted Venezuelan President Nicolas Maduro and a number of key associates for human rights abuses and drug trafficking. (See Note 3, Arbitral Award, Settlement Agreement and Mining Data Sale and Note 7, Empresa Mixta Ecosocialista Siembra Minera, S.A.).
Basis of
Presentation and Principles of Consolidation. These consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles ("U.S. GAAP"). The statements include the accounts of the Company,
Gold Reserve Corporation and three Barbadian subsidiaries one of which was formed to hold our equity interest in Siembra Minera
which is beneficially owned
Cash and Cash Equivalents. We consider short-term, highly liquid investments purchased with an original maturity of three months or less to be cash equivalents for purposes of reporting cash equivalents and cash flows. The cost of these investments approximates fair value. We manage the exposure of our cash and cash equivalents to credit risk by diversifying our holdings into various major financial institutions.
Exploration and Development Costs. Exploration costs incurred in locating areas of potential mineralization or evaluating properties or working interests with specific areas of potential mineralization are expensed as incurred. Development costs of proven mining properties not yet producing are capitalized at cost and classified as capitalized exploration costs under property, plant and equipment. Mineral property acquisition costs are capitalized and holding costs of such properties are charged to operations during the period if no significant exploration or development activities are being conducted on the related properties. Upon commencement of production, capitalized exploration and development costs would be amortized based on the estimated proven and probable reserves benefited. Mineral properties determined to be impaired or that are abandoned are written-down to the estimated fair value. Carrying values do not necessarily reflect present or future values.
| 8 |
Property, Plant and Equipment. Property, plant and equipment is recorded at cost and are depreciated on a straight-line basis over their estimated useful lives, except for equipment not yet placed into use. Included in property, plant and equipment is certain equipment, relating to the Brisas Project that is not being depreciated as it is not in use. The ultimate recoverable value of this equipment may be different than management's current estimate. We have additional property, plant and equipment which are recorded at cost less accumulated depreciation. Replacement costs and major improvements are capitalized. Maintenance and repairs are charged to expense as incurred. The cost and accumulated depreciation of assets retired or sold are removed from the accounts and any resulting gain or loss is reflected in operations. Furniture, office equipment and leasehold improvements are depreciated using the straight-line method over five to ten years. The remaining property, plant and equipment are fully depreciated.
Impairment of Long-Lived Assets. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the expected future net cash flows to be generated from the use or eventual disposition of a long-lived asset (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized based on a determination of the asset's fair value. Fair value is generally determined by discounting estimated cash flows based on market participant expectations of those future cash flows, or applying a market approach that uses market prices and other relevant information generated by market transactions involving comparable assets.
Foreign Currency. The U.S. dollar is our (and our foreign subsidiaries') functional currency. Monetary assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the rates of exchange in effect at the balance sheet dates. Non-monetary assets and liabilities are translated at historical rates and revenue and expense items are translated at average exchange rates during the reporting period, except for depreciation which is translated at historical rates. Translation gains and losses are included in the statement of operations.
Income Taxes. We use the liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on the differences between the tax basis of assets and liabilities and those amounts reported in the financial statements. The deferred tax assets or liabilities are calculated using the enacted tax rates expected to apply in the periods in which the differences are expected to be settled. Deferred tax assets are recognized to the extent that they are considered more likely than not to be realized.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Marketable Securities. The Company's marketable securities consist of equity securities, which are reported at fair value with changes in fair value included in the statement of operations.
Equity accounted investments. Investments in incorporated entities in which the Company has the ability to exercise significant influence over the investee are accounted for by the equity method.
Financial Instruments. Marketable securities are measured at fair value at each reporting date, with the change in value recognized in the statement of operations as a gain or loss. Cash and cash equivalents, deposits, advances and receivables are accounted for at amortized cost which approximates fair value. Accounts payable and contingent value rights are recorded at amortized cost which approximates fair value.
| 9 |
Note 2. New Accounting Policies:
Recently issued accounting pronouncements
In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). This update is intended to clarify certain interactions between Topics which guide the accounting for certain equity securities and investments under the equity method of accounting. These amendments improve current GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. This update is effective for us commencing with the annual period beginning after December 15, 2020, including interim periods within that year. The adoption of this standard will not have a significant impact on our financial statements.
Note 3. Arbitral Award, Settlement Agreement and Mining Data Sale:
In October 2009 we
initiated a claim (the "Brisas Arbitration") under the Additional Facility Rules of the International Centre for the
Settlement of Investment Disputes ("ICSID") to obtain compensation for the losses caused by the actions of Venezuela
that terminated our previous mining project known as the "Brisas Project." On September 22, 2014, we were granted an
Arbitral Award (the "Award") totaling $
In July 2016, we
signed the Settlement Agreement, subsequently amended, whereby Venezuela agreed to pay us a total of approximately $
To date, the Company
has received payments of approximately $
The interest rate provided for on any unpaid amounts pursuant to the Award is specified as LIBOR plus two percent. In 2017, U.K.’s Financial Conduct Authority announced that LIBOR will be phased out of existence as a dependable index for variable interest rates no later than December 31, 2021. Working groups assembled by the U.S. Federal Reserve have identified the Secured Overnight Funding Rate ("SOFR") as the preferred replacement for LIBOR. If and when it is possible to engage with the Venezuelan government, we plan to negotiate with Venezuela as to an appropriate replacement or, alternatively, petition the court responsible for the enforcement of our Award judgement to rule on a new interest rate benchmark. There is no assurance that we will be successful in such efforts.
In addition to other constraints, the Sanctions restrict the Company from working with those Venezuelan government officials responsible for the payment and transfer of funds associated with the Settlement Agreement which adversely impacts our ability to collect the remaining balance of the Award plus interest and/or amounts due pursuant to the Settlement Agreement from Venezuela. The Company, with counsels’ assistance, continues to evaluate and pursue various options in regard to the Award and the Settlement Agreement.
In March 2020, the U.S. Congress passed legislation which allows companies to carryback net operating losses incurred in 2018, 2019 and 2020 to offset income earned in prior years. In response to this legislation, management reduced its estimate of the U.S. related income tax due on amounts received in 2018 from the sale of Mining Data. The effect of this change in estimate was to increase the net proceeds subject to the CVR and the Bonus Plan and as a result, the Company recorded an increase in its obligation to the CVR holders and Bonus Plan participants by approximately $60 thousand and $70 thousand, respectively.
| 10 |
We have Contingent
Value Rights ("CVRs") outstanding that entitle the holders to an aggregate of
We maintain a bonus
plan (the "Bonus Plan") which is intended to compensate the participants, including executive officers, employees, directors
and consultants for their past and present contributions to the Company. The bonus pool under the Bonus Plan is comprised of the
gross proceeds collected or the fair value of any consideration realized less applicable taxes multiplied by
Due to U.S. and Canadian Sanctions and the uncertainty of transferring the remaining amounts due from Venezuela to bank accounts outside of Venezuela, management only considers those funds received by the Company into its North American bank accounts as funds available for purposes of the CVR and Bonus Plan cash distributions.
Following receipt, if any, of additional funds pursuant to the Settlement Agreement and after applicable payments to CVR holders and Bonus Plan participants, we expect to distribute to our shareholders a substantial majority of any remaining amounts, subject to applicable regulatory requirements and retaining sufficient reserves for operating expenses, contractual obligations, accounts payable and income taxes, and any obligations arising as a result of the collection of the remaining amount owed by Venezuela (See Note 11, Return of Capital).
Note 4. Cash and Cash Equivalents:
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Bank deposits | $ | $ | ||||||
| Short term investments | ||||||||
| Total | $ | $ |
Short term investments include money market funds and US treasury bills which mature in three months or less.
Note 5. Marketable Securities:
| December 31, | December 31, | |||||||
| Schedule of Marketable Securities Value | 2020 | 2019 | ||||||
| Equity securities | ||||||||
| Fair value and carrying value at beginning of year | $ | $ | ||||||
| Increase (decrease) in fair value | ( | |||||||
| Disposals during the year | ( |
|||||||
| Fair value and carrying value at balance sheet date | $ | $ | ||||||
| 11 |
Marketable equity securities are classified as trading securities and accounted for at fair value, based on quoted market prices with unrealized gains or losses recorded in the Consolidated Statements of Operations.
Accounting Standards Codification ("ASC") 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: Level 1 inputs are quoted prices in active markets for identical assets or liabilities, Level 2 inputs are inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the asset or liability and Level 3 inputs are unobservable inputs for the asset or liability that reflect the entity's own assumptions. The fair values of the Company's marketable equity securities as at the balance sheet date are based on Level 1 inputs.
Note 6. Property, Plant and Equipment:
Property, Plant and Equipment
| Accumulated | ||||||
| Cost | Depreciation | Net | ||||
| December 31, 2020 | ||||||
| Machinery and equipment | $ | $ | $ | |||
| Furniture and office equipment | ( |
|||||
| Transportation equipment | ( |
|||||
| Leasehold improvements | ( |
|||||
| Mineral property | ||||||
| $ | $ | ( |
$ | |||
| Accumulated | ||||||
| Cost | Depreciation | Net | ||||
| December 31, 2019 | ||||||
| Machinery and equipment | $ | $ | $ | |||
| Furniture and office equipment | ( |
|||||
| Transportation equipment | ( |
|||||
| Leasehold improvements | ( |
|||||
| Mineral property | ||||||
| $ | $ | ( |
$ |
Machinery and equipment
consists of infrastructure equipment and a semi-autogenous grinding (SAG) mill originally intended for use on the Brisas Project.
We evaluate our equipment to determine whether events or changes in circumstances have occurred that may indicate that the carrying
amount may not be recoverable. We regularly obtain comparable market data for similar equipment as evidence that fair value less
cost to sell is in excess of the carrying amount. During the fourth quarter of 2020, the Company determined that the value of the
motor for the SAG mill had declined to the extent that it should be disposed of in order to reduce equipment holding cost and accordingly
it was written down to scrap value. The Company recorded impairment write-downs of property, plant and equipment of $
| 12 |
In October 2016, together with an affiliate of the government of Venezuela, we established Siembra Minera. The primary purpose of this entity is to develop the Siembra Minera Project, as defined below.
Siembra Minera
is beneficially owned
On March 16, 2018,
the Company announced the completion of a technical report for the Preliminary Economic Assessment ("PEA") for the Siembra
Minera Project in accordance with Canadian National Instrument 43-101 - Standards of Disclosure
for Mineral Projects which included, among other information, resource estimates, pit design, mine plan, flowsheet design, design
criteria, project layout, infrastructure requirements, capital and operating estimates. The Company has directly incurred the costs
associated with the Siembra Minera Project Minera which, beginning in 2016 through December 31, 2020, amounted to a total of approximately
$
In addition to other constraints, the Sanctions restrict the Company from working with those Venezuelan government officials responsible for the operation of Siembra Minera and the development of the Siembra Minera Project which, until Sanctions are lifted, obstructs our ability to develop the Siembra Minera Project as originally planned.
Note 8. KSOP Plan:
The KSOP Plan was originally adopted
in 1990 and was most recently restated effective January 1, 2017. The purpose of the KSOP Plan is to offer retirement benefits
to eligible employees of the Company. The KSOP Plan provides for a salary deferral or “401(k)” component, a non-elective
contribution of 3% of each eligible Participant’s annual compensation and discretionary contributions. Allocation of Class
A common shares or cash to participants' accounts, subject to certain limitations, is at the discretion of the Board. In the 2020
Plan year, the Compensation Committee of the Board recommended that Class A common shares with a fair value of approximately $
be contributed to participants in the KSOP Plan. The shares are expected to be contributed to participants in April 2021. During
the 2019 Plan year, the Company made cash contributions to Plan participants totaling approximately $
| 13 |
Equity Incentive Plan
The Company's equity
incentive plan provides for the grant of stock options to purchase up to a maximum of
Stock option transactions for the years ended December 31, 2020 and 2019 are as follows:
| 2020 | 2019 | |||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||
| Options outstanding - beginning of period | $ |
$ |
||||
| Options granted | |
|
||||
| Options expired | ( |
|
||||
| Options outstanding - end of period | $ |
$ |
||||
The following table relates to stock options at December 31, 2020:
| Outstanding Options | Exercisable Options | ||||||||
| Exercise Price | Number | Weighted Average Exercise Price | Aggregate Intrinsic Value | Weighted Average Remaining Contractual Term (Years) | Number | Weighted Average Exercise Price | Aggregate Intrinsic Value | Weighted Average Remaining Contractual Term (Years) | |
| $ - $ | $ | $ |
$ |
$ |
|||||
| $ - $ | $ | $ |
|||||||
| $ - $ | $ | $ |
|||||||
| $ - $ | $ | $ |
$ |
$ |
|||||
In the third quarter
of 2020, in order to reflect the decrease in the market price of the Class A Shares as a result of the return of capital transaction
that was completed in 2019, the Company reduced the exercise price of
| 14 |
The Company granted
and NIL options during the years ended December 31, 2020 and 2019, respectively. The Company recorded non-cash compensation
during years ended December 31, 2020 and 2019 of approximately $
The weighted average fair value of the options granted in 2020 was calculated as $. The fair value of options granted was determined using the Black-Scholes model based on the following weighted average assumptions:
| Risk free interest rate | % | ||
| Expected term | years | ||
| Expected volatility | % | ||
| Dividend yield |
The risk free interest rate is based on the US Treasury rate on the date of grant for a period equal to the expected term of the option. The expected term is based on historical exercise experience and projected post-vesting behavior. The expected volatility is based on historical volatility of our common stock over a period equal to the expected term of the option.
Change of Control Agreements
The Company maintains
change of control agreements with certain officers and employees. A Change of Control is generally defined as one or more of the
following: the acquisition by any individual, entity or group, of beneficial ownership of 25 percent of the voting power of the
Company’s outstanding Common Shares; a change in the composition of the Board that causes less than a majority of the current
directors of the Board to be members of the incoming board; reorganization, merger or consolidation or sale or other disposition
of all or substantially all of the assets of the Company; liquidation or dissolution of the Company; or any other event the Board
reasonably determines constitutes a Change of Control. As of December 31, 2020, the amount payable under the change of control
agreements, in the event of a Change of Control, was approximately $
Note 10. Income Tax:
Income tax benefit for the years ended December 31, 2020 and 2019 differs from the amount that would result from applying Canadian tax rates to net income before taxes. These differences result from the items noted below:
| 2020 | 2019 | |||
| Amount | % | Amount | % | |
| Income tax benefit based on Canadian tax rates | $ |
$ |
||
| Increase (decrease) due to: | ||||
| Different tax rates on foreign subsidiaries | ( |
( |
( |
( |
| Non-deductible expenses | ( |
( |
( |
|
| Worthless subsidiary stock write-off | ||||
| Change in valuation allowance and other | ( |
( |
( |
( |
| $ |
$ |
|||
| 15 |
The Company recorded income
tax benefit of $
The components of the Canadian and U.S. deferred income tax assets and liabilities as of December 31, 2020 and 2019 were as follows:
| December 31, | ||||
| 2020 | 2019 | |||
| Deferred income tax assets | ||||
| Net operating loss carry forwards | $ | $ | ||
| Property, Plant and Equipment | ||||
| Other | ||||
| Total deferred income tax asset | ||||
| Valuation allowance | ( |
( | ||
| Deferred income tax assets net of valuation allowance | $ | |
$ | |
| Deferred income tax liabilities | ||||
| Other | ( |
( | ||
| Net deferred income tax asset | $ | $ | ||
At December 31, 2020, we had the following Canadian tax loss carry forwards stated in U.S. dollars.
| Expires | |||
| $ | $ |
2026 | |
| 2027 | |||
| 2028 | |||
| 2029 | |||
| 2030 | |||
| 2031 | |||
| 2032 | |||
| 2033 | |||
| 2034 | |||
| 2035 | |||
| 2036 | |||
| 2037 | |||
| 2038 | |||
|
|
2039 2040 | ||
| $ | $ |
| 16 |
Note 11. Return of Capital:
In June 2019, the Company completed a return of capital transaction by way of a court-approved plan of arrangement transaction under the Business Corporations Act (Alberta) which required approval by the Alberta Court of Queen’s Bench and at least two-thirds of the votes of shareholders. Pursuant to the plan of arrangement, the Company returned to holders of its Class A common shares approximately $ million or $ per Class A Share.