i-80 Gold Corp 6-K, filed Aug 9, 2022
i-80 Gold Corp. (IAUX)
6-K
2022-08-09
For: 2022-06-30
View Original
Added on
April 12, 2026
About this 6-K
i-80 Gold Corp filed this 6-K on August 9, 2022.
6-K 1 i80form6k.htm FORM 6-K
| UNITED STATES | ||
| SECURITIES AND EXCHANGE COMMISSION | ||
| Washington, D.C. 20549 | ||
| FORM 6-K | ||
| REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the month of: August, 2022 | ||
Commission file number: 001-41382 | ||
| i-80 Gold Corp. | ||
| (Translation of registrant's name into English) | ||
| 5190 Neil Road, Suite 460, Reno, NV 89502 | ||
| (Address of principal executive offices) | ||
| Indicate by check mark whether the registrant files or will file annual reports under cover: ☐ Form 20-F ☒ Form 40-F | ||
| Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐ | ||
| Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐ | ||
EXHIBIT INDEX
| Exhibit | Description | |||||||
| 99.1 | ||||||||
| 99.2 | ||||||||
| 99.3 | ||||||||
| 99.4 | ||||||||
| 99.5 | ||||||||
SIGNATURE
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.
| Date: August 9, 2022 | /s/ Ryan Snow | |||||||
| Ryan Snow | ||||||||
| Chief Financial Officer | ||||||||
Condensed Consolidated Interim Financial Statements June 30, 2022
(Unaudited)
(Stated in thousands of United States Dollars)
NOTICE TO SHAREHOLDERS
For The Three And Six Months Ended June 30, 2022 i-80 Gold Corp
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying unaudited condensed consolidated interim financial statements of i-80 Gold Corp were prepared by management in accordance with International Financial Reporting Standards ("IFRS"). Only changes in accounting policies have been disclosed in these unaudited condensed consolidated interim financial statements. Management acknowledges responsibility for the preparation and presentation of the unaudited condensed consolidated interim financial statements, including responsibility for significant accounting judgments and estimates and the choice of accounting principles and methods that are appropriate to the Company’s circumstances.
Management has established processes, which are in place to provide them sufficient knowledge to support management representations that they have exercised reasonable diligence that (i) the unaudited condensed consolidated interim financial statements do not contain any untrue statement of material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it is made, as of the date of and for the periods presented by the unaudited condensed consolidated interim financial statements and (ii) the unaudited condensed consolidated interim financial statements fairly present in all material respects the financial position, results of operations and cash flows of the Company, as of the date of and for the periods presented by the unaudited condensed consolidated interim financial statements.
The Board of Directors is responsible for reviewing and approving the unaudited condensed consolidated interim financial statements together with other financial information of the Company and for ensuring that management fulfills its financial reporting responsibilities. An Audit Committee assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management to review the financial reporting process and the unaudited condensed consolidated interim financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the unaudited condensed consolidated interim financial statements together with other financial information of the Company for issuance to the shareholders.
Management recognizes its responsibility for conducting the Company’s affairs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.
1
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(Stated in thousands of United States Dollars)
(Unaudited)
| Note | June 30, 2022 | December 31, 2021 | |||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 100,980 | $ | 87,658 | |||||||
| Receivables | 3,296 | 393 | |||||||||
| Inventory | 5 | 30,296 | 26,000 | ||||||||
| Prepaids and deposits | 5,078 | 4,795 | |||||||||
| Current portion of other assets | 6 | 4,080 | 2,650 | ||||||||
| Total current assets | 143,730 | 121,496 | |||||||||
| Non-current assets | |||||||||||
| Other assets | 6 | 10,508 | — | ||||||||
| Restricted cash and cash equivalents | 8 | 30,794 | 30,777 | ||||||||
| Long-term receivable | 7 | 1,427 | 1,427 | ||||||||
| Property, plant and equipment | 9 | 510,845 | 502,649 | ||||||||
| Total non-current assets | 553,574 | 534,853 | |||||||||
| Total assets | $ | 697,304 | $ | 656,349 | |||||||
| LIABILITIES | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | 2,981 | $ | 8,533 | |||||||
| Accrued liabilities | 6,499 | 5,533 | |||||||||
| Current portion of long-term debt | 10 | 11,203 | 58 | ||||||||
| Current portion of other liabilities | 12 | 26,318 | 15,795 | ||||||||
| Total current liabilities | 47,001 | 29,919 | |||||||||
| Non-current liabilities | |||||||||||
| Deferred tax liabilities | 15,019 | 19,853 | |||||||||
| Long-term debt | 10 | 102,576 | 41,378 | ||||||||
| Provision for environmental rehabilitation | 11 | 87,594 | 92,849 | ||||||||
| Non-current portion of other liabilities | 12 | 37,501 | 65,372 | ||||||||
| Total non-current liabilities | 242,690 | 219,452 | |||||||||
| Total liabilities | 289,691 | 249,371 | |||||||||
| EQUITY | |||||||||||
| Share capital | 13 | 353,976 | 350,198 | ||||||||
| Reserves | 14,499 | 13,683 | |||||||||
| Surplus | 39,138 | 43,097 | |||||||||
| Total equity | 407,613 | 406,978 | |||||||||
| Total liabilities and equity | $ | 697,304 | $ | 656,349 | |||||||
See accompanying notes to the Condensed Consolidated Interim Financial Statements
Approved by the Board of Directors and authorized for issue on August 9, 2022
2
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME / (LOSS) AND COMPREHENSIVE INCOME / (LOSS)
(Stated in thousands of United States Dollars, except for share data)
(Unaudited)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||
| Note | 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | 6,383 | $ | — | $ | 9,247 | $ | — | |||||||||
| Cost of sales | (3,966) | — | (5,498) | — | |||||||||||||
| Depletion, depreciation and amortization | 9 | (655) | — | (823) | — | ||||||||||||
| Mine operating income | 1,762 | — | 2,926 | — | |||||||||||||
| Expenses | |||||||||||||||||
| Exploration, evaluation and pre-development | 16 | 12,132 | 2,432 | 21,386 | 2,811 | ||||||||||||
| General and administrative | 17 | 4,565 | 2,470 | 7,838 | 3,137 | ||||||||||||
| Restructuring costs | — | 4,444 | — | 4,444 | |||||||||||||
| Property maintenance | 464 | 68 | 789 | 157 | |||||||||||||
| Share-based payments | 13 | 547 | 1,898 | 1,989 | 1,968 | ||||||||||||
| Loss before the following | (15,946) | (11,312) | (29,076) | (12,517) | |||||||||||||
| Other income / (expense) | 18 | 38,772 | 1,623 | 28,491 | 816 | ||||||||||||
| Finance expense | 19 | (5,880) | (43) | (8,238) | (91) | ||||||||||||
| Related party interest expense | — | (73) | — | (1,177) | |||||||||||||
| Income / (loss) before income taxes | 16,946 | (9,805) | (8,823) | (12,969) | |||||||||||||
| Current tax expense | — | (200) | — | (200) | |||||||||||||
| Deferred tax recovery | 2,330 | — | 4,835 | — | |||||||||||||
| Income / (loss) and comprehensive income / (loss) for the period | 19,276 | (10,005) | (3,988) | (13,169) | |||||||||||||
| Income from discontinued operations for the period | 4 | — | 2,943 | — | 8,958 | ||||||||||||
| Income / (loss) and comprehensive income / (loss) for the period | $ | 19,276 | $ | (7,062) | $ | (3,988) | $ | (4,211) | |||||||||
| Income / (loss) per common share | |||||||||||||||||
| Basic income / (loss) per share | 14 | $ | 0.08 | $ | (0.04) | $ | (0.02) | $ | (0.02) | ||||||||
| Diluted income / (loss) per share | 14 | $ | 0.08 | $ | (0.04) | $ | (0.02) | $ | (0.02) | ||||||||
| Weighted average number of common shares outstanding | |||||||||||||||||
| Basic weighted average shares outstanding | 14 | 240,312,422 | 181,500,325 | 239,800,687 | 159,734,707 | ||||||||||||
| Diluted weighted average shares outstanding | 14 | 245,615,124 | 181,500,325 | 239,800,687 | 159,734,707 | ||||||||||||
See accompanying notes to the Condensed Consolidated Interim Financial Statements
3
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Stated in thousands of United States Dollars)
(Unaudited)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||
| Note | 2022 | 2021 | 2022 | 2021 | |||||||||||||
| OPERATING ACTIVITIES | |||||||||||||||||
| Income / (loss) for the period | $ | 19,276 | $ | (10,005) | $ | (3,988) | $ | (13,169) | |||||||||
| Items not affecting cash | |||||||||||||||||
| Depletion, depreciation and amortization | 804 | 97 | 1,215 | 148 | |||||||||||||
| Non-cash share-based payments | 13(f) | 547 | 1,898 | 1,989 | 1,968 | ||||||||||||
| Non-cash items included in other income | 15(ii) | (39,957) | (535) | (29,915) | (535) | ||||||||||||
| Related party interest expense | — | 73 | — | 1,177 | |||||||||||||
| Loss / (gain) on foreign exchange | (645) | (977) | 199 | (169) | |||||||||||||
| Finance expense | 5,877 | 15 | 8,226 | 24 | |||||||||||||
| Deferred taxes | (2,330) | — | (4,834) | — | |||||||||||||
| Change in non-cash working capital balances related to operations | 15(i) | (3,977) | (3,069) | (13,055) | 549 | ||||||||||||
| Cash used in operating activities of continuing operations | (20,405) | (12,503) | (40,163) | (10,007) | |||||||||||||
| Cash provided by operating activities of discontinued operations | — | 17,140 | — | 16,614 | |||||||||||||
| Cash provided by / (used in) operating activities | $ | (20,405) | $ | 4,637 | $ | (40,163) | $ | 6,607 | |||||||||
| INVESTING ACTIVITIES | |||||||||||||||||
| Capital expenditures on property, plant and equipment | 9 | (10,691) | (442) | (14,986) | (451) | ||||||||||||
| Acquisition of Granite Creek | — | (23,200) | — | (23,200) | |||||||||||||
| Deposit paid to Osgood Mining LLC | — | 20,750 | — | — | |||||||||||||
| Purchase of investments | — | (662) | — | (662) | |||||||||||||
| Cash used in investing activities of continuing operations | (10,691) | (3,554) | (14,986) | (24,313) | |||||||||||||
| Cash used in investing activities of discontinued operations | — | (741) | — | (1,717) | |||||||||||||
| Cash used in investment activities | $ | (10,691) | $ | (4,295) | $ | (14,986) | $ | (26,030) | |||||||||
| FINANCING ACTIVITIES | |||||||||||||||||
| Stock option and warrant exercises | 487 | 1,713 | 2,764 | 1,713 | |||||||||||||
| Proceeds from Gold Prepay Agreement | 10 | 41,737 | — | 41,737 | — | ||||||||||||
| Proceeds from Silver Purchase Agreement | 10 | 29,889 | — | 29,889 | — | ||||||||||||
| Principal repayment on Gold Prepay Agreement | (5,668) | — | (5,668) | — | |||||||||||||
| Proceeds from shares issued in equity financing | — | 63,724 | — | 63,724 | |||||||||||||
| Proceeds on loan from Equinox | — | — | — | 20,750 | |||||||||||||
| Repayment of loan from Equinox | — | (20,750) | — | (20,750) | |||||||||||||
| Net subscription receipts classified as restricted cash | — | 43,709 | — | — | |||||||||||||
| Subscription receipts payable | — | (44,800) | — | — | |||||||||||||
| Deferred financing costs | — | 1,212 | — | — | |||||||||||||
| Cash flows from private placement | — | 11,760 | — | 11,760 | |||||||||||||
| Share issue costs | — | (2,168) | — | (2,168) | |||||||||||||
| Related party interest paid | — | (73) | — | (1,177) | |||||||||||||
| Other | (115) | (230) | (96) | (45) | |||||||||||||
| Cash provided by financing activities of continuing operations | 66,330 | 54,097 | 68,626 | 73,807 | |||||||||||||
| Cash provided by / (used in) financing activities of discontinued operations | — | — | — | — | |||||||||||||
| Cash provided by financing activities | $ | 66,330 | $ | 54,097 | $ | 68,626 | $ | 73,807 | |||||||||
| Change in cash and cash equivalents during the period | 35,234 | 54,439 | 13,477 | 54,384 | |||||||||||||
| Cash and cash equivalents, beginning of the period | 65,057 | 15,184 | 87,658 | 15,239 | |||||||||||||
| Effect of exchange rate changes on cash held | 689 | 466 | (155) | 466 | |||||||||||||
| Cash and cash equivalents, end of the period | $ | 100,980 | $ | 70,089 | $ | 100,980 | $ | 70,089 | |||||||||
Supplemental cash flow information [Note 15]
See accompanying notes to the Condensed Consolidated Interim Financial Statements
4
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY
(Stated in thousands of United States Dollars, except for share data) (Unaudited)
| Share Capital | ||||||||||||||||||||
| Issued and outstanding | Note | Number of shares | Share capital | Equity settled employee benefits | Surplus / (deficit) | Total equity | ||||||||||||||
| Balance as at December 31, 2020 | 481 | $ | 10,218 | $ | 7,141 | $ | (33,898) | $ | (16,539) | |||||||||||
| Shares issued to Premier to settle intercompany | 1(c) | 1,133 | 140,395 | — | — | 140,395 | ||||||||||||||
| Transfer of Premier USA shares to the Company | 1(a) | (1,614) | (150,613) | — | — | (150,613) | ||||||||||||||
| Shares issued to Premier on transfer of Premier USA Shares | 1(a) | 137,624,461 | 144,274 | 4,384 | — | 148,658 | ||||||||||||||
| Loss on modification of shareholder loan | 1(c) | — | — | — | (8,832) | (8,832) | ||||||||||||||
| Exercise of stock options | 13(d) | 1,265,200 | 2,623 | (909) | — | 1,714 | ||||||||||||||
| Share-based payments | 13(f) | — | — | 2,381 | — | 2,381 | ||||||||||||||
| Shares issued in equity financing | 13(b) | 30,914,614 | 60,841 | — | — | 60,841 | ||||||||||||||
| Shares issued to Equinox in private placement | 13(b) | 5,479,536 | 11,760 | — | — | 11,760 | ||||||||||||||
| Shares issued on acquisition of Granite Creek | 13(b) | 13,036,846 | 27,000 | — | — | 27,000 | ||||||||||||||
| Shares issued on land acquisition | 13(b) | 2,430,488 | 5,000 | — | — | 5,000 | ||||||||||||||
| Share issue costs | — | (2,168) | — | — | (2,168) | |||||||||||||||
| Loss for the period | — | — | — | (4,211) | (4,211) | |||||||||||||||
| Balance as at June 30, 2021 | 190,751,145 | 249,330 | 12,997 | (46,941) | 215,386 | |||||||||||||||
| Shares issued in private placement | 13(b) | 8,784,122 | 18,305 | — | — | 18,305 | ||||||||||||||
| Shares issued to NGM for Asset Exchange | 13(b) | 22,757,393 | 47,422 | — | — | 47,422 | ||||||||||||||
| Shares issued to Orion in private placement | 13(b) | 7,500,000 | 15,629 | — | — | 15,629 | ||||||||||||||
| Shares issued to Waterton on acquisition of Ruby Hill | 13(b) | 3,191,358 | 8,000 | — | — | 8,000 | ||||||||||||||
| Shares issued to Orion for offtake transfer | 13(b) | 839,799 | 1,750 | — | — | 1,750 | ||||||||||||||
| Shares issued to Equinox for anti-dilution rights | 13(b) | 4,800,000 | 10,000 | — | — | 10,000 | ||||||||||||||
| Orion forced conversion option | 10(i) | — | — | — | (2,029) | (2,029) | ||||||||||||||
| Sprott forced conversion option | 10(ii) | — | — | — | (367) | (367) | ||||||||||||||
| Exercise of stock options | 13(d) | 80,000 | 196 | (29) | — | 167 | ||||||||||||||
| Share-based payments | — | — | 715 | — | 715 | |||||||||||||||
| Share issue costs | — | (434) | — | — | (434) | |||||||||||||||
| Income for the period | — | — | — | 92,434 | 92,434 | |||||||||||||||
| Balance as at December 31, 2021 | 238,703,817 | 350,198 | 13,683 | 43,097 | 406,978 | |||||||||||||||
| Exercise of warrants and stock options | 13(d) | 1,664,800 | 3,778 | (483) | 29 | 3,324 | ||||||||||||||
| Share-based payments | 13(f) | — | — | 1,299 | — | 1,299 | ||||||||||||||
| Loss for the period | — | — | — | (3,988) | (3,988) | |||||||||||||||
| Balance as at June 30, 2022 | 240,368,617 | $ | 353,976 | $ | 14,499 | $ | 39,138 | $ | 407,613 | |||||||||||
See accompanying notes to the Condensed Consolidated Interim Financial Statements
5
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
1.NATURE OF BUSINESS
i-80 Gold Corp ("i-80 Gold" or the "Company"), is a Nevada focused, growth-oriented gold and silver producer engaged in the exploration, development and production of gold and silver deposits. The Company's principal assets include the Ruby Hill Mine, Lone Tree Mine, Granite Creek Project and McCoy-Cove Project. Each property is wholly-owned by the Company.
The Company was incorporated on November 10, 2020, in the province of British Columbia, Canada. The Company’s common shares are listed on the Toronto Stock Exchange (“TSX”) under the symbol IAU and the New York Stock Exchange ("NYSE") under the symbol IAUX. Its head office is located at Suite 460, 5190 Neil Road, Reno, Nevada, 89502.
(a)Plan of Arrangement with Equinox Gold
On December 16, 2020, Premier Gold Mines Limited ("Premier") and Equinox Gold Corp. ("Equinox Gold") announced that the companies entered into a definitive agreement (the “Agreement”) whereby Equinox Gold would acquire all the outstanding shares of Premier (the “Transaction”). Concurrently, Premier would spin out its U.S. assets and operations which are included in the entities listed in Note 2(b) to a newly formed Canadian domiciled company i-80 Gold. On closing of the Transaction, existing Equinox Gold and Premier shareholders would own approximately 84% and 16% of Equinox Gold, and Equinox Gold and existing shareholders of Premier would own 30% and 70% of the Company, respectively, on an issued share basis.
On February 23, 2021, Premier's security holders voted to approve the Transaction. By approving the Transaction, Premier security holders also approved the spin out to its shareholders shares of the Company.
On March 18, 2021, the Company completed its private placement offering of 30,914,614 subscription receipts at a subscription price of C$2.60 for aggregate gross proceeds of approximately C$80.4 million ($60.8 million). Each subscription receipt entitled the subscriber to one common share of the Company and one-quarter share purchase warrant at an exercise price of C$3.64 with an expiration date of October 7, 2022 (total share purchase warrants issued of 7,728,654).
Concurrently with the Company's offering, Equinox Gold advanced to the Company a $20.75 million bridge loan that was used by the Company for the purposes of making a $20.75 million cash deposit with affiliates of Waterton Global Resource Management, Inc. (“Waterton”) in partial satisfaction of the purchase price payable to Waterton for the acquisition of the Granite Creek Project. The loan matured and was repaid within 10 days following the closing of the Transaction in accordance with the agreement.
The Transaction closed on April 7, 2021. Premier shareholders received 0.1967 of an Equinox Gold share for each Premier share held representing an at market acquisition based on the 10 day volume weighted average closing prices for both Equinox Gold and Premier shares on the TSX; and 0.4 of a share of the Company for each Premier share held.
On April 7, 2021, just prior to the completion of the spin out of Premier by way of a Plan of Arrangement (“the Arrangement”), the Company issued 137,624,461 common shares to Premier for the transfer of its investment in Premier USA to the Company for the carrying amount of the investment, $150.6 million (1,614 common shares) offset by $4.4 million allocated to the equity settled employee benefits reserve for replacement options, $0.9 million for the transfer of the South Arturo silver stream, and $0.5 million for replacement warrants issued pursuant to the Arrangement resulting in $144.9 million in equity.
In accordance with the terms of the Arrangement, the Company and Equinox Gold exchanged existing Premier stock options at the same ratio as shareholders received on the distribution of the Company to Premier shareholders and as such, the Company issued 0.4 of a stock option for each Premier option held. This resulted in 5,722,000 replacement options to option holders on record as of April 7, 2021, at an average option price of C$1.88. The replacement options were valued at $4.4 million and reduced the investment in Premier USA and were allocated to the equity settled employee benefits reserve.
Also, in accordance with the terms of the Arrangement, a portion of the existing Premier silver stream agreement and replacement warrants were also allocated to the Company. The resulting valuation of $0.9 million for the transfer of the South Arturo silver stream and
$0.5 million for 800,000 replacement warrants reduced the investment in Premier USA and is included as other long-term liabilities of the Company.
Following the completion of the spin out on April 7, 2021, the subscription receipts were released from escrow and converted to common shares of the Company and were listed and posted for trading on the TSX. Trading in the Company's common shares commenced at the opening of the TSX on April 13, 2021, under the symbol “IAU”.
6
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
(b)Acquisition and Purchase Agreements
Osgood Mining Company LLC Acquisition
On April 15, 2021, the Company, together with its subsidiary Premier Gold Mines USA Inc. ("Premier USA") completed the purchase agreement with affiliates of Waterton to acquire from Waterton all the outstanding membership interests of Osgood Mining Company LLC (“Osgood”). Osgood is the owner of the Granite Creek Project (formerly the "Getchell Project") in the Getchell gold belt near Winnemucca, Nevada. Consideration paid to Waterton consisted of (i) $23.0 million in cash, (ii) 13,036,846 common shares of the Company, (iii) warrants to purchase 12,071,152 common shares of the Company, with an exercise price C$3.64 per common share, for a period of 36 months following the closing date, and (iv) contingent value rights including a payment to Waterton in the amount of $5.0 million upon the public announcement of a positive production decision related to the Granite Creek Project (underground or open pit), and an additional $5 million upon production of the first ounce of gold (excluding ordinary testing and bulk sampling programs) following a 60 consecutive day period where gold prices have exceeded $2,000 per ounce. The common shares and warrants issued were subject to a statutory hold period under applicable Canadian securities legislation that expired on August 15, 2021.
The Osgood acquisition was accounted for as an asset acquisition as management determined that substantially all the fair value of the gross assets acquired were concentrated on the Granite Creek Project mineral property. The components of consideration that were paid and the allocation to the net assets acquired is detailed in the table below:
Components of consideration paid: | |||||
| Cash | $ | 23,000 | |||
Common shares | 27,000 | ||||
| Warrants | 6,065 | ||||
Transaction costs | 318 | ||||
| Total consideration paid | $ | 56,383 | |||
Allocated value: | |||||
Buildings and equipment | $ | 386 | |||
Mineral properties | 58,048 | ||||
Reclamation and closure cost obligations | (2,051) | ||||
| Total value allocation | $ | 56,383 | |||
For contingent consideration and payments, an accounting policy choice exists, and an entity may recognize a liability for the expected variable payments at the time control of the underlying asset is obtained or they may only recognize such a liability as the related activity that gives rise to the variability occurs. For the Osgood acquisition, management has not recognized a liability for contingent payments as the conditions required for these payments have not been met as of the date the assets were acquired.
Christison Purchase Agreement
On December 15, 2020, Premier USA entered into a definitive purchase agreement with the Christison Family Trust and Seven Dot Cattle Co. LLC to acquire certain fee lands and unpatented mining claims (the “First Property” and the “Second Property”) (collectively the “Christison Acquisition”) situated in Humboldt County, Nevada, for consideration consisting of $10 million in cash and $5 million in common shares of the Company. The mining claims are located adjacent to the Granite Creek Project. During the fourth quarter of 2020 Premier USA paid $7.5 million in cash as consideration for the First Property. On May 10, 2021, Premier USA completed the acquisition of the Second Property for consideration of $2.5 million in cash and 2,430,488 common shares of the Company.
On completion of the transactions, the properties acquired in the Christison Acquisition and the Osgood Mining Company LLC acquisition have been combined under the Granite Creek Project.
Acquisition of Ruby Hill
On October 18, 2021, the Company completed the acquisition of Ruby Hill Mining Company, LLC (“Ruby Hill”). The Ruby Hill property is host to a producing open pit mine and multiple deposits that contain gold and silver resources, and potential for significant base metal mineralization.
The Company acquired 100% of the issued and outstanding shares of Ruby Hill for payment of $75 million in cash, 3,191,358 common shares of the Company valued at $8 million, and future milestone payments of up to $67 million that are subject to an early prepayment option that could reduce the milestone payments to $47 million.
7
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
The four milestone payments and corresponding early prepayment options are as follows:
•$17 million in cash and/or shares of i-80 Gold payable on the earlier of 60 days following the issuance of a press release by the Company regarding the completion of a new or updated Mineral Resource estimate for Ruby Hill or 15 months after closing, based on the market price of i-80 Gold's shares at the time of such payment (the "First Milestone Payment");
•$15 million in cash and/or shares of i-80 payable on the earlier of 60 days following the issuance of a press release by the Company regarding the completion of a Feasibility Study for Ruby Hill or 24 months after closing, based on the market price of i-80 Gold's shares at the time of such payment (the "Second Milestone Payment"). An early prepayment option to reduce the payment to $5 million is available if the payment is made less than 15 months after closing and if the payment in shares of the Company does not exceed up to $7.5 million of the total amount, at the Company's discretion.
•$15 million in cash and/or shares of i-80 Gold payable on the earlier of 30 months after closing and 90 days following the announcement by the Company of a construction decision related to a deposit on any portion of Ruby Hill that is not currently being mined, based on the market price of i-80 Gold's shares at the time of such payment (the "Third Milestone Payment"); and
•$20 million in cash and/or shares of i-80 Gold payable on the earlier of 36 months after closing and 90 days following the announcement by the Company of achieving Commercial Production related to a deposit on any portion of Ruby Hill that is not currently being mined, priced based on the market price of i-80 Gold's shares at the time of such payment (the "Fourth Milestone Payment"). An early prepayment option to reduce the payment for the third and fourth milestone payments to $15 million is available if the payments are done prior to 24 months after closing, if the payment in shares of the Company did not exceed up to $10 million of the total amount, at the Company's discretion, and if shares held by Waterton do not exceed 9.99% of the outstanding shares of the Company.
The Company determined that the Ruby Hill Acquisition represents a business combination, with i-80 as the acquirer. Transaction costs incurred in respect of the acquisition totaling $1.2 million were expensed and presented within professional fees in general and administrative expense in profit or loss during the period ended December 31, 2021.
The acquisition date fair value of the consideration transferred consisted of the following: | |||||
| Cash | $ | 75,084 | |||
Share-based consideration | 8,000 | ||||
Current portion of deferred consideration (i) (Note 12) | 15,540 | ||||
Long-term portion of deferred consideration (i) (Note 12) | 26,355 | ||||
Total consideration | $ | 124,979 | |||
(i)Management's best estimate is that the early prepayment options will be exercised for all milestone payments and discounted them at a rate of 7.5%: the fair value of the first milestone payment of $17 million, the second milestone prepayment of $10 million, and the third and fourth milestone prepayment of $20 million.
Net assets (liabilities) acquired: | |||||
Accounts receivable and other assets | $ | 195 | |||
| Inventory | 13,800 | ||||
Property, plant and equipment | 29,981 | ||||
Mineral property interests | 105,877 | ||||
Accounts payable | (1,003) | ||||
Accrued liabilities | (663) | ||||
Provision for environmental rehabilitation | (23,208) | ||||
Fair value of net assets acquired | $ | 124,979 | |||
The fair value of property, plant and equipment, mineral property interests, and the provision for environmental rehabilitation were estimated using discounted cash flow models, comparable transactions, and other market-based information. Expected future cash flows are based on estimates of future gold and silver prices and projected revenues, estimated quantities of mineral reserves and mineral resources, expected future production costs and capital expenditures based on life-of-mine plans at the acquisition date. The fair value of inventory was based on forward gold prices and the cost to complete in determining the net realizable value.
From the date of acquisition up to December 31, 2021, the Ruby Hill property did not generate any revenue with all direct and indirect operating costs in that intervening period capitalized into inventory. Accordingly, the operating costs did not impact the consolidated statement of income / (loss) for the period ended December 31, 2021. The Company incurred incremental general and administrative costs in relation to Ruby Hill, however, it is impracticable to allocate these costs to Ruby Hill as there were other acquisitions throughout 2021 that had also driven increases to these costs.
8
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
On acquisition of the Ruby Hill property, Waterton did not provide historical financial information on the assets performance and therefore it is not possible to disclose the impact on the consolidated statement of income / (loss) for the year ended December 31, 2021, as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period.
Asset Exchange with Nevada Gold Mines LLC
On October 14, 2021, the Company completed the Asset Exchange Agreement ("Asset Exchange") with Nevada Gold Mines LLC (“NGM”), a joint-venture between Barrick Gold Corporation and Newmont Corporation. As part of the Asset Exchange, the Company acquired the Lone Tree and Buffalo Mountain gold deposits and certain processing infrastructure, including an autoclave, from NGM in consideration for: (i) the Company’s 40% ownership in the South Arturo Property; (ii) assignment of the Company’s option to acquire the adjacent Rodeo Creek exploration property; (iii) contingent consideration of up to $50 million based on an amount equal to $25 per ounce of recovered gold produced from the mineral resources at the Lone Tree property; and (iv) arrangement of substitute bonding in respect of the Lone Tree and Buffalo Mountain reclamation obligations. In addition, at closing of the Asset Exchange, NGM reimbursed the Company approximately $7.3 million for amounts previously advanced by the Company for the autonomous truck haulage test work completed at South Arturo and for funds advanced by the Company that were not used for reclamation activities.
The legal transfer was effective June 1, 2021 and as such, the Company obtained the free cash flow from Lone Tree's operations from June 1, 2021 until October 14, 2021 and in exchange, NGM obtained the free cash flow of South Arturo's operation from June 1, 2021 until October 14, 2021. NGM also entered into a Subscription Agreement where NGM subscribed to $47.4 million in the Company's common shares.
The Company determined that the Asset Exchange represents an asset acquisition. Transaction costs incurred with respect to the Asset Exchange totaled $3.3 million which were included in the components of consideration paid.
The disposal of the Company's 40% interest in South Arturo created no gain or loss of control. Components of consideration paid: | |||||
Book value of South Arturo asset (Note 4) | $ | 42,819 | |||
NGM reimbursement | (7,331) | ||||
Transaction costs | 3,289 | ||||
Offtake Transfer Payment | 1,750 | ||||
Total consideration | $ | 40,527 | |||
The underlying assets purchased and liabilities assumed were recorded at cost allocated based upon their relative fair values at the date of purchase. The table below presents the values of the assets purchased and liabilities assumed on the date of acquisition:
Net assets (liabilities) acquired: | |||||
| Cash | $ | 1,058 | |||
| Inventory | 3,474 | ||||
Property, plant and equipment | 166,480 | ||||
Mineral property interests | 65,521 | ||||
Provision for environmental rehabilitation | (60,475) | ||||
Fair value of net assets acquired - Gross of tax | $ | 176,058 | |||
Taxes payable | (1,125) | ||||
Deferred tax liability | (27,704) | ||||
Fair value of net assets acquired - Net of tax | $ | 147,229 | |||
The fair value of property, plant and equipment, mineral property interests, and the provision for environmental rehabilitation were estimated using discounted cash flow models, comparable transactions, and other market-based information. Expected future cash flows are based on estimates of future gold and silver prices and projected revenues, estimated quantities of mineral reserves and mineral resources, expected future production costs and capital expenditures based on life-of-mine plans at the acquisition date. The fair value of inventory was based on forward gold prices and the cost to complete in determining the net realizable value.
Income statement impact: | |||||
Gain arising on asset exchange - Gross of tax | $ | 135,531 | |||
Income tax expense | 28,829 | ||||
Total gain arising on asset exchange - Net of tax | $ | 106,702 | |||
9
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
For contingent consideration and payments, an accounting policy choice exists and an entity may recognize a liability for the expected variable payments at the time control of the underlying asset is obtained or they may only recognize such a liability as the related activity that gives rise to the variability occurs. For the Asset Exchange, management has not recognized a liability for contingent payments as the conditions required for these payments have not been met as of the date the assets were acquired.
(c)Related Party Balances
In connection with the closing of the Transaction, all intercompany balances including the receivable from Premier, the payable due to Premier, and the intercompany note with Premier were settled with a combination of cash, a distribution of the Company's shares and a conversion to Premier equity prior to the spin out of the Company to i-80 Gold. The gold sale receivable from Premier was settled in cash other than $4 million which was distributed back to Premier in the form of a dividend subject to a 5% withholding tax. The payable due to Premier and the intercompany note with Premier were converted to 1,133 shares in the Company at a value of $140.4 million.
In April 2021, the Company modified a portion of its intercompany note payable to Premier to change the repayment currency from CAD to USD. This modification resulted in the extinguishment of the original intercompany note and recognition of a new intercompany note, with the difference of $8.8 million recorded directly into surplus / (deficit) during the period ended December 31, 2021, as this transaction is with Premier in their capacity as a shareholder and is therefore outside the scope of IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments.
(d)Financing Agreements
Also, in connection with the closing of the Transaction on April 7, 2021, the Company entered into an offtake agreement with OMF Fund II
(O) Ltd. ("Orion") and a silver stream agreement with OMF Fund II SO Ltd. ("Nomad").
Offtake Agreement
Under the terms of the Offtake Agreement, the Company agreed to sell, and Orion agreed to purchase (i) an aggregate of 29,750 ounces of refined gold for 2021, and (ii) up to an aggregate of 31,500 ounces of refined gold annually (the "Annual Gold Quantity") from the Company's Eligible Projects until March 1, 2027. The Company's Eligible Projects include the South Arturo Project, the Granite Creek Project, and the McCoy-Cove Project. The final purchase price to be paid by Orion will be, at Orion’s option, a market referenced gold price in US dollars per ounce during a defined pricing period before and after the date of each sale. In the event that the Company does not produce the Annual Gold Quantity in any given year, the obligation is limited to those ounces actually produced.
South Arturo Purchase and Sale Agreement (Silver)
The Company entered into a Purchase and Sale Agreement (Silver) (the "Stream Agreement") with Nomad, which was connected to South Arturo, whereby the Company will deliver to Nomad (i) 100% of the refined silver from minerals from the main stream area, and (ii) 50% of the refined silver from the exploration stream area. Nomad will pay an ongoing cash purchase price equal to 20% of the silver market price on the day immediately preceding the date of delivery and will credit the remaining 80% against the liability. Following the delivery of an aggregate amount of refined silver equal to $1.0 million to Nomad under the Stream Agreement, Nomad would continue to purchase the refined silver at an ongoing cash purchase price equal to 20% of the prevailing silver price. The liability for the Stream Agreement was included in the net asset value in connection with the asset exchange with NGM, and therefore no longer on the balance sheet as of December 31, 2021.
Orion and Sprott Financing Package
The Company entered into a finance package with OMF Fund III (F) Ltd. an affiliate of Orion Mine Finance (collectively “Orion“) on December 13, 2021, and a fund managed by Sprott Asset Management USA, Inc. and a fund managed by CNL Strategic Asset Management, LLC (“Sprott”) on December 9, 2021 (together the “Finance Package”).
The Finance Package in its aggregate consists of:
•$50 million convertible loan (the “Orion Convertible Loan“)
•$10 million convertible loan (the “Sprott Convertible Loan” and together with the Orion Convertible Loan, the “Convertible Loans”)
•$45 million gold prepay purchase and sale agreement entered into with affiliates of Orion (the “Gold Prepay Agreement“), including an accordion feature potentially to access up to an additional $50 million at i-80’s option
•$30 million silver purchase and sale agreement entered into with affiliates of Orion (the “Silver Purchase Agreement“), including an accordion feature to potentially access an additional $50 million at i-80’s option and an amended and restated offtake agreement entered into with affiliates of Orion (the “A&R Offtake Agreement“)
•5,500,000 warrants of the Company issued to Orion (the “Orion Warrants“ and together with the Orion Convertible Loan, Gold Prepay Agreement, Silver Purchase Agreement and the A&R Offtake Agreement, the “Orion Finance Package”).
10
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
The $60 million in Convertible Loans were fully funded and issued in 2021. The obligations under the Gold Prepay Agreement and Silver Purchase Agreement will be senior secured obligations of the Company and its wholly-owned subsidiaries Ruby Hill Mining Company, LLC and Osgood Mining Company, LLC and secured against the Ruby Hill project in Eureka County, Nevada and the Granite Creek project in Humboldt County, Nevada.
The Orion and Sprott Convertible Loans bear interest at 8.0% per annum and mature on December 13, 2025 and December 9, 2025, respectively. Outstanding amounts under the Convertible Loans are convertible into common shares of the Company at any time prior to maturity at the option of the applicable respective lender (a) in the case of the outstanding principal, C$3.275 per common share, and (b) in the case of accrued and unpaid interest, subject to TSX approval, at the market price of the common shares on the TSX at time of the conversion of such interest.
Under the Gold Prepay Agreement, i-80 was due to deliver to Orion 3,000 troy ounces of gold for each of the quarters ending March 31, 2022 and June 30, 2022, and thereafter, 2,000 troy ounces of gold per calendar quarter until September 30, 2025 in satisfaction of the $45 million prepayment, for aggregate deliveries of 32,000 troy ounces of gold. Upon a positive construction decision by i-80 for both (a) the processing facilities at the Lone Tree project, and (b) any two of the following: the Ruby Hill underground development (including Ruby Deep and/or Blackjack Deposits), the Granite Creek open pit development, or the McCoy-Cove Project, in all cases based on a feasibility study, in form and substance satisfactory to Orion, i-80 may request an increase in the $45 million prepayment by an additional amount not exceeding $50 million in aggregate in accordance with the terms of the Gold Prepay Agreement.
Prior to funding, the Gold Prepay Agreement was amended to adjust the quantity of the quarterly deliveries of gold, but not the aggregate amount of gold, to be delivered by the Company to Orion over the term of the Gold Prepay Agreement. Under the amended Gold Prepay Agreement, commencing on the date of funding, the Company is required to deliver to Orion 1,600 troy ounces of gold for the quarter ending March 31, 2022, 3,100 troy ounces of gold for the quarter ending June 30, 2022, and thereafter 2,100 troy ounces of gold per calendar quarter until September 30, 2025, in satisfaction of the $45 million prepayment, for aggregate deliveries of 32,000 troy ounces of gold, subject to adjustment as contemplated by the terms of the Gold Prepay Agreement. As the funding from Orion did not occur until April 2022, payment for the delivery of 1,600 ounces for the quarter ending March 31, 2022 was offset against the $45 million of proceeds received from Orion.
Under the Silver Purchase Agreement, commencing April 30, 2022, i-80 will deliver to Orion 100% of the silver production from the Granite Creek and Ruby Hill projects until the delivery of 1.2 million ounces of silver, after which the delivery will be reduced to 50% until the delivery of an aggregate of 2.5 million ounces of silver, after which the delivery will be reduced to 10% of the silver production solely from Ruby Hill Project. Orion will pay i-80 an ongoing cash purchase price equal to 20% of the prevailing silver price. Until the delivery of an aggregate of 1.2 million ounces of silver, i-80 is required to deliver the following minimum amounts of silver in each calendar year: (i) in 2022, 300,000 ounces, (ii) in 2023, 400,000 ounces, (iii) in 2024, 400,000 ounces, and (iv) in 2025, 100,000 ounces. Upon a construction decision for the Ruby Hill project, comprised of one or both of the Ruby Deep or Blackjack Deposits, which construction decision is based on a feasibility study in form and substance satisfactory to Orion, acting reasonably, i-80 will have the right to request an additional deposit from Orion in the amount of $50 million in aggregate in accordance with the terms of the Silver Purchase Agreement.
Both the Gold Prepay Agreement and the Silver Purchase Agreement were funded on April 12, 2022 with i-80 receiving net proceeds of $71.6 million after netting the aforementioned March 31, 2022 gold delivery and closing costs as further described in Note 10 and Note 23 of these Financial Statements.
The main amendments reflected in the A&R Offtake Agreement include the increase in the term of the agreement to December 31, 2028, the inclusion of the Granite Creek and Ruby Hill projects, and the increase of the annual gold quantity to up to an aggregate of 37,500 ounces in respect of the 2022 and 2023 calendar years and up to an aggregate of 40,000 ounces in any calendar year after 2023.
Additionally, in connection with the Gold Prepay Agreement, the Company has issued to Orion the Warrants to purchase up to 5,500,000 common shares of the Company. The Warrants may be exercised at any time at an exercise price of C$3.275 per common share until December 13, 2024.
(e)COVID-19
The Company continually monitors guidance from the Centers for Disease Control and Prevention (“CDC”), and mandates issued by the State of Nevada to mitigate the effects of COVID-19 at all of its mine sites and corporate office locations.
Other than the macro-economic impact of inflationary pressure and supply chain challenges, operating activities at Lone Tree, Granite Creek, Ruby Hill and McCoy-Cove are continuing with no significant interruptions to date from COVID-19. The extent to which COVID-19 will impact the Company’s operations in the future remains highly uncertain and cannot be accurately estimated at the present time.
11
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
2.SIGNIFICANT ACCOUNTING POLICIES
(a)Basis of Preparation and Statement of Compliance
These unaudited condensed consolidated interim financial statements (the "Financial Statements") have been prepared in accordance with IAS 34 - Interim Financial Reporting as issued by the International Accounting Standards Board ("IASB"). Accordingly, certain disclosures included in the annual financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the IASB have been condensed or omitted and these Financial Statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2021.
The Financial Statements and management's discussion and analysis of the Company for the period ended June 30, 2022, were approved and authorized by the Board of Directors on August 9, 2022.
The accounting policies applied in the preparation of these Financial Statements are consistent with those applied and disclosed in the Company's audited financial statements for the year ended December 31, 2021, and as discussed below.
(b)Basis of consolidation
The Financial Statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved when the Company is exposed to variable returns and has the ability to affect those returns through power to direct the relevant activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. Subsidiaries will be de-consolidated from the date that control ceases.
| Subsidiary | Percentage of ownership | Property | Principle activity | ||||||||
| Premier Gold Mines USA Inc. | 100% | Holding | Mineral exploration | ||||||||
| Premier Gold Mines Nevada Inc. | 100% | Inactive | Mineral exploration | ||||||||
| Au-reka Gold Corporation | 100% | McCoy-Cove | Pre-development | ||||||||
| Premier Goldbanks LLC | 100% | Inactive | Mineral exploration | ||||||||
| Goldcorp Dee LLC | 100% | Lone Tree | Production | ||||||||
| Premier Rye LLC | 100% | Inactive | Mineral exploration | ||||||||
| Osgood Mining Company LLC | 100% | Granite Creek | Development | ||||||||
| Ruby Hill Mining Company LLC | 100% | Ruby Hill | Production | ||||||||
All transactions and balances between the Company and its subsidiaries are eliminated on consolidation, including unrealized gains and losses on transactions between the companies. Where unrealized losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Company. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the period are recognized from the effective date of acquisition, or up to the effective date of disposal, as applicable.
(c)Functional and presentation currency
The functional currency of the Company is the United States dollar ("USD" or "US dollars") which reflects the underlying transactions, events and conditions that are relevant to the entity. Management considers primary and secondary indicators in determining functional currency including the currency that influences sales prices, labour, purchases and other costs. Other indicators include the currency in which funds from financing activities are generated and the currency in which receipts from operations are usually retained.
Reference to $ or USD is to US dollars, reference to C$ or CAD is to Canadian dollars.
(d)Significant accounting judgements and estimates
The preparation of these Financial Statements in accordance with IFRS requires management to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities, disclosure of commitments and contingent liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period. The determination of estimates requires the exercise of judgement based on various assumptions and other factors such as historical experience, current and expected economic conditions. Actual results could differ from these estimates.
The significant judgments and estimates used in the preparation of these Financial Statements that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities and earnings within the next financial year were the same as those applied in the most recent annual audited consolidated financial statements for the year ended December 31, 2021.
12
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
3.ADOPTION OF NEW ACCOUNTING STANDARDS
New Accounting Standards and Interpretations not yet Adopted
IAS 1 - Classification of liabilities as current or non-current
In January 2020, the IASB issued amendments to IAS 1 - Presentation of Financial Statements to clarify that liabilities are classified as either current or non-current, depending on the existence of the substantive right at the end of the reporting period for an entity to defer settlement of the liability for at least twelve months after the reporting period. The amendments are effective January 1, 2023 with early adoption permitted. The amendments are required to be adopted retrospectively. The Company does not anticipate any significant impact from these amendments on the financial statements as a result of initial application.
Amendments to IAS 12 and IFRS 1 – Deferred taxes related to assets and liabilities arising from a single transaction
In May 2021, the IASB issued amendments to IAS 12 - Income Taxes, which requires companies to recognize deferred tax on particular transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. The amendments are effective for annual reporting periods beginning on or after January 1, 2023 and are to be applied retrospectively. The Company does not expect a material impact from this amendment on the financial statements as a result of the initial application.
4.DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS
In October 2021, the Company and NGM completed an exchange agreement whereby the Company acquired the Lone Tree and Buffalo Mountain properties in exchange for the Company’s 40% interest in the South Arturo property. As a result, assets and liabilities allocable to the South Arturo assets were classified as a disposal group held for sale. Revenue and expenses, gains and losses relating to the discontinuation of South Arturo have been eliminated from profit or loss from the Company’s continuing operations and are shown as a single line item in the statement of profit or loss.
Operating profit of the South Arturo asset classified as held for sale is summarized as follows:
| Three months ended June 30, 2021 | Six months ended June 30, 2021 | |||||||
| Revenue | $ | 10,250 | $ | 23,826 | ||||
| Cost of sales | (6,491) | (12,833) | ||||||
| Depletion, depreciation and amortization | (329) | (1,224) | ||||||
| Mine operating income from discontinued operations | 3,430 | 9,769 | ||||||
| Expenses | ||||||||
| Exploration, evaluation and pre-development | 293 | 474 | ||||||
| General and administrative | 73 | 168 | ||||||
| Income from discontinued operations before the following | 3,064 | 9,127 | ||||||
| Environmental rehabilitation accretion | (17) | (29) | ||||||
| Other | (31) | (24) | ||||||
| Other income / (expense) | (48) | (53) | ||||||
| Income from discontinued operations before income taxes | 3,016 | 9,074 | ||||||
| Current tax expense | (73) | (116) | ||||||
| Income from discontinued operations for the period | $ | 2,943 | $ | 8,958 | ||||
13
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
The carrying amounts of assets and liabilities in this disposal group are summarized as follows:
| October 14, 2021 | |||||
| ASSETS | |||||
| Current assets | |||||
| Cash and cash equivalents | $ | 3,361 | |||
| Inventory | 3,184 | ||||
| Total current assets | 6,545 | ||||
| Non-current assets | |||||
| Restricted cash and cash equivalents | 5,483 | ||||
| Long-term inventory | 3,125 | ||||
| Property, plant and equipment | 35,710 | ||||
| Total non-current assets | 44,318 | ||||
| Total assets | $ | 50,863 | |||
| LIABILITIES | |||||
| Current liabilities | |||||
| Accounts payable | $ | 3,539 | |||
| Accrued liabilities | 26 | ||||
| Taxes payable | 111 | ||||
| Current provision for environmental rehabilitation | 4 | ||||
| Total current liabilities | 3,680 | ||||
| Non-current liabilities | |||||
| Deferred taxes | 897 | ||||
| Provision for environmental rehabilitation | 3,467 | ||||
| Total non-current liabilities | 4,364 | ||||
| Total liabilities | $ | 8,044 | |||
5.INVENTORY
Inventory relates to heap leach ore and loaded carbon at Ruby Hill and Lone Tree. The amount of inventory recognized as an expense in cost of sales for the three and six months ended June 30, 2022 was $4.0 million and $5.5 million respectively (nil and nil, respectively, for the three and six months ended June 30, 2021). The amount of inventory recognized as an expense in depletion, depreciation and amortization for the three and six months ended June 30, 2022 was $0.7 million and $0.8 million respectively (nil and nil, respectively, for the three and six months ended June 30, 2021).
14
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
6.OTHER ASSETS
| June 30, 2022 | December 31, 2021 | |||||||
2766604 Ontario Ltd (i) | $ | 1,379 | $ | 2,650 | ||||
Gold Prepay Agreement embedded derivative (ii) | 4,084 | — | ||||||
Silver Purchase Agreement embedded derivative (iii) | 9,125 | — | ||||||
| Total other assets | 14,588 | 2,650 | ||||||
| Less current portion | 4,080 | 2,650 | ||||||
| Long-term portion | $ | 10,508 | $ | — | ||||
(i) On May 11, 2021, the Company completed a subscription agreement to purchase common shares (the “Purchased Securities”) from
2766604 Ontario Ltd. (the “Issuer”), whereby the Company agreed to purchase 800,000 common shares at a price of C$1.00 per common share for aggregate of C$0.80 million. On December 3, 2021, the Company completed an additional subscription agreement
to purchase 800,000 common shares at a price of C$2.10 per common share for aggregate of C$1.68 million, bringing the Company's
total investment to C$2.48 million ($1.95 million). On April 25, 2022, shares of the Issuer were listed and posted for trading on the TSXV under the symbol “CORE.V”. The Company records its investment in the Issuer at fair value further described in Note 23(d) of these Financial Statements. At June 30, 2022, the fair value of the Company's investment in the Issuer was C$1.78 million ($1.38 million).
(ii) The asset balance represents the embedded derivative in relation to the fixed gold price included in the Gold Prepay Agreement as further described in Note 1(d) and Note 23(d) of these Financial Statements. As of June 30, 2022 the current portion of the Gold Prepay Agreement embedded derivative was $1.4 million.
(iii) The asset balance represents the embedded derivative in relation to the silver price included in the Silver Purchase Agreement as further described in Note 1(d) and Note 23(d) of these Financial Statements. As of June 30, 2022 the current portion of the Silver Purchase Agreement embedded derivative was $1.3 million.
7.LONG-TERM RECEIVABLE
The receivable is Alternative Minimum Tax ("AMT") recoverable due to the enactment of U.S. Tax Reform legislation on December 22, 2017. The Company has a total of $1.4 million in AMT credits as a result of the Corona Virus Aid, Relief, and Economic Security ("CARES") Act which was enacted March 27, 2020.
8.RESTRICTED CASH AND CASH EQUIVALENTS
| Property | June 30, 2022 | December 31, 2021 | ||||||
McCoy-Cove, Nevada (i) | $ | 600 | $ | 600 | ||||
Lone Tree, Nevada (ii) | 25,610 | 25,593 | ||||||
Ruby Hill, Nevada (iii) | 4,584 | 4,584 | ||||||
| Total restricted cash and cash equivalents | $ | 30,794 | $ | 30,777 | ||||
(i)The Company's wholly owned subsidiary, Au-reka Gold Corporation, has $0.6 million in restricted cash related to reclamation obligations associated with the McCoy-Cove Project in Nevada held in trust with Lexon Surety Group as security for the surety bonds.
(ii)The Company has $25.6 million in restricted cash relating to the reclamation of the Company's Lone Tree property.
(iii) The Company has $4.6 million in restricted cash relating to the reclamation of the Company's Ruby Hill property.
15
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
9.PROPERTY, PLANT AND EQUIPMENT
| Cost | Mine properties (i) | Development properties (ii) | Exploration, evaluation and pre-development properties (iii) | Buildings, plant and equipment | Total | ||||||||||||
| Balance as at January 1, 2021 | $ | 96,537 | $ | 30,902 | $ | 52,463 | $ | 18,490 | $ | 198,392 | |||||||
| Additions | 3,677 | 69,049 | 169,195 | 199,952 | 441,873 | ||||||||||||
| Disposals | — | — | — | (3) | (3) | ||||||||||||
| IFRS 16 Right of Use assets | — | — | — | 634 | 634 | ||||||||||||
| Change in estimate of provision for environmental rehabilitation | — | 318 | 1,762 | — | 2,080 | ||||||||||||
| Transfers | (355) | 2,703 | (200) | (2,148) | — | ||||||||||||
| Adjustments | — | — | — | (26) | (26) | ||||||||||||
| Classified as held for sale | (97,699) | (26,587) | — | (10,658) | (134,944) | ||||||||||||
| Balance as at December 31, 2021 | 2,160 | 76,385 | 223,220 | 206,241 | 508,006 | ||||||||||||
| Additions | — | 9,704 | — | 7,975 | 17,679 | ||||||||||||
| Disposals | — | — | — | (14) | (14) | ||||||||||||
| Change in estimate of provision for environmental rehabilitation | — | (231) | (6,316) | — | (6,547) | ||||||||||||
| Balance as at June 30, 2022 | $ | 2,160 | $ | 85,858 | $ | 216,904 | $ | 214,202 | $ | 519,124 | |||||||
| Accumulated depreciation and impairment | |||||||||||||||||
| Balance as at January 1, 2021 | $ | 93,298 | $ | — | $ | — | $ | 4,938 | $ | 98,236 | |||||||
| Depletion, depreciation and amortization | 2,877 | — | — | 3,481 | 6,358 | ||||||||||||
| Disposals | — | — | — | (3) | (3) | ||||||||||||
| Classified as held for sale | (94,015) | — | — | (5,219) | (99,234) | ||||||||||||
| Balance as at December 31, 2021 | 2,160 | — | — | 3,197 | 5,357 | ||||||||||||
| Depletion, depreciation and amortization | — | — | — | 2,934 | 2,934 | ||||||||||||
| Disposals | — | — | — | (12) | (12) | ||||||||||||
| Balance as at June 30, 2022 | $ | 2,160 | $ | — | $ | — | $ | 6,119 | $ | 8,279 | |||||||
| Carrying amounts | |||||||||||||||||
| Balance, December 31, 2021 | $ | — | $ | 76,385 | $ | 223,220 | $ | 203,044 | $ | 502,649 | |||||||
| Balance as at June 30, 2022 | $ | — | $ | 85,858 | $ | 216,904 | $ | 208,083 | $ | 510,845 | |||||||
(i)Mine properties:
| Property | January 1, 2021 | Additions | Transfers | Depletion | Classified as held for sale | December 31, 2021 | ||||||||||||||
| Ruby Hill, Nevada1 | $ | — | $ | 2,160 | $ | — | $ | (2,160) | $ | — | $ | — | ||||||||
| South Arturo, Nevada | 3,239 | 1,517 | (355) | (717) | (3,684) | — | ||||||||||||||
| Total | $ | 3,239 | $ | 3,677 | $ | (355) | $ | (2,877) | $ | (3,684) | $ | — | ||||||||
(ii)Development properties:
| Property | January 1, 2022 | Additions | Change in estimate of environmental provision | Transfers | Classified as held for sale | June 30, 2022 | ||||||||||||||
| South Arturo, Nevada | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||
| Granite Creek, Nevada | 76,385 | 9,704 | (231) | — | — | 85,858 | ||||||||||||||
| Total | $ | 76,385 | $ | 9,704 | $ | (231) | $ | — | $ | — | $ | 85,858 | ||||||||
1 The Ruby Hill property relates to the Archimedes open pit, fully depleted in Q4 2021.
16
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
| Property | January 1, 2021 | Additions | Change in estimate of environmental provision | Transfers | Classified as held for sale | December 31, 2021 | ||||||||||||||
| South Arturo, Nevada | $ | 23,402 | $ | 482 | $ | — | $ | 2,703 | $ | (26,587) | $ | — | ||||||||
| Granite Creek, Nevada | 7,500 | 68,567 | 318 | — | — | 76,385 | ||||||||||||||
| Total | $ | 30,902 | $ | 69,049 | $ | 318 | $ | 2,703 | $ | (26,587) | $ | 76,385 | ||||||||
(iii)Exploration, evaluation and pre-development properties:
| Property | January 1, 2022 | Additions | Change in estimate of environmental provision | Transfers | Classified as held for sale | June 30, 2022 | ||||||||||||||
| McCoy-Cove, Nevada | $ | 54,105 | $ | — | $ | (647) | $ | — | $ | — | $ | 53,458 | ||||||||
| Ruby Hill, Nevada | 103,594 | — | (568) | — | — | 103,026 | ||||||||||||||
| Lone Tree, Nevada | 65,521 | — | (5,101) | — | — | 60,420 | ||||||||||||||
| Total | $ | 223,220 | $ | — | $ | (6,316) | $ | — | $ | — | $ | 216,904 | ||||||||
| Property | January 1, 2021 | Additions | Change in estimate of environmental provision | Transfers | Classified as held for sale | December 31, 2021 | ||||||||||||||
| McCoy-Cove, Nevada | $ | 52,213 | $ | — | $ | 1,842 | $ | 50 | $ | — | $ | 54,105 | ||||||||
| Ruby Hill, Nevada | — | 103,674 | (80) | — | — | 103,594 | ||||||||||||||
| Rodeo Creek, Nevada | 250 | — | — | (250) | — | — | ||||||||||||||
| Lone Tree, Nevada | — | 65,521 | — | — | — | 65,521 | ||||||||||||||
| Total | $ | 52,463 | $ | 169,195 | $ | 1,762 | $ | (200) | $ | — | $ | 223,220 | ||||||||
(iii)Depreciation, depletion and amortization on property, plant and equipment during the six months ended June 30, 2022 and 2021 include amounts allocated to:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| Depreciation, depletion and amortization | $ | 655 | $ | — | $ | 823 | $ | — | ||||||
| Recorded in exploration, evaluation and pre-development | 116 | 68 | 231 | 91 | ||||||||||
| Recorded in general and administrative | 33 | 29 | 161 | 58 | ||||||||||
| Depreciation, depletion and amortization in discontinued operations | — | 329 | — | 1,224 | ||||||||||
| 804 | 426 | 1,215 | 1,373 | |||||||||||
| Inventory movement | 889 | 171 | 1,719 | (122) | ||||||||||
| Total depletion, depreciation and amortization | $ | 1,693 | $ | 597 | $ | 2,934 | $ | 1,251 | ||||||
(iv)The Company’s leased assets include buildings and vehicles. Right-of-use assets include:
| Buildings | Vehicles | Total | |||||||||
| As at December 31, 2020 | $ | 91 | $ | 3 | $ | 94 | |||||
| Additions | 635 | — | 635 | ||||||||
| Terminations | 26 | — | 26 | ||||||||
| Depreciation | 118 | 3 | 121 | ||||||||
| As at December 31, 2021 | 582 | — | 582 | ||||||||
| Depreciation | 106 | — | 106 | ||||||||
| As at June 30, 2022 | $ | 476 | $ | — | $ | 476 | |||||
17
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
(a)Impairment
The Company regularly reviews the carrying amount of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. Mineral property interests are tested for impairment when events or changes in circumstances indicate that their carrying amount may not be recoverable. In the absence of other factors, a mineral property that has not been actively explored within the past three years and for which no future exploration plans exist will be considered to be impaired. There were no impairments recorded for the six months ended June 30, 2022, and 2021.
(b)Acquisitions and option agreements
Granite Creek Project
As disclosed in Note 1(b) the Granite Creek Project was acquired through the acquisition agreement with Osgood and Christison. The purchase price paid in 2021 was a combination of non-cash shares and warrants of $38.0 million and cash of $23.2 million. In 2020, $2.3 million in cash was paid on deposit to Waterton on the purchase of Osgood; and $7.5 million in cash was paid for the Christison Project, which was transferred into the Granite Creek Project in 2021.
On May 6, 2022, the Company entered into an agreement to acquire strategic land sections adjoining the Company’s Granite Creek Property from NGM. The total consideration for the purchase of the property sections consists of a cash payment of $4 million and the inclusion of the acquired sections into the existing 10% net profits royalty that NGM currently holds on the existing property.
Tabor Exploration and Option Agreement
On August 24, 2020, the Company through its wholly owned subsidiary AuReka Gold Corporation entered into an option agreement with Renaissance Exploration, Inc. to acquire a 100% interest in the Tabor Project located in Esmeralda County, Nevada, subject to initial earn-in option payments of $5.2 million and a firm commitment to spend $0.3 million towards exploration activities by the one-year anniversary date that the Company acquires an exploration permit on the property.
(c)Summary of mineral property Net Smelter Return ("NSR") royalties (as at June 30, 2022)
| Active properties | NSR (i) | ||||
| McCoy-Cove, Nevada | 1.5% NSR Maverix Metals Inc. | ||||
| 2% NSR Maverix Metals Inc. | |||||
| Tabor, Nevada | 3% NSR Renaissance | ||||
| Granite Creek | 1-4% NSR Royal Gold/D.M. Duncan | ||||
| 3-5% NSR Royal Gold/D.M. Duncan | |||||
| 2% NSR Franco-Nevada/S&G Pinson | |||||
| Portions of 7.5% NSR Stoffer/Noceto/Phillips | |||||
| 2% NSR Stoffer/Noceto/Phillips/Murphy/Christison | |||||
| 10% NPI Nevada Gold Mines | |||||
| 2% Newmont Capital Limited | |||||
| Lone Tree | 3% NSR | ||||
| 5% NSR VEK/Andrus | |||||
| 1% NSR Franco-Nevada Mining Corporation, Inc. | |||||
| 4-5% NSR Marigold Mining Company | |||||
| 5% NSR Richardson | |||||
| 5% NSR BTF Properties | |||||
| Ruby Hill | 2.5% NSR Placer Dome U.S. Inc. | ||||
| 3% Biale Trust | |||||
| 4% NSR Asarco Incorporated | |||||
| 3% RG Royalties | |||||
| Inactive properties | NSR | ||||
| Rodeo Creek, Nevada | 2% NSR Nevada Select Royalty Inc | ||||
| South Arturo, Nevada | 4-9% Annual minimum royalty Franco-Nevada Corporation | ||||
(i)These royalties are tied to specific mining claims and may not apply to the entire property.
18
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
10.LONG-TERM DEBT
| Orion convertible credit (i) | Sprott convertible credit (ii) | Stream Agreement (iii) | Gold Prepay Agreement (iv) | Silver Purchase Agreement (v) | Other (vi), (vii) | Total | |||||||||||||||||
| As at January 1, 2021 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 105 | $ | 105 | |||||||||
| Fair value on inception | 32,745 | 7,634 | 853 | — | — | — | 41,232 | ||||||||||||||||
| Loan advance | — | — | — | — | — | 20,750 | 20,750 | ||||||||||||||||
| Additions and adjustments | — | — | — | — | — | 799 | 799 | ||||||||||||||||
| Principal repayment | — | — | (11) | — | — | (20,859) | (20,870) | ||||||||||||||||
| Disposals | — | — | (897) | — | — | — | (897) | ||||||||||||||||
| Fair value adjustments | — | — | 55 | — | — | — | 55 | ||||||||||||||||
| Finance charge | 211 | 51 | — | — | — | — | 262 | ||||||||||||||||
| As at December 31, 2021 | 32,956 | 7,685 | — | — | — | 795 | 41,436 | ||||||||||||||||
| Fair value on inception | — | — | — | 41,737 | 29,889 | — | 71,626 | ||||||||||||||||
| Additions and adjustments | — | — | — | — | — | (45) | (45) | ||||||||||||||||
| Amortization of finance costs | 158 | — | — | 15 | 3 | — | 176 | ||||||||||||||||
| Principal repayment | — | — | — | (6,122) | (21) | (30) | (6,173) | ||||||||||||||||
| Finance charge | 3,172 | 596 | — | 2,197 | 794 | — | 6,759 | ||||||||||||||||
| As at June 30, 2022 | $ | 36,286 | $ | 8,281 | $ | — | $ | 37,827 | $ | 30,665 | $ | 720 | $ | 113,779 | |||||||||
| Less current portion | — | — | — | 8,351 | 2,776 | 76 | 11,203 | ||||||||||||||||
| Long-term portion | $ | 36,286 | $ | 8,281 | $ | — | $ | 29,476 | $ | 27,889 | $ | 644 | $ | 102,576 | |||||||||
(i)Orion convertible credit
On December 13, 2021, the Company entered into a Convertible Credit Agreement with Orion to borrow $50 million. The Orion convertible credit bears interest at a rate of 8.0% annually and matures on December 13, 2025. The Orion convertible credit contains a change of control feature, a conversion feature, and a forced conversion feature that are considered embedded derivatives by the Company. The change of control feature and conversion feature are classified as derivative financial liabilities, measured at FVTPL, whereas the forced conversion feature is classified as an equity instrument measured at fair value on inception and is not subsequently remeasured. During the period ended June 30, 2022, none of the features were exercised. The derivative financial liability was recorded at $13.6 million at inception and $10.2 million at June 30, 2022 ($18.5 million at December 31, 2021). For the six months ended June 30, 2022, the Company recorded a fair value gain related to the valuation of the embedded derivatives of $8.3 million through the statement of income as further described in Note 18 of these financial statements. The equity instrument was recorded at $2.0 million at inception and period end.
The Orion convertible note is presented in the balance sheet as follows:
| June 30, 2022 | December 31, 2021 | |||||||
| Opening balance | $ | 32,956 | $ | — | ||||
| Fair value of notes issued | — | 50,000 | ||||||
| Other liabilities | — | (17,230) | ||||||
| Other equity securities | — | 2,029 | ||||||
| Deferred financing costs and other | — | (2,054) | ||||||
| $ | 32,956 | $ | 32,745 | |||||
| Amortization of finance costs | 158 | — | ||||||
| Finance expense | 3,172 | 211 | ||||||
| Non-current liability | $ | 36,286 | $ | 32,956 | ||||
Interest expense is calculated by applying the effective interest rate of 18.90% to the host liability component. Interest expense is included in finance expense.
The initial fair value of the liability portion of the convertible loan was determined using a market interest rate for an equivalent non- convertible loan at the issue date. The liability is subsequently recognized on an amortized cost basis until extinguished on control, conversion or maturity of the loan. The remainder of the proceeds, after removing components classified as liabilities, is allocated to the forced conversion option and recognized in shareholder's equity, net of income tax, and not subsequently remeasured.
19
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
(ii)Sprott convertible credit
On December 10, 2021, the Company entered into a Convertible Credit Agreement with Sprott to borrow $10 million. The Sprott convertible credit bears interest at a rate of 8.0% annually and matures on December 9, 2025. The Sprott convertible credit contains a change of control feature, a conversion feature, and a forced conversion feature that are considered embedded derivatives by the Company. The change of control feature and conversion feature are classified as derivative financial liabilities, measured at FVTPL whereas the forced conversion feature is classified as an equity instrument measured at fair value on inception and is not subsequently remeasured. During the period ended June 30, 2022, none of the features were exercised. The derivative financial liability was recorded at $2.7 million at inception and $2.0 million at June 30, 2022 ($3.9 million at December 31, 2021). For the six months ended June 30, 2022, the Company recorded a fair value gain related to the valuation of the embedded derivatives of $1.9 million through the statement of income as further described in Note 18 of these financial statements. The equity instrument was recorded at $0.4 million at inception and period end.
The Sprott convertible note is presented in the balance sheet as follows:
| June 30, 2022 | December 31, 2021 | |||||||
| Opening balance | $ | 7,685 | $ | — | ||||
| Fair value of notes issued | — | 10,000 | ||||||
| Other financial liabilities | — | (2,733) | ||||||
| Other equity securities | — | 367 | ||||||
| $ | 7,685 | $ | 7,634 | |||||
| Finance expense | 596 | 51 | ||||||
| Non-current liability | $ | 8,281 | $ | 7,685 | ||||
Interest expense is calculated by applying the effective interest rate of 14.92% to the host liability component. Interest expense is included in finance expense.
The initial fair value of the liability portion of the convertible loan was determined using a market interest rate for an equivalent non- convertible loan at the issue date. The liability is subsequently recognized on an amortized cost basis until extinguished on control, conversion or maturity of the loan. The remainder of the proceeds, after removing components classified as liabilities, is allocated to the forced conversion option and recognized in shareholder's equity, net of income tax, and not subsequently remeasured.
(iii)Stream Agreement
On April 7, 2021, the Company entered into a Stream Agreement with Nomad, whereby the Company will deliver from South Arturo to Nomad (i) 100% of the refined silver from minerals from the main stream area, and (ii) 50% of the refined silver from the exploration stream area. Nomad will pay an ongoing cash purchase price equal to 20% of the silver market price on the day immediately preceding the date of delivery. Following the delivery of an aggregate amount of refined silver equal to $1.0 million to Nomad under the Stream Agreement, Nomad will continue to purchase the refined silver at an ongoing cash purchase price equal to 20% of the prevailing silver price. The principal repayment on the liability is variable based on 80% of the silver price applied to ounces delivered under the contract. The Stream Agreement is unsecured and the initial term of the agreement is 40 years.
The liability has been recorded as a reduction in the equity issued on the spin-out of Premier USA to the Company as the agreement resulted from the Silver Stream Agreement with Nomad that existed with Premier prior to the spin-out. The initial fair value of the Stream Agreement recognized on inception was $0.9 million.
The Stream Agreement is tied to production from South Arturo and the fair value as of October 14, 2021 was included in the disposal group classified as held for sale.
(iv)Gold Prepay Agreement
On December 13, 2021, The Company entered into a Gold Prepay Agreement with Orion. In April 2022, the Gold Prepay Agreement was amended as further described in Note 1(d) of these Financial Statements. Under the terms of the amended Gold Prepay Agreement, in exchange for $41.9 million, the Company is required to deliver to Orion 3,100 troy ounces of gold for the quarter ending June 30, 2022, and thereafter, 2,000 troy ounces of gold per calendar quarter until September 30, 2025, for aggregate deliveries of 30,400 troy ounces of gold. As of June 30, 2022, the Company had delivered 3,100 troy ounces of gold towards the Gold Prepay Agreement with Orion, leaving 27,300 ounces remaining to be delivered under the agreement.
The Gold Prepay Agreement is recognized as a financial liability at amortized cost and it contains an embedded derivative in relation to the embedded gold price within the agreement that is measured at FVTPL each reporting period, as further described in Note 23(d) of these Financial Statements.
Interest expense is calculated by applying the effective interest rate of 24.48% to the financial liability. Interest expense is included in finance expense.
20
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
(v)Silver Purchase Agreement
On December 13, 2021, in exchange for $30 million, the Company entered into a Silver Purchase Agreement with Orion. Under the Silver Purchase Agreement, commencing April 30, 2022, the Company will deliver to Orion 100% of the silver production from the Granite Creek and Ruby Hill projects until the delivery of 1.2 million ounces of silver, after which the delivery will be reduced to 50% until the delivery of an aggregate of 2.5 million ounces of silver, after which the delivery will be reduced to 10% of the silver production solely from Ruby Hill Project. Orion will pay the Company an ongoing cash purchase price equal to 20% of the prevailing silver price. Until the delivery of an aggregate of 1.2 million ounces of silver, the Company is required to deliver the following minimum amounts of silver in each calendar year: (i) in 2022, 300,000 ounces, (ii) in 2023, 400,000 ounces, (iii) in 2024, 400,000 ounces, and (iv) in 2025, 100,000 ounces. The Silver Purchase Agreement was funded April 2022.
The Silver Purchase Agreement is recognized as a financial liability at amortized cost and it contains two embedded derivatives as further described in Note 23 (d) of these Financial Statements.
Interest expense is calculated by applying the effective interest rate of 12.28% to the financial liability. Interest expense is included in finance expense.
(vi)Equinox loan agreement
In the first quarter of 2021, Equinox Gold advanced to the Company a $20.8 million bridge loan that the Company then advanced to Premier USA for the purposes of making a deposit with affiliates of Waterton in partial satisfaction of the purchase price payable to Waterton for the acquisition of the Granite Creek Project as further described in Note 1(b) of these Financial Statements. The loan matured April 16, 2021, 10 days following the closing of the arrangement and bore interest at a rate of 5% per annum payable in arrears on the maturity date. The loan was secured against the assets of the Company, Premier and Premier USA, and subordinated to the security of Premier's existing secured creditors. The loan matured and the principal balance of $20.8 million along with accrued interest of $0.06 million was repaid through a combination of the Equinox Gold subscription receipts in the amount of $19.2 million and the remainder in cash following the closing of the Transaction.
(vii)Lease liability
Lease liabilities relate to lease on a building which have a remaining lease term of three years and an interest rate at 3.3% over the term of the lease.
The schedule of undiscounted lease payment obligations is as follows:
| June 30, 2022 | |||||
| Less than one year | $ | 221 | |||
| One to three years | 344 | ||||
| Total undiscounted lease liabilities | $ | 565 | |||
11.PROVISION FOR ENVIRONMENTAL REHABILITATION
The Company's provision for environmental rehabilitation results from mining equipment and previously mined property interests. The provision consists primarily of costs associated with mine reclamation and closure activities. These activities, which tend to be site specific, generally include costs for decommissioning the mill complex and related infrastructure, physical and chemical stability of the tailings area and, post-closure site security and monitoring costs. The Company considers such factors as changes in laws and regulations, and requirements under existing permits in determining the estimated costs. Such analysis is performed on an on-going basis.
The Company estimates that the undiscounted un-inflated future value of the cash flows required to settle the provision is $6.1 million for the McCoy-Cove property, $2.2 million for the Granite Creek property, $56.3 million for the Lone Tree property and $22.9 million for the Ruby Hill property. In calculating the best estimate of the Company's provision, management used risk-free interest rates ranging from 2.98% to 3.38%. A reconciliation of the discounted provision is provided below:
| McCoy-Cove | Granite Creek | Lone Tree | Ruby Hill | Total | |||||||||||||
| Balance as at January 1, 2022 | $ | 6,684 | $ | 2,394 | $ | 60,592 | $ | 23,179 | $ | 92,849 | |||||||
| Change in estimate capitalized | (647) | (231) | (5,101) | (568) | (6,547) | ||||||||||||
| Accretion expense | 96 | 32 | 827 | 337 | 1,292 | ||||||||||||
| Balance as at June 30, 2022 | 6,133 | 2,195 | 56,318 | 22,948 | 87,594 | ||||||||||||
| Long-term portion | $ | 6,133 | $ | 2,195 | $ | 56,318 | $ | 22,948 | $ | 87,594 | |||||||
| South Arturo | McCoy-Cove | Granite Creek | Lone Tree | Ruby Hill | Total | |||||||||||||||
| Balance as at January 1, 2021 | $ | 3,427 | $ | 4,728 | $ | — | $ | — | $ | — | $ | 8,155 | ||||||||
| Acquisitions | — | — | 2,051 | 60,475 | 23,208 | 85,734 | ||||||||||||||
| Change in estimate capitalized | — | 1,842 | 318 | — | (80) | 2,080 | ||||||||||||||
| Accretion expense | 44 | 114 | 25 | 117 | 51 | 351 | ||||||||||||||
| Disposal | (3,471) | — | — | — | — | (3,471) | ||||||||||||||
| Balance as at December 31, 2021 | — | 6,684 | 2,394 | 60,592 | 23,179 | 92,849 | ||||||||||||||
| Long-term portion | $ | — | $ | 6,684 | $ | 2,394 | $ | 60,592 | $ | 23,179 | $ | 92,849 | ||||||||
21
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
12.OTHER LIABILITIES
| June 30, 2022 | December 31, 2021 | |||||||
Warrant liability (i) | $ | 6,005 | $ | 15,465 | ||||
Share-based payment liability (ii) | 691 | — | ||||||
Orion - Conversion and change of controls rights (iii) | 10,211 | 18,534 | ||||||
Sprott - Conversion and change of controls rights (iii) | 2,004 | 3,895 | ||||||
Deferred consideration (iv) | 44,178 | 42,543 | ||||||
Offtake liability (v) | 730 | 730 | ||||||
| Total other liabilities | 63,819 | 81,167 | ||||||
| Less current portion | 26,318 | 15,795 | ||||||
| Long-term portion | $ | 37,501 | $ | 65,372 | ||||
(i)Warrant liability
In connection with the Plan of Arrangement with Equinox discussed in Note 1 (a) of these Financial Statements, the Company issued
7.73 million Common Share Purchase Warrants (“warrants”) which are exercisable into one fully paid and non-assessable common share of the Company at an exercise price of C$3.64 per share until October 7, 2022. The warrants included a four month hold period. The initial fair value of the warrants recognized on inception was $2.9 million and at June 30, 2022 $0.1 million ($2.2 million at December 31, 2021).
In connection with the Transaction, the Company assumed a warrant liability for 40% of 2 million Premier warrants that were outstanding with Orion Mine Finance on the date the Transaction. On the exercise of the warrants, the Company will issue 800,000 shares of the Company in settlement. The liability has been recorded as a reduction in the equity issued on the spin-out of Premier USA to the Company. The initial fair value of the replacement warrants recognized on inception was $0.5 million and at December 31, 2021, was $0.8 million. The warrants were exercised during the first quarter of 2022.
In connection with the Acquisition of Osgood as further described in Note 1(b) of these Financial Statements, the Company issued
12.1 million warrants which are exercisable into one fully paid and non-assessable common share of the Company at an exercise price of C$3.64 per share until April 14, 2024. The warrants included a four month hold period. The initial fair value of the warrants recognized on inception was $6.1 million and at June 30, 2022 $3.1 million ($8.9 million at December 31, 2021).
In connection with the financing as further described in Note 1(d) of these Financial Statements, the Company issued 5.5 million common share warrants exercisable at C$3.275 per share with an exercise period of 36 months or until December 13, 2024. The initial fair value of the warrants recognized on inception was $3.5 million and at June 30, 2022 $2.8 million ($3.5 million at December 31, 2021).
The warrants are considered derivatives because their exercise price is in C$ whereas the Company’s functional currency is in USD. Accordingly, the Company recognizes the warrants as liabilities at fair value with changes in fair value recognized in profit or loss. For the six months ended June 30, 2022, the Company recognized a gain on the revaluation of the liability of $8.9 million.
The fair value of the warrants were calculated using the Black-Scholes option pricing model, or a Monte Carlo simulation model, if applicable taking into the account the four months hold restriction, and with the following weighted average assumptions:
| June 30, 2022 | December 31, 2021 | |||||||
| Risk free rate | 1.99% to 3.28% | 0.18% to 0.69% | ||||||
| Warrant expected life | 4 to 30 months | 4 to 30 months | ||||||
| Expected volatility | 51% to 60% | 50% to 57% | ||||||
| Expected dividend | 0% | 0% | ||||||
| Share price | C$2.32 | C$3.11 | ||||||
As of June 30, 2022, there were 25,299,806 warrants outstanding (26,099,806 at December 31, 2021).
The fair value of the warrants recognized on inception, were calculated using Premier’s share price volatility, and at June 30, 2022, and December 31, 2021, using i-80 Gold’s share price volatility.
(ii)Share-based payment liability
The Company recognized a share-based payment liability of $0.7 million at June 30, 2022 (nil at December 31, 2021) under the Company's restricted and deferred share unit plans as discussed in Note 13(e) of these Financial Statements. The current portion of the liability is $0.4 million at June 30, 2022 (nil at December 31, 2021) representing the cash settlement expected on the next vesting date.
22
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
(iii)Conversion and change of controls right
The financial liability represents the conversion and change of control rights included in the Orion and Sprott Convertible Loans as further described in Note 1(d), Note 10 and Note 23(d) of these Financial Statements.
(iv)Deferred consideration
In connection with the acquisition of Ruby Hill the Company recorded a financial liability associated with the milestone payments subject to an early prepayment option, as further described in Note 1(b) of these Financial Statements. The Company recognizes the liability at fair value with changes in fair value recognized in profit or loss. The initial fair value of the liability recognized on inception was $41.9 million and $44.2 million at June 30, 2022 ($42.5 million at December 31, 2021). For the six months ended June 30, 2022, the Company recognized a loss on the revaluation of the liability of $1.6 million.
(v)Offtake liability
The financial liability represents the gold look back component of the offtake agreement discussed in Note 1(b) and Note 23 of these Financial Statements.
13.SHARE CAPITAL
(a)Authorized share capital
At June 30, 2022, the authorized share capital consisted of an unlimited number of common shares without par value.
(b)Issued share capital
On April 7, 2021, just prior to the completion of the Arrangement discussed in Note 1(a), the Company issued 137,624,461 common shares to Premier for the transfer of its investment in Premier USA to the Company for the carrying amount of its investment, C$189.2 million ($150.6 million) offset by C$5.5 million ($4.4 million) allocated to the equity settled employee benefits reserve for replacement options, C$1.1 million ($0.9 million) for the transfer of the South Arturo silver stream, C$0.7 million ($0.6 million) for transfer of the offtake agreement and C$0.7 million ($0.5 million) for replacement warrants issued pursuant to the arrangement.
On April 7, 2021, the Company issued 30,914,614 common shares at a price of C$2.60 per share for aggregate gross proceeds of approximately C$80.4 million ($60.8 million) for completing the private placement discussed in Note 1(a). This issuance also included the issuance of 7,728,654 share purchase warrants at an exercise price of C$3.64 with an expiration date of October 7, 2022. A cash commission was paid equal to 5.25% of the gross proceeds, other than (i) on proceeds from the sale of shares to Orion Mine Finance Group and any directors or officers of the Company or Premier for which the commission was reduced to 2.5% of the gross proceeds received and (ii) on proceeds from the sale of shares to Equinox, for which no commission was paid.
On April 14, 2021, the Company issued 13,036,846 common shares at a price of C$2.60 per common share for total gross proceeds of
$27.0 million (C$33.9 million) as part of the consideration on the acquisition of the Osgood Mining Company LLC property further discussed in Note 1(b).
On May 10, 2021, the Company issued 2,430,488 common shares at a price of C$2.50 per common share for total gross proceeds of
$5.0 million (C$6.1 million) as part of the consideration on the acquisition of the Christison properties, as discussed in Note 1(b).
On May 26, 2021, the Company issued 5,479,536 common shares at a price of C$2.60 per common share for aggregate gross proceeds of $11.8 million (C$14.2 million) in satisfaction of an anti-dilution right of Equinox contemplated in the Agreement and immediately prior to the closing of the Christison Acquisition.
On October 14, 2021, in connection with the Asset Exchange, the Company issued 22,757,393 common shares at a price of C$2.62 to NGM for gross proceeds of $47.4 million.
On October 14, 2021, the Company issued 8,784,122 common shares at a price of C$2.62 per common share for gross proceeds of
$18.3 million in connection with a private placement.
On October 14, 2021, the Company entered into a Subscription Agreement with Orion whereby Orion agreed to purchase 7,500,000 common shares of the Company for $15.6 million.
On October 18, 2021, the Company issued 3,191,358 common shares to Waterton as partial consideration for the acquisition of Ruby Hill of $8.0 million.
On October 21, 2021, the Company issued 839,799 common shares to Orion as a fee $1.75 million for the transfer of the Offtake Agreement in connection with the Asset Exchange.
On December 9, 2021, the Company issued 4,800,000 common shares at a price of C$2.62 for gross proceeds of $10.0 million to Equinox in satisfaction of an anti-dilution right within the Agreement.
23
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
On January 31, 2022, in connection with the Arrangement and as further described in Note 12(i) of these Financial Statements, the Company issued 800,000 shares for share purchase warrants that were exercised in settlement of the warrant liability that was assumed for 40% of 2 million Premier warrants that were outstanding with Orion Mine Finance on the date of the Arrangement.
During the first quarter of 2022, the Company issued 606,800 shares for stock options exercised and during the second quarter a further 248,000 were issued.
(c)Share option plan
The Company has a share option plan (the "Plan") which is restricted to directors, officers, key employees and consultants of the Company. The number of common shares subject to options granted under the Plan (and under all other management options and employee stock purchase plans) is limited to 10% in the aggregate and 1% with respect to any one optionee of the number of issued and outstanding common shares of the Company at the date of the grant of the option. Options issued under the Plan may be exercised during a period determined by the Company's Board of Directors which cannot exceed ten years.
(d)Stock options
The continuity of the Premier stock options that were outstanding and subsequently settled in connection with the spin-out, the replacement options that were issued by the Company, and the new options granted in accordance with the Share Option Plan are as follows:
Options Outstanding # | Weighted average price C$ | |||||||
| Outstanding at January 1, 2021 | 3,244,000 | 2.15 | ||||||
| Exercised | (62,000) | 1.46 | ||||||
| Expired | (9,000) | 3.18 | ||||||
| Outstanding at April 7, 2021 | 3,173,000 | 2.19 | ||||||
| Settled in connection with Premier USA spin-out | (3,173,000) | 2.19 | ||||||
| Replacement options issued (Note 1(a)) | 5,722,000 | 1.88 | ||||||
| Granted | 2,975,000 | 2.74 | ||||||
| Exercised | (1,345,200) | 1.75 | ||||||
| Expired | (662,800) | 2.79 | ||||||
| Outstanding at December 31, 2021 | 6,689,000 | 2.21 | ||||||
| Granted | 2,406,179 | 2.64 | ||||||
| Exercised | (854,800) | 2.40 | ||||||
| Expired | (104,938) | 2.62 | ||||||
| Forfeited | (97,600) | 2.71 | ||||||
| Outstanding at June 30, 2022 | 8,037,841 | 2.30 | ||||||
The weighted average share price at the date of exercise for the six months ended June 30, 2022 was C$2.80.
At June 30, 2022, the following options were outstanding, and outstanding and exercisable:
| Outstanding | Outstanding and exercisable | |||||||||||||||||||
Exercise price CAD | Options # | Weighted average exercise price C$ | Weighted average remaining life in years | Options # | Weighted average exercise price C$ | Weighted average remaining life in years | ||||||||||||||
| $1.18 - $2.57 | 2,625,800 | $1.44 | 2.35 | 2,538,300 | $1.40 | 2.31 | ||||||||||||||
| $2.58 - $2.64 | 2,130,941 | $2.62 | 4.50 | 743,365 | $2.62 | 4.30 | ||||||||||||||
| $2.65 - $3.57 | 3,281,100 | $2.79 | 3.28 | 2,860,800 | $2.73 | 3.08 | ||||||||||||||
| 8,037,841 | $2.30 | 3.30 | 6,142,465 | $2.17 | 2.91 | |||||||||||||||
Total vested stock options at June 30, 2022 were 6,142,465 with a weighted average exercise price of C$2.17 (5,086,500 at December 31, 2021 with a weighted average exercise price of C$2.12).
The Company applies the fair value method of accounting for all share-based compensation awards and accordingly, $1.3 million was recorded for options issued as compensation during the six months ended June 30, 2022 ($1.4 million for the six months ended June 30, 2021) per the table in (f) share-based payments below. The options had a weighted average grant date fair value of C$2.64 at June 30, 2022. As of June 30, 2022, there were 1,895,376 unvested stock options (1,602,500 at December 31, 2021).
24
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
For purposes of the options granted, the fair value of each option was estimated on the date of grant using the Black-Scholes option pricing model, with the following assumptions:
June 30, 2022 | December 31, 2021 | |||||||
Risk-free interest rate | 1.55% to 3.19% | 0.09% to 0.75% | ||||||
Annualized volatility based on historic volatility | 51% to 58% | 32% to 62% | ||||||
Expected dividend | Nil | Nil | ||||||
Forfeiture rate | 0% to 5.7% | Nil | ||||||
Expected option life | 3 years | 4 years | ||||||
(e)Restricted and Deferred Share Unit Plan
The Company adopted the Restricted Share Unit ("RSU") plan to allow the Board of Directors to grant its employees non-transferable share units based on the value of the Company's share price at the date of grant. The awards have a graded vesting schedule over a three-year period. Under the RSU plan, the awards can be equity or cash settled immediately upon vesting.
The Company adopted the Deferred Share Unit ("DSU") plan to grant members of its Board of Directors non-transferable share units based on the value of the Company's share price at the date of grant. The awards have a graded vesting schedule over a three-year period. DSUs must be retained until the Director leaves the Board, at which time the awards will be equity or cash settled.
For the period ended December 31, 2021, the RSUs were settled in shares of i-80 Gold and Equinox Gold and the corresponding liability was reversed in conjunction with the closing of the Arrangement discussed in Note 1(a).
The following table summarizes the continuity of the RSUs and DSUs for the period ended June 30, 2022:
RSUs outstanding # | Weighted average RSU price C$ | DSUs outstanding # | Weighted average DSU price C$ | |||||||||||
| Outstanding at January 1, 2021 | 413,666 | $3.01 | — | $— | ||||||||||
| Settled in connection with Premier USA spin-out | (413,666) | 1.38 | — | — | ||||||||||
| Outstanding at December 31, 2021 | — | — | — | — | ||||||||||
| Granted | 772,170 | 2.66 | 149,649 | 2.73 | ||||||||||
| Forfeited | (61,745) | 2.66 | — | — | ||||||||||
| Outstanding at June 30, 2022 | 710,425 | $2.66 | 149,649 | $2.73 | ||||||||||
As the options are expected to be settled in cash, at June 30, 2022 a current liability of $0.4 million and a long-term liability of $0.3 million was outstanding and included in other liabilities (nil outstanding at December 31, 2021). For the six months ended June 30, 2022, $0.7 million has been recorded as an expense and included in share-based payments ($1.0 million for the six months ended June 30, 2021). The total fair value of the vested and unvested RSUs and DSUs at June 30, 2022 was C$2.3 million (nil at December 31, 2021).
For purposes of the vesting of the RSUs and DSUs, the fair value of the liability was estimated using the share price of the valuation date and an expected weighted average forfeiture rate of nil.
(f) Share-based payments
| Three months ended June 30, | Six months ended June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| Stock option valuation | $ | 269 | $ | 1,401 | $ | 1,299 | $ | 1,401 | ||||||
| RSU valuation | 278 | 910 | 690 | 980 | ||||||||||
| Subtotal | $ | 547 | $ | 2,311 | $ | 1,989 | $ | 2,381 | ||||||
| Reversal of RSU liability | — | (413) | — | (413) | ||||||||||
| Total | $ | 547 | $ | 1,898 | $ | 1,989 | $ | 1,968 | ||||||
25
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
14.BASIC AND DILUTED INCOME / (LOSS) PER SHARE
Basic income / (loss) per share is calculated based on the weighted average number of common shares and common share equivalents outstanding during the six months ended June 30, 2022, and 2021. Diluted income / (loss) per share is based on the assumption that stock options and warrants that have an exercise price less than the average market price of the Company's common shares during the period have been exercised on the later of the beginning of the year and the date granted. Net income / (loss) and basic weighted average shares outstanding are reconciled to diluted net income / (loss) and diluted weighted average shares outstanding, respectively, as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| Income / (loss) from continuing operations | $ | 19,276 | $ | (10,005) | $ | (3,988) | $ | (13,169) | ||||||
| Income from discontinued operations | — | 2,943 | — | 8,958 | ||||||||||
| Net income / (loss) for the period | 19,276 | (7,062) | (3,988) | (4,211) | ||||||||||
| Basic weighted average shares outstanding | 240,312,422 | 181,500,325 | 239,800,687 | 159,734,707 | ||||||||||
| Dilution adjustment for stock options | 5,302,702 | — | — | — | ||||||||||
| Diluted weighted average shares outstanding | 245,615,124 | 181,500,325 | 239,800,687 | 159,734,707 | ||||||||||
| Basic income / (loss) per share from continuing operations | 0.08 | (0.06) | (0.02) | (0.08) | ||||||||||
| Basic income per share from discontinued operations | — | 0.02 | — | 0.06 | ||||||||||
| Basic income / (loss) per share | $ | 0.08 | $ | (0.04) | $ | (0.02) | $ | (0.02) | ||||||
| Diluted income / (loss) per share from continuing operations | 0.08 | (0.06) | (0.02) | (0.08) | ||||||||||
| Diluted income per share from discontinued operations | — | 0.02 | — | 0.06 | ||||||||||
| Diluted income / (loss) per share | $ | 0.08 | $ | (0.04) | $ | (0.02) | $ | (0.02) | ||||||
7,538,841 stock options (Note 13(d)) that are issued and in the money at period end were included in the computation of diluted weighted average shares outstanding for the three months ended June 30, 2022. The dilutive impact has been calculated using the treasury stock method. The impact of the convertible loans has been ignored as the impact is antidilutive. 499,000 stock options and 25,299,806 warrants were excluded from the calculation.
8,037,841 stock options (Note 13(d)) and 25,299,806 warrants (Note 12(i)) were excluded from the computation of diluted weighted average shares outstanding for the six months ended June 30, 2022 (6,221,000 and 20,599,806 respectively, for the three and six months ended June 30, 2021), as their effect would be anti-dilutive.
15.SUPPLEMENTAL CASH FLOW INFORMATION
(i) The following table summarizes the increase and decrease in working capital:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| Receivables | $ | (2,785) | $ | (96) | $ | (2,900) | $ | (96) | ||||||
| Receivable from related parties | — | (4,005) | — | (6) | ||||||||||
| Prepaids and deposits | (1,812) | (959) | (283) | (1,262) | ||||||||||
| Inventory | (268) | — | (2,589) | — | ||||||||||
| Accounts payable and accrued liabilities | 888 | 1,991 | (7,283) | 1,913 | ||||||||||
| Increase / (decrease) in working capital | $ | (3,977) | $ | (3,069) | $ | (13,055) | $ | 549 | ||||||
26
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
(ii) The following table summarizes non-cash items included in other income / (expense):
| Three months ended June 30, | Six months ended June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| Gain on warrants | $ | 12,004 | $ | 535 | $ | 8,900 | $ | 535 | ||||||
| Gain on fair value measurement of convertible loans derivative | 16,307 | — | 10,214 | — | ||||||||||
| Loss on deferred consideration | (792) | — | (1,636) | — | ||||||||||
| Loss on investments | (1,229) | — | (1,229) | — | ||||||||||
| Gain on sales from Gold Prepay Agreement | 454 | — | 454 | — | ||||||||||
| Gain on fair value measurement of Gold Prepay derivative | 4,084 | — | 4,084 | — | ||||||||||
| Gain on fair value measurement of Silver Purchase derivative | 9,125 | — | 9,125 | — | ||||||||||
| Other | 4 | — | 3 | — | ||||||||||
| Total non-cash items included in other income / (expense) | $ | 39,957 | $ | 535 | $ | 29,915 | $ | 535 | ||||||
16.EXPLORATION, EVALUATION AND PRE-DEVELOPMENT
(i) The following table summarizes the Company's exploration, evaluation and pre-development expenditures by property:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| McCoy-Cove, Nevada | $ | 794 | $ | 366 | $ | 1,286 | $ | 724 | ||||||
| Granite Creek, Nevada | 6,139 | 2,009 | 10,692 | 2,008 | ||||||||||
| Ruby Hill, Nevada | 5,173 | — | 9,207 | — | ||||||||||
| Other | 26 | 57 | 201 | 79 | ||||||||||
| Total exploration, evaluation and pre-development | $ | 12,132 | $ | 2,432 | $ | 21,386 | $ | 2,811 | ||||||
(ii) The following table summarizes the Company's exploration, evaluation and pre-development expenditures by activity:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| Drilling | $ | 8,403 | $ | 930 | $ | 16,120 | $ | 931 | ||||||
| Assays | 1,497 | — | 1,657 | — | ||||||||||
| Salaries and benefits | 616 | 215 | 949 | 303 | ||||||||||
| Field support | 516 | 416 | 962 | 476 | ||||||||||
| Operating supplies | 418 | 67 | 687 | 70 | ||||||||||
| Studies and permits | 254 | 163 | 257 | 253 | ||||||||||
| Consulting and professional fees | 178 | 485 | 301 | 513 | ||||||||||
| Claim Filing and Maintenance Fees | 134 | 88 | 222 | 174 | ||||||||||
| Depreciation & amortization | 116 | 68 | 231 | 91 | ||||||||||
| Total exploration, evaluation and pre-development | $ | 12,132 | $ | 2,432 | $ | 21,386 | $ | 2,811 | ||||||
17.GENERAL AND ADMINISTRATIVE
| Three months ended June 30, | Six months ended June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| Corporate administration | $ | 1,822 | $ | 776 | $ | 2,846 | $ | 804 | ||||||
| Salaries and benefits | 1,888 | 959 | 3,213 | 1,265 | ||||||||||
| Professional fees | 855 | 735 | 1,779 | 1,068 | ||||||||||
| Total general and administrative | $ | 4,565 | $ | 2,470 | $ | 7,838 | $ | 3,137 | ||||||
27
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
18.OTHER INCOME / (EXPENSE)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| Gain on warrants | $ | 12,004 | $ | 535 | $ | 8,900 | $ | 535 | ||||||
| Gain on fair value measurement of convertible loans derivative | 16,307 | — | 10,214 | — | ||||||||||
| Loss on deferred consideration | (792) | — | (1,636) | — | ||||||||||
| Gain / (loss) on foreign exchange | (135) | 1,057 | (199) | 249 | ||||||||||
| Loss on investments | (1,229) | — | (1,229) | — | ||||||||||
| Gain on sales from Gold Prepay Agreement | 454 | — | 454 | — | ||||||||||
| Gain on fair value measurement of Gold Prepay derivative | 4,084 | — | 4,084 | — | ||||||||||
| Gain on fair value measurement of Silver Purchase derivative | 9,125 | — | 9,125 | — | ||||||||||
| Other | (1,046) | 31 | (1,222) | 32 | ||||||||||
| Total other income / (expense) | $ | 38,772 | $ | 1,623 | $ | 28,491 | $ | 816 | ||||||
19.FINANCE EXPENSE
| Three months ended June 30, | Six months ended June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| Interest accretion on convertible loans | $ | 1,881 | $ | — | $ | 3,768 | $ | — | ||||||
| Interest accretion on Gold Prepay Agreement | 2,197 | — | 2,197 | — | ||||||||||
| Interest accretion on Silver Purchase Agreement | 794 | — | 794 | — | ||||||||||
| Amortization of finance costs | 93 | — | 176 | — | ||||||||||
| Environmental rehabilitation accretion | 912 | 15 | 1,292 | 24 | ||||||||||
| Interest paid | 3 | 28 | 11 | 67 | ||||||||||
| Total finance expense | $ | 5,880 | $ | 43 | $ | 8,238 | $ | 91 | ||||||
20.SEGMENTED INFORMATION
Results of the operating segments are reviewed by the Company's chief operating decision makers ("CODM") to make decisions about resources to be allocated to the segments and to assess their performance. Each CODM is a member of the senior management team who rely on management positioned in each operating segment of the Company.
(a) Operating mine property, development and exploration projects
The Company's operating segments are reported by operating mine properties and development and exploration projects. The results from operations for these reportable segments are summarized in the following tables:
| Continuing operations | ||||||||||||||||||||
| Six months ended June 30, 2022 | Nevada Production2 | Exploration and Development3 | Corporate and other | Total | Discontinued operations | Total | ||||||||||||||
| Revenue | $ | 9,247 | $ | — | $ | — | $ | 9,247 | $ | — | $ | 9,247 | ||||||||
| Cost of sales | (5,498) | — | — | (5,498) | — | (5,498) | ||||||||||||||
| Depletion, depreciation and amortization | (823) | — | — | (823) | — | (823) | ||||||||||||||
| Exploration, evaluation and pre-development | (9,406) | (11,980) | — | (21,386) | — | (21,386) | ||||||||||||||
| Overhead costs | (646) | (151) | (9,819) | (10,616) | — | (10,616) | ||||||||||||||
| Other income / (expense) | (2,851) | 41 | 31,301 | 28,491 | — | 28,491 | ||||||||||||||
| Finance expense | (1,164) | (128) | (6,946) | (8,238) | — | (8,238) | ||||||||||||||
| Income / (loss) before income taxes | (11,141) | (12,218) | 14,536 | (8,823) | — | (8,823) | ||||||||||||||
| Deferred tax recovery | — | — | 4,835 | 4,835 | — | 4,835 | ||||||||||||||
| Income / (loss) for the period | $ | (11,141) | $ | (12,218) | $ | 19,371 | $ | (3,988) | $ | — | $ | (3,988) | ||||||||
2 Includes Ruby Hill and Lone Tree
3 Includes Granite Creek and McCoy-Cove
28
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
| Continuing operations | ||||||||||||||||||||
| Six months ended June 30, 2021 | Nevada Production1 | Exploration and Development2 | Corporate and other | Total | Discontinued operations | Total | ||||||||||||||
| Revenue | $ | — | $ | — | $ | — | $ | — | $ | 23,826 | $ | 23,826 | ||||||||
| Cost of sales | — | — | — | — | (12,833) | (12,833) | ||||||||||||||
| Depletion, depreciation and amortization | — | — | — | — | (1,224) | (1,224) | ||||||||||||||
| Exploration, evaluation and pre-development | — | (2,776) | (35) | (2,811) | (474) | (3,285) | ||||||||||||||
| Overhead costs | — | (158) | (9,548) | (9,706) | (168) | (9,874) | ||||||||||||||
| Other income / (expense) | — | — | 816 | 816 | (24) | 792 | ||||||||||||||
| Related party interest expense | — | — | (1,177) | (1,177) | — | (1,177) | ||||||||||||||
| Finance expense | — | (24) | (67) | (91) | (29) | (120) | ||||||||||||||
| Income / (loss) before income taxes | — | (2,958) | (10,011) | (12,969) | 9,074 | (3,895) | ||||||||||||||
| Current tax expense | — | — | (200) | (200) | (116) | (316) | ||||||||||||||
| Income / (loss) for the period | $ | — | $ | (2,958) | $ | (10,211) | $ | (13,169) | $ | 8,958 | $ | (4,211) | ||||||||
| Continuing operations | ||||||||||||||||||||
| Three months ended June 30, 2022 | Nevada Production1 | Exploration and Development2 | Corporate and other | Total | Discontinued operations | Total | ||||||||||||||
| Revenue | $ | 6,383 | $ | — | $ | — | $ | 6,383 | $ | — | $ | 6,383 | ||||||||
| Cost of sales | (3,966) | — | — | (3,966) | — | (3,966) | ||||||||||||||
| Depletion, depreciation and amortization | (655) | — | — | (655) | — | (655) | ||||||||||||||
| Exploration, evaluation and pre-development | (5,315) | (6,817) | — | (12,132) | — | (12,132) | ||||||||||||||
| Overhead costs | (486) | 17 | (5,107) | (5,576) | — | (5,576) | ||||||||||||||
| Other income / (expense) | (1,783) | 16 | 40,539 | 38,772 | — | 38,772 | ||||||||||||||
| Finance expense | (822) | (90) | (4,968) | (5,880) | — | (5,880) | ||||||||||||||
| Income / (loss) before income taxes | (6,644) | (6,874) | 30,464 | 16,946 | — | 16,946 | ||||||||||||||
| Deferred tax recovery | — | — | 2,330 | 2,330 | — | 2,330 | ||||||||||||||
| Income / (loss) for the period | $ | (6,644) | $ | (6,874) | $ | 32,794 | $ | 19,276 | $ | — | $ | 19,276 | ||||||||
| Continuing operations | ||||||||||||||||||||
| Three months ended June 30, 2021 | Nevada Production1 | Exploration and Development2 | Corporate and other | Total | Discontinued operations | Total | ||||||||||||||
| Revenue | $ | — | $ | — | $ | — | $ | — | $ | 10,250 | $ | 10,250 | ||||||||
| Cost of sales | — | — | — | — | (6,491) | (6,491) | ||||||||||||||
| Depletion, depreciation and amortization | — | — | — | — | (329) | (329) | ||||||||||||||
| Exploration, evaluation and pre-development | — | (2,431) | (1) | (2,432) | (293) | (2,725) | ||||||||||||||
| Overhead costs | — | (69) | (8,811) | (8,880) | (73) | (8,953) | ||||||||||||||
| Other income / (expense) | — | — | 1,623 | 1,623 | (31) | 1,592 | ||||||||||||||
| Related party interest expense | — | — | (73) | (73) | — | (73) | ||||||||||||||
| Finance expense | — | (15) | (28) | (43) | (17) | (60) | ||||||||||||||
| Income / (loss) before income taxes | — | (2,515) | (7,290) | (9,805) | 3,016 | (6,789) | ||||||||||||||
| Current tax expense | — | — | (200) | (200) | (73) | (273) | ||||||||||||||
| Income / (loss) for the period | $ | — | $ | (2,515) | $ | (7,490) | $ | (10,005) | $ | 2,943 | $ | (7,062) | ||||||||
| Continuing operations | ||||||||||||||||||||
| As at June 30, 2022 | Nevada Production4 | Exploration and Development5 | Corporate and other | Total | Discontinued operations | Total | ||||||||||||||
| Capital expenditures | $ | 3,248 | $ | 14,212 | $ | 219 | $ | 17,679 | $ | — | $ | 17,679 | ||||||||
| Property, plant and equipment | 358,832 | 151,078 | 935 | 510,845 | — | 510,845 | ||||||||||||||
| Total assets | 421,768 | 153,236 | 122,300 | 697,304 | — | 697,304 | ||||||||||||||
| Total liabilities | 55,330 | 107,264 | 127,097 | 289,691 | — | 289,691 | ||||||||||||||
4 Includes Ruby Hill and Lone Tree
5 Includes Granite Creek and McCoy-Cove
29
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
| Continuing operations | ||||||||||||||||||||
| As at December 31, 2021 | Nevada Production1 | Exploration and Development2 | Corporate and other | Total | Discontinued operations | Total | ||||||||||||||
| Capital expenditures | $ | 368,503 | $ | 68,856 | $ | 932 | $ | 438,291 | $ | — | $ | 438,291 | ||||||||
| Property, plant and equipment | 363,715 | 138,056 | 878 | 502,649 | — | 502,649 | ||||||||||||||
| Total assets | 416,003 | 140,680 | 99,666 | 656,349 | — | 656,349 | ||||||||||||||
| Total liabilities | 65,423 | 109,675 | 74,273 | 249,371 | — | 249,371 | ||||||||||||||
21.RELATED PARTY TRANSACTIONS
Related parties include key management personnel and entities which have control or significant influence as described in Note 2(b) of these Financial Statements. Related party transactions included in these Financial Statements are with Premier, the former parent company and with Equinox Gold.
The following are related party transactions, recorded at the exchange amount as agreed to by the parties. The figures noted below are for the six months ended June 30, 2022, with comparative figures for the six months ended June 30, 2021:
(i)The Company recognized revenue of $13.6 million for the six months ended June 30, 2021 from the sale of gold and silver under the transfer pricing agreement with Premier. The transfer pricing agreement with Premier was terminated on closing of the Transaction.
(ii)Included in related party interest expense is interest accrued on an intercompany loan payable to Premier in the amount of $1.2 million for the six months ended June 30, 2021. The intercompany note was settled on closing of the Transaction.
(iii)Included in finance expense is interest paid to Equinox of $0.06 million for the six months ended June 30, 2021 for the bridge loan further described in Note 10(vi) of these Financial Statements.
(iv)Included in the statement of cash flows for the six months ended June 30, 2021, is the proceeds from Equinox and the subsequent repayment to Equinox for the $20.75 million bridge loan further described in Note 1(a) of these Financial Statements.
(v)Included in operating expenses is share‑based payments of $0.6 million for the six months ended June 30, 2021. The share‑based payments are for allocation of expenses from Premier. The corresponding share‑based payment liability previously recorded in Premier USA, was settled on closing of the Transaction.
(vi)Included in operating expenses is transition services costs of $0.1 million to Equinox Gold for the six months ended June 30, 2022 ($0.1 million for the period ended June 30, 2021). The transition services costs are for general and administrative services provided by Equinox Gold to the Company’s head office in Reno, Nevada. The transition services agreement was terminated March 31, 2022.
(vii)In April 2021, the Company modified a portion of its intercompany note payable to Premier to change the repayment currency from CAD to USD. This modification resulted in the extinguishment of the original intercompany note and recognition of a new intercompany note, with the difference of $8.8 million recorded directly into surplus / (deficit).
22.COMMITMENTS
(a) Surety bonds
At June 30, 2022, the Company has outstanding surety bonds in the amount of $122.9 million in favor of either the United States Department of the Interior, Bureau of Land Management ("BLM"), or the State of Nevada, Department of Conservation & Natural Resources as financial support for environmental reclamation and exploration permitting. This includes replacement bonds for the Lone Tree project and the Ruby Hill property in the amounts of $87.0 million and $22.8 million, respectively. The surety bonds are secured by a
$30.8 million deposit and are subject to fees competitively determined in the marketplace. The obligations associated with these instruments are generally related to performance requirements that the Company addresses through its ongoing operations. As specific requirements are met, the BLM and State of Nevada as beneficiary of the instruments, will return the instruments to the issuing entity. As these instruments are associated with operating sites with long-lived assets, they will remain outstanding until closure.
23.FINANCIAL INSTRUMENTS
The Company's operations include the acquisition and exploration of mineral properties in United States of America. The Company examines the various financial risks to which it is exposed and assesses the impact and likelihood of occurrence. These risks may include credit risk, liquidity risk, currency risk, interest rate risk and other risks. Where material, these risks are reviewed and monitored by the Board of Directors.
30
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
(a)Credit risk
Counterparty credit risk is the risk that the financial benefits of contracts with a specific counterparty will be lost if a counterparty defaults on its obligations under the contract. This includes any cash amounts owed to the Company by those counterparties, less any amounts owed to the counterparty by the Company where a legal right of offset exists and also includes the fair values of contracts with individual counterparties which are recorded in the Financial Statements.
(i)Trade credit risk
The Company closely monitors its financial assets and does not have any significant concentration of trade credit risk. The Company sells its products exclusively to large international financial institutions and other organizations with strong credit ratings. The historical level of customer defaults is negligible and, as a result, the credit risk associated with trade receivables is considered to be negligible. The trade receivable balance outstanding at June 30, 2022 was $2.9 million and at December 31, 2021 was nil.
(ii)Cash
In order to manage credit and liquidity risk the Company invests only in highly rated investment grade instruments that have maturities of 90 days or less and which are liquid after 30 days or less into a known amount of cash. Limits are also established based on the type of investment, the counterparty and the credit rate. The credit risk on cash and cash equivalents is therefore negligible.
(b)Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure.
The following table summarizes the Company's contractual maturities and the timing of cash flows as at June 30, 2022. The amounts presented are based on the undiscounted contractual cash flows and may not agree with the carrying amounts on the Financial Statements.
| Up to 1 year | 1-5 years | Total | |||||||||
Accounts payable and accrued liabilities | $ | 9,480 | $ | — | $ | 9,480 | |||||
Convertible loans | — | 60,000 | 60,000 | ||||||||
Deferred consideration | 27,000 | 20,000 | 47,000 | ||||||||
| $ | 36,480 | $ | 80,000 | $ | 116,480 | ||||||
(c)Market risk
(i)Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As the Company holds excess cash in interest bearing bank accounts rather than investments, the interest rate risk is minimal.
(ii)Currency risk
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the Company’s functional currency. The Company’s management monitors the exchange rate fluctuations on a continuous basis and acts accordingly.
(d)Fair value
(i)Definitions
IFRS 13 establishes a fair value hierarchy that prioritizes the input to valuation techniques used to measure fair value as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
31
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
(ii)Valuation techniques used to determine fair values
The Company calculates fair values based on the following methods of valuation and assumptions:
a.Financial assets
Financial assets other than the Company's investment described below are carried at amortized cost. The fair value of cash and cash equivalents and receivables approximate their carrying value due to their short-term nature.
The Company's investment as further described in Note 6 of these Financial Statements was classified within level 2 of the fair value hierarchy and is fair valued using the common share price from the most recent subscription agreement at December 31, 2021, however during the Six months ended June 30, 2022 the investment listed on the TSX and therefore a quoted market price for this investment is available and so it is now classified within level 1 of the fair value hierarchy.
b.Financial liabilities
Financial liabilities not classified as FVTPL are carried at amortized cost. Accounts payable and accrued liabilities approximate their carrying value due to their short term nature.
The fair value of the loan payable to Premier approximates the carrying value as the interest rates are comparable to current market rates.
The share-based payment and warrant liabilities are classified within level 2 of the fair value hierarchy and are fair valued using a valuation model that incorporates such factors as the Company’s share price volatility, risk free rates and expiry dates including managements assumptions on forfeiture rates.
The Stream Agreement liability was classified within level 3 of the fair value hierarchy and was fair valued using the net present value of expected future cash flows based on management assumptions on silver deliveries under the stream and a discount rate that includes the risk premium that market participants require. This liability was extinguished by December 31, 2021.
Deferred consideration related to Ruby Hill was recognized at fair value on acquisition and at June 30, 2022. This liability is classified within level 3 of the fair value hierarchy as it involves managements best estimate of whether or not the key activities required for each milestone payment will be achieved. Management has assumed that all milestones will be achieved and the early repayment option will be taken so the fair value of the deferred consideration is the $47 million discounted at 7.5%.
The Finance Package is classified within level 3 of the fair value hierarchy and is fair valued using credit spread calculated at inception and simulating out the expected movement in gold, silver and the Company’s share price whilst considering key assumptions like the discount rate that includes the risk premium that market participants require, the volatility in the Company’s share price and the discount for lack of marketability.
The Convertible Loans contain conversion and change of control rights that are separately measured at FVTPL each reporting period (level 3). The valuation of these options are dependent on the changes in the prices of the underlying assets and probability a change of control event would be expected to occur on December 13, 2023. The forced conversion rights were measured at fair value on inception but do not get revalued subsequently.
The Gold Prepay Agreement is recognized as a financial liability at amortized cost and it contains an embedded derivative in relation to the embedded gold price within the agreement that is measured at FVTPL each reporting period (level 3). The change in fair value is dependent on the movement in gold prices and the change in the risk free borrowing rate.
The Silver Purchase Agreement is recognized as a financial liability at amortized cost and it contains two embedded derivatives; one in relation to the embedded silver price within the agreement and the other in relation to the gold substitution option whereby i-80 can choose to deliver gold instead of silver at a ratio of 75:1, both are measured at FVTPL each reporting period (level 3). On initial recognition and at June 30, 2022 the gold substitution option did not have any value and the silver price would need to increase by 18.7% in Q3 2022 compared to expected gold prices for it to have value. The change in fair value of the embedded derivative related to the silver price is dependent on the movement in silver prices and the change in the risk free borrowing rate.
32
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Stated in thousands of United States Dollars)
(Unaudited)
(iii)Fair value measurements using significant unobservable inputs (level 3)
The following table presents the changes in level 3 items for the periods ended June 30, 2022 and December 31, 2021:
| Orion | Sprott | |||||||||||||||||||||||||
| Silver Agreement liability | Deferred consideration | Conversion and change of control rights | A&R Offtake gold lookback option | Silver Purchase Agreement - silver price derivative | Silver Purchase Agreement - gold substitute option | Gold Prepay Agreement - gold price derivative | Conversion and change of control rights | |||||||||||||||||||
| Balance as at January 1, 2021 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Initial recognition | (853) | (41,895) | (13,599) | (577) | — | — | — | (2,733) | ||||||||||||||||||
| Principal repayment | 11 | — | — | — | — | — | — | — | ||||||||||||||||||
| Disposals | 897 | — | — | — | — | — | — | — | ||||||||||||||||||
| Fair value adjustments | (55) | (648) | (4,935) | (153) | — | — | — | (1,162) | ||||||||||||||||||
| Balance as at December 31, 2021 | $ | — | $ | (42,543) | $ | (18,534) | $ | (730) | $ | — | $ | — | $ | — | $ | (3,895) | ||||||||||
| Fair value adjustments | — | (1,635) | 8,323 | — | 9,125 | — | 4,084 | 1,891 | ||||||||||||||||||
| Balance as at June 30, 2022 | $ | — | $ | (44,178) | $ | (10,211) | $ | (730) | $ | 9,125 | $ | — | $ | 4,084 | $ | (2,004) | ||||||||||
(iv)Valuation inputs and relationships to fair value
The following table summarizes the quantitative information about the significant unobservable inputs used in level 3 fair value measurements:
| Balance as at June 30, 2022 | Unobservable input | Fair Value | Change in Fair Value | |||||||||||
| Assumption: | -10% | 10% | ||||||||||||
| Silver Purchase Agreement - silver price derivative | Change in forecast silver price | 9,125 | 4,100 | (4,100) | ||||||||||
| Gold Prepay Agreement - gold price derivative | Change in forecast gold price | 4,084 | 4,932 | (4,932) | ||||||||||
The valuation of the Convertible Loans and related embedded derivatives were dependent on the changes in the prices of the underlying assets and probability a change of control event would be expected to occur on December 13, 2023.
The following table summarizes the quantitative information about the significant unobservable inputs used in level 3 fair value measurements:
| Balance as at June 30, 2022 | Unobservable input | Fair Value | Change in Fair Value | |||||||||||
| Assumption: | 25% | 30% | 50% | |||||||||||
Orion - Conversion Option and Change of Control Option | Change of control probability | (10,211) | (228) | (1,140) | ||||||||||
Sprott - Conversion Option and Change of Control Option | Change of control probability | (2,004) | (34) | (211) | ||||||||||
24.MANAGEMENT OF CAPITAL
The Company manages its share capital and equity settled employee benefits reserve as capital, the balance of which is $368.5 million at June 30, 2022 ($363.9 million at December 31, 2021). The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going-concern in order to pursue the exploration and development of its mineral properties and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk.
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, acquire or dispose of assets or acquire new debt.
In order to maximize ongoing exploration efforts, the Company does not pay out dividends. The Company's investment policy is to invest its short-term excess cash in highly liquid short-term interest-bearing investments with short-term maturities, selected with regard to the expected timing of expenditures from continuing operations.
To effectively manage its capital requirements, the Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives. In connection with the financing described in Note 1 of these Financial Statements the Company expects it will have sufficient capital to carry out its development, exploration and evaluation plans through 2022.
33
Management's Discussion and Analysis of Operations and Financial Condition
For the Three and Six Months ended June 30, 2022
Table of Contents
Second Quarter and Year-to-Date | |||||
| 4 | |||||
| Strategic Overview | 5 | ||||
| 7 | |||||
| 9 | |||||
| 10 | |||||
| Operational Highlights | 12 | ||||
| 15 | |||||
| 20 | |||||
2
Management's Discussion and Analysis of Operations and Financial Condition
This Management's Discussion and Analysis of Operations and Financial Condition (“MD&A”) of i-80 Gold Corp. (the “Company” or “i-80 Gold”) should be read in conjunction with the Company’s unaudited condensed consolidated interim financial statements (the “Financial Statements”) for the three and six months ended June 30, 2022, and the notes thereto. The Company’s Financial Statements have been prepared in accordance with IAS 34 – Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”). Accordingly, certain disclosures included in annual financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB have been condensed or omitted and this MD&A should also be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021. Unless otherwise stated, all amounts discussed herein are denominated in U.S. dollars. This MD&A was prepared as of August 9, 2022, and all information is current as of such date. Readers are encouraged to read the Company’s public information filings on SEDAR at www.sedar.com.
This discussion provides management's analysis of the Company’s historical operating and financial results and provides estimates of future operating and financial performance based on information currently available. Actual results may vary from estimates and the variances may be significant. Readers should be aware that historical results are not necessarily indicative of future performance. Cautionary statements regarding forward-looking information and mineral reserves and mineral resources can be found in the Sections titled “Cautionary Statements on Forward-Looking Statements” and “Technical Information” in this MD&A.
The Company has included certain non-IFRS financial performance measures, which the Company believes, that together with measures determined in accordance with IFRS, provide investors with an improved ability to evaluate the underlying performance of the Company. Non-IFRS financial performance measures do not have any standardized meaning prescribed under IFRS, and therefore they may not be comparable to similar non-IFRS financial performance measures employed by other companies. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Descriptions and reconciliations associated with the non-IFRS financial performance measures can be found in the section titled “Non-IFRS Financial Performance Measures” in this MD&A.
Highlights
Second Quarter
•Commenced trading on the New York Stock Exchange on May 19, 2022 under the symbol IAUX
•Q2 2022 gold sales of 3,507 ounces at an all-in sustaining cost of $1,356 per ounce sold 1
•Funds received for the previously-announced gold prepay and silver purchase and sale agreements totaling $75 million
•June 30 cash balance of $101 million and $31 million in restricted cash
•Drilling at Granite Creek continued with multiple high-grade intercepts in the Ogee and South Pacific zones (23,944 core feet and 8,157 reverse circulation (RC) feet drilled)
•Increased the size of the Granite Creek property package by approximately 1,280 acres (518Ha), extending exposure along the primary fault structure by approximately 1.6 km north towards the Turquoise Ridge Mine , and 1.6 km south of Granite Creek
•Continued step-out and infill drilling at Ruby Hill with multiple high-grade intercepts (21,595 core feet and 25,150 RC feet drilled)
•Engineering study of Lone Tree autoclave refurbishment continued on plan
•Entered into agreement to acquire key water rights for the development of the Cove Project
Year to Date
•Gold sales of 4,996 ounces; All-in sustaining cost of $1,326 per ounce sold 1
•Commenced development of exploration decline at McCoy-Cove (approximately 1,300 feet of advance now completed); drilling expected to commence in Q4
•Completed first gold sale in Company history
•Shipment of sulfide ore from Granite Creek for processing started in June
•A total of 145,887 feet (core and RC) drilled by the end of the second quarter
______________________________________________________________________________________________
1 See “Non-IFRS Financial Performance Measures” section of this MD&A.
3
OVERVIEW
Company Overview
i-80 Gold Corp. is a Nevada focused growth-oriented gold and silver producer engaged in the exploration, development, and production of gold and silver deposits. The Company's principal assets (all wholly-owned) include the Ruby Hill Mine, Lone Tree Mine, Granite Creek Project, and McCoy-Cove Project.
The Company was incorporated on November 10, 2020, in the province of British Columbia, Canada. The Company’s common shares are listed on the Toronto Stock Exchange (“TSX”) under the symbol IAU and the New York Stock Exchange (“NYSE”) under the symbol IAUX. The Company’s headquarters are located at 5190 Neil Road, Suite 460, Reno, Nevada, 89502.
PREVIOUSLY-ANNOUNCED FINANCING
Orion and Sprott Financing Package
The Company entered into a financing package with OMF Fund III (F) Ltd. an affiliate of Orion Mine Finance (collectively “Orion“) on December 13, 2021 and a fund managed by Sprott Asset Management USA, Inc. and a fund managed by CNL Strategic Asset Management, LLC (“Sprott”) on December 9, 2021 (together the “Financing Package”).
The Financing Package in its aggregate consists of:
a.$50 million convertible loan (the “Orion Convertible Loan“)
b.$10 million convertible loan (the “Sprott Convertible Loan” and together with the Orion Convertible Loan, the “Convertible Loans”)
c.$45 million gold prepay purchase and sale agreement entered into with affiliates of Orion (the “Gold Prepay Agreement“), including an accordion feature potentially to access up to an additional $50 million at i‑80 Gold’s option
d.$30 million silver purchase and sale agreement entered into with affiliates of Orion (the “Silver Purchase Agreement“), including an accordion feature to potentially access an additional $50 million at i‑80 Gold’s option and an amended and restated offtake agreement entered into with affiliates of Orion (the “A&R Offtake Agreement“)
e.5,500,000 warrants of the Company issued to Orion (the “Orion Warrants“ and together with the Orion Convertible Loan, Gold Prepay Agreement, Silver Purchase Agreement and the A&R Offtake Agreement, the “Orion Finance Package”).
The $60 million in Convertible Loans have been fully funded and issued. The obligations under the Gold Prepay Agreement and Silver Purchase Agreement are senior secured obligations of the Company and its wholly‑owned subsidiaries Ruby Hill Mining Company, LLC and Osgood Mining Company, LLC and secured against the Ruby Hill project in Eureka County, Nevada and the Granite Creek Project in Humboldt County, Nevada.
The Orion and Sprott Convertible Loans bear interest at 8.0% per annum and mature on December 13, 2025 and December 9, 2025, respectively. Outstanding amounts under the Convertible Loans are convertible into common shares of the Company at any time prior to maturity at the option of the applicable respective lender (a) in the case of the outstanding principal, C$3.275 per common share, and (b) in the case of accrued and unpaid interest, subject to TSX approval, at the market price of the common shares on the TSX at time of the conversion of such interest.
Under the Gold Prepay Agreement, commencing March 31, 2022, i‑80 Gold will deliver to Orion 3,000 troy ounces of gold for each of the quarters ending March 31, 2022 and June 30, 2022, and thereafter, 2,000 troy ounces of gold per calendar quarter until September 30, 2025 in satisfaction of the $45 million prepayment, for aggregate deliveries of 32,000 troy ounces of gold. Upon a positive construction decision by i‑80 Gold for both (a) the processing facilities at the Lone Tree Project, and (b) any two of the following: the Ruby Hill underground development (including Ruby Deep and/or Blackjack Deposits), the Granite Creek open pit development, or the McCoy‑Cove Project, in all cases based on a feasibility study, in form and substance satisfactory to Orion, i‑80 Gold may request an increase in the $45 million prepayment by an additional amount not exceeding $50 million in aggregate in accordance with the terms of the Gold Prepay Agreement. The Company received the funding from the Gold Prepay Agreement on April 13, 2022.
The final Gold Prepay Agreement includes an amendment to adjust the quantity of the quarterly deliveries of gold, but not the aggregate amount of gold, to be delivered by the Company to Orion over the term of the Gold Prepay Agreement. Under the amended Gold Prepay Agreement, commencing on the date of funding, the Company is required to deliver to Orion 1,600 troy ounces of gold for the quarter ending March 31, 2022, 3,100 troy ounces of gold for the quarter ending June 30, 2022, and thereafter 2,100 troy ounces of gold per calendar quarter until September 30, 2025, in satisfaction of the $45 million prepayment, for aggregate deliveries of 32,000 troy ounces of gold, subject to adjustment as contemplated by the terms of the Gold Prepay Agreement. As the funding from Orion did not occur until April, payment for the delivery of 1,600 ounces for the quarter ending March 31, 2022 was offset against the $45 million of proceeds received from Orion.
Under the Silver Purchase Agreement, commencing April 30, 2022, in exchange for a $30 million prepayment, i‑80 Gold will deliver to Orion 100% of the silver production from the Granite Creek and Ruby Hill projects until the delivery of 1.2 million ounces of silver, after which the delivery will be reduced to 50% until the delivery of an aggregate of 2.5 million ounces of silver, after which the delivery will be reduced to 10% of the silver production solely from Ruby Hill Project. Orion will pay i‑80 an ongoing cash purchase price equal to 20% of the prevailing silver price. Until the delivery of an aggregate of 1.2 million ounces of silver, i‑80 Gold is required to deliver the following minimum amounts of silver in each calendar year: (i) in 2022, 300,000 ounces, (ii) in 2023, 400,000 ounces, (iii) in 2024, 400,000 ounces, and (iv) in 2025, 100,000 ounces. Upon a construction decision for the Ruby Hill Project, comprised of one or both of the Ruby Deep or Blackjack Deposits, which construction decision is based on a feasibility study in form and substance satisfactory to Orion, acting reasonably, i‑80 Gold will have the right to request an additional deposit from Orion in the amount of $50 million in aggregate in accordance with the terms of the Silver Purchase Agreement. The Company received the funding from the Silver Purchase Agreement on April 13, 2022.
The main amendments reflected in the A&R Offtake Agreement include the increase in the term of the agreement to December 31, 2028, the inclusion of the Granite Creek and Ruby Hill projects, and the increase of the annual gold quantity to up to an aggregate of 37,500 ounces in respect of the 2022 and 2023 calendar years and up to an aggregate of 40,000 ounces in any calendar year after 2023.
4
Additionally, in connection with the Gold Prepay Agreement, the Company has issued to Orion the Warrants to purchase up to 5,500,000 common shares of the Company. The Warrants may be exercised at any time at an exercise price of C$3.275 per common share until December 13, 2024.
Strategic Land Acquisition
On May 9, 2022, the Company announced an agreement with NGM to acquire strategic land sections adjoining the Granite Creek property. Total consideration for the purchase of the property sections consists of a cash payment of $4 million and the inclusion of the acquired sections into the existing 10% Net Profits Royalty that NGM currently holds on the existing property. Barrick will also retain a 0.5% Net Smelter Return on the new property sections.
STRATEGIC OVERVIEW
In October 2021, the Company completed the closing of several agreements to create a comprehensive Nevada mining complex through an Asset Exchange Agreement (“Asset Exchange”) with Nevada Gold Mines LLC (“NGM”), the acquisition of the Ruby Hill Mine from Waterton Nevada Splitter, LLC and Waterton Nevada Splitter II, LLC (“Waterton” and “Ruby Hill”), and related equity and financing agreements with NGM, Equinox Gold Corp. (“Equinox”), and Orion Resource Partners (“Orion”). Each of these transactions are explained more fully below.
Asset Exchange
On October 14, 2021, the Company completed the Asset Exchange Agreement ("Asset Exchange") with NGM, a joint venture between Barrick Gold Corporation (“Barrick”) and Newmont Corporation. As part of the Asset Exchange, the Company acquired the Lone Tree and Buffalo Mountain gold deposits and certain processing infrastructure, including an autoclave, from NGM in consideration for: (i) the Company’s 40% ownership in the South Arturo Property; (ii) assignment of the Company’s option to acquire the adjacent Rodeo Creek exploration property; (iii) contingent consideration of up to $50 million based on an amount equal to $25 per ounce of recovered gold produced from the mineral resources at the Lone Tree property; and (iv) arrangement of substitute bonding in respect of the Lone Tree and Buffalo Mountain reclamation obligations. In addition, at closing of the Asset Exchange, NGM reimbursed the Company approximately $7.3 million for amounts previously advanced by the Company for the autonomous truck haulage test work completed at South Arturo and for funds advanced by the Company that were not used for reclamation activities.
The legal transfer was effective June 1, 2021 and as such, the Company obtained the free cash flow from Lone Tree's operations from June 1, 2021 until October 14, 2021 and in exchange, NGM obtained the free cash flow of South Arturo's operation from June 1, 2021 until October 14, 2021. NGM also entered into a Subscription Agreement where NGM subscribed to $47.4 million in the Company's common shares.
The Company determined that the Asset Exchange represents an asset acquisition. Transaction costs incurred with respect to the Asset Exchange totaled $3.3 million which were included in the components of consideration paid.
The disposal of the Company's 40% interest in South Arturo created no gain or loss of control.
| Components of consideration paid: | $ million | ||||
| Book value of South Arturo asset | $ | 42.8 | |||
| NGM reimbursement | (7.3) | ||||
| Transaction costs | 3.3 | ||||
| Transfer payment | 1.8 | ||||
| Total consideration | $ | 40.6 | |||
The underlying assets purchased and liabilities assumed were recorded at cost, and were allocated based upon their relative fair values at the date of purchase. The table below presents the values of the assets purchased and liabilities assumed on the date of acquisition:
| Net assets (liabilities) acquired: | $ million | ||||
| Cash | $ | 1.1 | |||
| Inventory | 3.5 | ||||
| Property, plant and equipment | 166.5 | ||||
| Mineral property interests | 65.5 | ||||
| Provision for environmental rehabilitation | (60.5) | ||||
| Fair value of net assets acquired ‑ Gross of tax | $ | 176.1 | |||
| Taxes payable | (1.1) | ||||
| Deferred tax liability | (27.7) | ||||
| Fair value of net assets acquired ‑ Net of tax | $ | 147.3 | |||
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The fair value of property, plant and equipment, mineral property interests, and the provision for environmental rehabilitation were estimated using discounted cash flow models, comparable transactions, and other market‑based information. Expected future cash flows are based on estimates of future gold and silver prices and projected revenues, estimated quantities of mineral reserves and mineral resources, expected future production costs and capital expenditures based on life‑of‑mine plans at the acquisition date. The fair value of inventory was based on forward gold prices and the cost to complete in determining the net realizable value.
| Income statement impact: | $ million | ||||
| Gain arising on asset exchange ‑ Gross of tax | $ | 135.5 | |||
| Income tax expense | (28.8) | ||||
| Total gain arising on asset exchange ‑ Net of tax | $ | 106.7 | |||
For contingent consideration and payments, an accounting policy choice exists and an entity may recognize a liability for the expected variable payments at the time control of the underlying asset is obtained or they may only recognize such a liability as the related activity that gives rise to the variability occurs. For the Asset Exchange, management has not recognized a liability for contingent payments as the conditions required for these payments have not been met as of the date the assets were acquired.
Ruby Hill Acquisition
On October 18, 2021, the Company completed the acquisition of Ruby Hill Mining Company, LLC (“Ruby Hill”). The Ruby Hill property is host to a historical open pit mine and multiple deposits that contain gold and silver resources, and potential for significant base metal mineralization.
The Company acquired 100% of the issued and outstanding shares of Ruby Hill for payment of $75 million in cash, 3,191,358 common shares of the Company valued at $8 million, and future milestone payments of up to $67 million that are subject to an early prepayment option that could reduce the milestone payments to $47 million.
The four milestone payments and corresponding early prepayment options are as follows:
•$17 million in cash and/or shares of i-80 Gold payable on the earlier of 60 days following the issuance of a press release by the Company regarding the completion of a new or updated Mineral Resource estimate for Ruby Hill or 15 months after closing, based on the market price of i-80 Gold's shares at the time of such payment (the "First Milestone Payment");
•$15 million in cash and/or shares of i-80 Gold payable on the earlier of 60 days following the issuance of a press release by the Company regarding the completion of a Feasibility Study for Ruby Hill or 24 months after closing, based on the market price of i-80 Gold's shares at the time of such payment (the "Second Milestone Payment"). An early prepayment option to reduce the payment to $5 million is available if the payment is made less than 15 months after closing and if the payment in shares of the Company does not exceed up to $7.5 million of the total amount, at the Company's discretion;
•$15 million in cash and/or shares of i-80 Gold payable on the earlier of 30 months after closing and 90 days following the announcement by the Company of a construction decision related to a deposit on any portion of Ruby Hill that is not currently being mined, based on the market price of i-80 Gold's shares at the time of such payment (the "Third Milestone Payment"); and
•$20 million in cash and/or shares of i-80 Gold payable on the earlier of 36 months after closing and 90 days following the announcement by the Company of achieving Commercial Production related to a deposit on any portion of Ruby Hill that is not currently being mined, priced based on the market price of i-80 Gold's shares at the time of such payment (the "Fourth Milestone Payment").
Up to 50% of the foregoing milestone payments may consist of i-80 Gold common shares, provided that the number of i‑80 Gold shares then held by Waterton after giving effect to the share issuance shall not exceed 9.99% of the then issued and outstanding shares of i-80 Gold calculated on a partially diluted basis. i-80 Gold may prepay the Second Milestone Payment by paying to Waterton, on or before 15 months following closing, $10 million provided that up to $7.5 million of such amount may be satisfied, at i-80 Gold’s option, in common shares of the Company, based on the market price of i-80 Gold's shares at the time of such prepayment and i-80 Gold may prepay the aggregate of the Third and Fourth Milestone Payments by paying to Waterton, on or before 24 months following closing $20 million provided that up to $10 million of such amount may be satisfied, at i-80 Gold’s option, in common shares of the Company, based on the market price of i-80 Gold's shares at the time of such prepayment, provided that the number of i-80 Gold shares then held by Waterton after giving effect to the share issuance shall not exceed 9.99% of the then issued and outstanding shares of i-80 Gold calculated on a partially diluted basis.
Ruby Hill includes an open pit mine and related infrastructure, including a mill and heap leach processing circuit, and is located west of the town of Eureka, Nevada near Highway 50. Ruby Hill is host to multiple gold, silver, and base metal deposits. Refractory mineralization from Ruby Hill is expected to be trucked to the Lone Tree complex for processing following the autoclave refurbishment project.
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The Company determined that the Ruby Hill Acquisition represents a business combination, with i‑80 Gold as the acquirer. Transaction costs incurred in respect of the acquisition totaling $1.2 million were expensed and presented within professional fees in general and administrative expense in profit or loss.
| The acquisition date fair value of the consideration transferred consisted of the following: | $ million | ||||
| Cash | $ | 75.1 | |||
| Share‑based consideration | 8.0 | ||||
| Current portion of deferred consideration (i) | 15.5 | ||||
| Long‑term portion of deferred consideration (i) | 26.4 | ||||
| Total consideration | $ | 125.0 | |||
(i) Management's best estimate is that the early prepayment option will be taken for all milestone payments and discounted them at a rate of 7.5%: the fair value of the first milestone payment of $17 million, the second milestone prepayment of $10 million, and the third and fourth milestone prepayment of $20 million.
| Net assets (liabilities) acquired: | $ million | ||||
| Accounts receivable and other assets | $ | 0.2 | |||
| Inventory | 13.8 | ||||
| Property, plant and equipment | 30.0 | ||||
| Mineral property interests | 105.9 | ||||
| Accounts payable | (1.0) | ||||
| Accrued liabilities | (0.7) | ||||
| Provision for environmental rehabilitation | (23.2) | ||||
| Fair value of net assets acquired | $ | 125.0 | |||
The fair value of property, plant and equipment, mineral property interests, and the provision for environmental rehabilitation were estimated using discounted cash flow models, comparable transactions, and other market‑based information. Expected future cash flows are based on estimates of future gold and silver prices and projected revenues, estimated quantities of mineral reserves and mineral resources, expected future production costs and capital expenditures based on life‑of‑mine plans at the acquisition date. The fair value of inventory was based on forward gold prices and the cost to complete in determining the net realizable value.
Private Placement
On October 14, 2021, the Company announced that it closed a non-brokered private placement (the "Private Placement"), pursuant to which the Company sold an aggregate of 39,041,515 common shares in the capital of the Company ("Common Shares") at a price of C$2.62 per Common Share (the "Issue Price"), which represented the five-day volume-weighted average trading price of the Common Shares on the TSX ending on September 2, 2021, which was the last trading date prior to the date of announcing the Asset Exchange, for aggregate gross proceeds of approximately $81.4 million (C$102.3 million).
In addition, in connection with the Asset Exchange, the Company and Orion agreed that the $1.75 million transfer fee payable on the disposition of the Company’s interest in South Arturo under the offtake agreement with Orion (refer to “Financing Agreements” further below) would be satisfied by the issuance of 839,799 common shares of the Company at a price of C$2.62 per common share. On October 21, 2021, the Company issued 839,799 Common Shares to Orion in satisfaction of the Project Transfer Fee.
Equinox Investment
In December 2021, under its Anti-Dilution rights as contemplated in the Agreement (See “Plan of Arrangement with Equinox Gold”, immediately below), Equinox exercised a portion of its Anti-Dilution Right and subscribed to an additional $10 million of Common Shares at a price of C$2.62 per Common Share.
Plan of Arrangement with Equinox Gold
On December 16, 2020, Premier Gold Mines Limited ("Premier") and Equinox Gold Corp. ("Equinox Gold") announced that the companies entered into a definitive agreement (the “Agreement”) whereby Equinox Gold would acquire all the outstanding shares of Premier (the “Transaction”). Concurrently, Premier would spin out its U.S. assets and operations which are included in the entities listed in Note 2(b) to a newly formed Canadian domiciled company i-80 Gold Corp. On closing of the Transaction, existing Equinox Gold and Premier shareholders would own approximately 84% and 16%, respectively, of Equinox Gold, and Equinox Gold and existing shareholders of Premier would own 30% and 70% of the Company, respectively, on an issued share basis.
On February 23, 2021, Premier's security holders voted to approve the Transaction. By approving the Transaction, Premier security holders also approved the spin out to its shareholders shares of the Company.
On March 18, 2021, the Company completed its private placement offering of 30,914,614 subscription receipts at a subscription price of C$2.60 for aggregate gross proceeds of approximately C$80.4 million.
Concurrently with the Company's offering, Equinox Gold advanced to the Company a $20.75 million bridge loan that was used by the Company for the purposes of making a $20.75 million cash deposit with affiliates of Waterton Global Resource Management, Inc.
7
(“Waterton”) in partial satisfaction of the purchase price payable to Waterton for the acquisition of the Granite Creek Project. The loan matured and was repaid within 10 banking days following the closing of the Transaction in accordance with the agreement.
The Transaction closed on April 7, 2021. Premier shareholders received 0.1967 of an Equinox Gold share for each Premier share held representing an at-market acquisition based on the 10-day volume-weighted average closing prices for both Equinox Gold and Premier shares on the TSX; and 0.4 of a share of the Company for each Premier share held.
On April 7, 2021, just prior to the completion of the spin out of Premier by way of the Plan of Arrangement (“the Arrangement”), the Company issued 137,624,461 common shares to Premier for the transfer of its investment in Premier Gold Mines USA, Inc. ("Premier USA") to the Company for the carrying amount of the investment, $150.6 million (1,614 common shares) offset by $4.4 million allocated to the equity settled employee benefits reserve for replacement options, $0.9 million for the transfer of the South Arturo silver stream, and $0.5 million for replacement warrants issued pursuant to the Arrangement resulting in $144.9 million in equity.
In accordance with the terms of the Arrangement, the Company and Equinox Gold exchanged existing Premier stock options at the same ratio as shareholders received on the distribution of the Company to Premier shareholders and as such, the Company issued 0.4 of a stock option for each Premier option held. This resulted in 5,722,000 replacement options to option holders on record as of April 7, 2021 at an average option price of C$1.88. The replacement options were valued at $4.4 million and reduced the investment in Premier USA and were allocated to the equity settled employee benefits reserve.
Also, in accordance with the terms of the Arrangement, a portion of the existing Premier silver stream agreement and replacement warrants were also allocated to the Company. The resulting valuation of $0.9 million for the transfer of the South Arturo silver stream and $0.5 million for 800,000 replacement warrants reduced the investment in Premier USA and recorded as liabilities of the Company.
Following the completion of the spin out completed on April 7, 2021, the subscription receipts were released from escrow and converted to common shares of the Company and were listed and posted for trading on the TSX. Trading in the Company's common shares commenced at the opening of the TSX on April 13, 2021, under the symbol “IAU”.
Granite Creek Acquisition (Osgood Mining Company and Christison)
On April 15, 2021, the Company, together with its subsidiary Premier Gold Mines USA, Inc. ("Premier USA") completed the purchase agreement with affiliates of Waterton to acquire from Waterton all the outstanding membership interests of Osgood Mining Company, LLC (“Osgood”). Osgood is the owner of the Granite Creek Project (formerly the "Getchell Project") in the Getchell gold belt near Winnemucca, Nevada. Consideration paid to Waterton consisted of (i) $23.0 million in cash, (ii) 13,036,846 common shares of the Company, (iii) warrants to purchase 12,071,152 common shares of the Company, with an exercise price C$3.64 per common share, for a period of 36 months following the closing date, and (iv) contingent value rights include a payment to Waterton in the amount of $5.0 million upon the public announcement of a positive production decision related to the Granite Creek Project (underground or open pit), and an additional $5.0 million upon production of the first ounce of gold (excluding ordinary testing and bulk sampling programs) following a 60 consecutive day period where gold prices have exceeded $2,000 per ounce. The common shares and warrants issued were subject to a statutory hold period under applicable Canadian securities legislation that expired on August 15, 2021.
The Osgood acquisition was accounted for as an asset acquisition as management has determined that substantially all the fair value of the gross assets acquired are concentrated on the Granite Creek Project mineral property. The components of consideration that were paid and the allocation to the net assets acquired is detailed in the table below:
| Components of consideration paid: | $ million | ||||
| Cash | $ | 23.0 | |||
| Common shares | 27.0 | ||||
| Warrants | 6.1 | ||||
| Transaction costs | 0.3 | ||||
| $ | 56.4 | ||||
| Allocated value: | |||||
| Buildings and equipment | $ | 0.4 | |||
| Mineral properties | 58.0 | ||||
| Reclamation and closure cost obligations | (2.0) | ||||
| $ | 56.4 | ||||
For contingent consideration and payments, an accounting policy choice exists, and an entity may recognize a liability for the expected variable payments at the time control of the underlying asset is obtained or they may only recognize such a liability as the related activity that gives rise to the variability occurs. For the Osgood acquisition, management has not recognized a liability for contingent payments as the conditions required for these payments have not been met as of the date the assets were acquired.
Christison Acquisition
On December 15, 2020, Premier USA entered into a definitive purchase agreement with the Christison Family Trust and Seven Dot Cattle Co. LLC to acquire certain fee lands and unpatented mining claims (the “First Property” and the “Second Property”) (collectively the “Christison Acquisition”) situated in Humboldt County, Nevada, for consideration consisting of $10.0 million in cash and $5.0 million in common shares of the Company. The mining claims are located adjacent to the Granite Creek Project. During the fourth quarter of 2020
8
Premier USA paid $7.5 million in cash as consideration for the First Property. On May 10, 2021, Premier USA completed the acquisition of the Second Property for consideration of $2.5 million in cash and 2,430,488 common shares of the Company.
On completion of the transactions, the properties acquired in the Christison Acquisition and the Osgood Mining Company, LLC acquisition have been combined under the Granite Creek Project.
Osgood controlled a 100% interest in private lands that make up approximately 1,280 acres of the Granite Creek area through outright ownership. Additionally, Osgood controlled a 100% interest in unpatented federal lode mining claims covering about 797 additional acres either by outright ownership or via mining lease agreement and owned an undivided 41.67% interest in private land and unpatented federal lode mining claims covering approximately 468 additional acres.
Granite Creek has mineral resources that may be amenable to underground and open pit mining methods. The latest technical report was completed in 2020 by AMC Mining Consultants. Premier requested proposals to remodel the existing resource and complete a NI 43-101-compliant Preliminary Economic Assessment (PEA) based upon that resource. Global Resource Engineering (GRE), a Denver-based consulting company, was the successful bidder and completed the PEA in October 2021 in the name of i-80 Gold Corp. The report was filed on SEDAR in the fourth quarter of 2021. The Company intends to rapidly develop this property and expects that completion of the recommendations from the PEA will afford the opportunity to advance the project to full feasibility and a construction decision.
Previous Financing Agreements
Also, in connection with the closing of the Arrangement on April 7, 2021, the Company entered into an offtake agreement with OMF Fund II (O) Ltd. ("Orion") and a silver stream agreement with OMF Fund II SO Ltd. ("Nomad").
Offtake Agreement
Under the terms of the Offtake Agreement, the Company agreed to sell, and Orion has agreed to purchase (i) an aggregate of 29,750 ounces of refined gold for 2021, and (ii) up to an aggregate of 31,500 ounces of refined gold annually (the "Annual Gold Quantity") from the Company's Eligible Projects until March 1, 2027. The Company's Eligible Projects include the South Arturo Project, the McCoy-Cove Project, and the Granite Creek Project. The final purchase price to be paid by Orion will be, at Orion’s option, a market referenced gold price in US dollars per ounce during a defined pricing period before and after the date of each sale. In the event that the Company does not produce the Annual Gold Quantity in any given year, the obligation is limited to those ounces actually produced.
South Arturo Purchase and Sale Agreement (Silver)
The Company entered into a Purchase and Sale Agreement (Silver) (the "Stream Agreement") with Nomad, whereby the Company will deliver to Nomad (i) 100% of the refined silver from minerals from the main stream area, and (ii) 50% of the refined silver from the exploration stream Area. Nomad will pay an ongoing cash purchase price equal to 20% of the silver market price on the day immediately preceding the date of delivery and will credit the remaining 80% against the liability. Following the delivery of an aggregate amount of refined silver equal to $1.0 million to Nomad under the Stream Agreement, Nomad would continue to purchase the refined silver at an ongoing cash purchase price equal to 20% of the prevailing silver price. The Stream Agreement is unsecured and the initial term of the agreement is 40 years.
Functional and Presentation Currency
The functional currency of the Company is the United States dollar ("USD" or "US dollars") which reflects the underlying transactions, events and conditions that are relevant to the entity. Management considers primary and secondary indicators in determining functional currency including the currency that influences sales prices, labor, purchases and other costs. Other indicators include the currency in which funds from financing activities are generated and the currency in which receipts from operations are usually retained.
COVID-19
The Company continually monitors guidance from the Centers for Disease Control and Prevention (“CDC”), and mandates issued by the State of Nevada to mitigate the effects of COVID-19 at all of its mine sites and corporate office locations.
Other than the macro-economic impact of inflationary pressure and supply chain challenges, operating activities at Lone Tree, Granite Creek, Ruby Hill and McCoy-Cove are continuing with no significant interruptions to date from COVID-19. The extent to which COVID-19 will impact the Company’s operations in the future remains highly uncertain and cannot be accurately estimated at the present time.
9
RESULTS OF OPERATIONS
Three and Six Month Results
| Three months ended June 30, 2022 | Three months ended June 30, 2021 | ||||||||||||||||||||||||||||||||||
| (in thousands of U.S. dollars, unless otherwise noted) | From Continuing Operations | From Disc. Operations | Total | From Continuing Operations | From Disc. Operations | Total | |||||||||||||||||||||||||||||
| Revenue | 6,383 | — | 6,383 | — | 10,250 | 10,250 | |||||||||||||||||||||||||||||
| Cost of sales | (3,966) | — | (3,966) | — | (6,491) | (6,491) | |||||||||||||||||||||||||||||
| Depletion, depreciation and amortization | (655) | — | (655) | — | (329) | (329) | |||||||||||||||||||||||||||||
| Mine operating income | 1,762 | — | 1,762 | — | 3,430 | 3,430 | |||||||||||||||||||||||||||||
| Expenses | |||||||||||||||||||||||||||||||||||
| Exploration, evaluation, and pre-development | 12,132 | — | 12,132 | 2,432 | 293 | 2,725 | |||||||||||||||||||||||||||||
| General and administrative | 4,565 | — | 4,565 | 2,470 | 73 | 2,543 | |||||||||||||||||||||||||||||
| Restructuring cost | — | — | — | 4,444 | — | 4,444 | |||||||||||||||||||||||||||||
| Property maintenance | 464 | — | 464 | 68 | — | 68 | |||||||||||||||||||||||||||||
| Share-based payments | 547 | — | 547 | 1,898 | — | 1,898 | |||||||||||||||||||||||||||||
| Operating income (loss) | (15,946) | — | (15,946) | (11,312) | 3,064 | (8,248) | |||||||||||||||||||||||||||||
| Six months ended June 30, 2022 | Six months ended June 30, 2021 | ||||||||||||||||||||||||||||||||||
| (in thousands of U.S. dollars, unless otherwise noted) | From Continuing Operations | From Disc. Operations | Total | From Continuing Operations | From Disc. Operations | Total | |||||||||||||||||||||||||||||
| Revenue | 9,247 | — | 9,247 | — | 23,826 | 23,826 | |||||||||||||||||||||||||||||
| Cost of sales | (5,498) | — | (5,498) | — | (12,833) | (12,833) | |||||||||||||||||||||||||||||
| Depletion, depreciation and amortization | (823) | — | (823) | — | (1,224) | (1,224) | |||||||||||||||||||||||||||||
| Mine operating income | 2,926 | — | 2,926 | — | 9,769 | 9,769 | |||||||||||||||||||||||||||||
| Expenses | |||||||||||||||||||||||||||||||||||
| Exploration, evaluation, and pre-development | 21,386 | — | 21,386 | 2,811 | 474 | 3,285 | |||||||||||||||||||||||||||||
| General and administrative | 7,838 | — | 7,838 | 3,137 | 168 | 3,305 | |||||||||||||||||||||||||||||
| Restructuring cost | — | — | — | 4,444 | — | 4,444 | |||||||||||||||||||||||||||||
| Property maintenance | 789 | — | 789 | 157 | — | 157 | |||||||||||||||||||||||||||||
| Share-based payments | 1,989 | — | 1,989 | 1,968 | — | 1,968 | |||||||||||||||||||||||||||||
| Operating income (loss) | (29,076) | — | (29,076) | (12,517) | 9,127 | (3,390) | |||||||||||||||||||||||||||||
Operating loss of $15.9 million for the three months ended June 30, 2022 increased $7.7 million from operating loss of $8.2 million for the comparable three month period of 2021 mainly due to lower mine operating income of $1.7 million, an increase in exploration, evaluation and pre-development expenses of $9.4 million and higher corporate expenses associated with acquisition and growth activities. During the three months ended June 30, 2021, the Company became a stand-alone entity and started incurring stand-alone general and administrative expenses, and also started exploration activities at Granite Creek. During the three months ended June 30, 2022, the Company continued to progress underground drilling programs at both Granite Creek and Ruby Hill. At Granite Creek, a total of 25,870 feet of core was drilled to further expand the resources within the Ogee and South Pacific Zones, and 8,460 feet of RC drilling was completed. At Ruby Hill, activities continued for infill and step-out drilling of the Ruby Deep Zone, completing 21,596 feet of core and 16,770 feet of RC.
Operating loss of $29.1 million for the six month period ended June 30, 2022 increased $25.7 million over the operating loss of $3.4 million for the six months ended June 30, 2021 mainly due to the same factors as in the three month period, a decrease in mine operating income of $6.8 million, and an increase of $18.1 million and $4.5 million in exploration and general and administrative costs, respectively. During the six months ended June 30, 2022, the Company continued to progress underground drilling programs at both Granite Creek and Ruby Hill, as discussed immediately above.
Exploration, evaluation, and pre-development total costs of $12.1 million for the three months ended June 30, 2022 increased $9.4 million over the comparable three month period of 2021 mainly due to exploration and pre-development work at Granite Creek that started in the second quarter of 2021 and the start of exploration activities at Ruby Hill in the first quarter of 2022. Exploration-related expenditures
10
increased during the three month period ended June 30, 2022 as compared to the three month period ended June 30, 2021, as drill rigs were located and contractors were onboarded during the start of the drilling program at Granite Creek
For the six months ended June 30, 2022 exploration, evaluation, and pre-development total costs increased $18.1 million over the six months ended June 30, 2021 due to exploration and pre-development activities in Granite Creek and Ruby Hill. During the six months ended June 30, 2022, the Company continued to progress underground drilling programs at both Granite Creek and Ruby Hill. At Granite Creek, a total of 70,498 feet of core and RC drilling has been completed to further expand the resources within the Ogee and South Pacific Zones. At Ruby Hill, activities continued for infill and step-out drilling of the Ruby Deep Zone, completing a total of 64,869 feet of core and RC drilling.
General and administrative expenses totaled $4.6 million for the three months ended June 30, 2022 compared to $2.5 million for the three months ended June 30, 2022 due to an increase in corporate administrative staff, as planned, in the 2022 period.
General and administrative expenses of $7.8 million for the six months ended June 30, 2022 increased $4.5 million over the general and administrative expenses of $3.3 million for the six months ended June 30, 2021 due to the Company’s subsidiary, Premier Gold Mines USA, Inc., previously a subsidiary of Premier Gold Mines Limited, incurred minimal corporate general and administrative expenses until the completion of the Transaction with Equinox in April, 2021, and additional corporate administrative staff as planned as the Company completed growth-related acquisitions during the second half of 2021 and the first half of 2022.
Share-based payments relate to the issuance of stock options and restricted share units. Share-based payments totaled $0.5 million for the three months ended June 30, 2022, compared to $1.9 million for the three month period of 2021, a decrease of $1.4 million over the comparable three month period of 2021 due to initial grants of stock options triggered by the spin-out of i-80 Gold from Premier in 2021.
Share-based payments of $2.0 million for the six months ended June 30, 2022 were largely unchanged as compared to the six months ended June 30, 2021.
Selected Quarterly Information
The following is a summary of selected operating and financial information from the past eight quarters.
| (in thousands of U.S. dollars, unless otherwise noted) | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | ||||||||||||||||||
| 2022 | 2022 | 2021 | 2021 | 2021 | 2021 | 2020 | 2020 | |||||||||||||||||||
| From continued and discontinued operations: | ||||||||||||||||||||||||||
| Gold sales (ounces) (ii) | 3,507 | 1,489 | — | 4,575 | 5,745 | 7,529 | 4,555 | 4,783 | ||||||||||||||||||
| Revenue | 6,383 | 2,864 | — | 8,166 | 10,250 | 13,576 | 8,545 | 9,333 | ||||||||||||||||||
| Costs of sales | (3,966) | (1,532) | — | (4,374) | (6,491) | (6,342) | (5,595) | (4,794) | ||||||||||||||||||
| Depletion, depreciation and amortization | (655) | (168) | — | (467) | (329) | (894) | (716) | (699) | ||||||||||||||||||
| Mine operating income / (loss) | 1,762 | 1,164 | — | 3,325 | 3,430 | 6,340 | 2,234 | 3,840 | ||||||||||||||||||
| Other significant income / (loss): | ||||||||||||||||||||||||||
| Exploration, evaluation and pre-development | (12,132) | (9,254) | (4,537) | (3,690) | (2,724) | (560) | (1,046) | (1,166) | ||||||||||||||||||
| Restructuring costs | — | — | — | — | (4,444) | — | — | — | ||||||||||||||||||
| Exchange gain / (loss) on related party balance | — | — | — | — | 1,058 | (809) | (2,947) | (1,311) | ||||||||||||||||||
| Share‑based payments | (547) | (1,442) | (291) | (424) | (1,898) | (70) | (166) | (403) | ||||||||||||||||||
| Other income / (expense) | 38,772 | (10,281) | 130,504 | (4,908) | 473 | (49) | (30) | (212) | ||||||||||||||||||
| Finance expense | (5,880) | (2,357) | — | — | (73) | 1,250 | (1,147) | (1,159) | ||||||||||||||||||
| Income / (loss) for the period | 19,276 | (23,265) | 101,745 | (9,340) | (7,062) | 2,851 | (3,344) | (1,206) | ||||||||||||||||||
(i)May not total to annual amounts due to rounding.
(ii)The Company previously held a 40% interest in the South Arturo mine located in Nevada. On October 14, 2021, the Company completed the asset exchange with NGM (discussed previously) and South Arturo was classified as a discontinued operation.
Gold sales of 3,507 ounces in Q2 2022 were 2,017 ounces higher compared to Q1 2022. Gold ounces sold in Q3 2021 and prior quarters were from discontinued operations (South Arturo). Gold sales ounces in 2022 are from residual heap leaching operations continuing at Lone Tree and Ruby Hill.
Revenue of $6.4 million in Q2 2022 was $3.5 million higher as compared to previous quarter due to an increase in gold ounces sold, partially offset by a lower realized gold price of $1,811 per ounce sold in Q2 2022 compared to $1,918 per ounce sold in Q1 2022. Similar to gold ounces sold, revenue in Q3 2021 and prior quarters were from discontinued operations (South Arturo). Revenue in 2022 is from residual heap leaching operations continuing at Lone Tree and Ruby Hill.
The income in Q2 2022 of $19.3 million was driven primarily by an increase in other income of $38.8 million mainly due to a gain on the fair value of warrants, a gain related to the embedded derivatives on the convertible loans and a gain related to the embedded derivatives on the gold prepay and silver purchase agreements. The gain on the fair value of warrants and the gain on the embedded derivatives related to
11
the convertible loans was driven by a decrease in the Company’s share price at June 30, 2022. The gain on the embedded derivatives related to the gold prepay and silver purchase agreements is the difference between the fair value at inception of the agreements and at June 30, 2022 and is attributable to the variability between the foregone revenue applied to the streams and the estimated amount and timing of ounces to be delivered.
Exploration, evaluation, and pre-development costs increased in Q2 2022 compared to previous periods mainly due to drilling programs underway at Granite Creek and Ruby Hill.
Finance expenses in Q2 2022 of $5.9 million increased mainly due to $3.0 million of interest accretion on the gold prepay and the silver purchase agreements, and $1.9 million of interest accretion on the convertible loans.
The income in Q4 2021 of $101.7 million included a gain on the asset exchange of $135.5 million.
Operational Highlights
Ruby Hill
Ruby Hill is located within the Battle Mountain-Eureka Trend, Ruby Hill is host to the Archimedes open pit and multiple gold, silver and base metal deposits. Processing infrastructure at Ruby Hill includes a primary crushing plant, grinding mill, leach pad, and carbon-in-column circuit. The Company's interest in Ruby Hill is held through Ruby Hill Mining Company, LLC. Highlights since the acquisition date include:
•Systematically re-leaching multiple areas of the heap with primary focus on ore stacked in 2020-2021
•Shipped approximately 4,500 gold ounces on loaded carbon from site
•Permitting underway for start of in-pit portal
•Refurbished unused carbon column to increase carbon loading and gold recovery to liberate trapped gold
•Gold production and sales during Q2 2022 of 2,565 ounces (Year to date of 3,211 ounces) at an average realized gold price of $1,767 per ounce sold (Year to date $1,795 per ounce sold) 1
•Q2 2022 Cash cost of $1,194 per ounce sold (Year to date $1,211 per ounce sold); All-in sustaining cost of $1,282 per ounce sold (Year to date $1,316 per ounce sold) 1
______________________________________________________________________________________________
1 See “Non-IFRS Financial Performance Measures” section of this MD&A.
Lone Tree
Lone Tree is an advanced-stage development project located within the Battle Mountain-Eureka Trend, midway between the Company's Granite Creek and McCoy-Cove projects. The property consists of the past-producing Lone Tree mine and processing facility, as well as the nearby Buffalo Mountain deposit and the Brooks open pit mine, which is currently on care and maintenance. Processing infrastructure at Lone Tree includes an autoclave, carbon-in-leach mill, flotation mill, heap leach facility, assay lab and gold refinery, tailings dam, waste dump and several buildings that the Company anticipates will be useful for developing all mining projects, including a warehouse, maintenance shop and administration building. Highlights since the acquisition date include:
•Autoclave engineering study is progressing as planned
•Residual leaching of the heap on plan
•Gold production and sales during Q2 2022 of 942 ounces (Year to date 1,785 ounces) at an average realized gold price of $1,931 per ounce sold (Year to date $1,928 per ounce sold) 1
•Q2 2022 Cash cost of $926 per ounce sold (Year to date $879 per ounce sold); All-in sustaining cost of $1,560 per ounce sold (Year to date $1,343 per ounce sold) 1
•Trona additions to the pit lake for pH control started as required by environmental permit
•Core handling facility constructed and now fully functional as central Geotech facility for i-80 Gold
•Global Industry Standard on Tailings Management Gap Assessment started and on-going
•Brooks Water Pollution Control Permit was approved
______________________________________________________________________________________________
1 See “Non-IFRS Financial Performance Measures” section of this MD&A.
Granite Creek
Granite Creek has a protracted history of gold exploration and mining activities. Gold was initially discovered in the mid to late 1930’s. Approximately 1,004,915 ounces have been produced from the property since that time. Granite Creek comprises several land parcels which collectively encompass 2,545 acres, located in the Potosi mining district, 27 miles northeast of Winnemucca, within the southeastern part of Humboldt County, Nevada. The four-square miles of land contain all areas of past gold production and the area of the currently estimated mineral resource. This area includes the historical Pinson Mine.
•Commenced contractor ramp up to full 24/7 mining operations
•Completed 14,210 feet of stope delineation drilling from underground
•Rehabilitating and improving underground and surface site infrastructure
•Rehabilitated main decline and advanced to access lower ore zones
•Advanced dewatering well upgrades
•First ore delivery to Twin Creeks under NGM agreement started in July
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McCoy Cove
The McCoy Cove Project covers 30,923 acres and is located 32 miles south of the town of Battle Mountain, in the Fish Creek Mountains of Lander County, Nevada, and lies within the McCoy Mining District. The McCoy Cove Project is, for the most part, on land controlled by the U.S. Department of Interior, Bureau of Land Management ("BLM") and patented mining claims. The McCoy-Cove Project consists of 1,535 100%-owned unpatented claims and twelve leased patented claims.
•Commenced construction of the exploration decline and supporting facilities in advance of underground drill program and Feasibility Study
•Established the portal face in Q1 2022, and first development mining rounds taken
•Commenced development of exploration decline (approximately 1,100 feet of advance now completed)
•Drilling is expected to commence in Q4 2022
Exploration, Evaluation and Pre-development, Granite Creek, Ruby Hill and McCoy-Cove
The Company is conducting exploration, evaluation, and pre-development activities at its various properties in Nevada. During the three-months ended June 30, 2022, the Company was primarily focused on exploration and pre-development activities at Granite Creek and Ruby Hill. The following table summarizes the exploration, evaluation, and pre-development expenditures for the three and six months ended June 30, 2022 and 2021.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| McCoy-Cove, Nevada | 794 | 366 | 1,286 | 724 | ||||||||||||||||||||||
| Granite Creek, Nevada | 6,139 | 2,009 | 10,692 | 2,008 | ||||||||||||||||||||||
| Ruby Hill, Nevada | 5,173 | — | 9,207 | — | ||||||||||||||||||||||
Other (i) | 26 | 57 | 201 | 79 | ||||||||||||||||||||||
| Total exploration, evaluation and pre-development | 12,132 | 2,432 | 21,386 | 2,811 | ||||||||||||||||||||||
(i)Other includes charges for regional technical services costs not charged to a property.
Exploration, evaluation and pre-development expenses of $12.1 million for the three months ended June 30, 2022 increased $9.7 million compared to the three month period ended June 30, 2021 primarily as a result of exploration and development work at Granite Creek and Ruby Hill. The increase of $18.6 million in the six month period ended June 30, 2022 in contrast with the same period of 2021 was due to the increase in exploration and development costs, same as in the three months period. Further details regarding the Company’s exploration, evaluation and pre-development activities at Granite Creek and Ruby Hill, are discussed immediately below.
Granite Creek
In the second quarter, 2022, drilling continued for resource expansion on the Ogee and South Pacific Zones with multiple high-grade intercepts. Completed 23,944 feet of core drilling and 8,157 feet of RC drilling. The amount of drilling completed as of June 30, 2022 totaling 71,952 feet was in line with the Company’s drilling plan. Drilling targets were expansion and delineation of the newly discovered South Pacific Zone as well as delineation drilling that targeted the Otto, Adam Peak, and Ogee fault zones with underground drilling.
Ruby Hill
In the second quarter, infill and step-out drilling of the Ruby Deeps zone continued with multiple high-grade intercepts and multiple brownfield exploration targets were tested. 21,595 feet of core drilling and 25,150 feet of RC drilling was completed during the quarter, with a combined total of 73,935 feet completed in the first half, in line with the Company’s drilling plan. Owing to the substantial success of the 2022 exploration campaign at Ruby Hill, the program has been expanded.
McCoy Cove
There was no drilling conducted during the second quarter of 2022. Expenditures continued during the quarter for metallurgical and hydrology studies, engineering of de-watering and mining options, and evaporation of water from the inactive tailings storage facility. The Board of Directors of the Company approved an exploration decline and underground drilling program at McCoy Cove on November 9, 2021 and commencement of an underground portal began on February 23, 2022. As of the date of this MD&A, the decline has advanced approximately 1,300 feet.
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The following table represents the cumulative exploration, evaluation, and pre-development expenses to date by project.
| Status | Cumulative to December 31, 2020 | Period ending December 31, 2021 | Cumulative to December 31, 2021 | Period ending June 30, 2022 | Cumulative life of project to date | |||||||||||||||
| (in thousands of U.S. dollars) (i) | ||||||||||||||||||||
| Granite Creek, Nevada | Active | — | 8,423 | 8,423 | 10,692 | 19,115 | ||||||||||||||
| McCoy-Cove, Nevada | Active | 56,609 | 1,137 | 57,746 | 1,286 | 59,031 | ||||||||||||||
| Lone Tree, Nevada | Active | — | 4 | 4 | — | 4 | ||||||||||||||
| Ruby Hill, Nevada | Active | — | 825 | 825 | 9,207 | 10,033 | ||||||||||||||
| Goldbanks, Nevada | Terminated | 7,420 | — | 7,420 | — | 7,420 | ||||||||||||||
| Rye, Nevada | Terminated | 1,195 | 1 | 1,196 | — | 1,196 | ||||||||||||||
Other (ii) | 401 | 79 | 480 | 201 | 681 | |||||||||||||||
| Total | 65,625 | 10,469 | 76,094 | 21,386 | 97,480 | |||||||||||||||
(i)May not add due to rounding
(ii)Other includes technical work not associated with an above property
Other Income and Expense
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (in thousands of U.S. dollars) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Gain on warrants | 12,004 | 535 | 8,900 | 535 | |||||||||||||||||||
| Gain on fair value measurement of convertible loans derivative | 16,307 | — | 10,214 | — | |||||||||||||||||||
| Loss on deferred consideration | (792) | — | (1,636) | — | |||||||||||||||||||
| Gain / (loss) on foreign exchange | (135) | 1,057 | (199) | 249 | |||||||||||||||||||
| Loss on investments | (1,229) | — | (1,229) | — | |||||||||||||||||||
| Gain on sales from Gold Prepay Agreement | 454 | — | 454 | — | |||||||||||||||||||
| Gain on fair value measurement of Gold Prepay derivative | 4,084 | — | 4,084 | — | |||||||||||||||||||
| Gain on fair value measurement of Silver Purchase derivative | 9,125 | — | 9,125 | — | |||||||||||||||||||
| Other | (1,046) | 31 | (1,222) | 32 | |||||||||||||||||||
| Total other income / (expense) | 38,772 | 1,623 | 28,491 | 816 | |||||||||||||||||||
Other income for the three-month period June 30, 2022, was $38.8 million compared to other income of $1.6 million for the three-month period June 30, 2021. Other income for the three-month period increased $37.1 million over the comparable period of 2021 mainly due to a gain on the fair value of warrants, a gain related to the embedded derivatives on the convertible loans and a gain related to the embedded derivatives on the gold prepay and silver purchase agreements. The gain on the fair value of warrants and the gain on the embedded derivatives related to the convertible loans was driven by a decrease in the Company’s share price at June 30, 2022. The gain on the embedded derivatives related to the gold prepay and silver purchase agreements is the difference between the fair value at inception of the agreements and June 30, 2022 and is attributable to the variability between the foregone revenue applied to the streams and the estimated amount and timing of ounces to be delivered.
Other income for the six-month period ended June 30, 2022, increased $27.7 million over the comparable period of 2021 mainly due to the same factors as the three-month period.
Finance Expense
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (in thousands of U.S. dollars) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Interest accretion on convertible loans | 1,881 | — | 3,768 | — | |||||||||||||||||||
| Interest accretion on Gold Prepay Agreement | 2,197 | — | 2,197 | — | |||||||||||||||||||
| Interest accretion on Silver Purchase Agreement | 794 | — | 794 | — | |||||||||||||||||||
| Amortization of finance costs | 93 | — | 176 | — | |||||||||||||||||||
| Environmental rehabilitation accretion | 912 | 15 | 1,292 | 24 | |||||||||||||||||||
| Interest paid | 3 | 28 | 11 | 67 | |||||||||||||||||||
| Total finance expense | 5,880 | 43 | 8,238 | 91 | |||||||||||||||||||
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Finance expense for the three months ended June 30, 2022 increased $5.8 million compared to the three month period ended June 30, 2021 primarily from interest accretion on convertible loans of $1.9 million, interest accretion on gold prepay and silver purchase agreements of $3.0 million and increased accretion on environmental rehabilitation of $0.9 million due to the long-term risk-free rate update.
Finance expense for the six months ended June 30, 2022 increased $8.1 million over the six month period ended June 30, 2021 primarily due to the interest accretion on convertible loans of $3.8 million, interest accretion on gold prepay and silver purchase agreements of $3.0 million and increased accretion on environmental rehabilitation of $1.3 million due to the acquisition of Lone Tree and Ruby Hill and the long-term risk-free rate update mentioned previously.
Current and Deferred Taxes - Continuing Operations
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (in thousands of U.S. dollars) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Income (loss) before income taxes | 16,946 | (9,805) | (8,823) | (12,969) | |||||||||||||||||||
| Current tax (expense) | — | (200) | — | (200) | |||||||||||||||||||
| Deferred tax recovery | 2,330 | — | 4,835 | — | |||||||||||||||||||
| Income / (loss) for the period from continued operations | 19,276 | (10,005) | (3,988) | (13,169) | |||||||||||||||||||
Current and deferred taxes are comprised of taxes on income. For the three and six month periods ended June 30, 2022, current and deferred tax recovery of $2.3 million and $4.8 million increased from an expense of $0.2 million for the three and six month periods of 2021 due to an increase in deferred tax recovery.
FINANCIAL POSITION
Balance Sheet Review
Assets
Cash and cash equivalents increased from $87.7 million to $101.0 million over the six month period ended June 30, 2022, primarily as a result of the net funding received from the previously-announced gold prepay and silver purchase agreements of $41.7 million and $29.9 million, respectively, partially offset by an increase in the operating activities from exploration and pre-development costs at Granite Creek and Ruby Hill, payables payments and capital development of Granite Creek.
Receivables increased $2.9 million mainly due to timing of gold sales in late-June 2022, and the subsequent receipt of cash in early-July 2022.
Inventory increased from $26.0 million to $30.3 million during the six months ended June 30, 2022 and represents the value associated with residual heap leaching operations at Lone Tree and Ruby Hill.
Property, plant and equipment increased $8.2 million during the six month period of 2022 with a primary focus of the capital investment on pre-development at Granite Creek.
Other non-current assets increased $10.5 million mainly due to the embedded derivatives in relation to the gold prepay and silver purchase agreements totaling $11.7 million. This amount was partially offset by a decrease of $1.3 million non-cash market price adjustment of the investment in 2766604 Ontario Inc.
Liabilities
Accounts payable and accrued liabilities decreased from a total of $14.0 million at December 31, 2021 to a total of $9.5 million at June 30, 2022 mainly due to a decrease in accounts payable related to financing activities and normal course of the accounts payable cycle.
Current and non-current portion of long-term debt increased $11.1 million and $61.2 million, respectively, mainly due to the liability related to the gold prepay and silver purchase agreements.
Total other non-current liabilities decreased $27.9 million primarily due to the fair value decrease on the warrants and the embedded derivatives related to the convertible loans.
Provision for environmental rehabilitation decreased $5.3 million mainly due to the impact of the long-term risk-free interest rate update.
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Working Capital
Working capital, as of June 30, 2022 was $96.7 million compared to $91.6 million as of December 31, 2021 primarily due to the following:
•$13.3 million increase in cash and cash equivalents
•$2.9 million increase in receivables
•$4.3 million increase in inventory
•$4.6 million decrease in accounts payable and accrued liabilities
•$11.1 million increase in current portion of long term debt
•$10.5 million increase in current portion of other liabilities
Cash Flow
For the period ended June 30, 2022, the Company had cash and cash equivalents of $101.0 million compared to $87.7 million as of December 31, 2021.
Cash used in continuing operating activities for the three and six months ended June 30, 2022 was $20.4 million and $40.2 million compared to cash used in operating activities in the same periods in 2021 of $12.5 million and $10.0 million, respectively; the increase in cash used in operating activities from continuing operations over the three and six months period of 2022 resulted primarily from an increase in exploration, evaluation and pre-development, and general and administrative expenses as compared to the three and six months period of 2021.
Cash provided by operating activities of discontinued operations for the six months ended June 30, 2022 was nil compared to $16.6 million for the comparable period of 2021.
Cash used in investing activities of continuing operations for the three and six months ended June 30, 2022 was $10.7 million and $15.0 million compared to $3.6 million and $24.3 million for the three and six months ended June 30, 2021, respectively. The increment in the three months period of 2022 was due to capital investment on development at Granite Creek, and the decrement during the six months period was due to the acquisition of Granite Creek in 2021.
Cash provided by financing activities of continuing operations for the three and six months ended June 30, 2022 was $66.3 million and $68.6 million compared to cash provided by financing activities of continuing operations of $54.1 million and $73.8 million for the comparable periods of 2021, respectively. Cash provided by financing activities of continuing operations for the three month period ended June 30, 2022, is mainly driven by proceeds from the gold prepay and silver purchase agreements. Cash provided by financing activities of continuing operations for the three month period ended June 30, 2021, is primarily from loan proceeds received related to the plan of arrangement with Equinox Gold.
Liquidity and Capital Resources
Liquidity Outlook
| For the period ended | ||||||||
| (in thousands of U.S. dollars) | June 30, 2022 | December 31, 2021 | ||||||
| Cash and cash equivalents | 100,980 | 87,658 | ||||||
| Working capital | 96,729 | 91,578 | ||||||
The Company funds current exploration, evaluation, and pre-development expenditures through its cash flow from recent equity and financing completed in the fourth quarter of 2021, and the gold prepay and silver purchase agreements funded in April 2022. These funds are expected to finance continued exploration and development activities through 2022.
Equity
At June 30, 2022, the authorized share capital consisted of an unlimited number of common shares without par value, of which 240,368,617 shares were outstanding. Between June 30, 2022 and the date of this MD&A, there were nil shares issued for stock options exercised. As of the date of this MD&A, there are 240,368,617 shares outstanding. In addition, as of June 30, 2022, the Company had 25,299,806 warrants, and 8,037,841 stock options outstanding.
The Company has outstanding the Sprott Convertible Credit Agreement dated December 10, 2021, between the Company, Premier Gold Mines USA, Inc., Osgood Mining Company, LLC, Ruby Hill Mining Company, LLC, Sprott Hathaway Special Situations Fund Master Fund LP, as administrative agent, SAF Sub Holdings, LLC and SAF Bullion Sub, LLC, in the principal amount of $10 million (the "Sprott Convertible Loan"). The Sprott Convertible Loan bears interest at a rate of 8.0% per annum and matures on December 9, 2025 and has a conversion price of C$3.275. The Canadian dollar equivalent of the $10 million principal of the Sprott Convertible Loan was deemed to be C$12.64 million (as determined in accordance with the Sprott Convertible Credit Agreement). An aggregate of 3,860,152 Common Shares have been reserved for issuance in connection with the full conversion of the initial principal amount of the Sprott Convertible Loan.
The Company has outstanding the Orion Convertible Credit Agreement dated December 13, 2021, between the Company, Premier Gold Mines USA, Inc. Osgood Mining Company, LLC, Ruby Hill Mining Company, LLC and OMF Fund III (F) Ltd. in the principal amount of $50 million (the "Orion Convertible Loan"). The Orion Convertible Loan bears interest at a rate of 8.0% per annum and matures on December 13, 2025 and has a conversion price of C$3.275. The Canadian dollar equivalent of the $50 million principal of the Orion Convertible Loan was deemed to be C$63.5 million (as determined in accordance with the Orion Convertible Credit Agreement) An aggregate of 19,389,313 Common Shares have been reserved for issuance in connection with the full conversion of the initial principal amount of the Orion Convertible Loan.
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Share Capital Issued
On April 7, 2021, just prior to the completion of the Arrangement, the Company issued 137,624,461 common shares to Premier for the transfer of its investment in Premier USA to the Company for the carrying amount of investment, $150.6 million offset by $4.4 million allocated to the equity settled employee benefits reserve for replacement options, $0.9 million for the transfer of the South Arturo silver stream, and $0.5 million for replacement warrants issued pursuant to the arrangement.
On April 7, 2021, the Company issued 30,914,614 common shares at a price of C$2.60 per share completing the private placement discussed in Note 1(b). A cash commission was paid equal to 5.25% of the gross proceeds, other than (i) on proceeds from the sale of shares to Orion Mine Finance Group and any directors or officers of the Company or Premier for which the commission was reduced to 2.5% of the gross proceeds received and (ii) on proceeds from the sale of shares to Equinox, for which no commission was paid.
On April 14, 2021, the Company issued 13,036,846 common shares at a price of C$2.60 per common share for total gross proceeds of $27.0 million (C$33.9 million) as part of the consideration on the Granite Creek acquisition.
On May 10, 2021, the Company issued 2,430,488 common shares at a price of C$2.50 per common share for total gross proceeds of $5.0 million (C$6.1 million) as part of the consideration on the acquisition of the Christison properties.
On May 26, 2021, the Company issued 5,479,536 common shares at a price of C$2.60 per common share for aggregate gross proceeds of $11.8 million (C$14.2 million) in satisfaction of an anti-dilution right of Equinox contemplated in the Agreement and immediately prior to the closing of the Christison Acquisition.
On October 14, 2021, the Company issued 39,041,515 common shares at a price of C$2.62 per common share for aggregate gross proceeds of approximately C$102.3 million ($81.4 million) in connection with the closing of a non-brokered private placement.
On October 18, 2021, the Company issued 3,191,358 common shares to Waterton as partial consideration for the acquisition of Ruby Hill of $8.0 million.
On October 21, 2021, in connection with the Asset Exchange, the Company and Orion agreed that the $1.75 million transfer fee payable on the disposition of the Company’s interest in South Arturo under the offtake agreement with Orion would be satisfied by the issuance of 839,799 common shares of the Company at a price of C$2.62 per common share. On October 21, 2021, the Company issued 839,799 Common Shares to Orion in satisfaction of the Project Transfer Fee.
On December 9, 2021, the Company issued 4,800,000 common shares at a price of C$2.62 for gross proceeds of $10.0 million to Equinox in satisfaction of an anti‑dilution right within the Agreement.
On January 31, 2022, in connection with the Arrangement, the Company issued 800,000 shares for share purchase warrants that were exercised in settlement of the warrant liability that was assumed for 40% of 2 million Premier warrants that were outstanding with Orion Mine Finance on the date the Arrangement.
During the first quarter of 2022, the Company issued 606,800 shares for stock options exercised and during the second quarter a further 248,000 were issued.
Share Purchase Warrants
In connection with the subscription receipts discussed in Note 1 of the Financial Statements, the Company issued 7,728,654 Common Share Purchase Warrants (“warrants”) which are exercisable into one fully paid and non-assessable common share of the Company at an exercise price of C$3.64 per share until October 7, 2022. The warrants include a four month hold period, and the initial fair value of the warrants recognized on inception was $2.9 million.
In connection with the Arrangement, the Company assumed a warrant liability for 40% of 2 million Premier warrants that were outstanding with Orion Mine Finance on the date the Arrangement. The warrants were set to expire January 31, 2022, however, these warrants were exercised in full prior to the expiration date and the Company issued 800,000 shares in settlement. The liability has been recorded as a reduction in the equity issued on the spin-out of Premier USA to the Company. The initial fair value of the replacement warrants recognized on inception was $0.5 million.
In connection with the Acquisition of Osgood as further described in Note 1(b) of the Financial Statements, the Company issued 12,071,152 warrants which are exercisable into one fully paid and non-assessable common share of the Company at an exercise price of C$3.64 per share until April 14, 2024. The warrants included a four month hold period, and the initial fair value of the warrants recognized on inception was $6.0 million.
In connection with the Finance Package as further described in Note 1(d) of these Consolidated Financial Statements, the Company issued 5.5 million common share warrants exercisable at C$3.275 per share with an exercise period of 36 months or until December 13, 2024. The fair value of the warrants at inception and at December 31, 2021 was $3.5 million.
The warrants are considered derivatives because their exercise price is in CAD whereas the Company’s functional currency is in USD. Accordingly, the Company recognizes the warrants as liabilities at fair value with changes in fair value recognized in profit or loss. For the three months ended June 30, 2022, the Company recognized an increase in the estimated fair value of the liability of $3.1 million.
Stock Option Plan
The Company has a share option plan (the "Plan") which is restricted to directors, officers, key employees and consultants of the Company. The number of common shares subject to options granted under the Plan (and under all other management options and employee stock purchase plans) is limited to 10% in the aggregate and 1% with respect to any one optionee of the number of issued and outstanding
17
common shares of the Company at the date of the grant of the option. Options issued under the Plan may be exercised during a period determined by the Company's Board of Directors which cannot exceed ten years.
As of June 30, 2022 and the date of this MD&A, there were 8,037,841 stock options outstanding at a weighted average exercise price of C$2.30 per share.
Restricted Share Unit Plan
The Company adopted the Restricted Share Unit ("RSU") plan to allow i-80’s Board of Directors to grant its employees non-transferable share units based on the value of the Company's share price at the date of grant. The awards have a graded vesting schedule over a three-year period. Under the RSU plan, the awards can be equity or cash settled immediately upon vesting. As of June 30, 2022 and the date of this MD&A, there were 710,425 RSU’s outstanding.
Deferred Share Unit Plan
The Company adopted the Deferred Share Unit ("DSU") plan to grant non-transferable share units to eligible members of the Board of Directors, eligible employees and eligible contractors. The DSU’s are priced based on the value of the Company's share price at the date of grant. The awards have a graded vesting schedule over a three year period. Under the DSU plan, the awards can be equity or cash settled immediately upon vesting. As of June 30, 2022 and the date of this MD&A, there were 149,649 DSU’s outstanding.
RELATED PARTY TRANSACTIONS
Related parties include key management personnel and entities which have control or significant influence as described in Note 2(b) of these Financial Statements. Related party transactions included in these Financial Statements are with Premier, the former parent company, and with Equinox Gold.
The following are related party transactions, recorded at the exchange amount as agreed to by the parties. The figures noted below are for the three and six months ended June 30, 2022, with comparative figures for the three and six months ended June 30, 2021:
i.The Company recognized revenue of $13.6 million for the three months ended March 31, 2021 from the sale of gold and silver under the transfer pricing agreement with Premier. The transfer pricing agreement with Premier was terminated April 7, 2021.
ii.Included in related party interest expense is interest accrued on an intercompany loan payable to Premier in the amount of $1.1 million for the three months ended March 31, 2021. The intercompany note was settled April 7, 2021.
iii.Included in operating expenses is share‑based payments of $0.1 million for the three months ended March 31, 2021. The share‑based payments are for allocation of expenses from Premier. The corresponding share‑based payment liability previously recorded in Premier USA, was settled April 7, 2021.
iv.Included in operating expenses is transition services costs of $0.1 million to Equinox for the three months ended March 31, 2022 (nil for the three months ended March 31, 2021). The transition services costs are for general and administrative services provided by Equinox to the Company’s head office in Reno, Nevada.
COMMITMENTS AND CONTINGENCIES
Environmental Rehabilitation Provision
The Company currently has four active environmental rehabilitation obligations related to past and current mining activities. As per the table below, the provisions for each project are updated regularly for a change to the risk-free discount rate, accretion, and currency adjustments if applicable. Changes in estimates on the projects are applied where an engineering assessment on the project has been carried out.
| For the period ended | ||||||||
(in thousands of U.S. dollars) (i) | June 30, 2022 | December 31, 2021 | ||||||
| Granite Creek | 2,195 | 2,394 | ||||||
| Lone Tree | 56,318 | 60,592 | ||||||
| Ruby Hill | 22,948 | 23,179 | ||||||
| McCoy-Cove | 6,133 | 6,684 | ||||||
| Total | 87,594 | 92,849 | ||||||
Granite Creek
This recently acquired project has a current remediation plan of 3 years after the current approximate life of mine of the project of 10 years. There are no expenditures projected in the next few years.
Lone Tree
The assets at Lone Tree include an autoclave and flotation mill, which are currently not operating. There are no reclamation activities ongoing at Lone Tree. As of June 30, 2022, Management estimates the environmental rehabilitation obligation at Lone Tree at $56.3 million after inflation and present value discounting. This amount is based on cost estimates from NGM and standardized reclamation cost estimators and includes closure of all permitted mining and exploration disturbance at the property. Management intends to undertake an
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environmental evaluation of the property during 2022 and will update the estimated environmental obligation as part of its normal period end review.
Ruby Hill
As of June 30, 2022, Management estimates the environmental rehabilitation obligation at $23.3 million. This amount includes the closure of all permitted mining and exploration disturbance and is calculated using standardized reclamation cost estimators. Management intends to undertake an environmental evaluation of the property during 2022 and will update the estimated environmental obligation as part of its normal period end review.
McCoy-Cove
The Company is responsible for all environmental liabilities related to the closure of the McCoy-Cove Property as well as final clean-up of surface drill pads and minor drill roads. The McCoy-Cove reclamation obligation is in part related to the McCoy portion of the property purchased from Newmont Mining Corporation in 2014. All closure activities other than reclamation of three water treatment ponds, evaporation of the tailings facility and water quality testing have been temporarily put on hold pending the potential for future production out of the Cove underground. The property had a remaining obligation from previous mining activities, most of which was completed prior to acquiring the property. There are ongoing reclamation activities related to the tailings dam and the cleanup of the old pads. Structural reclamation is on hold for several years pending a new mine plan for the property. The other portion is related to the Cove underground project which will not commence reclamation for several years. That portion of the provision was only impacted by accretion and an updated risk-free discount rate.
Surety Bonds
At June 30, 2022, the Company has outstanding surety bonds in the amount of $121.0 million in favor of either the United States Department of the Interior, Bureau of Land Management ("BLM"), or the State of Nevada, Department of Conservation & Natural Resources as financial support for environmental reclamation and exploration permitting. This includes replacement bonds for the Lone Tree project and the Ruby Hill property in the amounts of $85.4 million and $22.8 million, respectively. The surety bonds are secured by a $30.8 million deposit and are subject to fees competitively determined in the marketplace. The obligations associated with these instruments are generally related to performance requirements that the Company addresses through its ongoing operations. As specific requirements are met, the BLM and State of Nevada as beneficiary of the instruments, will return the instruments to the issuing entity. As these instruments are associated with operating sites with long‑lived assets, they will remain outstanding until closure.
Option Agreements
Tabor Exploration and Option Agreement
On August 24, 2020, the Company through its wholly-owned subsidiary Au-Reka Gold LLC entered into an option agreement with Renaissance Exploration, Inc. to acquire a 100% interest in the Tabor Project located in Esmeralda County, Nevada, subject to initial earn-in option payments of $5.2 million and a firm commitment to spend $0.3 million towards exploration activities by the one-year anniversary date that the Company acquires an exploration permit on the property.
Rye Vein Exploration and Earn-In Agreement
In September 2020, the Exploration and Earn-In Agreement for interest in the Rye Vein property was terminated in accordance with its terms.
Changes to Other Agreements
In connection with the closing of the Arrangement on April 7, 2021, the offtake, gold prepay and silver stream agreements were amended to exclude certain parties and projects that were included in the original agreements.
The Second Amended and Restated Offtake Agreement entered into with OMF Fund II (O) Ltd. (formerly OMF Fund II SO Ltd.) was replaced with a new Offtake Agreement with i-80 Gold (“New Offtake Agreement”) covering the Company’s projects, including Osgood Mining Company, LLC. Under the terms of the New Offtake Agreement, the Annual Gold Quantity means (i) an aggregate of 29,750 ounces of refined gold for 2021, and (ii) up to an aggregate of 31,500 ounces of refined gold annually each year. The New Offtake Agreement ends on March 1, 2027.
The Amended and Restated Silver Stream Agreement was replaced with a new South Arturo Purchase and Sale Agreement (Silver) between i-80 Gold and OMF Fund II SO Ltd. with amended terms. Agreement was included in the net asset value in connection with the asset exchange with NGM, and therefore no longer on the balance sheet as of December 31, 2021.
As part of the Finance Package the Company entered on December 13, 2021 there was an amendment to the offtake agreement entered into with affiliates of Orion. The main amendments reflected in A&R Offtake Agreement include the increase in the term of the agreement to December 31, 2028, the inclusion of the Granite Creek and Ruby Hill projects, and the increase of the annual gold quantity to up to an aggregate of 37,500 ounces in respect of the 2022 and 2023 calendar years and up to an aggregate of 40,000 ounces in any calendar year after 2023.
Off Balance Sheet Arrangements
The Company has not participated in off-balance sheet or income statement arrangements other than the surety bonds discussed above.
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CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES, POLICIES AND CHANGES
Significant Accounting Judgements and Estimates
The preparation of Financial Statements in accordance with IFRS requires management to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities, disclosure of commitments and contingent liabilities at the date of the these Financial Statements and the reported amounts of revenues and expenses during the reporting period. The determination of estimates requires the exercise of judgement based on various assumptions and other factors such as historical experience, current and expected economic conditions. Actual results could differ from these estimates.
The significant judgments and estimates used in the preparation of these Financial Statements that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities and earnings within the next financial year include:
Osgood Mining Company, LLC Acquisition
With regard to the acquisition of Osgood, management followed the guidance within IFRS 3 – Business Combinations and determined that the transaction should be accounted for as an asset acquisition. In such cases, the acquirer identifies and recognizes the individual identifiable assets acquired and liabilities assumed. The cost of the group is allocated to the individual identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. Such a transaction or event will not give rise to recording goodwill.
The Osgood transaction was recorded based on the total consideration paid for the assets. Total consideration paid in excess of the acquired assets’ book values represented the fair value of the net assets acquired and was attributable to the acquired mineral interests.
For contingent consideration and payments, an accounting policy choice exists, and an entity may recognize a liability for the expected variable payments at the time control of the underlying asset is obtained or they may only recognize such a liability as the related activity that gives rise to the variability occurs. For the Osgood acquisition, management has not recognized any liability for contingent payments as the performance conditions required for these payments had not been met as of the date the assets were acquired.
Acquisition of Ruby Hill
The acquisition of Ruby Hill was assessed by management under the guidance of IFRS 3 – Business Combinations, management determined that they acquired a business and therefore accounted for the acquisition as a business combination under this standard. The fair value of assets acquired and liabilities assumed in this business combination, including deferred consideration, was estimated based on information available at the date of acquisition. Various valuation techniques were applied for measuring fair value including market comparable transactions and discounted cash flows which rely on assumptions such as forward commodity prices, quantity of mineral resources, mining and processing costs and discount rates. Changes in these variables could significantly impact the carrying value of the net assets.
Asset Exchange with Nevada Gold Mines LLC
The Asset Exchange with Nevada Gold Mines LLC was assessed by management under the guidance of IFRS 3 – Business Combinations. Management determined the assets acquired in this transaction did not meet the definition of a business and therefore accounted for the acquisition as an asset acquisition. As the consideration for this transaction was largely the South Arturo operations, the fair value of consideration given could not be measured as reliably as the fair value of the assets acquired and so management took the approach of valuing the assets acquired at fair value instead of the consideration paid, The fair value of assets acquired and liabilities assumed in this asset acquisition, was estimated based on information available at the date of acquisition. Various valuation techniques were applied for measuring fair value including market comparable transactions and discounted cash flows which rely on assumptions such as forward commodity prices, quantity of mineral resources, mining and processing costs and discount rates. Changes in these variables could significantly impact the carrying value of the net assets. A gain was recognized on this transaction, which reflected the difference between the carrying value of the non‑cash consideration and its fair value.
Provisions for environmental rehabilitation
Management assesses the provisions for environmental rehabilitation on acquisition, on an annual basis or when new information becomes available. This assessment includes the estimation of the future rehabilitation costs required based on the existing laws and regulations in each jurisdiction the Company operates in, the timing of these expenditures, and the impact of changes in the discount rate. The actual future expenditures may differ from the amount currently provided if the estimates made are significantly different than actual results or if there are significant changes in environmental and / or regulatory requirements in the future.
Valuation of financial instruments
Concurrent with the Transaction with Equinox, the Company issued warrants and completed certain financing agreements with Orion and Nomad that included an Offtake Agreement and a Stream Agreement.
Warrants
The Company issued warrants in connection with the Transaction as further described in Note 1 and Note 14(i) and the Finance Package as described in Note 1(d). The warrants are considered derivatives because their exercise price is in C$ whereas the Company’s functional currency is in USD. Accordingly, the Company recognizes the warrants as liabilities at fair value with changes in fair value recognized in profit or loss. In determining fair value, management judgement is required in respect to input variables of the financial model used for estimation purposes. These variables include such inputs as the Company's stock price, stock price variability, trading volumes and risk‑free rates of return. The fair value of the warrants recognized on inception were calculated using Premier’s share price volatility and at June 30, 2022, using i‑80 Gold's share price volatility.
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Financing
The financing instruments described in Note 1(d) of the Company’s audited financial statements for the year ended December 31, 2021 were valued by simulating the relevant prices of the underlying assets; gold, silver and the Common Shares, from December 9 or 13, 2021, to their respective maturity dates of each financial instrument, using Longstaff Schwartz Monte Carlo simulation, assuming they follow correlated Geometric Brownian Motion and modeling the payoffs of each financial instrument in the Financing Package. The derivatives (including embedded) were fair valued with the residual balance being allocated to the host contracts. The derivatives (including embedded) will continue to be recognized at FVPL whilst the host contracts are at amortized cost.
The Company determined that the South Arturo Stream Agreement represented a financial liability and evaluated the liability under IFRS 9 and the valuation of financial instruments. In determining the fair value of the Stream Agreement management judgement was required in respect to input variables of the financial model used for estimation purposes. These variables include such inputs as the Company's production profile, credit spread, and metal prices. Using the inputs above the Company used a discounted cash flow analysis to determine the present value of the financial liability.
NON-IFRS FINANCIAL PERFORMANCE MEASURES
The Company has included certain terms or performance measures commonly used in the mining industry that are not defined under IFRS in this document. These include: by-product cash cost per ounce sold, by-product all-in sustaining cost (“AISC”) per ounce sold, earnings before interest, tax, depreciation and amortization, capital expenditures (expansionary), capital expenditures (sustaining), adjusted net earnings and average realized price per ounce. Non-IFRS financial performance measures do not have any standardized meaning prescribed under IFRS, and therefore, they may not be comparable to similar measures employed by other companies. The data presented is intended to provide additional information and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS and should be read in conjunction with the Company's Financial Statements.
Definitions
Adjusted earnings and earnings per share excludes significant write-down adjustments.
All-in sustaining costs on a by-product basis per ounce include total production cash costs on a by-product basis plus incorporates costs related to sustaining production.
Average realized gold price represents the sales price of gold per ounce before deducting mining royalties, treatment and refining charges as well as gain or losses derived from the offtake agreement with Orion.
By-product credits include revenues from the sale of by-products from operating mines.
Capital expenditure (expansionary) is a capital expenditure intended to expand the business or operations by increasing production capacity beyond current levels of performance and includes capitalized exploration.
Capital expenditure (sustaining) is a capital expenditure necessary to maintain existing levels of production. The sustaining capital expenditures maintain the existing mine fleet, mill and other facilities so that they function at levels consistent from year to year.
Cost of sales per ounce sold is calculated by dividing the attributable cost of sales by the attributable ounces sold.
Exploration and evaluation (sustaining) expense is presented as mine site sustaining if it supports current mine operations.
Rehabilitation – accretion and amortization include depreciation on the assets related to the rehabilitation provision of gold operations and accretion on the rehabilitation provision of gold operations.
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Average realized gold price per ounce of gold sold
Average realized gold price per ounce of gold sold is a non-IFRS measure and does not constitute a measure recognized by IFRS and does not have a standardized meaning defined by IFRS. It may not be comparable to information in other gold producers’ reports and filings.
| Three months ended June 30, | Six months ended June 30, | ||||||||||
| (in thousands of U.S. dollars, unless otherwise noted)(i) | 2022 | 2022 | |||||||||
| Nevada production | |||||||||||
| Revenue per financial statements | $ | 6,383 | 9,247 | ||||||||
| Silver revenue from mining operations | $ | (32) | (39) | ||||||||
| Gold revenue from mining operations | $ | 6,351 | 9,208 | ||||||||
| Ounces of gold sold | ounce | 3,507 | 4,996 | ||||||||
| Average realized gold price | $/ounce | 1,811 | 1,843 | ||||||||
| Lone Tree | |||||||||||
| Revenue per financial statements | $ | 1,827 | 3,459 | ||||||||
| Silver revenue from mining operations | $ | (10) | (17) | ||||||||
| Gold revenue from mining operations | $ | 1,817 | 3,442 | ||||||||
| Ounces of gold sold | ounce | 942 | 1,785 | ||||||||
| Average realized gold price | $/ounce | 1,931 | 1,928 | ||||||||
| Ruby Hill | |||||||||||
| Revenue per financial statements | $ | 4,555 | 5,788 | ||||||||
| Silver revenue from mining operations | $ | (22) | (22) | ||||||||
| Gold revenue from mining operations | $ | 4,533 | 5,766 | ||||||||
| Ounces of gold sold | ounce | 2,565 | 3,211 | ||||||||
| Average realized gold price | $/ounce | 1,767 | 1,795 | ||||||||
(i)May not add due to rounding
Cash Costs
Cash costs per ounce sold represents all direct and indirect operating costs related to the physical activities of producing gold, including on-site mining costs, processing, third-party smelting, refining and transport costs, on-site general and administrative costs, community site relations, royalties and royalty tax. State of Nevada net proceeds taxes are excluded. Cash costs incorporate the Company’s share of production costs but exclude, among other items, the impact of depletion, depreciation and amortization (“DD&A”), reclamation costs, financing costs, capital development and exploration and income taxes. In order to arrive at consolidated cash costs, the Company includes its attributable share of total cash costs from operations where less than 100% interest in the economic share of production is held.
Cash cost: by-product - When deriving the cash costs associated with an ounce of gold, the Company includes by-product credits, as the Company considers that the cost to produce the gold is reduced as a result of the by-product sales incidental to the gold production process. Accordingly, total production costs are reduced for revenues earned from silver sales.
Cash costs per ounce is a common financial performance measure in the mining industry, but the term does not have any standardized meaning. In determining its cash cost and cash cost per ounce, the Company has considered the guidelines provided by the World Gold Council, a non-regulatory, non-profit market development organization for the gold industry. A Company’s adoption of the standard is voluntary and other companies may quantify these measures differently as a result of different underlying principles and policies applied.
All-in Sustaining Costs (“AISC”)
AISC include total production cash costs incurred at the Company’s mining operations, which forms the basis of the Company’s by-product cash costs. Additionally, the Company includes sustaining capital expenditures which are expended to maintain existing levels of production (to which costs do not contribute to a material increase in annual gold ounce production over the next 12 months), rehabilitation accretion and amortization, general and administrative (excluding stock compensation) and exploration and evaluation expenses. The measure seeks to reflect the full cost of production from current operations, therefore expansionary capital is excluded. Certain other cash expenditures, including tax payments (including the State of Nevada net proceeds tax), dividends and financing costs are also excluded. The Company reports AISC on a per ounce sold basis.
This financial performance measure was adopted as a result of an initiative undertaken within the gold mining industry; however, this performance measure has no standardized meaning and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. In determining AISC, the Company has considered the guidelines provided by the World
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Gold Council, a non-regulatory, non-profit market development organization for the gold industry. A Company's adoption of the standard is voluntary and other companies may quantify these measures differently as a result of different underlying principles and policies applied.
The following table provides a reconciliation on a by-product basis for gold cash cost and AISC for the three and six months ended June 30, 2022:
| For the three and six months ended June 30, 2022 | ||||||||||||||
| (in thousands of U.S. dollars, except per ounce information in dollars) (i) | Nevada Production | |||||||||||||
| Three months ended June 30, 2022 | Six months ended June 30, 2022 | |||||||||||||
| By-Product | 000$ | Per gold ounce sold | 000$ | Per gold ounce sold | ||||||||||
| Cost of sales excluding depletion, depreciation and amortization | 3,966 | 1,131 | 5,498 | 1,101 | ||||||||||
| Depletion, depreciation and amortization | 655 | 187 | 823 | 165 | ||||||||||
| Total cost of sales | 4,621 | 1,318 | 6,321 | 1,265 | ||||||||||
| Depletion, depreciation and amortization | (655) | (187) | (823) | (165) | ||||||||||
| By-product credits | (32) | (9) | (39) | (8) | ||||||||||
| Cash cost : by-product | 3,934 | 1,122 | 5,459 | 1,093 | ||||||||||
| Rehabilitation - accretion and amortization | 822 | 234 | 1,164 | 233 | ||||||||||
| All-in sustaining cost : by-product | 4,756 | 1,356 | 6,623 | 1,326 | ||||||||||
| Total gold ounces produced | 3,507 | 4,996 | ||||||||||||
| Total ounces sold | 3,507 | 4,996 | ||||||||||||
(i)May not add due to rounding.
| For the three and six months ended June 30, 2022 | ||||||||||||||
| (in thousands of U.S. dollars, except per ounce information in dollars) (i) | Lone Tree | |||||||||||||
| Three months ended June 30, 2022 | Six months ended June 30, 2022 | |||||||||||||
| By-Product | 000$ | Per gold ounce sold | 000$ | Per gold ounce sold | ||||||||||
| Cost of sales excluding depletion, depreciation and amortization | 882 | 936 | 1,586 | 889 | ||||||||||
| Depletion, depreciation and amortization | 78 | 83 | 122 | 68 | ||||||||||
| Total cost of sales | 960 | 1,019 | 1,708 | 957 | ||||||||||
| Depletion, depreciation and amortization | (78) | (83) | (122) | (68) | ||||||||||
| By-product credits | (10) | (10) | (17) | (10) | ||||||||||
| Cash cost : by-product | 872 | 926 | 1,569 | 879 | ||||||||||
| Rehabilitation - accretion and amortization | 597 | 634 | 827 | 463 | ||||||||||
| All-in sustaining cost : by-product | 1,468 | 1,560 | 2,396 | 1,343 | ||||||||||
| Total gold ounces produced | 942 | 1,785 | ||||||||||||
| Total ounces sold | 942 | 1,785 | ||||||||||||
(i)May not add due to rounding.
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| For the three and six months ended June 30, 2022 | ||||||||||||||
| (in thousands of U.S. dollars, except per ounce information in dollars) (i) | Ruby Hill | |||||||||||||
| Three months ended June 30, 2022 | Six months ended June 30, 2022 | |||||||||||||
| By-Product | 000$ | Per gold ounce sold | 000$ | Per gold ounce sold | ||||||||||
| Cost of sales excluding depletion, depreciation and amortization | 3,084 | 1,202 | 3,912 | 1,218 | ||||||||||
| Depletion, depreciation and amortization | 577 | 225 | 701 | 218 | ||||||||||
| Total cost of sales | 3,661 | 1,427 | 4,613 | 1,436 | ||||||||||
| Depletion, depreciation and amortization | (577) | (225) | (701) | (218) | ||||||||||
| By-product credits | (22) | (9) | (22) | (7) | ||||||||||
| Cash cost : by-product | 3,062 | 1,194 | 3,889 | 1,211 | ||||||||||
| Rehabilitation - accretion and amortization | 226 | 88 | 337 | 105 | ||||||||||
| All-in sustaining cost : by-product | 3,287 | 1,282 | 4,226 | 1,316 | ||||||||||
| Total gold ounces produced | 2,565 | 3,211 | ||||||||||||
| Total ounces sold | 2,565 | 3,211 | ||||||||||||
(i)May not add due to rounding.
Adjusted Earnings
Adjusted earnings and basic adjusted earnings per share are non-IFRS measures that the Company considers to better reflect normalized earnings because it eliminates non-recurring items. Certain items that become applicable in a period may be adjusted for, with the Company retroactively presenting comparable periods with an adjustment for such items and conversely, items no longer applicable may be removed from the calculation. Neither adjusted earnings nor basic adjusted earnings per share have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies.
The following table shows a reconciliation of adjusted earnings for the three and six months ended June 30, 2022 and 2021, to the net earnings for each period.
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (in thousands of U.S. dollars, unless otherwise noted) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Net income / (loss) for the period - Continuing operations | $ | 19,276 | $ | (10,005) | $ | (3,988) | $ | (13,169) | |||||||||||||||
| Adjust for: | |||||||||||||||||||||||
| Restructuring costs | — | (4,444) | — | (4,444) | |||||||||||||||||||
| Gain on warrants | 12,004 | 535 | 8,900 | 535 | |||||||||||||||||||
| Gain on convertible loans | 16,307 | — | 10,214 | — | |||||||||||||||||||
| Loss on deferred consideration | (792) | — | (1,636) | — | |||||||||||||||||||
| Gain on fair value measurement of Gold Prepayment Agreement | 4,084 | — | 4,084 | — | |||||||||||||||||||
| Gain on fair value measurement of Silver Purchase Agreement | 9,125 | — | 9,125 | — | |||||||||||||||||||
| Total Adjustments | $ | 40,728 | $ | (3,909) | $ | 30,687 | $ | (3,909) | |||||||||||||||
| Adjusted loss for the period | $ | (21,452) | $ | (6,096) | $ | (34,675) | $ | (9,260) | |||||||||||||||
| Weighted average shares for the period | 240,312,422 | 181,500,325 | 239,800,687 | 159,734,707 | |||||||||||||||||||
| Adjusted loss per share for the period | $ | (0.09) | $ | (0.03) | $ | (0.14) | $ | (0.06) | |||||||||||||||
RISKS AND RISK MANAGEMENT
The Company's activities expose it to risks, including financial and operational risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth and shareholder returns and which are more fully described in the “Risks and Uncertainties” section of this MD&A.
Financial Instruments and Related Risks
The Company's operations include the acquisition, exploration and development of mineral properties located in the State of Nevada. The Company examines the various financial risks to which it is exposed and assesses the impact and likelihood of occurrence. These risks may include credit risk, liquidity risk, currency risk, interest rate risk and other risks. Where material, these risks are reviewed and monitored by the Board of Directors.
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Credit risk
Counterparty credit risk is the risk that the financial benefits of contracts with a specific counterparty will be lost if a counterparty defaults on its obligations under the contract. This includes any cash amounts owed to the Company by those counterparties, less any amounts owed to the counterparty by the Company where a legal right of set-off exists and also includes the fair values of contracts with individual counterparties which are recorded in the financial statements.
Trade credit risk
The Company closely monitors its financial assets and does not have any significant concentration of trade credit risk. The Company sells its products exclusively to large international financial institutions and other organizations with strong credit ratings. The historical level of customer defaults is negligible and, as a result, the credit risk associated with trade receivables is considered to be negligible.
Cash
In order to manage credit and liquidity risk, the Company invests only in highly rated investment grade instruments that have maturities of 90 days or less and which are redeemable after 30 days or less into a known amount of cash. Limits are also established based on the type of investment, the counterparty and the credit rate. The credit risk on cash and cash equivalents is therefore negligible.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure.
The following table summarizes the Company's contractual maturities and the timing of cash flows as at June 30, 2022. The amounts presented are based on the undiscounted contractual cash flows and may not agree with the carrying amounts on the Financial Statements.
| Up to 1 year | 1-5 years | Total | |||||||||
| Accounts payable and accrued liabilities | $ | 9,480 | $ | — | $ | 9,480 | |||||
| Convertible loans | — | 60,000 | 60,000 | ||||||||
| Deferred consideration | 27,000 | 20,000 | 47,000 | ||||||||
| $ | 36,480 | $ | 80,000 | $ | 116,480 | ||||||
Market risk
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As the Company holds excess cash in interest bearing bank accounts rather than investments, the interest rate risk is minimal.
Currency risk
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the Company’s functional currency. The Company’s management monitors the exchange rate fluctuations on a continuous basis and acts accordingly.
Fair value
(i) Definitions
IFRS 13 establishes a fair value hierarchy that prioritizes the input to valuation techniques used to measure fair value as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
(ii) Valuation techniques used to determine fair values
The Company calculates fair values based on the following methods of valuation and assumptions:
Financial assets
Financial assets are carried at amortized cost. The fair value of cash and cash equivalents and receivables approximate their carrying value due to their short-term nature.
The Company's investment as further described in Note 6 of the Financial Statements is classified within level 2 of the fair value hierarchy and is fair valued using the common share price from the most recent subscription agreement.
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Financial liabilities
Financial liabilities are carried at amortized cost. Accounts payable and accrued liabilities approximate their carrying value due to their short-term nature.
Deferred consideration related to Ruby Hill was recognized at fair value on acquisition and at June 30, 2022. This liability is classified within level 3 of the fair value hierarchy as it involves managements best estimate of whether or not the key activities required for each milestone payment will be achieved. Management has assumed that all milestones will be achieved and the early repayment option will be taken so the fair value of the deferred consideration is $47 million discounted at 7.5%.
The fair value of the loan payable to Premier approximates the carrying value as the interest rates are comparable to current market rates.
The share‑based payment and warrant liabilities are classified within level 2 of the fair value hierarchy and are fair valued using a valuation model that incorporates such factors as the Company’s share price volatility, risk free rates and expiry dates including managements assumptions on forfeiture rates.
The silver stream liability is classified within level 3 of the fair value hierarchy and is fair valued using the net present value of expected future cash flows based on management assumptions on silver deliveries under the stream and a discount rate that includes the risk premium that market participants require.
The Finance Package is classified within level 3 of the fair value hierarchy and is fair valued using credit spread calculated at inception and simulating out the expected movement in gold, silver and the Company’s share price whilst considering key assumptions like the discount rate that includes the risk premium that market participants require, the volatility in the Company’s share price and the discount for lack of marketability.
(iii) Fair value measurements using significant unobservable inputs (level 3)
The following table presents the changes in level 3 items for the periods ended June 30, 2022 and December 31, 2021:
| Orion | Sprott | |||||||||||||||||||||||||
| Silver Agreement liability | Deferred consideration | Conversion and change of control rights | A&R Offtake gold lookback option | Silver Purchase Agreement - silver price derivative | Silver Purchase Agreement - gold substitute option | Gold Prepay Agreement - gold price derivative | Conversion and change of control rights | |||||||||||||||||||
| Balance as at January 1, 2021 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Initial recognition | (853) | (41,895) | (13,599) | (577) | — | — | — | (2,733) | ||||||||||||||||||
| Principal repayment | 11 | — | — | — | — | — | — | — | ||||||||||||||||||
| Disposals | 897 | — | — | — | — | — | — | — | ||||||||||||||||||
| Fair value adjustments | (55) | (648) | (4,935) | (153) | — | — | — | (1,162) | ||||||||||||||||||
| Balance as at December 31, 2021 | $ | — | $ | (42,543) | $ | (18,534) | $ | (730) | $ | — | $ | — | $ | — | $ | (3,895) | ||||||||||
| Fair value adjustments | — | (1,635) | 8,323 | — | 9,125 | — | 4,084 | 1,891 | ||||||||||||||||||
| Balance as at June 30, 2022 | $ | — | $ | (44,178) | $ | (10,211) | $ | (730) | $ | 9,125 | $ | — | $ | 4,084 | $ | (2,004) | ||||||||||
(iv) Valuation inputs and relationships to fair value
The valuation of the Convertible Loans and related embedded derivatives were dependent on the changes in the prices of the underlying assets and probability that a change of control event would be expected to occur on December 13, 2023.
The following table summarizes the quantitative information about the significant unobservable inputs used in level 3 fair value measurements:
| Balance as at June 30, 2022 | Unobservable input | Fair Value | Change in Fair Value | |||||||||||
| Assumption: | -10 | % | 10 | % | ||||||||||
| Silver Purchase Agreement - silver price derivative | Change in forecast silver price | 9,125 | 4,100 | (4,100) | ||||||||||
| Gold Prepay Agreement - gold price derivative | Change in forecast gold price | 4,084 | 4,932 | (4,932) | ||||||||||
Management of Capital Risk
The Company manages its share capital and equity settled employee benefits reserve as capital, the balance of which is $368.5 million at June 30, 2022 ($363.9 million at December 31, 2021). The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to pursue the exploration and development of its mineral properties and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk.
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The Company manages its capital structure and adjusts it after evaluating changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, acquire, or dispose of assets or acquire new debt.
In order to maximize ongoing exploration efforts, the Company does not pay out dividends. The Company's investment policy is to invest its short-term excess cash in highly liquid short-term interest-bearing investments with short-term maturities, selected with regard to the expected timing of expenditures from continuing operations.
To effectively manage its capital requirements, the Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives. In connection with the financing described in Note 1(a) of these Financial Statements the Company expects it will have sufficient capital to carry out its exploration and evaluation plans through 2022.
Risks and Uncertainties
COVID-19 and Other Global Pandemics
Though mining operations and exploration and development work at Lone Tree, Ruby Hill, Granite Creek and McCoy-Cove, are continuing with no significant interruptions to date, the Company may nonetheless be impacted at any time by the current global coronavirus outbreak and associated COVID-19 global pandemic, as well as related governmental regulations, restrictions and other measures and business disruptions due to the impact of same on third parties with whom the Company is associated or does business. The Company is currently complying with all federal, state and local governmental regulations concerning COVID-19.
While the majority of our employee and contractor teams are currently operating following the extensive contagion prevention measures that have been put in place to protect the operations teams and the surrounding communities, the ever-changing nature of the contingency may have a material adverse impact on the Company as it could result in disruptions to production, delays in the development timeline and increased costs. In addition, government authorities could impose new or additional requirements resulting in further limitations on the activities, or the suspension of all activities.
Alternatively, in the event of an outbreak of COVID-19 at site at any of the Company’s projects, government authorities, either federally or locally, or the Company could determine that a full suspension of all of its operations is necessary for the safety and protection of the workers. A complete suspension of operations could result in delays in production, the development of the project, result in additional increases in costs and have a material adverse effect on the financial position of the Company. If authorities were to impose a suspension order caused by the COVID-19 virus outbreak, or if there is a full suspension of operations at the mine site for an undefined period of time there could be additional medical and other costs to be incurred, project delays, cost overruns, and operational restart costs. Moreover, the actual and threatened further spread of COVID-19 globally could continue to negatively impact stock markets, including the trading price of the Company’s Common Shares, could adversely impact the Company’s ability to raise capital, could cause continued interest rate volatility and movements that could make obtaining financing more challenging or more expensive and could result in any operations affected by COVID-19 becoming subject to quarantine. Any of these developments, and others, could have a material adverse effect on the Company’s business and results of operations.
Fluctuating Commodity Prices
Historically, gold and other precious metals prices have fluctuated widely and are affected by numerous external factors beyond the Company’s control, including industrial and retail demand, central bank lending, sales and purchases of gold, forward sales of gold by producers and speculators, production and cost levels in major producing regions, short-term changes in supply and demand because of speculative hedging activities, confidence in the global monetary system, expectations of the future rate of inflation, the strength of the US dollar (the currency in which the price of gold is generally quoted), interest rates, terrorism and war, and other global or regional political or economic events. Resource prices have fluctuated widely and are sometimes subject to rapid short-term changes because of speculative activities. The exact effect of these factors cannot be accurately predicted, but any one of or any combination of, these factors may result in not receiving an adequate return on invested capital and a loss of all or part of an investment in securities in the Company.
No Assurance of Title
The acquisition of title to mineral projects is a very detailed and time-consuming process. Although the Company has taken precautions to ensure that legal title to its property interests is properly recorded in its name where possible, there can be no assurance that such title will ultimately be secured. Furthermore, there is no assurance that the interests of the Company in any of its properties may not be challenged or impugned. Title insurance is generally not available for mineral properties and the Company has a limited ability to ensure that it has obtained secure ownership claims to individual mineral claims. While the Company’s intention is to take all reasonable steps to maintain title to its mineral properties, there can be no assurance that the Company will be successful in extending or renewing mineral rights on or prior to expiration of their term or that the title to any such properties will not be affected by an unknown title defect.
Construction and Start-up of New Mines
The success of construction projects and the start up of new mines by the Company is subject to a number of factors including the availability and performance of engineering and construction contractors, mining contractors, suppliers and consultants, the receipt of required governmental approvals and permits in connection with the construction of mining facilities and the conduct of mining operations (including environmental permits), the successful completion and operation of ore passes, the adsorption/de-adsorption, recovery plants and conveyors to move minerals, among other operational elements. Any delay in the performance of any one or more of the contractors, suppliers, consultants or other persons on which the Company is dependent in connection with its construction activities, a delay in or failure to receive the required governmental approvals and permits in a timely manner or on reasonable terms, or a delay in or failure in connection with the completion and successful operation of the operational elements in connection with new mines could delay or prevent the
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construction and start up of new mines as planned. There can be no assurance that current or future construction and start up plans implemented by the Company will be successful, that the Company will be able to obtain sufficient funds to finance construction and start up activities, that personnel and equipment will be available in a timely manner or on reasonable terms to successfully complete construction projects, that the Company will be able to obtain all necessary governmental approvals and permits or that the completion of the construction, the start up costs and the ongoing operating costs associated with the development of new mines will not be significantly higher than anticipated by the Company. Any of the foregoing factors could adversely impact the operations and financial condition of the Company.
Permits and Licenses
The operations of the Company require licenses and permits from various governmental authorities. The Company believes that it presently holds all necessary licenses and permits required to carry on with activities which it is currently conducting under applicable laws and regulations, and believes it is presently complying in all material respects with the terms of such licenses and permits. However, such licenses and permits are subject to change in regulations and in various operating circumstances. Where required, obtaining necessary licenses and permits can be a complex and time-consuming process. The costs and delays associated with obtaining necessary licenses and permits could stop or materially delay or restrict the Company from proceeding with the development of an exploration project. There can be no assurance that the Company will be able to obtain all necessary licenses and permits required to carry out exploration, development, and mining operations at its mineral projects or that the Company will be able to comply with the conditions of all such necessary licenses and permits in an economically viable manner.
Environmental Regulations and Potential Liabilities
The operations of the Company are subject to environmental regulations promulgated by government agencies from time to time. Environmental legislation provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations, such as seepage from tailings disposal areas, which would result in environmental pollution. In addition, certain types of operations require the submission and approval of environmental impact assessments. Environmental hazards may exist on the properties on which the Company holds interests which are unknown at present, and which have been caused by previous or existing owners or operators of the properties. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions there under, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in exploration or mining operations may be required to compensate those suffering loss or damage by reason of the exploration or mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations and, in particular, environmental laws.
Environmental legislation is evolving in a manner that will require stricter standards and enforcement, increased fines and penalties for noncompliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors, and employees. Amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in exploration expenses, capital expenditures or production costs, reduction in levels of production at producing properties, or abandonment or delays in development of new mining properties. The potential financial exposure may be significant.
Infrastructure
Mining, processing, development, and exploration activities depend, to one degree or another, on adequate infrastructure. Reliable roads, railways, power sources and water supply are important determinants affecting capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect the Company's operations, financial condition, and results of operations.
Availability and Costs of Infrastructure, Energy and Other Commodities
Mining, processing, mine construction and development, capital development projects and exploration activities depend on adequate infrastructure. Reliable access to energy and power sources and water supply are important factors that affect capital and operating costs. If the Company does not have timely access to adequate infrastructure, there is no assurance that it will be able to start or continue exploiting and develop projects, complete them on timely basis or at all. There is no assurance that the ultimate operations will achieve the anticipated production volume, or that construction costs and operating costs will not be higher than estimates calculated.
The profitability of the Company’s business is also affected by the market prices and availability of commodities and resources which are consumed or otherwise used in connection with the Company’s operations and development projects such as diesel fuel, electricity, finished steel, tires, steel, chemicals, and reagents. Prices of such commodities and resources are also subject to volatile price movements, which can be material and can occur over short periods of time due to factors beyond the Company’s control.
If there is a significant and sustained increase in the cost of certain commodities, the Company may decide that it is not economically feasible to continue all of the Company’s production and development activities and this could have an adverse effect on profitability. An increase in worldwide demand for critical resources like input commodities, drilling equipment, mobile mining equipment, tires and skilled labor could affect the Company’s ability to acquire them and lead to delays in delivery and unanticipated cost increases, which could have an effect on the Company’s operating costs, capital expenditures and production schedules.
Further, the Company relies on certain key third party suppliers and contractors for services, equipment, raw materials used in, and the provision of services necessary for, the development, construction, and continuing operation of its assets. As a result, the Company’s activities are subject to a number of risks some of which are outside its control, including negotiating agreements with suppliers and contractors on acceptable terms, the inability to replace a supplier or a contractor and its equipment, raw materials or services in the event that either party terminates the agreement, interruption of operations or increased costs in the event that a supplier or contractor ceases its
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business due to insolvency or other unforeseen event and failure of a supplier or contractor to perform under its agreement with the Company. The occurrences of one or more of these events could have a material effect on the business, results of operations and financial condition of the Company.
Uncertainty of Production Estimates
Future estimates of production for the Company’s mining operations are derived from a mining plan and these estimates are subject to change. There is no assurance the production estimates will be achieved and failure to achieve production estimates could have a materially adverse effect on the Company’s future cash flow, results of operations and financial condition. These plans are based on, among other things, mining experience, reserve estimates, assumptions regarding ground conditions and physical characteristics of ores and estimated rates and costs of production. Actual ore production may vary from estimates for a variety of reasons, including risks and hazards of the types discussed above.
Such occurrences could result in damage to mineral properties, interruptions in production, money losses and legal liabilities and could cause a mineral property that has been mined profitably in the past to become unprofitable.
Any decrease in production or change to the timing of production or the prices realized for gold sales, will directly affect the amount and timing of the cash flow from operations. A production shortfall or any of these other factors would change the timing of the Company’s projected cash flow and its ability to use the cash to fund capital expenditures.
Financing Risk
The ability of the Company to arrange additional financing in the future will depend, in part, on the prevailing debt and equity market conditions, the price of gold, the performance of the Company and other factors outlined herein. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable to the Company.
If the Company raises additional funds through the sale of equity securities or securities convertible into equity securities, shareholders may have their equity interest in the Company diluted.
In addition, failure to comply with covenants under the Company’s current or future debt agreements or to make scheduled payments of the principal of, or to pay interest on, its indebtedness or to make scheduled payments under hedging arrangements would likely result in an event of default under the debt agreements and would allow the lenders to accelerate the debt under these agreements, which may affect the Company’s financial condition.
Dependence on Key Personnel
The Company’s success is dependent on a relatively small number of key employees. The loss of one or more of these key employees, if not replaced, could have a material adverse effect on the Company's business, results of operations and financial condition.
Dependence on Third Parties
The Company relies significantly on strategic relationships with other entities and also on good relationships with regulatory and governmental departments. The Company also relies upon third parties to provide essential contracting services. In some cases, the Company holds its interest in its properties through joint ventures where it is not the manager of the joint venture. In these situations, the joint venture decision may not accord with the Company’s stated or desired plan. There can be no assurance that existing relationships will continue to be maintained or that new ones will be successfully formed, and the Company could be adversely affected by changes to such relationships or difficulties in forming new ones. Any circumstance, which causes the early termination or non-renewal of one or more of these key business alliances or contracts, could adversely impact the Company, its business, operating results, and prospects.
Losses from or Liabilities for Risks which are not Insured
Hazards such as unusual or unexpected geological formations and other conditions are involved in mineral exploration and development and mining. The Company may become subject to liability for pollution, cave-ins, or hazards against which it cannot insure or against which it may elect not to insure. The payment of such liabilities would have a material, adverse effect on the Company’s financial position and results of operations.
Although the Company maintains liability insurance in an amount which it considers adequate, the nature of these risks is such that liabilities might exceed policy limits, the liabilities and hazards might not be insurable against, or the Company might not elect to insure itself against such liabilities due to high premium costs or other reasons, in which event the Company could incur significant costs that could have a materially adverse effect upon its financial condition and results of operations.
Governmental Regulation
Exploration, development and mining of minerals are subject to extensive federal, state and local laws and regulations governing acquisition of the mining interests, prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, water use, land use, land claims that may be brought by third parties, environmental protection and remediation, endangered and protected species, mine safety and other matters. No assurance can be given that new rules and regulations will not be enacted or that existing rules and regulations will not be applied or amended in a manner that could have a material adverse effect on the business, financial condition, and results of operations of the Company. The costs and delays associated with obtaining necessary licenses and permits and complying with these licenses and permits and applicable laws and regulations could stop or materially delay or restrict the Company from proceeding with the development of a project. Any failure to comply with applicable laws and regulations or licenses and permits, even if inadvertent, could result in interruption or closure of exploration, development or mining operations or material fines,
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penalties, or other liabilities. The Company may be required to compensate those suffering loss or damage by reason of its mining operations and may have civil or criminal fines or penalties imposed for violations of such laws, regulations and permits. These laws and regulations are administered by various governmental authorities including the federal, state, and local governments.
Health and Safety
Mining operations generally involve a high degree of risk. Personnel involved in the Company’s operations are subject to many inherent risks, including but not limited to, rock bursts, cave-ins, flooding, fall of ground, electricity, slips and falls and moving equipment that could result in occupational illness, health issues and personal injuries. The Company has implemented various health and safety measures designed to mitigate such risks. Such precautions, however, may not be sufficient to eliminate health and safety risks and employees, contractors and others may not adhere to the occupational health and safety programs that are in place. Any such occupational health and personal safety issues may adversely affect the business of the Company and its future operations.
Tax Matters
The Company’s taxes are affected by a number of factors, some of which are outside of its control, including the application and interpretation of the relevant tax laws and treaties. If the Company’s filing position, application of tax incentives or similar benefits were to be challenged for whatever reason, this could have a material adverse effect on the Company’s business, results of operations and financial condition.
The Company is subject to routine tax audits by various tax authorities. Tax audits may result in additional tax, interest payments and penalties which would negatively affect the Company’s financial condition and operating results. New laws and regulations or changes in tax rules and regulations or the interpretation of tax laws by the courts or the tax authorities may also have a substantial negative impact on the Company’s business. There is no assurance that the Company’s current financial condition will not be materially adversely affected in the future due to such changes.
Information Technology
The Company is reliant on the continuous and uninterrupted operations of its Information Technology (“IT”) systems. User access and security of all IT systems are critical elements to the operations of the Company. Protection against cyber security incidents and cloud security, and security of all of the Company’s IT systems are critical to the operations of the Company. Any IT failure pertaining to availability, access or system security could result in disruption for personnel and could adversely affect the reputation, operations or financial performance of the Company.
The Company’s IT systems could be compromised by unauthorized parties attempting to extract business sensitive, confidential or personal information, corrupting information or disrupting business processes or by inadvertent or intentional actions by the Company’s employees or vendors. A cyber security incident resulting in a security breach or failure to identify a security threat, could disrupt business and could result in the loss of business sensitive, confidential or personal information or other assets, as well as litigation, regulatory enforcement, violation of privacy and security laws and regulations and remediation costs.
Labor Difficulties
Factors such as work slowdowns or stoppages caused by the attempted unionization of operations and difficulties in recruiting qualified miners and hiring and training new miners could materially adversely affect the Company’s business. This would have a negative effect on the Company’s business and results of operations which might result in the Company not meeting its business objectives.
Nature of Mineral Exploration and Mining
The economics of exploring and developing mineral properties are affected by many factors including capital and operating costs, variations of the grades and tonnages of ore mined, fluctuating mineral market prices, costs of mining and processing equipment and such other factors as government regulations, allowable production, importing and exporting of minerals and environmental protection.
The effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested capital. The operations of the Company are also subject to all of the hazards and risks normally incidental to exploration and development of mineral properties, any of which could result in damage to life or property, environmental damage and possible legal liability for any or all damage. The activities of the Company may be subject to prolonged disruptions due to inclement or hazardous weather conditions depending on the location of operations in which the Company has interests. Hazards, such as unusual or unexpected geological formations, rock bursts, formation pressures, cave-ins, flooding, or other conditions may be encountered in the drilling and removal of material. Other risks include, but are not limited to, mechanical equipment performance problems, industrial accidents, labor disputes, drill rig shortages, the unavailability of materials and equipment, power failures, hydrological conditions, earthquakes, fires, landslides, and other Acts of God. While the Company may obtain insurance against certain risks in such amounts as it considers adequate, the nature of these risks are such that liabilities could exceed policy limits or could be excluded from coverage. There are also risks against which the Company cannot insure or against which it may elect not to insure. The potential costs which could be associated with any liabilities not covered by insurance or in excess of insurance coverage or compliance with applicable laws and regulations may cause substantial delays and require significant capital outlays, adversely affecting the future earnings and competitive position of the Company and, potentially, its financial position.
Estimates of Mineral Resources and Mineral Reserves
Mineral reserves and mineral resources are estimates only, and no assurance can be given that the anticipated tonnages and grades will be achieved, that the indicated level of recovery will be realized or that mineral reserves can be mined or processed profitably. Mineral reserve and mineral resource estimates may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing and other relevant issues. There are numerous uncertainties inherent in estimating mineral reserves and mineral resources, including many
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factors beyond the Company's control. Such estimation is a subjective process, and the accuracy of any mineral reserve or mineral resource estimate is a function of the quantity and quality of available data, the nature of the ore body and of the assumptions made and judgments used in engineering and geological interpretation. These estimates may require adjustments or downward revisions based upon further exploration or development work or actual production experience. Fluctuations in gold or silver prices, results of drilling, metallurgical testing and production, the evaluation of mine plans after the date of any estimate, permitting requirements or unforeseen technical or operational difficulties, may require revision of mineral reserve and mineral resource estimates. Prolonged declines in the market price of gold (or applicable by-product metal prices) may render mineral reserves containing relatively lower grades of mineralization uneconomical to recover and could materially reduce the Company's mineral reserves. Should reductions in mineral resources or mineral reserves occur, the Company may be required to take a material write-down of its investment in mining properties, reduce the carrying value of one or more of its assets or delay or discontinue production or the development of new projects, resulting in increased net losses and reduced cash flow. Mineral resources and mineral reserves should not be interpreted as assurances of mine life or of the profitability of current or future operations. There is a degree of uncertainty attributable to the calculation and estimation of mineral resources and mineral reserves and corresponding grades being mined and, as a result, the volume and grade of mineral reserves mined and processed, and recovery rates may not be the same as currently anticipated. Any material reductions in estimates of mineral reserves and mineral resources, or of the Company's ability to extract these mineral reserves, could have a material adverse effect on the Company's results of operations and financial condition. Mineral resources are not mineral reserves and have a greater degree of uncertainty as to their existence and feasibility. There is no assurance that mineral resources will be upgraded to proven or probable mineral reserves.
Competition
There is significant competition in the precious metals mining industry for mineral rich properties that can be developed and produced economically, the technical expertise to find, develop, and operate such properties, the labor to operate the properties and the capital for the purpose of funding such properties. Many competitors not only explore for and mine precious metals but conduct refining and marketing operations on a global basis. As a result of this competition, some of which is with large established mining companies with substantial capabilities and greater financial and technical resources than the Company, the Company may be unable to acquire desired properties, to recruit or retain qualified employees or to acquire the capital necessary to fund its operations and develop its projects. Existing or future competition in the mining industry could materially adversely affect the Company’s prospects for mineral exploration and success in the future. Increased competition can result in increased costs and lower prices for metal and minerals produced and reduced profitability. Consequently, the revenues of the Company, its operations and financial condition could be materially adversely affected.
From time to time several companies may participate in the acquisition, exploration and development of natural resource properties thereby allowing for their participation in larger programs, permitting involvement in a greater number of programs and reducing financial exposure in respect of any one program. It may also occur that a particular company will assign all or a portion of its interest in a particular program to another of these companies due to the financial position of the company making the assignment. In determining whether or not the Company will participate in a particular program and the interest therein to be acquired by it, the directors will primarily consider the degree of risk to which the Company may be exposed and its financial position at that time.
Conflicts of Interest
The directors and officers of the Company may serve as directors or officers of other public resource companies or have significant shareholdings in other public resource companies. Situations may arise in connection with potential acquisitions and investments where the other interests of these directors and officers may conflict with the interests of the Company. In the event that such a conflict of interest arises at a meeting of the directors of the Company, a director is required by the Business Corporations Act (British Columbia) to disclose the conflict of interest and to abstain from voting on the matter.
Failure to further develop the Ruby Hill Mine may result in a material adverse effect on the Company's business, financial condition, results of operations, cash flows and prospects.
The ability of the Company to sustain or increase the present level of gold and silver production is dependent on the success of its projects. Following the completion of the Asset Exchange and the Ruby Hill Acquisition, the only project currently in production is the Ruby Hill Mine. Risks and unknowns inherent in all projects include, but are not limited to: the accuracy of mineral reserve and mineral resource estimates; metallurgical recoveries; geotechnical and other technical assumptions; capital and operating costs of ongoing production of the project; the future price of gold and silver; environmental compliance regulations and restraints; political climate and/or governmental regulation and control; the accuracy of engineering; the ability to manage large-scale construction and scoping of major projects, including delays, aggressive schedules and unplanned events and conditions. The significant capital expenditures and long time period required to further develop this project are considerable and changes in costs and market conditions or unplanned events or construction schedules can affect project economics. The Company's ability to maintain licenses to operate the Ruby Hill Mine is also important to the success of this project. Actual costs and economic returns may differ materially from estimates prepared by the Company, or the Company could fail or be delayed in obtaining all approvals necessary for execution of the project, in which case, the project may not proceed either on its original timing or at all. In addition, the Ruby Hill Mine may not demonstrate attractive economic feasibility at low gold or silver prices.
The capital costs for the Ruby Hill Mine may outweigh the Company's capital, financial and staffing capacity and may adversely affect the development of the Ruby Hill Mine. The inability to further develop the Ruby Hill Mine could have a material adverse effect on the Company's business, financial condition, results of operations, cash flows or prospects.
Projects also require the successful completion of feasibility studies, the resolution of various fiscal, tax and royalty matters, the issuance of, and compliance with, necessary governmental permits and the acquisition of satisfactory surface or other land rights. It may also be necessary for the Company to, among other things, find or generate suitable sources of water and power for the project, ensure that appropriate community infrastructure is developed by third parties to support the project and to secure appropriate financing to fund these expenditures. It is also not unusual in the mining industry for mining operations to experience unexpected problems during the start-up phase, resulting in delays and requiring the investment of more capital than anticipated.
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If the Company is not able to obtain any additional financing required to advance exploration and development at the Ruby Hill Mine, the Lone Tree Project (including the refurbishment and retrofit of the Lone Tree facilities), the McCoy-Cove Project, the Granite Creek Project and the Buffalo Mountain Project, it may be required to reduce the scope of its planned business objectives which may have a material adverse effect on its future prospects.
The Company will have various capital requirements and exploration and development expenditures as it proceeds to expand exploration and development activities at its mineral properties (including the refurbishment and retrofit of the Lone Tree facilities), develop any such properties or take advantage of opportunities for acquisitions, joint ventures or other business opportunities that may be presented to it. Funds from mining operations at the Ruby Hill Mine are not expected to be sufficient to fund such capital requirements. The continued exploration and future development of the Company's exploration and development-stage properties will therefore depend on the Company's ability to obtain the required financing. In particular, any potential development of its projects will require substantial capital commitments, which the Company cannot currently quantify and may not currently have in place. The Company can provide no assurance that it will be able to obtain financing on favorable terms or at all.
In addition, the Company may incur substantial costs in pursuing future capital requirements, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. The ability to obtain needed financing may be impaired by such factors as the capital markets (both generally and in the gold industry in particular), the price of gold on the commodities markets (which will impact the amount of asset-based financing available) and/or the loss of key management personnel. If the Company is unable to obtain additional financing as needed, it may not be able to move forward with its planned exploration and development activities for at the Ruby Hill Mine, the Lone Tree project (including the refurbishment and retrofit of the Lone Tree facilities), the McCoy-Cove Project, the Granite Creek Project and the Buffalo Mountain Project. Any of the foregoing could have a material adverse effect on the Company's business, financial condition, results of operations, cash flows or prospects.
There may be undisclosed risks and liabilities relating to the Ruby Hill Acquisition.
While the Company conducted substantial due diligence of the Ruby Hill Mine and Ruby Hill Mining LLC in connection with the Company's evaluation of the Ruby Hill Acquisition, there are risks inherent in any acquisition. Specifically, there could be unknown or undisclosed risks or liabilities relating to the Ruby Hill Mine for which the Company is not indemnified pursuant to the provisions of the definitive agreement relating to the Ruby Hill Acquisition. Any such unknown or undisclosed risks or liabilities could have a material adverse effect on its business, results or operations and financial position. The Company could encounter additional transaction and integration related costs or other factors, such as the failure to realize all of the benefits anticipated in the Ruby Hill Acquisition. All of these factors could cause dilution to the Company's earnings per share or decrease or delay the anticipated accretive effect of the Ruby Hill Acquisition and cause a decrease in the market price of the Common Shares.
The anticipated benefits of the Ruby Hill Acquisition may not be realized.
There can be no assurance that management of the Company will be able to fully realize the expected benefits of the Ruby Hill Acquisition. There is a risk that some or all of the expected benefits will fail to materialize, or may not occur within the time periods anticipated by management of the Company. The realization of such benefits may be affected by a number of factors, many of which are beyond the control of the Company.
There may be undisclosed risks and liabilities relating to the Asset Exchange.
While the Company conducted substantial due diligence of the Lone Tree and Buffalo Mountain properties in connection with the Company's evaluation of the Asset Exchange, there are risks inherent in any acquisition. Specifically, there could be unknown or undisclosed risks or liabilities relating to the he Lone Tree or Buffalo Mountain properties for which the Company is not indemnified pursuant to the provisions of the definitive agreement relating to the Asset Exchange. Any such unknown or undisclosed risks or liabilities could have a material adverse effect on its business, results or operations and financial position. The Company could encounter additional transaction and integration related costs or other factors, such as the failure to realize all of the benefits anticipated in the Asset Exchange. All of these factors could cause dilution to the Company's earnings per share or decrease or delay the anticipated accretive effect of the Asset Exchange and cause a decrease in the market price of the Common Shares.
The anticipated benefits of the Asset Exchange may not be realized.
There can be no assurance that management of the Company will be able to fully realize the expected benefits of the Asset Exchange. There is a risk that some or all of the expected benefits will fail to materialize, or may not occur within the time periods anticipated by management of the Company. The realization of such benefits may be affected by a number of factors, many of which are beyond the control of the Company.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
In compliance with the Canadian Securities Administrators’ Regulation, we have filed certificates signed by the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) that, among other things, report on the design of disclosure controls and procedures and the design of internal controls over financial reporting.
Disclosure Controls and Procedures
The CEO and the CFO have designed disclosure controls and procedures or have caused them to be designed under their supervision, in order to provide reasonable assurance that (i) material information relating to the Company has been made known to them; and (ii) information required to be disclosed in the Company’s filings is recorded, processed, summarized and reported within the time periods specified in securities legislation. There were no changes made to i-80 Gold’s disclosure controls and procedures in the second quarter 2022.
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Internal Control over Financial Reporting
The CEO and the CFO have also designed internal controls over financial reporting (“ICFR”) or have caused them to be designed under their supervision, in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (COSO 2013). Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable, not absolute, assurance with respect to financial statement preparation and presentation. There have been no significant changes in our internal controls during the six months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, i-80 Gold’s internal control over financial reporting.
Limitations of Controls and Procedures
Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that any design will not succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
TECHNICAL INFORMATION
Scientific and technical information contained in this MD&A has been reviewed and approved by Tim George, PE, who is a Qualified Person, as the term is defined in NI 43-101. For more detailed information regarding the Company’s material mineral properties and technical information related thereto, including a complete list of current technical reports applicable to such properties, please refer to the Company’s Annual Information Form dated March 30, 2022, filed at www.sedar.com.
CAUTIONARY STATEMENT ON FORWARD LOOKING STATEMENTS
Certain information set forth in this MD&A, including management's assessment of the Company's future plans and operations, contains forward looking statements. By their nature, forward looking statements are subject to numerous risks and uncertainties, some of which are beyond the Company’s control, including the potential impact of the global COVID-19 pandemic, general economic and industry conditions, volatility of commodity prices, title risks and uncertainties, currency fluctuations, construction and operational risks, licensing and permit requirements, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, imprecision of resource, reserve or production estimates, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be inaccurate and, as such, reliance should not be placed on forward looking statements. the Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, if any, that the Company will derive there from. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise except as required by applicable law.
Additional information relating to i-80 can be found on i-80’s web-site at www.i80gold.com, SEDAR at www.sedar.com, and on EDGAR at www.sec.gov/edgar.
33
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Ewan Downie, Chief Executive Officer of i-80 Gold Corp., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of i-80 Gold Corp. (the “issuer”) for the interim period ended June 30, 2022.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is the Internal Control-Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 ICFR – material weakness relating to design: N/A
5.3 Limitation on scope of design: N/A
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on April 1, 2022 and ended on June 30, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: August 9, 2022
“Ewan Downie”
___________________
Ewan Downie
Chief Executive Officer
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Ryan Snow, the Chief Financial Officer of i-80 Gold Corp., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of i-80 Gold Corp. (the “issuer”) for the interim period ended June 30, 2022.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is the Internal Control-Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 ICFR – material weakness relating to design: N/A
5.3 Limitation on scope of design: N/A
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on April 1, 2022 and ended on June 30, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: August 9, 2022
“Ryan Snow”
___________________
Ryan Snow
Chief Financial Officer
i-80 Gold Reports Q2 2022 Operating Results
Reno, Nevada, August 9, 2022 – i-80 GOLD CORP. (TSX:IAU) (NYSE:IAUX) (“i-80”, or the “Company”) is pleased to report its operating and financial results for the three and six months ended June 30, 2022. i-80’s Consolidated Financial Statements (“financial statements”), as well as i-80’s Management's Discussion and Analysis of Operations and Financial Condition (“MD&A”) for the three and six months ended June 30, 2022, are available on the Company’s website at www.i80gold.com, on SEDAR at www.sedar.com, and on EDGAR at www.sec.gov.
Unless otherwise stated, all amounts referred to herein are in U.S. dollars.
2022 Second Quarter Highlights:
•Commenced trading on the New York Stock Exchange on May 19, 2022 under the symbol IAUX
•Q2 2022 gold sales of $3,507 ounces at an all-in sustaining cost of $1,356 per ounce sold1
•Funds received for the previously-announced gold prepay and silver purchase and sale agreements totaling $75 million
•June 30 cash balance of $101 million in addition to $31 million in restricted cash
•Drilling at Granite Creek continued with multiple high-grade intercepts in the Ogee and South Pacific zones (23,944 core feet and 8,157 reverse circulation (RC) feet drilled)
•Increased the size of the Granite Creek property package by approximately 1,280 acres (518Ha), extending exposure along the primary fault structure by approximately 1.6 km north towards the Turquoise Ridge Mine, and 1.6 km south of Granite Creek
•Continued step-out and infill drilling at Ruby Hill with multiple high-grade intercepts (21,595 core feet and 25,150 RC feet drilled)
•Engineering study of Lone Tree autoclave refurbishment continued on plan
•Entered into agreement to acquire key water rights for the development of the Cove Project
2022 Year to date Highlights:
•Gold sales of 4,996 ounces; all-in sustaining cost of $1,326 per ounce sold1
•Commenced development of exploration decline at McCoy-Cove (approximately 1,300 feet of advance now completed); drilling expected to commence in Q4
•Completed first gold sale in Company history
•Shipment of sulfide ore from Granite Creek for processing started in June
•A total of 145,887 feet (core and RC) drilled by the end of the second quarter
“The Company continues to aggressively pursue our peer-best production growth strategy.”, stated Ryan Snow, Chief Financial Officer of i-80. “Several key development milestones have been achieved in the first half of the year along with continued exploration success, demonstrating the potential to extend known mineralization. In addition, the gold prepay and silver purchase and sale agreements funded during the quarter and gold sales continued from the residual leaching at Ruby Hill and Lone Tree resulting in a cash balance of $101 million dollars.”
1 Specified financial measure which is not a standardized measure under IFRS and may not be comparable to similar specified financial measures used by other entities. Please see "Non-IFRS Financial Performance Measures" for the composition of such specified financial measure, an explanation of how such specified financial measure provides useful information to a reader and the purposes for which management of i-80 uses the specified financial measure, and where required, a reconciliation of the specified financial measure to the most directly comparable IFRS measure.
Three and six months ended June 30, 2022
| Three and six months ended June 30, 2022 | |||||||||||||||||||||||||||||
| (in thousands of U.S. dollars, unless otherwise noted) | Three months ended June 30, 2022 | Six months ended June 30, 2022 | |||||||||||||||||||||||||||
| Revenue | 6,383 | 9,247 | |||||||||||||||||||||||||||
| Cost of sales | (3,966) | (5,498) | |||||||||||||||||||||||||||
| Depletion, depreciation, and amortization | (655) | (823) | |||||||||||||||||||||||||||
| Mine operating income | 1,762 | 2,926 | |||||||||||||||||||||||||||
| Expenses | |||||||||||||||||||||||||||||
| Exploration, evaluation, and pre-development | 12,132 | 21,386 | |||||||||||||||||||||||||||
| General and administrative | 4,565 | 7,838 | |||||||||||||||||||||||||||
| Property maintenance | 464 | 789 | |||||||||||||||||||||||||||
| Share-based payments | 547 | 1,989 | |||||||||||||||||||||||||||
| Operating (loss) | (15,946) | (29,076) | |||||||||||||||||||||||||||
Production and sales from residual leaching at Ruby Hill and Lone Tree totaled 3,507 ounces for the quarter and 4,996 ounces year to date at cash costs per ounce sold of $1,122 and $1,093, respectively, and all-in sustaining cost per ounce sold of $1,356 and $1,326, respectively.
Exploration, evaluation, and pre-development costs were $12.1 million in Q2 and $21.4 million year to date (YTD). This spend reflects mainly the exploration and pre-development work at Granite Creek and Ruby Hill.
Lone Tree Processing Facilities
Lone Tree is expected to become the hub of i-80’s Nevada operations and the central processing facility for mineralization from the first four planned mining projects. Importantly, Lone Tree is host to infrastructure that, following successful refurbishment efforts, will position i-80 as one of only three companies in the United States capable of processing both oxide and refractory mineralization.
During the quarter, the Company advanced a detailed engineering study for the restart of the autoclave. The study is progressing on plan and is expected to be completed in the second half of 2022. The Company also continued permitting for the development of the Buffalo Mountain open pit where gold mineralization is expected to be processed at the Lone Tree leach pad facility.
Residual leaching activities at Lone Tree produced 942 ounces gold during Q2 and 1,785 YTD at a cash cost per ounce sold of $9261 and $8791, respectively, and all-in sustaining cost per ounce sold of $1,5601 and $1,3431, respectively.
Granite Creek
In the second quarter, 2022, drilling continued for resource expansion on the Ogee and South Pacific Zones with multiple high-grade intercepts. Completed 23,944 feet of core drilling and 8,157 feet of RC drilling. The amount of drilling completed as of June 30, 2022 totaling 71,952 feet was in line with the Company’s drilling plan. Drilling targets were expansion and delineation of the newly discovered South Pacific Zone as well as delineation drilling that targeted the Otto, Adam Peak, and Ogee fault zones with underground drilling.
McCoy-Cove
Construction of the exploration decline continued on plan and has been advanced approximately 1,300 feet. Additional work on metallurgical and hydrology studies, engineering of de-watering and mining options, and reclamation activities associated with the inactive tailings storage facility is also being advanced.
1 Specified financial measure which is not a standardized measure under IFRS and may not be comparable to similar specified financial measures used by other entities. Please see "Non-IFRS Financial Performance Measures" for the composition of such specified financial measure, an explanation of how such specified financial measure provides useful information to a reader and the purposes for which management of i-80 uses the specified financial measure, and where required, a reconciliation of the specified financial measure to the most directly comparable IFRS measure.
Ruby Hill
A major, multi-drill, exploration campaign is underway that will see a minimum of 20,000 metres drilled in 2022 followed by a resource update. Multiple gold and polymetallic deposits and exploration targets exist on the property with mineralization open along strike and at depth.
The Company has commenced permitting for the construction of a decline to access the high-grade Ruby Deeps deposit and the Blackjack Zone with the intent of trucking refractory mineralization for processing at Lone Tree.
In the second quarter, infill and step-out drilling of the Ruby Deeps zone continued with multiple high-grade intercepts and multiple brownfield exploration targets were tested. 21,595 feet of core drilling and 25,150 feet of RC drilling was completed during the quarter, with a combined total of 73,935 feet completed in the first half, in line with the Company’s drilling plan. Owing to the substantial success of the 2022 exploration campaign at Ruby Hill, the program has been expanded.
Residual leaching activities at Ruby Hill produced 2,565 ounces gold during Q2 and 3,211 YTD at a cash cost per ounce sold of $1,1941 and $1,2111, respectively, and all-in sustaining cost per ounce sold of $1,2821 and $1,3161, respectively.
| Conference Call Participant Details | ||||||||
| Webcast URL: | https://app.webinar.net/gLQAq5YqOR5 | |||||||
| Phone Number Information: | ||||||||
| Confirmation #: | 3332379 | |||||||
| Location: Canada, Toronto United States, Camden North American Toll Free | +1 (687) 484-0475 +1 (856) 344-9221 +1 (888) 394-8218 | |||||||
Qualified Person
The scientific and technical information contained in this press release was reviewed by Tim George, PE, Mining Operations Manager, and a Qualified Person within the meaning of National Instrument 43-101.
About i-80 Gold Corp.
i-80 Gold Corp. is a well-financed, Nevada-focused, mining company with a goal of achieving mid-tier gold producer status through the development of multiple deposits within the Company’s advanced-stage property portfolio anticipated to be processed at the centrally located Lone Tree processing facility and autoclave.
For further information, please contact:
Ewan Downie – CEO
Ryan Snow - CFO
Matthew Gollat – EVP Business & Corporate Development
1.866.525.6450
info@i80gold.com
www.i80gold.com
1 Specified financial measure which is not a standardized measure under IFRS and may not be comparable to similar specified financial measures used by other entities. Please see "Non-IFRS Financial Performance Measures" for the composition of such specified financial measure, an explanation of how such specified financial measure provides useful information to a reader and the purposes for which management of i-80 uses the specified financial measure, and where required, a reconciliation of the specified financial measure to the most directly comparable IFRS measure.
| Forward-looking information | ||
Certain statements in this release constitute “forward-looking statements” or “forward-looking information” within the meaning of applicable securities laws, including but not limited to, actual production results and costs, results of operation outcomes and timing of updated technical studies at the Company's mineral projects, timing to advance mineral projects to production and advance permitting and feasibility work on the on its mineral projects and future production, development and exploration results. Such statements and information involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the company, its projects, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or information. Such statements can be identified by the use of words such as “may”, “would”, “could”, “will”, “intend”, “expect”, “believe”, “plan”, “anticipate”, “estimate”, “scheduled”, “forecast”, “predict” and other similar terminology, or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. These statements reflect the Company’s current expectations regarding future events, performance and results and speak only as of the date of this release.
Forward-looking statements and information involve significant risks and uncertainties, should not be read as guarantees of future performance or results and will not necessarily be accurate indicators of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements or information, including, but not limited to: material adverse changes, unexpected changes in laws, rules or regulations, or their enforcement by applicable authorities; the failure of parties to contracts with the company to perform as agreed; social or labour unrest; changes in commodity prices; and the failure of exploration programs or studies to deliver anticipated results or results that would justify and support continued exploration, studies, development or operations. For a more detailed discussion of such risks and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, refer to i-80's filings with Canadian securities regulators, including the most recent Annual Information Form, available on SEDAR at www.sedar.com.
NON-IFRS FINANCIAL PERFORMANCE MEASURES
The Company has included certain terms or performance measures commonly used in the mining industry that are not defined under IFRS in this document. These include: by-product cash cost per ounce sold, by-product all-in sustaining cost (“AISC”) per ounce sold, earnings before interest, tax, depreciation and amortization, capital expenditures (expansionary), capital expenditures (sustaining), adjusted net earnings and average realized price per ounce. Non-IFRS financial performance measures do not have any standardized meaning prescribed under IFRS, and therefore, they may not be comparable to similar measures employed by other companies. The data presented is intended to provide additional information and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS and should be read in conjunction with the Company's Financial Statements.
Definitions
Adjusted earnings and earnings per share excludes significant write-down adjustments.
All-in sustaining costs on a by-product basis per ounce include total production cash costs on a by-product basis plus incorporates costs related to sustaining production.
Average realized gold price represents the sales price of gold per ounce before deducting mining royalties, treatment and refining charges as well as gain or losses derived from the offtake agreement with Orion.
By-product credits include revenues from the sale of by-products from operating mines.
Capital expenditure (expansionary) is a capital expenditure intended to expand the business or operations by increasing production capacity beyond current levels of performance and includes capitalized exploration.
1 Specified financial measure which is not a standardized measure under IFRS and may not be comparable to similar specified financial measures used by other entities. Please see "Non-IFRS Financial Performance Measures" for the composition of such specified financial measure, an explanation of how such specified financial measure provides useful information to a reader and the purposes for which management of i-80 uses the specified financial measure, and where required, a reconciliation of the specified financial measure to the most directly comparable IFRS measure.
Capital expenditure (sustaining) is a capital expenditure necessary to maintain existing levels of production. The sustaining capital expenditures maintain the existing mine fleet, mill and other facilities so that they function at levels consistent from year to year.
Cost of sales per ounce sold is calculated by dividing the attributable cost of sales by the attributable ounces sold.
Exploration and evaluation (sustaining) expense is presented as mine site sustaining if it supports current mine operations.
Rehabilitation – accretion and amortization include depreciation on the assets related to the rehabilitation provision of gold operations and accretion on the rehabilitation provision of gold operations.
Average realized gold price per ounce of gold sold
Average realized gold price per ounce of gold sold is a non-IFRS measure and does not constitute a measure recognized by IFRS and does not have a standardized meaning defined by IFRS. It may not be comparable to information in other gold producers’ reports and filings.
| Three months ended June 30, | Six months ended June 30, | ||||||||||
| (in thousands of U.S. dollars, unless otherwise noted)(i) | 2022 | 2022 | |||||||||
| Nevada production | |||||||||||
| Revenue per financial statements | $ | 6,383 | 9,247 | ||||||||
| Silver revenue from mining operations | $ | (32) | (39) | ||||||||
| Gold revenue from mining operations | $ | 6,351 | 9,208 | ||||||||
| Ounces of gold sold | ounce | 3,507 | 4,996 | ||||||||
| Average realized gold price | $/ounce | 1,811 | 1,843 | ||||||||
| Lone Tree | |||||||||||
| Revenue per financial statements | $ | 1,827 | 3,459 | ||||||||
| Silver revenue from mining operations | $ | (10) | (17) | ||||||||
| Gold revenue from mining operations | $ | 1,817 | 3,442 | ||||||||
| Ounces of gold sold | ounce | 942 | 1,785 | ||||||||
| Average realized gold price | $/ounce | 1,931 | 1,928 | ||||||||
| Ruby Hill | |||||||||||
| Revenue per financial statements | $ | 4,555 | 5,788 | ||||||||
| Silver revenue from mining operations | $ | (22) | (22) | ||||||||
| Gold revenue from mining operations | $ | 4,533 | 5,766 | ||||||||
| Ounces of gold sold | ounce | 2,565 | 3,211 | ||||||||
| Average realized gold price | $/ounce | 1,767 | 1,795 | ||||||||
Cash Costs
Cash costs per ounce sold represents all direct and indirect operating costs related to the physical activities of producing gold, including on-site mining costs, processing, third-party smelting, refining and transport costs, on-site general and administrative costs, community site relations, royalties and royalty tax. State of Nevada net proceeds taxes are excluded. Cash costs incorporate the Company’s share of production costs but exclude, among other items, the impact of depletion, depreciation and amortization (“DD&A”), reclamation costs, financing costs, capital development and exploration and income taxes. In order to arrive at consolidated cash costs, the Company includes its attributable share of total cash costs from operations where less than 100% interest in the economic share of production is held.
1 Specified financial measure which is not a standardized measure under IFRS and may not be comparable to similar specified financial measures used by other entities. Please see "Non-IFRS Financial Performance Measures" for the composition of such specified financial measure, an explanation of how such specified financial measure provides useful information to a reader and the purposes for which management of i-80 uses the specified financial measure, and where required, a reconciliation of the specified financial measure to the most directly comparable IFRS measure.
Cash cost: by-product - When deriving the cash costs associated with an ounce of gold, the Company includes by-product credits, as the Company considers that the cost to produce the gold is reduced as a result of the by-product sales incidental to the gold production process. Accordingly, total production costs are reduced for revenues earned from silver sales.
Cash costs per ounce is a common financial performance measure in the mining industry, but the term does not have any standardized meaning. In determining its cash cost and cash cost per ounce, the Company has considered the guidelines provided by the World Gold Council, a non-regulatory, non-profit market development organization for the gold industry. A Company’s adoption of the standard is voluntary and other companies may quantify these measures differently as a result of different underlying principles and policies applied.
All-in Sustaining Costs (“AISC”)
AISC include total production cash costs incurred at the Company’s mining operations, which forms the basis of the Company’s by-product cash costs. Additionally, the Company includes sustaining capital expenditures which are expended to maintain existing levels of production (to which costs do not contribute to a material increase in annual gold ounce production over the next 12 months), rehabilitation accretion and amortization, general and administrative (excluding stock compensation) and exploration and evaluation expenses. The measure seeks to reflect the full cost of production from current operations, therefore expansionary capital is excluded. Certain other cash expenditures, including tax payments (including the State of Nevada net proceeds tax), dividends and financing costs are also excluded. The Company reports AISC on a per ounce sold basis.
This financial performance measure was adopted as a result of an initiative undertaken within the gold mining industry; however, this performance measure has no standardized meaning and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. In determining AISC, the Company has considered the guidelines provided by the World Gold Council, a non-regulatory, non-profit market development organization for the gold industry. A Company's adoption of the standard is voluntary and other companies may quantify these measures differently as a result of different underlying principles and policies applied.
The following table provides a reconciliation on a by-product basis for gold cash cost and AISC for the three and six months ended June 30, 2022:
| For the three and six months ended June 30, 2022 | ||||||||||||||
| (in thousands of U.S. dollars, except per ounce information in dollars) (i) | Nevada Production | |||||||||||||
| Three months ended June 30, 2022 | Six months ended June 30, 2022 | |||||||||||||
| By-Product | 000$ | Per gold ounce sold | 000$ | Per gold ounce sold | ||||||||||
| Cost of sales excluding depletion, depreciation and amortization | 3,966 | 1,131 | 5,498 | 1,101 | ||||||||||
| Depletion, depreciation and amortization | 655 | 187 | 823 | 165 | ||||||||||
| Total cost of sales | 4,621 | 1,318 | 6,321 | 1,265 | ||||||||||
| Depletion, depreciation and amortization | (655) | (187) | (823) | (165) | ||||||||||
| By-product credits | (32) | (9) | (39) | (8) | ||||||||||
| Cash cost : by-product | 3,934 | 1,122 | 5,459 | 1,093 | ||||||||||
| Rehabilitation - accretion and amortization | 822 | 234 | 1,164 | 233 | ||||||||||
| All-in sustaining cost : by-product | 4,756 | 1,356 | 6,623 | 1,326 | ||||||||||
| Total gold ounces produced | 3,507 | 4,996 | ||||||||||||
| Total ounces sold | 3,507 | 4,996 | ||||||||||||
(1)May not add due to rounding.
1 Specified financial measure which is not a standardized measure under IFRS and may not be comparable to similar specified financial measures used by other entities. Please see "Non-IFRS Financial Performance Measures" for the composition of such specified financial measure, an explanation of how such specified financial measure provides useful information to a reader and the purposes for which management of i-80 uses the specified financial measure, and where required, a reconciliation of the specified financial measure to the most directly comparable IFRS measure.
| For the three and six months ended June 30, 2022 | ||||||||||||||
| (in thousands of U.S. dollars, except per ounce information in dollars) (i) | Lone Tree | |||||||||||||
| Three months ended June 30, 2022 | Six months ended June 30, 2022 | |||||||||||||
| By-Product | 000$ | Per gold ounce sold | 000$ | Per gold ounce sold | ||||||||||
| Cost of sales excluding depletion, depreciation and amortization | 882 | 936 | 1,586 | 889 | ||||||||||
| Depletion, depreciation and amortization | 78 | 83 | 122 | 68 | ||||||||||
| Total cost of sales | 960 | 1,019 | 1,708 | 957 | ||||||||||
| Depletion, depreciation and amortization | (78) | (83) | (122) | (68) | ||||||||||
| By-product credits | (10) | (10) | (17) | (10) | ||||||||||
| Cash cost : by-product | 872 | 926 | 1,569 | 879 | ||||||||||
| Rehabilitation - accretion and amortization | 597 | 634 | 827 | 463 | ||||||||||
| All-in sustaining cost : by-product | 1,468 | 1,560 | 2,396 | 1,343 | ||||||||||
| Total gold ounces produced | 942 | 1,785 | ||||||||||||
| Total ounces sold | 942 | 1,785 | ||||||||||||
(1)May not add due to rounding.
| For the three and six months ended June 30, 2022 | ||||||||||||||
| (in thousands of U.S. dollars, except per ounce information in dollars) (i) | Ruby Hill | |||||||||||||
| Three months ended June 30, 2022 | Six months ended June 30, 2022 | |||||||||||||
| By-Product | 000$ | Per gold ounce sold | 000$ | Per gold ounce sold | ||||||||||
| Cost of sales excluding depletion, depreciation and amortization | 3,084 | 1,202 | 3,912 | 1,218 | ||||||||||
| Depletion, depreciation and amortization | 577 | 225 | 701 | 218 | ||||||||||
| Total cost of sales | 3,661 | 1,427 | 4,613 | 1,436 | ||||||||||
| Depletion, depreciation and amortization | (577) | (225) | (701) | (218) | ||||||||||
| By-product credits | (22) | (9) | (22) | (7) | ||||||||||
| Cash cost : by-product | 3,062 | 1,194 | 3,889 | 1,211 | ||||||||||
| Rehabilitation - accretion and amortization | 226 | 88 | 337 | 105 | ||||||||||
| All-in sustaining cost : by-product | 3,287 | 1,282 | 4,226 | 1,316 | ||||||||||
| Total gold ounces produced | 2,565 | 3,211 | ||||||||||||
| Total ounces sold | 2,565 | 3,211 | ||||||||||||
(1)May not add due to rounding.
Adjusted Earnings
Adjusted earnings and basic adjusted earnings per share are non-IFRS measures that the Company considers to better reflect normalized earnings because it eliminates non-recurring items. Certain items that become applicable in a period may be adjusted for, with the Company retroactively presenting comparable periods with an adjustment for such items and conversely, items no longer applicable may be removed from the calculation. Neither adjusted earnings nor basic adjusted earnings per share have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies.
1 Specified financial measure which is not a standardized measure under IFRS and may not be comparable to similar specified financial measures used by other entities. Please see "Non-IFRS Financial Performance Measures" for the composition of such specified financial measure, an explanation of how such specified financial measure provides useful information to a reader and the purposes for which management of i-80 uses the specified financial measure, and where required, a reconciliation of the specified financial measure to the most directly comparable IFRS measure.
The following table shows a reconciliation of adjusted earnings for the three and six months ended June 30, 2022 and 2021, to the net earnings for each period.
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (in thousands of U.S. dollars, unless otherwise noted) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Net income / (loss) for the period - Continuing operations | $ | 19,276 | $ | (10,005) | $ | (3,988) | $ | (13,169) | |||||||||||||||
| Adjust for: | |||||||||||||||||||||||
| Restructuring costs | — | (4,444) | — | (4,444) | |||||||||||||||||||
| Gain on warrants | 12,004 | 535 | 8,900 | 535 | |||||||||||||||||||
| Gain on convertible loans | 16,307 | — | 10,214 | — | |||||||||||||||||||
| Loss on deferred consideration | (792) | — | (1,636) | — | |||||||||||||||||||
| Gain on fair value measurement of Gold Prepayment Agreement | 4,084 | — | 4,084 | — | |||||||||||||||||||
| Gain on fair value measurement of Silver Purchase Agreement | 9,125 | — | 9,125 | — | |||||||||||||||||||
| Total Adjustments | $ | 40,728 | $ | (3,909) | $ | 30,687 | $ | (3,909) | |||||||||||||||
| Adjusted loss for the period | $ | (21,452) | $ | (6,096) | $ | (34,675) | $ | (9,260) | |||||||||||||||
| Weighted average shares for the period | 240,312,422 | 181,500,325 | 239,800,687 | 159,734,707 | |||||||||||||||||||
| Adjusted loss per share for the period | $ | (0.09) | $ | (0.03) | $ | (0.14) | $ | (0.06) | |||||||||||||||