FINANCIAL REVIEW
Fiscal Year Ended December 31, 2016
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2016
(Expressed in Canadian Dollars)
Tel: 604 688 5421
Fax: 604 688 5132
www.bdo.ca
BDO Canada LLP
600 Cathedral Place
925 West Georgia Street
Vancouver BC V6C 3L2 Canada
Independent Auditor’s Report
To the shareholders of Radius Gold Inc.
We have audited the accompanying consolidated financial statements of Radius Gold Inc. and its
subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2016
and 2015, and the consolidated statements of income (loss) and other comprehensive income (loss),
changes in equity and cash flows for each of the years then ended, and a summary of significant
accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
entity's preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to
provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of Radius Gold Inc. and its subsidiaries as at December 31, 2016 and 2015, and its
financial performance and cash flows for each of the years then ended, in accordance with
International Financial Reporting Standards.
(signed) “BDO CANADA LLP”
Chartered Professional Accountants
Vancouver, Canada
May 1, 2017
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the
international BDO network of independent member firms.
RADIUS GOLD INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Expressed in Canadian Dollars)
As at:
ASSETS
Current assets
Cash and cash equivalents (Note 5)
Available-for-sale investments (Note 6)
Receivables (Note 7)
Due from related parties (Note 15)
Prepaid expenses and deposits (Note 15)
Total current assets
Non-current assets
Long-term deposits (Note 15)
Property and equipment (Note 8)
Mineral and royalty interests (Note 10)
Investment in associate (Note 9)
Total non-current assets
TOTAL ASSETS
December 31,
2016
December 31,
2015
$ 5,130,064
2,793,962
194,586
16,800
188,833
$ 151,861
4,252,417
784,764
8,224
59,653
8,324,245
5,256,919
123,098
53,354
1,348,165
1
1,524,618
123,597
78,166
1,259,506
369,829
1,831,098
$ 9,848,863
$ 7,088,017
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities (Note 15)
$ 107,884
$ 106,407
Shareholders' equity
Share capital (Note 12)
Other equity reserve
Deficit
Accumulated other comprehensive income
Total shareholders' equity
56,592,613
6,849,808
(54,520,103)
818,661
56,592,613
6,636,658
(56,382,369)
134,708
9,740,979
6,981,610
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 9,848,863
$ 7,088,017
APPROVED ON BEHALF OF THE BOARD OF DIRECTORS AND AUTHORIZED FOR ISSUE ON MAY 1, 2017 BY:
“Simon Ridgway” , Director
Simon Ridgway
“William Katzin” , Director
William Katzin
The accompanying notes form an integral part of these consolidated financial statements.
1
RADIUS GOLD INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND OTHER COMPREHENSIVE INCOME (LOSS)
For the years ended December 31, 2016 and 2015
(Expressed in Canadian Dollars)
Royalty Revenue (Note 10)
$ 431,643
$ 1,098,912
2016
2015
Exploration expenditures (Notes 15 and 19)
Write-down of exploration and evaluation assets (Note 10)
General and administrative expenses
Amortization
Legal and audit fees
Management fees (Note 15)
Office and miscellaneous (Note 15)
Salaries and benefits (Note 15)
Share-based compensation (Note 15)
Shareholder communications (Note 15)
Transfer agent and regulatory fees (Note 15)
Travel and accommodation (Note 15)
Loss from operations
Share of post-tax losses of associates (Note 9)
Gain on dilution in associated company (Note 9)
Gain on reclassification as available-for-sale investment (Notes 6 and 9)
Gain on loan conversion (Note 10)
Foreign currency exchange gain (loss)
Gain on disposal of property and equipment
Gain (loss) on sale of available-for-sale investments (Note 6)
Impairment on available-for-sale investments (Note 6)
Gain from mineral property option agreements (Note 10)
Investment income
Impairment of receivables (Note 7)
Recovery of receivable (Note 10)
544,586
-
544,586
589,162
587,211
1,176,373
24,812
107,584
42,000
141,286
128,020
213,150
18,745
14,548
11,287
37,393
205,117
102,000
182,218
140,041
-
28,897
31,099
19,056
701,432
745,821
(814,375)
(823,282)
(136,000)
170,045
691,727
-
(37,286)
-
2,688,336
(205,321)
276,252
13,068
(784,180)
-
(243,000)
85,743
-
180,000
95,660
14,720
(29,787)
(1,642,154)
60,661
17,293
(14,358)
423,055
Net income (loss) for the year
$ 1,862,266
$ (1,875,449)
Other comprehensive income (loss)
Items that may be reclassified subsequently to profit or loss:
Fair value gains (losses) on available-for-sale investments
(Note 6)
Total comprehensive income (loss)
683,953
(66,400)
$ 2,546,219
$ (1,941,849)
Basic and diluted income (loss) per share
$0.02
$(0.02)
Weighted average number of common shares outstanding
86,675,617
86,675,617
The accompanying notes form an integral part of these consolidated financial statements.
2
RADIUS GOLD INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2016 and 2015
(Expressed in Canadian Dollars)
Number of
common
shares
Share
capital
Other
equity
reserve
Accumulated
other
comprehensive
income (loss)
Accumulated
deficit
Total
Balance, December 31, 2014
Loss for the year
Available-for-sale investments
86,675,617
-
-
$ 56,592,613
-
-
$ 6,636,658
-
-
$ 201,108 $ (54,506,920)
(1,875,449)
-
-
(66,400)
$ 8,923,459
(1,875,449)
(66,400)
Balance, December 31, 2015
Income for the year
Available-for-sale investments
Share-based compensation
86,675,617
-
-
-
56,592,613
-
-
-
6,636,658
-
-
213,150
134,708
-
683,953
-
(56,382,369)
1,862,266
-
-
6,981,610
1,862,266
683,953
213,150
Balance, December 31, 2016
86,675,617
$ 56,592,613
$ 6,849,808
$ 818,661 $ (54,520,103)
$ 9,740,979
The accompanying notes form an integral part of these consolidated financial statements.
3
RADIUS GOLD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2016 and 2015
(Expressed in Canadian Dollars)
Cash provided by (used in):
OPERATING ACTIVITIES
Net income (loss) for the year
Items not involving cash:
Amortization
Gain from mineral property option agreements
Gain from disposal of property and equipment
Impairment of receivable
Write off of exploration and evaluation costs
Gain on reclassification as available-for-sale investment
Impairment of available-for-sale investments
(Gain) loss on sale of available-for-sale investments
Gain on loan conversion
Share of post-tax losses of associates
Gain on dilution in associated company
Share-based compensation
Changes in non-cash working capital items:
Receivables
Prepaid expenses and deposits
Long-term deposits
Due from related parties
Accounts payable and accrued liabilities
Cash used in operating activities
INVESTING ACTIVITIES
Proceeds from loan repayment and interest payment
Purchase of marketable securities and investments
Investment in associates
Expenditures on exploration and evaluation asset acquisition costs
Proceeds from mineral property option agreements
Proceeds from sale of available-for-sale investments
Proceeds from disposition of property and equipment
Purchase of property and equipment
Cash provided by (used for) investing activities
2016
2015
$ 1,862,266
$ (1,875,449)
24,812
(276,252)
-
784,180
-
(691,727)
205,321
(2,688,336)
-
136,000
(170,045)
213,150
(600,631)
(194,002)
(129,180)
499
(8,576)
1,479
(930,411)
-
(593,314)
-
(112,407)
75,000
6,539,335
-
-
5,908,614
37,393
(60,661)
(14,720)
14,358
587,211
-
1,642,154
29,787
(180,000)
243,000
(85,743)
-
337,330
(742,146)
12,624
19,867
(8,224)
(15,184)
(395,733)
521,742
(366,200)
(54,085)
(1,283,326)
60,661
416,998
14,720
(1,288)
(690,778)
(Decrease)/increase in cash and cash equivalents
4,978,203
(1,086,511)
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
151,861
1,238,372
$ 5,130,064
$ 151,861
The accompanying notes form an integral part of these consolidated financial statements.
4
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
1. CORPORATE INFORMATION
Radius Gold Inc. (the “Company”) was formed by the amalgamation of Radius Explorations Ltd. and PilaGold Inc.
effective on July 1, 2004.
The Company is domiciled in Vancouver, Canada and is engaged in acquisition and exploration of mineral
properties or investment in companies which hold mineral property interests. The address of the Company’s head
office is 650 – 200 Burrard Street, Vancouver, BC, Canada V6C 3L6.
2. BASIS OF PREPARATION
Statement of Compliance
These consolidated financial statements of the Company have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Basis of Measurement
These consolidated financial statements have been prepared on the historical cost basis, as modified by any
revaluation of available-for-sale financial assets.
The consolidated financial statements are presented in Canadian dollars (“CDN”), which is also the Company’s
functional currency.
The preparation of financial statements in compliance with IFRS requires management to make certain critical
accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting
policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates
are significant to the financial statements are disclosed in Note 4.
Nature of Operations
These financial statements have been presented on the basis that the Company will continue as a going concern,
which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
5
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all years presented in these consolidated
financial statements.
a) Basis of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. A
wholly owned subsidiary is an entity in which the Company has control, directly or indirectly, where control is
defined as the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its
activities. All material intercompany transactions and balances have been eliminated on consolidation. Subsidiaries
are deconsolidated from the date control ceases.
Details of the Company’s principal subsidiaries at December 31, 2016 are as follows:
Name
Minerales Sierra Pacifico S.A.
Radius Gold (U.S.) Inc.
Geometales Del Norte-Geonorte
Radius (Cayman) Inc
b) Revenue Recognition
Place of
Incorporation
Guatemala
Nevada, USA
Mexico
Cayman Islands
Interest
%
100%
100%
100%
100%
Principal Activity
Exploration company
Exploration company
Exploration company
Investment Holding company
Royalty revenue is measured at fair value of the consideration received or receivable when management can
reliably estimate the amount, pursuant to the terms of the royalty agreement. For royalty interests, revenue
recognition generally occurs in the month of production from the royalty property.
Royalty revenue may be subject to adjustment upon final settlement of estimated metal prices, weights, and assays.
Adjustments recorded upon final settlement are offset against revenue when incurred. Variations between the
estimated price recorded upon production and the actual final price set upon final settlement are caused by changes
in market commodity prices, and result in an embedded derivative in the receivable. The embedded derivative is
recorded at fair value each period until final settlement occurs, with changes in fair value classified as provisional
price adjustments and included as a component of royalty revenue. As of December 31, 2016, there was no
embedded derivative (2015: the value of the embedded derivative was nominal and not recorded).
c) Investment in Associates
Where the Company has the power to participate in (but not control) the financial and operating policy decisions of
another entity, it is classified as an associate. Associates are initially recognized in the consolidated statement of
financial position at cost. The Company's share of post-acquisition profits and losses is recognized in the
consolidated statement of profit or loss and other comprehensive income, except that losses in excess of the
Company’s investment in the associate are not recognized unless there is an obligation to fund those losses.
Profits and losses arising on transactions between the Company and its associates are recognized only to the extent
of unrelated investors' interests in the associate. The investor's share in the associate's profits and losses resulting
from these transactions is eliminated against the carrying value of the associate.
Any premium paid for an associate above the fair value of the Company's share of the identifiable assets, liabilities
and contingent liabilities acquired is capitalized and included in the carrying amount of the associate. Adjustments
to the carrying amount may also be necessary for changes in the Company's proportionate interest in the associate
arising from changes in the associate's other comprehensive income. Such adjustments to the carrying amount are
charged to operations as a gain or loss on dilution in the associate. Where there is objective evidence that the
investment in an associate has been impaired the carrying amount of the investment is tested for impairment in the
same way as other non-financial assets.
6
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (cont’d)
d) Foreign Currency Translation
The functional and presentation currency of the Company and its principal subsidiaries is the Canadian dollar.
Transactions denominated in a currency other than an entity’s functional currency are translated as follows:
unsettled monetary items denominated in a foreign currency are translated into Canadian dollars at exchange rates
prevailing at the date of the statement of financial position and non-monetary items are translated at exchange rates
prevailing when the assets were acquired or obligations incurred. Foreign currency denominated revenue and
expense items are translated at exchange rates prevailing at the transaction date. Gains or losses arising from the
translations are included in operations.
e) Cash and Cash Equivalents
Cash and cash equivalents includes cash at banks and on hand, and other short-term, highly liquid investments with
original maturities of three months or less that are readily convertible to known amounts of cash and are subject to
an insignificant risk of change of value.
f) Mineral and Royalty Interests
Exploration and evaluation assets
Acquisition costs for exploration and evaluation assets are capitalized and include the cash consideration paid and
the fair value of common shares issued on acquisition, at the earlier of the date the counterparty’s performance is
complete or the share issuance date. Exploration expenditures, net of recoveries, are charged to operations as
incurred. After a property is determined by management to be commercially feasible, exploration and development
expenditures on the property will be capitalized. On transfer to development properties, capitalized exploration and
evaluation assets are assessed for impairment.
Options are exercisable entirely at the discretion of the optionee and amounts received from optionees in
connection with option agreements are credited against the capitalized acquisition costs classified as exploration
and evaluation assets on the statement of financial position and amounts received in excess are credited to gain
from exploration and evaluation asset option agreements on the statement of profit or loss and other comprehensive
income.
Where the Company has entered into option agreements to acquire interests in exploration and evaluation assets
that provide for periodic payments or periodic share issuances, amounts unpaid and unissued are not recorded as
liabilities since they are payable and issuable entirely at the Company’s option. Option payments are recorded as
exploration and evaluation costs when the payments are made or received and the share issuances are recorded as
exploration and evaluation costs using the fair market value of the Company’s common shares at the earlier of the
date the counterparty’s performance is complete or the share issuance date.
The Company is in the process of exploring and developing its exploration and evaluation assets and has not yet
determined the amount of reserves available. Management reviews the carrying value of exploration and
evaluation assets on a periodic basis and whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable, the Company will test the asset for impairment based upon a variety of
factors, including current exploration results, the prospect of further work being carried out by the Company, the
assessment of future probability of profitable revenues from the asset or from the sale of the asset. Amounts shown
for exploration and evaluation assets represent costs incurred net of write-downs and recoveries, and are not
intended to represent present or future values.
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations and which do not contribute to current
or future revenue generation are expensed. Liabilities are recorded when environmental assessments and/or
remedial efforts are probable and the costs can be reasonably estimated. Generally, the timing of these accruals
would be when the actual environmental disturbance occurs.
7
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (cont’d)
f) Mineral Interests and Royalties – (cont’d)
Royalties
Royalty interests consist of acquired royalties in producing and exploration and evaluation stage properties.
Royalty interests are recorded at cost and capitalized as tangible assets. They are subsequently measured at cost
less accumulated depletion and depreciation and accumulated impairment losses. Producing properties are those
that have generated revenue from steady-state operations for the Company. Exploration and evaluation stage
properties represent early stage exploration properties that are speculative and are expected to require more than
two years to generate revenue, if ever, or are currently not active.
Producing royalty interests are recorded at cost and capitalized in accordance with IAS 16, Property, Plant and
Equipment. Producing royalty interests are depleted using the units-of-production method over the life of the
property to which the interest relates, which is estimated using available estimates of proven and probable reserves
specifically associated with the properties. Management relies on information available to it under contracts with
the operators and/or public disclosures for information on proven and probable reserves and resources from the
operators of the producing royalty interest.
Royalty interests for exploration and evaluation assets, such as the Company’s Bayovar 12 Project Royalty, are
recorded at cost and capitalized in accordance with IFRS 6, Exploration for and Evaluation of Mineral Resources.
Acquisition costs of exploration and evaluation royalty interests are capitalized and are not depleted until such time
as revenue-generating activities begin.
g) Property, Equipment and Amortization
Recognition and Measurement
On initial recognition, property and equipment are valued at cost, being the purchase price and directly attributable
costs of acquisition required to bring the asset to the location and condition necessary to be capable of operating in
a manner intended by the Company, including appropriate borrowing costs and the estimated present value of any
future unavoidable costs of dismantling and removing items. The corresponding liability is recognized within
provisions.
Property and equipment is subsequently measured at cost less accumulated amortization, less any accumulated
impairment losses, with the exception of land, which is not amortized.
When parts of an item of property and equipment have different useful lives, they are accounted for as separate
items (major components) of property and equipment.
Gains and Losses
Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from
disposal with the carrying amount, that are recognized net within other income in profit or loss.
Amortization
Amortization is recognized in profit or loss and property and equipment is amortized over their estimated useful
lives using the following methods:
Leasehold improvements
Trucks
Computer equipment
Field equipment
Furniture and equipment
Geophysical equipment
7 – 8 years straight-line
4 – 8 years straight-line
25% - 50% declining balance
30% declining balance
20% declining balance
20% declining balance
8
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (cont’d)
h) Earnings / Loss per Share
Basic income/loss per share is calculated by dividing the net income/loss available to common shareholders by the
weighted average number of shares outstanding during the year. Diluted earnings per share reflects the potential
dilution of securities that could share in earnings of an entity.
For the year ended December 31, 2015, potentially dilutive common shares (relating to options and warrants
outstanding at year-end) totalling 4,775,000 were not included in the computation of earnings/loss per share,
because their effect was anti-dilutive. As such, basic and diluted earnings and losses per share were the same for
that period presented.
i)
Income Taxes
Income tax expense comprises current and deferred tax. Current and deferred tax are recognized in net loss/income
except to the extent that it relates to a business combination or items recognized directly in equity or in other
comprehensive loss/income.
Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or
loss for the current year and any adjustment to income taxes payable in respect of previous years. Current income
taxes are determined using tax rates and tax laws that have been enacted or substantively enacted by the year-end
date.
Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its
tax base, except for those taxable temporary differences arising on the initial recognition of goodwill or on the
initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the
transaction affects neither accounting nor taxable profit or loss.
Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is
restricted to those instances where it is probable that future taxable profit will be available against which the
deferred tax asset can be utilized. At the end of each reporting year the Company reassesses unrecognized deferred
tax assets. The Company recognizes a previously unrecognized deferred tax asset only to the extent that it has
become probable that future taxable profit will allow the deferred tax asset to be recovered.
j) Share Capital
Equity instruments are contracts that give a residual interest in the net assets of the Company. Financial
instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of
a financial liability or financial asset. The Company’s common shares, share warrants, and options are classified as
equity instruments.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net
of tax, from proceeds.
Warrants issued by the Company typically accompany an issuance of shares in the Company (a “Unit”), and entitle
the warrant holder to exercise the warrants for a stated price and a stated number of common shares in the
Company. The fair value of the Unit’s components sold is measured using the residual value approach.
9
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (cont’d)
k) Share-based Payments
Where equity-settled share options are awarded to employees, the fair value of the options at the date of grant is
charged to the statement of profit or loss and other comprehensive income over the vesting period. Performance
vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each
reporting date so that, ultimately, the cumulative amount recognized over the vesting period is based on the
number of options that eventually vest. As long as all other vesting conditions are satisfied, a charge is made
irrespective of whether these vesting conditions are satisfied. The cumulative expense is not adjusted for failure to
achieve a market vesting condition or where a non-vesting condition is not satisfied.
Where terms and conditions of options are modified before they vest, the increase in the fair value of the options,
measured immediately before and after the modification, is also charged to the statement of profit or loss and other
comprehensive income over the remaining vesting period.
Where equity instruments are granted to employees, they are recorded at the fair value of the equity instrument
granted at the grant date. The grant date fair value is recognized in comprehensive loss/income over the vesting
period, described as the period during which all the vesting conditions are to be satisfied.
Where equity instruments are granted to non-employees, they are recorded at the fair value of the goods or services
received in the statement of profit or loss and other comprehensive income. Options or warrants granted related to
the issuance of shares are recorded as a reduction of share capital.
When the value of goods or services received in exchange for the share-based payment cannot be reliably
estimated, the fair value is measured by use of a valuation model or the fair value of the shares granted.
All equity-settled share-based payments are reflected in other equity reserve, until exercised. Upon exercise, shares
are issued from treasury and the amount reflected in other equity reserve is credited to share capital, adjusted for
any consideration paid.
Where a grant of options is cancelled or settled during the vesting period, excluding forfeitures when vesting
conditions are not satisfied, the Company immediately accounts for the cancellation as an acceleration of vesting
and recognizes the amount that otherwise would have been recognized for services received over the remainder of
the vesting period. Any payment made to the employee on the cancellation is accounted for as the repurchase of an
equity interest except to the extent the payment exceeds the fair value of the equity instrument granted, measured
at the repurchase date. Any such excess is recognized as an expense.
l) Provisions
Rehabilitation Provision
The Company is subject to various government laws and regulations relating to environmental disturbances caused
by exploration and evaluation activities. The Company records the present value of the estimated costs of legal and
constructive obligations required to restore the exploration sites in the year in which the obligation is incurred. The
nature of the rehabilitation activities may include restoration, reclamation and revegetation of the affected
exploration sites.
The rehabilitation provision generally arises when the environmental disturbance is subject to government laws
and regulations. When the liability is recognized, the present value of the estimated costs is capitalized by
increasing the carrying amount of the related exploration properties. Over time, the discounted liability is increased
for the changes in present value based on current market discount rates and liability specific risks.
As at December 31, 2016 and 2015, the Company had no asset retirement or rehabilitation obligations.
10
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (cont’d)
l) Provisions – (cont’d)
Other Provisions
Provisions are recognized where a legal or constructive obligation has been incurred as a result of past events, it is
probable that an outflow of resources embodying economic benefit will be required to settle the obligation, and a
reliable estimate of the amount of the obligation can be made. If material, provisions are measured at the present
value of the expenditures expected to be required to settle the obligation. The increase in any provision due to
passage of time is recognized as accretion expense.
m) Impairment of Non-Financial Assets
Impairment tests on non-financial assets, including exploration and evaluation assets are undertaken whenever
events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying
value of an asset exceeds its recoverable amount, which is the higher of value in use and fair value less costs of
disposal, the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out
on the asset’s cash-generating unit, which is the lowest group of assets in which the asset belongs for which there
are separately identifiable cash inflows that are largely independent of the cash inflows from other assets.
An impairment loss is charged to the profit or loss, except to the extent they reverse gains previously recognized in
other comprehensive loss/income.
n) Financial Instruments
Financial Assets
Financial assets are classified into one of the following categories based on the purpose for which the asset was
acquired. All transactions related to financial instruments are recorded on a trade date basis. The Company’s
accounting policy for each category is as follows:
Loans and Receivables
These assets are non-derivative financial assets resulting from the delivery of cash or other assets by a lender to a
borrower in return for a promise to repay on a specified date or dates, or on demand. They are initially recognized
at fair value plus transaction costs that are directly attributable to their acquisition or issue and subsequently carried
at amortized cost, using the effective interest rate method, less any impairment losses. Amortized cost is calculated
taking into account any discount or premium on acquisition and includes fees that are an integral part of the
effective interest rate and transactions costs. Gains or losses are recognized in profit or loss when the loans and
receivables are derecognized or impaired, as well as through the amortization process.
11
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (cont’d)
n) Financial Instruments – (cont’d)
Available-For-Sale Investments
Non-derivative financial assets not included in the other categories are classified as available-for-sale and comprise
principally the Company’s strategic investments in entities not qualifying as subsidiaries or associates. Available-
for-sale investments are carried at fair value with changes in fair value recognized in accumulated other
comprehensive income. Where there is a significant or prolonged decline in the fair value of an available-for-sale
financial asset (which constitutes objective evidence of impairment), the full amount of the impairment, including
any amount previously recognized in other comprehensive loss/income, is recognized in profit or loss. Any
subsequent increase in the fair value of available-for-sale investments are recorded through other comprehensive
income. If there is no quoted market price in an active market and fair value cannot be readily determined,
available-for-sale investments are carried at cost.
Purchases and sales of available-for-sale financial assets are recognized on a trade date basis. On sale or
impairment, the cumulative amount recognized in other comprehensive loss/income is reclassified from
accumulated other comprehensive income to profit or loss.
Financial Assets at Fair Value Through Profit or Loss
Derivative investments, such as warrants and receivables related to agreements with provisional pricing
mechanisms, are classified as fair value through profit and loss and are recognized initially at fair value.
Subsequent to initial recognition, derivatives are measured at fair value and changes in fair value are recognized as
other income (expenses) in the statement of income and comprehensive income (loss).
Impairment of Financial Assets
At each reporting date the Company assesses whether there is any objective evidence that a financial asset or a
group of financial assets is impaired. A financial asset or group of financial assets is deemed to be impaired, if, and
only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial
recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset or
group of financial assets.
Financial Liabilities
Financial liabilities are classified as other financial liabilities, based on the purpose for which the liability was
incurred, and comprise accounts payables and accrued liabilities. These liabilities are initially recognized at fair
value net of any transaction costs directly attributable to the issuance of the instrument and subsequently carried at
amortized cost using the effective interest rate method. This ensures that any interest expense over the period of
repayment is at a constant rate on the balance of the liability carried in the statement of financial position. Interest
expense, in this context, includes initial transaction costs and premiums payable on redemption, as well as any
interest or coupon payable while the liability is outstanding.
Accounts payables represent liabilities for goods and services provided to the Company prior to the end of the
period which are unpaid. Accounts payable amounts are unsecured and are usually paid within forty-five days of
recognition.
The Company has made the following designations of its financial instruments:
Cash and cash equivalent
Investments in available-for-sale investments
Receivables
Receivable derivatives
Amounts due from related parties
Deposits
Accounts payable and accrued liabilities
Loans and receivables
Available-for-sale financial assets
Loans and receivables
Fair value through profit or loss
Loans and receivables
Loans and receivables
Other financial liabilities
12
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (cont’d)
o) Standards, Amendments and Interpretations Not Yet Effective
The Company will be required to adopt the following standard and amendments issued by the IASB as described
below. The Company is in the process of evaluating the impact of these new standards and amendments on its
consolidated financial statements:
Disclosure Initiative (Amendments to IAS 7 Statement of Cash Flows)
The amendments require entities to provide disclosures that enable users of financial statements to evaluate
changes in liabilities arising from financing activities.
Effective for the Company's annual period beginning January 1, 2017. This new amendment is not expected to
have a material impact on the Company’s consolidated financial statements.
Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12 Income Taxes)
The amendments clarify how to account for deferred tax assets related to debt instruments measured at fair value.
Effective for the Company's annual period beginning January 1, 2017. This new amendment is not expected to
have a material impact on the Company’s consolidated financial statements.
IFRS 9 Financial Instruments
IFRS 9 will replace IAS 39 Financial Instruments: Recognition and Measurement and IFRIC 9 Reassessment of
Embedded Derivatives. The final version of this new standard supersedes the requirements of earlier versions of
IFRS 9.
The main features introduced by this new standard compared with predecessor IFRS are as follows:
• Classification and measurement of financial assets:
Debt instruments are classified and measured on the basis of the entity's business model for managing the asset
and its contractual cash flow characteristics as either: “amortized cost”, “fair value through other
comprehensive income”, or “fair value through profit or loss” (default). Equity instruments are classified and
measured as “fair value through profit or loss” unless upon initial recognition elected to be classified as “fair
value through other comprehensive income”.
• Classification and measurement of financial liabilities:
When an entity elects to measure a financial liability at fair value, gains or losses due to changes in the entity’s
own credit risk is recognized in other comprehensive income (as opposed to previously profit or loss). This
change may be adopted early in isolation of the remainder of IFRS 9.
•
Impairment of financial assets:
An expected credit loss impairment model replaced the incurred loss model and is applied to financial assets at
“amortized cost” or “fair value through other comprehensive income”, lease receivables, contract assets or
loan commitments and financial guarantee contracts. An entity recognizes twelve-month expected credit losses
if the credit risk of a financial instrument has not increased significantly since initial recognition and lifetime
expected credit losses otherwise.
• Hedge accounting:
Hedge accounting remains a choice, however, is now available for a broader range of hedging strategies.
Voluntary termination of a hedging relationship is no longer permitted. Effectiveness testing now needs to be
performed prospectively only. Entities may elect to continue to applying IAS 39 hedge accounting on adoption
of IFRS 9 (until the IASB has completed its separate project on the accounting for open portfolios and macro
hedging).
Effective for the Company's annual period beginning January 1, 2018.
13
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (cont’d)
o) Standards, Amendments and Interpretations Not Yet Effective – (cont’d)
IFRS 15 Revenue from Contracts with Customers
IFRS 15, Revenue from Contracts with Customers specifies how and when revenue should be recognized as well as
requiring more informative and relevant disclosures. The standard supersedes IAS 18 Revenue, IAS 11
Construction Contracts, and a number of revenue-related interpretations. Application of the standard is mandatory
and it applies to nearly all contracts with customers: the main exceptions are leases, financial instruments and
insurance contracts. IFRS 15 is effective for annual periods starting on or after January 1, 2018, with earlier
application permitted.
IFRS 16 Leases
On January 13, 2016, the IASB issued IFRS 16 Leases of which requires lessees to recognize assets and liabilities
for most leases. For lessors, there is little change to the existing accounting in IAS 17 Leases. The new standard
will be effective for annual periods beginning on or after January 1, 2019. Early application is permitted, provided
the new revenue standard, IFRS 15 Revenue from Contracts with Customers, has been applied, or is applied at the
same date as IFRS 16.
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The Company makes estimates and assumptions about the future that affect the reported amounts of assets and
liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances. In the future,
actual experience may differ from these estimates and assumptions.
The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive
income/loss in the period of the change, if the change affects that period only, or in the period of the change and
future periods, if the change affects both.
The key areas of judgment applied in the preparation of the consolidated financial statements that could result in a
material adjustment to the carrying amounts of assets and liabilities are as follows:
a) Where the Company holds the largest shareholding in an investment and has the power to exercise significant
influence through common officers and board members, such an investment is treated as an associate. The
Company can exercise significant influence over Rackla Metals Inc. (“Rackla”). The Company no longer has
the power to exercise significant influence over Medgold Resources Corp (“Medgold”) and therefore its
investment in Medgold is now treated as an available-for-sale investment;
b) The determination of when an investment is impaired requires significant judgment. In making this judgment,
the Company evaluates, amongst other things, the duration and extent to which the fair value of the investment
is less that its original cost at each reporting period;
c) The functional currency for each of the Company’s subsidiaries is the currency of the primary economic
environment in which the entity operates. Determination of the functional currency may involve certain
judgments to determine the primary economic environment and the Company reconsiders functional currency
of its entities if there is a change in events and conditions which determined the primary economic
environment;
d) The application of the Company’s accounting policy for exploration and evaluation assets requires judgment
in determining whether it is likely that future economic benefits will flow to the Company.
If, after exploration and evaluation assets is capitalized, information becomes available suggesting that the
carrying amount of an exploration and evaluation asset may exceed its recoverable amount, the Company
carries out an impairment test at the cash generating unit or group of cash generating units level in the year the
new information becomes available; and
14
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
e) The determination of when receivables are impaired requires significant judgment as to their collectability.
The key estimates applied in the preparation of the consolidated financial statements that could result in a material
adjustment to the carrying amounts of assets and liabilities are as follows:
a) The Company is subject to income tax in several jurisdictions and significant judgment is required in
determining the provision for income taxes. During the ordinary course of business, there are transactions and
calculations for which the ultimate tax determination is uncertain. As a result, the company recognizes tax
liabilities based on estimates of whether additional taxes and interest will be due. These tax liabilities are
recognized when, despite the company's belief that its tax return positions are supportable, the company
believes that certain positions are likely to be challenged and may not be fully sustained upon review by tax
authorities. The company believes that its accruals for tax liabilities are adequate for all open audit years based
on its assessment of many factors including past experience and interpretations of tax law. This assessment
relies on estimates and assumptions and may involve a series of complex judgments about future events. To
the extent that the final tax outcome of these matters is different than the amounts recorded, such differences
will impact income tax expense in the period in which such determination is made.
b) The Company accounts for royalty revenue on an accrual basis which requires forecasting of gold prices and
use of preliminary assay and weight results to estimate revenue prior to final settlement.
c)
In estimating the fair value of share-based payments, using the Black-Scholes option pricing model,
management is required to make certain assumptions and estimates. Changes in assumptions used to estimate
fair value could result in materially different results.
5. CASH AND CASH EQUIVALENTS
Cash and cash equivalents are held for the purpose of meeting short-term cash commitments rather than for
investment or other purposes. The Company does not hold any deposits with maturities of greater than three
months from the date of acquisition. Cash at banks and on hand earns interest at floating rates based on daily bank
deposit rates.
6. AVAILABLE-FOR-SALE INVESTMENTS
B2Gold
Focus
Southern
Silver
Medgold Advantage GrowMax Champagne
Total
Balance, December 31, 2014
$5,370,148
$ 191,407
$ -
$ -
$ -
$ -
$ -
$ 5,561,555
Acquisition of shares
Disposition of shares
Impairment adjustment
Net change in fair value recorded
in other comprehensive income
-
366,200
480,000
(446,784)
-
-
(1,297,364)
(164,790)
(180,000)
-
(66,400)
-
Balance, December 31, 2015
3,626,000
326,417
300,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
846,200
(446,784)
(1,642,154)
(66,400)
4,252,417
-
172,958
-
300,000
225,000
70,355
50,000
818,313
Acquisition of shares
Disposition of shares
Impairment adjustment
Reclassification from investment
in associate (Note 9)
Net change in fair value recorded
in other comprehensive income
(3,626,000)
-
(225,000)
-
-
1,095,600
-
-
-
-
-
-
-
-
-
(205,321)
-
-
-
(14,192)
412,500
261,000
17,500
7,145
-
-
-
-
(3,851,000)
(205,321)
1,095,600
683,953
Balance, December 31, 2016
$ -
$ 279,862
$ 487,500
$ 1,656,600
$ 242,500
$ 77,500 $ 50,000
$ 2,793,962
15
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
6. AVAILABLE-FOR-SALE INVESTMENTS – (cont’d)
Available-for-sale investments that are publicly traded are recorded at fair value and investments in which there is
no quoted market price in an active market is carried at cost. As of December 31, 2016, available-for-sale
investments consisted of 5,088,406 (2015: 2,838,406) common shares of Focus Ventures Ltd. (“Focus”), 1,500,000
(2015: 6,000,000) common shares of Southern Silver Exploration Corp. (“Southern Silver”), 10,040,000 (2015:
Nil) common shares of Medgold, 250,000 (2015: Nil) common shares of Advantage Lithium Corp. (“Advantage”),
and 500,000 (2015: Nil) common shares of GrowMax Resources Corp. (“GrowMax”), all of which are publicly
listed companies and 625,000 (2015: Nil) common shares of Champagne Resources Limited (“Champagne”), a
private company.
As at December 31, 2016, the fair value based on published market prices of the available-for-sale investments that
are publicly listed was $2,743,962 (2015: $4,252,417) and the cost of the Champagne available-for-sale investment
is $50,000.
During the year ended December 31, 2016, the Company’s holding of 8,040,000 Medgold shares was reclassified
from an investment in associate to an available-for-sale investment (Note 9). The fair value of the 8,040,000
Medgold shares at the time of reclassification was $924,600. During the year ended December 31, 2016 and after
the reclassification, the Company acquired an additional 2,000,000 shares of Medgold upon the exercise of
2,000,000 share purchase warrants at a cost of $300,000, bringing the total amount of Medgold shares held as of
December 31, 2016 to 10,040,000.
During the year ended December 31, 2016, an impairment charge of $205,321 (2015: $164,790) was charged
against the Focus shares due the fair value of the shares being less than the adjusted cost base.
During the year ended December 31, 2016, the Company also completed the following transactions:
i) Sold its remaining 2,590,000 shares of B2Gold for net proceeds of $5,724,827 and recorded a gain on sale of
available-for-sale investments of $2,098,827;
ii) Purchased 770,000 units of a Focus private placement at a cost of $50,050. Each unit consists of one common
share of Focus and one share purchase warrant; each full warrant entitling the Company to purchase one
additional common share of Focus at $0.075 for one year. The Focus share purchase warrants are not tradable
on an exchange;
iii) Acquired 770,000 Focus shares upon the exercise of 770,000 share purchase warrants at a cost of $57,750, and
710,000 shares acquired on the open market at a cost of $65,158;
iv) Sold 4,500,000 shares of Southern Silver for net proceeds of $814,508 and recorded a gain of $589,508;
v) Received 250,000 common shares of Advantage with a fair value of $225,000 at the time of receipt, pursuant
to a mineral property option agreement entered into during the current year (Note 10);
vi) Acquired 500,000 common shares of GrowMax Resources Corp in the open market at a cost of $70,355; and
vii) Purchased 625,000 units of a Champagne private placement at a cost of $50,000. Each unit consists of one
common share of Champagne and one-half share purchase warrant; each full warrant entitling the Company to
purchase one additional common share of Champagne at $0.15 until eighteen months after Champagne
becomes publicly listed. The Champagne common shares and share purchase warrants are not tradable on an
exchange;
16
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
6. AVAILABLE-FOR-SALE INVESTMENTS – (cont’d)
During the year ended December 31, 2015, the Company completed the following transactions:
i) Sold 236,394 common shares of B2Gold for net proceeds of $416,997 and recorded a loss on sale of available-
for-sale investments of $29,787;
ii) Purchased 1,831,000 units of a Focus private placement at a cost of $366,200. Each unit consists of one
common share of Focus and one full share purchase warrant, each full warrant entitling the Company to
purchase one additional common share of Focus at $0.265 until June 2, 2017. If the closing price of Focus’
shares exceeds $0.40 for a period of 10 consecutive trading days, Focus may accelerate the expiry of the
warrants by giving notice in writing to the Company, and in such case, the warrants will expire on the 30th day
after the date on which such notice is given. The Focus share purchase warrants are not tradable on an
exchange; and
iii) Received 6,000,000 common shares of Southern Silver with a fair value of $480,000, of which $300,000
satisfied part of a loan repaid by Southern Silver and $180,000 was recorded as a fair value gain.
Subsequent to the year ended December 31, 2016, the Company completed the following transactions:
i) Purchased 2,742,700 units of a Focus private placement at a cost of $137,135. Each unit consists of one
common share of Focus and one share purchase warrant; each full warrant entitling the Company to purchase
one additional common share of Focus at $0.10 for five years. The Focus share purchase warrants are not
tradable on an exchange;
ii) Received 1,263,883 common shares of Volcanic Gold Mines Inc. (“Volcanic”), a publicly listed company,
with a fair value of $606,664 at the time of issuance, pursuant to a mineral property assignment agreement
described below;
iii) Purchased 834,000 units of a Volcanic private placement at a cost of $125,100. Each unit consists of one
common share of Volcanic and one-half share purchase warrant; each full warrant entitling the Company to
purchase one additional common share of Volcanic at $0.25 for one year. The Volcanic share purchase
warrants are not tradable on an exchange; and
iv) Purchased 1,125,000 units of a Volcanic private placement at a cost of $450,000. Each unit consists of one
common share of Volcanic and one share purchase warrant; each full warrant entitling the Company to
purchase one additional common share of Volcanic at $0.80 for five years. The Volcanic share purchase
warrants are not tradable on an exchange.
During the year ended December 31, 2016, the Company entered into an assignment agreement with Volcanic,
pursuant to which the Company assigned to Volcanic a purchase agreement to acquire the Mandiana project, a gold
property located in Guinea, from Sovereign Mines of Africa PLC (“SMA”). Subsequent to December 31, 2016,
the transaction was completed and Volcanic acquired all of the outstanding share capital of SMA's wholly owned
subsidiary, Sovereign Mines of Africa Ltd. (“Sovereign Mines”). In consideration for the assignment by the
Company, Volcanic issued 1,263,883 of its common shares to the Company upon completion of the transaction.
Volcanic also agreed to reimburse the Company for certain expenses incurred in the development of the transaction
and granted to the Company certain rights to participate in future equity financings completed by Volcanic. Each
of SMA, Sovereign Mines and Volcanic were at arm's length to the Company at the time of the transaction.
The Company also holds 2,973,275 free trading common shares of Rackla with a fair value of $445,991 as of
December 31, 2016 but they are recorded as an investment in associate (Note 9).
17
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
7. RECEIVABLES
December 31,
2016
December 31,
2015
Royalty revenue receivable
Provision for impairment (Note 10 – Guatemala Tambor Project)
Royalty revenue receivable, net
Sales taxes
Other receivables
$ 784,180
(784,180)
-
34,253
160,333
$ 743,682
-
743,682
35,465
5,617
$ 194,586
$ 784,764
The provision for impairment of the royalty receivable has been included in the consolidated statement of net
income and comprehensive income for the year ended December 31, 2016. Uncollectable amounts included in the
provision are written off against the provision when there is no expectation of recovery. The royalty revenue
receivable was uncollected as of December 31, 2016 as the Company has allowed Kappes, Cassiday & Associates
(“KCA”) to defer payment of the balance while KCA prepares a legal strategy to overturn the suspension of
operations of its mine-site and seek compensation from the Guatemalan authorities, from which the Company
would seek to benefit as well (Note 10).
8. PROPERTY AND EQUIPMENT
Leasehold
improvements
Trucks
Computer
equipment
Furniture
and
equipment
Geophysical
equipment
Field
equipment
Total
Cost
Balance, December 31, 2014
$ 62,762
$ 215,638
$ 252,068
$ 62,656
$ 83,594
$ 2,480
$ 679,198
Additions
-
-
-
-
Balance, December 31, 2015
62,762
215,638
252,068
62,656
1,288
84,882
-
1,288
2,480
680,486
Balance, December 31, 2016
$ 62,762
$ 215,638
$ 252,068
$ 62,656
$ 84,882
$ 2,480
$ 680,486
Accumulated amortization
Balance, December 31, 2014
$ 36,067
$ 196,237
$ 222,378
$ 45,069
$ 63,202
$ 1,974
$ 564,927
Charge for period
6,300
12,443
9,707
Balance, December 31, 2015
42,367
208,680
232,085
Charge for period
6,300
6,958
5,901
4,584
49,653
2,052
4,207
67,409
3,495
152
2,126
106
37,393
602,320
24,812
Balance, December 31, 2016
$ 48,667
$ 215,638
$ 237,986
$ 51,705
$ 70,904
$ 2,232
$ 627,132
Carrying amounts
At December 31, 2015
$ 20,395
$ 6,958
$ 19,983
$ 13,003
$ 17,473
$ 354
$ 78,166
At December 31, 2016
$ 14,095
$ -
$ 14,082
$ 10,951
$ 13,978
$ 248
$ 53,354
18
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
9.
INVESTMENT IN ASSOCIATES
Medgold
As at December 31, 2016, the Company held 10,040,000 (2015: 8,040,000) common shares of Medgold, representing
13.83% of Medgold’s outstanding common shares.
Medgold previously met the definition of an associate and was equity accounted for in the condensed interim
consolidated financial statements. During the year ended December 31, 2016, Medgold no longer met the definition of
an associate when its interest in Medgold was further diluted to a level significantly below 20% on June 17, 2016 when
Medgold issued 10,000,000 common shares by way of a private placement to a different party. Therefore, the
Company’s investment in Medgold was reclassified as an available-for-sale investment. Upon discontinuing the use of
the equity method, an investment, if a financial asset, is to be measured at fair value and the difference between the fair
value and the carrying value of the investment recognized in profit or loss. The fair value of the investment in
Medgold as at the time of reclassification was $924,600 and its carrying cost was $403,873. As a result, a gain of
$520,727 was recognized in the consolidated statement of loss and comprehensive loss for the year ended December
31, 2016.
From January 1, 2016 and until the point of reclassification to an available-for-sale investment during the year ended
December 31, 2016, the Company’s shareholdings in Medgold decreased from 15.5% to 12.6% (2015: 19.1% to
15.5%) as a result of an increase in the issued capital of Medgold. As a result, the Company recorded a gain on dilution
of $170,045 for the current year (2015: $85,743).
The following table shows the continuity of the Company’s interest in Medgold for the period from January 1, 2015 to
December 31, 2016:
Balance, December 31, 2014
Increase in investment
Less: share of losses in associate
Gain on dilution
Balance, December 31, 2015
Less: share of losses in associate
Gain on dilution
Reclassification as available-for-sale investment
Balance, December 31, 2016
The financial statement balances of Medgold were as follows:
$ 473,000
4,085
(193,000)
85,743
369,828
(136,000)
170,045
(403,873)
$ -
Total current assets
Total assets
Total liabilities
Net loss(2)
June 30,
2016(1)
December 31,
2015
$ 1,507,091
2,039,702
497,674
$ 254,480
1,089,109
548,625
1,016,621
1,182,037
(1) June 30, 2016 was the last financial statements of Medgold used for the accounting treatment as an investment in associate.
(2) Net loss for the six months ended June 30, 2016.
19
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
9.
INVESTMENT IN ASSOCIATES – (cont’d)
Rackla
On October 1, 2015, Rackla completed a consolidation of its issued shares outstanding on a one new for five old basis.
As a result, the Company’s holding of 9,866,376 common shares in Rackla as of that date was reduced to 1,973,275.
During the 2015 fiscal year, the Company acquired an additional 1,000,000 post-consolidation common shares and
1,000,000 share purchase warrants of Rackla by way of a private placement at a cost of $50,000. Each share purchase
warrant entitles the Company to purchase an additional post-consolidation common share of Rackla until October 18,
2017 at a price of $0.05. The Rackla share purchase warrants are not tradable on an exchange.
As at December 31, 2016, the Company’s holding of 2,973,275 (2015: 2,973,275) post-consolidation common shares
of Rackla, represented 19.7% (2015: 19.7%) of Rackla’s outstanding common shares.
Rackla meets the definition of an associate and has been equity accounted for in the consolidated financial statements.
The following table shows the continuity of the Company’s interest in Rackla for the period from January 1, 2015 to
December 31, 2016:
Balance, December 31, 2014
Increase in investment
Less: share of losses in associate
Balance, December 31, 2015
Balance, December 31, 2016
$ 1
50,000
(50,000)
1
$ 1
Prior to the 2015 fiscal year the Company’s share of losses in Rackla exceeded the carrying value of its interest and
therefore the Company discontinued recognizing its share of further losses. During the 2015 fiscal year, with the
additional 1,000,000 common shares being purchased at a cost of $50,000, the Company recognized losses in Rackla
totaling $50,000 and once again reduced the carrying amount to a nominal $1. The cumulative unrecognized share of
losses for the associate is $567,482.
The financial statement balances of Rackla are as follows:
Total current assets
Total assets
Total liabilities
Net loss
December 31,
2016
December 31,
2015
$ 36,537
104,597
133,476
$ 83,887
231,419
41,760
219,288
161,835
At December 31, 2016, the fair value of the 2,973,275 common shares of Rackla was $445,991 (2015: $163,530).
20
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
10. MINERAL INTERESTS AND ROYALTIES
Acquisition costs
Balance, December 31, 2014
Additions - cash
Write-off acquisition costs
Balance, December 31, 2015
Additions - cash
Acquisition costs recovered
Peru
Guatemala United States
Mexico
Total
$ -
1,259,505
-
$ 531,369
-
(531,368)
$ 32,022
-
(32,022)
$ -
23,821
(23,821)
$ 563,391
1,283,326
(587,211)
1,259,505
-
-
1
-
-
-
88,659
-
-
23,748
(23,748)
1,259,506
112,407
(23,748)
Balance, December 31, 2016
$ 1,259,505
$ 1
$ 88,659
$ -
$ 1,348,165
Mexico
i) Lithium Brine Projects
During the year ended December 31, 2016, the Company submitted applications for mineral concessions totalling
37,000 hectares covering four lithium brine projects in northern Mexico at a cost of $23,748.
In September 2016, the Company entered into an option agreement with Advantage, an unrelated party, whereby
Advantage had an option to earn up to a 70% interest in the projects. The Company received $25,000 in cash upon
signing of the option agreement and a further $50,000 in cash and 250,000 common shares of Advantage with a
fair value of $225,000 upon stock exchange approval of the option agreement. Of these payments received,
$23,748 was recorded as a recovery of acquisition costs and the remaining amount of $276,252 recorded as a gain
from mineral property option agreements.
Advantage had an option (the “First Option”) to earn a 55% interest in the projects by issuing 750,000 shares (the
“Option Shares”) and spending $1,500,000 on exploration of the projects.
Subsequent to December 31, 2016, Advantage advised the Company that it has decided to focus its efforts in
countries other than Mexico and therefore will be terminating its option agreement.
ii) Tlacolula Property
The Company owns a 100% interest in the Tlacolula Property which consists of one granted exploration
concession covering 12,642 hectares.
By an agreement signed in September 2009 and subsequently amended in December 2012 and then again on
November 10, 2014, the Company granted to Fortuna Silver Mines Inc. (“Fortuna”) the option to earn a 60%
interest in the Tlacolula Property by spending US$2 million on exploration of the Property and making staged
payments totaling US$300,000 cash and US$250,000 in common stock no later than January 31, 2017 and
according to the following schedule:
a) US$20,000 cash and US$20,000 cash equivalent in shares upon regulatory approval (received);
b) US$30,000 cash and US$30,000 cash equivalent in shares by the first year anniversary (received);
c) US$50,000 cash and US$50,000 cash equivalent in shares by the second year anniversary (received);
d) US$50,000 cash and US$50,000 cash equivalent in shares by the third year anniversary (received);
e) US$50,000 cash within ten days after TSXV approval of the November 10, 2014 amending agreement
f)
(received $60,661 January 2015);
incurring US$2 million on exploration of the Property within 12 months of receipt of a drill permit, such work
to include at 1,500 metres of drilling; and
g) US$100,000 cash and US$100,000 cash equivalent in shares within 90 days of completion of the 1,500 metres
of drilling.
21
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
10. MINERAL INTERESTS AND ROYALTIES – (cont’d)
Mexico – (cont’d)
ii) Tlacolula Property – (cont’d)
As of December 31, 2016, Fortuna has advanced the property with sampling and trenching but has been
unsuccessful to date in obtaining a social license to conduct a drill testing program. In January 2017, subsequent
to the year ended December 31, 2016, the deadline for meeting the required exploration expenditures lapsed.
The Company and Fortuna have two common directors.
iii) Margarita Silver Project
In March 2015, the Company acquired an option to earn a 100% interest in the Margarita Silver Project located in
the State of Chihuahua, Mexico. The Project consisted of two mining exploration licenses comprising a total of
125 hectares. The Company could have earned the 100% interest in the project by making cash payments to the
property owners, two private Mexico corporations, totalling US$3,000,000 over a period of five years following
issuance of a drill permit for the Project, of which a cash payment of $23,821 (US$20,000) was made upon
execution of the agreement. If the option was exercised by the Company, the property owners would have been
entitled to a 0.5% NSR royalty and the Company could have re-purchased the royalty at any time for US$500,000.
During the year ended December 31, 2016, the Company decided to terminate the agreement and acquisition costs
totaling $23,821 were written off 2015 fiscal year.
iv) Cerro Las Minitas Property
In November 2014, the Company loaned $800,000 to Southern Silver in order to fund Southern Silver’s final
option payment to acquire the Cerro Las Minitas mineral claims in Mexico. In consideration of the loan, Southern
Silver granted to the Company an exclusive option for 120 days to settle the terms of a business arrangement for
the Company to acquire either a direct or indirect interest in the Cerro Las Minitas claims, whereby the Company
would participate in the continued exploration and development of the property. Security for the loan consisted of
an option to earn a 100% interest in the Cerro Las Minitas claims.
At the election of the Company, the loan could be converted into common shares of Southern Silver at a rate of
$0.05 per share. The loan was repayable on demand, provided that the Company shall not demand payment for a
period of one year, and interest was payable annually at 8% per annum.
During the 2015 fiscal year, the Company decided to not pursue obtaining an interest in the Cerro Las Minitas
claims and in March 2015 the Company elected to have $300,000 of the hybrid instrument converted to 6,000,000
common shares of Southern Silver, and the remaining loan principal balance of $500,000 plus $21,742 in interest
was paid to the Company in full satisfaction of the repayment of the loan. On conversion of the hybrid instrument,
a fair value gain of $180,000 was recognized on the Southern Silver shares held in the 2015 fiscal year.
22
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
10. MINERAL INTERESTS AND ROYALTIES – (cont’d)
USA
i) Spring Peak Property
In May 2016, the Company entered into an option agreement with Kinetic Gold (US) Inc. (“Kinetic”) for the right
to acquire a 100% interest in the Spring Peak gold property which consists of 37 United States federal mineral
claims comprising 309 hectares and located in Mineral County, Nevada. The option can be exercised by making a
cash payment to Kinetic of $19,472 (US$15,000) on signing (paid) and further expenditures by the Company as
follows:
a) cash payments to Kinetic totalling US$415,000 over the first five years following the issuance of a drill permit
for the property, and then US$250,000 in each subsequent year until the option is exercised or terminated; and
b) a total of US$725,000 in permitting and exploration work on the property, over three years following the
issuance of the drill permit.
At any time while the option is in good standing, the Company may elect to deliver to Kinetic a technical report,
complying with NI 43-101 standards, which documents a minimum 500,000 ounce gold equivalent inferred
resource on the property, and upon said delivery, the Company will have the right for one year thereafter to
purchase from Kinetic an outright 100% interest in the Property for the sum of US$500,000.
If the Company completes the purchase of the Spring Peak property, a combined 3.0% net smelter returns royalty
will be granted to Kinetic and the underlying property owner. Up to one-half of the royalty may be purchased for
up to US$1.5 million.
ii) ABC Property
During the year ended December 31, 2016, the Company staked 122 contiguous United States federal mining
claims covering approximately 992 hectares in Mineral County, Nevada. Acquisition costs totaling $69,187 were
recorded during the current year.
iii) Bald Peak Property
Subsequent to December 31, 2016, the Company acquired a 100% interest in the Bald Peak gold property from
Nevada Select Royalty, Inc. (“Nevada Select”) in consideration of a cash payment of US$35,115, the granting to
Nevada Select and/or a former property owner, of a total 3% NSR royalty, and making annual advance royalty
payments to Nevada Select of US$25,000. The advance royalty payments become payable on the date the
Company receives a drill permit for the property and on each annual anniversary thereof so long as the Company
holds title to the property. The Company has the right to reduce either royalty by 1% by paying US$1.0 million to
Nevada Select, and/or US$500,000 to the former owner.
iv) Blue Hill Property
In 2014, the Company entered into an agreement with Otis Gold Corp (“Otis”) for the right to acquire a 70%
interest in the Blue Hill gold property, subject to a 2.5% net smelter return royalty, which consists of 36 federal
lode mining claims located on federal land comprising 295 hectares and one Idaho State lease comprising 33
hectares in the Cassia County, Idaho. The option could be exercised by making cash payments to Otis totaling
US$525,000 (US$30,000 paid) and incurring exploration expenditures on the property totaling US$5,000,000,
over a period of four years. During the 2015 fiscal year, the Company decided to terminate the agreement and
acquisition costs totaling $32,022 were written off.
23
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
10. MINERAL INTERESTS AND ROYALTIES – (cont’d)
Guatemala
i) Tambor Project
In August 2012, the Company sold its interest in its subsidiary, Exploraciones Mineras de Guatemala S.A., which
holds the Tambor gold project, to KCA, giving KCA a 100% interest in the project. KCA agreed to make royalty
payments to the Company, upon commercial production, based on the then price of gold and the number of ounces
produced from the property.
Commercial production commenced in December 2014, and as a result, KCA paid to the Company during the
2015 fiscal year, US$341,063 as settlement for an outstanding receivable balance that was previously written off
and the Company recorded a recovery of $423,055 in the 2015 fiscal year. For the year ended December 31, 2016,
the Company has recognized $431,643 in royalty income (2015: $1,098,912). During the year ended December
31, 2016, the Company received payments totaling $357,204 towards royalty revenue recognized during the 2015
fiscal year.
On May 11, 2016, KCA informed the Company that mining operations were suspended by the Supreme Court of
Guatemala due to a lack of consultation by the Guatemalan Ministry of Mines with local indigenous people when
the mine was permitted in 2011. To date, the Supreme Court has not made a decision on when the mine may re-
open.
As at December 31, 2016, all gold sales subject to the Company’s royalty had been final settled and the balance
that remained unpaid to the Company was $748,180. Due to the uncertainty as to when the mine may re-open and
when the amount owing by KCA to the Company will be paid, a provision of $748,180 against the receivable
amount has been charged to operations for the year ended December 31, 2016.
ii) Southeast Guatemala Ag-Au Epithermal Fields (formerly called Banderas)
The Company’s 100% owned land holdings in southeast Guatemala as at December 31, 2015 consist of 34
concessions (three exploitation applications, 30 exploration applications, and one reconnaissance application) filed
with the Guatemala Ministry of Energy and Mines covering a total of 230,489 hectares. The three exploitation
applications were filed in order to convert one previously granted exploration licence to exploitation; until the
exploitation licences are granted, the granted exploration licence remains in place. Due to the Company only
performing care and maintenance activities on this property since 2013 and the uncertainty regarding when or if
exploration activities will resume, an impairment charge of $531,367 was recorded during the year ended
December 31, 2015, bringing the property’s carrying balance to $1.
Peru
Bayovar 12 Project Royalty
In April 2015, the Company purchased from Focus a production royalty equivalent to 2% of Focus’s 70% interest in
future phosphate production from the Bayovar 12 project located in the Sechura district of northern Peru. The
purchase price for the royalty was $1,259,505 (US$1,000,000). Should the Company decide at any time in the future
to sell the royalty, Focus will retain a first right of refusal. The Company and Focus have two common directors.
Portugal
Medgold Strategic Alliance
On January 8, 2014, the Company entered into a strategic alliance agreement with Medgold whereby the Company had
the right to option one of Medgold’s properties in Portugal. For a period of eighteen months, the Company had the
right to select one of the Medgold’s Portuguese properties in which the Company would be granted the option to earn a
51% interest by spending $3,000,000 on exploration and development of that property. During the 2015 fiscal year,
the Company’s right to option one of Medgold’s properties expired.
24
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
10. MINERAL INTERESTS AND ROYALTIES – (cont’d)
Nicaragua
Joint Venture Properties
In 2012, B2Gold and the Company entered into a joint venture agreement with respect to each of the Company’s San
Jose and B2Gold’s La Magnolia properties in Nicaragua to jointly explore the properties with B2Gold and the
Company owning 60% and 40%, respectively, of the rights and obligations of each joint venture. In 2013, an
agreement was reached whereby the Company would sell to B2Gold its 40% interest in the San Jose and La Magnolia
properties in consideration of a 2% NSR royalty on each property, and B2Gold would have the right to purchase one-
half of each royalty for US$1,000,000. The Company and B2Gold then decided in 2014 to relinquish the La Magnolia
concession. Formal agreements to sell the San Jose property to B2Gold were signed in October 2014 and the
transaction was completed during the 2015 fiscal year.
11. COMMITMENTS
The Company has entered into an operating lease agreement for its office premises. The Company also rents space to
other companies related by common directors and officers on a month to month basis, the amounts of which are netted
against rental expense; however, there are no commitments from these companies and thus the amounts presented
below are the gross commitments. The annual commitments under the lease are as follows:
2017
2018
2019
$ 190,608
190,608
190,608
$ 571,824
For the year ended December 31, 2016, the Company received a total of $147,441 (2015: $218,796) from those
companies it rents space to.
25
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
12. SHARE CAPITAL AND RESERVES
a) Common Shares
The Company is authorized to issue an unlimited number of common shares without par value.
There was no share capital activity during the years ended December 31, 2016 and 2015.
b) Share Purchase Warrants
There was no share purchase warrant activity during the years ended December 31, 2016 and 2015 and as at
December 31, 2016, no share purchase warrants were outstanding.
13. SHARE-BASED PAYMENTS
a) Option Plan Details
The Company has a formal stock option plan in accordance with the policies of the TSX Venture Exchange (“TSX-V”)
under which it is authorized to grant options up to 10% of its outstanding shares to officers, directors, employees and
consultants. The exercise price of each option is not less than the closing market price of the Company’s stock on the
trading day prior to the date of grant. Options granted to investor relations personnel vest in accordance with TSX-V
regulation. The options are for a maximum term of ten years.
The following is a summary of changes in options for the year ended December 31, 2016:
During the year
Grant date
Expiry date
Exercise
price
Opening
balance
Granted
Exercised
Forfeited /
expired
Closing
balance
Vested and
exercisable
Jan 08, 2010
Jan 07, 2020
$0.29
1,570,000
May 26, 2010 May 25, 2020
$0.36
100,000
Sep 24, 2010
Sep 23, 2020
$0.69
820,000
Jul 27, 2011
Jul 26, 2021
$0.81
150,000
Dec 13, 2012
Dec 12, 2022
$0.20
2,135,000
-
-
-
-
-
-
-
-
-
-
(325,000)
1,245,000
1,245,000
-
100,000
100,000
(720,000)
100,000
100,000
(150,000)
-
-
(250,000)
1,885,000
1,885,000
Oct 19, 2016
Oct 18, 2026
$0.15
-
1,740,000
-
-
1,740,000
1,740,000
4,775,000
1,740,000
-
(1,445,000)
5,070,000
5,070,000
Weighted average exercise price
$0.34
$0.15
-
$0.53
$0.22
$0.22
The following is a summary of changes in options for the year ended December 31, 2015:
During the year
Grant date
Expiry date
Exercise
price
Opening
balance
Granted
Exercised
Forfeited /
expired
Closing
balance
Vested and
exercisable
Jan 08, 2010
Jan 07, 2020
$0.29
1,570,000
May 26, 2010 May 25, 2020
$0.36
100,000
Sep 24, 2010
Sep 23, 2020
$0.69
820,000
Jul 27, 2011
Jul 26, 2021
$0.81
150,000
Dec 13, 2012
Dec 12, 2022
$0.20
2,135,000
Weighted average exercise price
$0.34
4,775,000
-
-
-
-
-
-
-
-
-
1,570,000
1,570,000
-
-
100,000
100,000
-
-
820,000
820,000
-
-
150,000
150,000
-
-
2,135,000
2,135,000
-
-
-
-
4,775,000
4,775,000
$0.34
$0.34
There were no options exercised during the years ended December 31, 2016 and 2015.
26
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
13. SHARE-BASED PAYMENTS – (cont’d)
b) Fair Value of Options Issued During the Year
The weighted average fair value at grant date of options granted during the year ended December 31, 2016 was $0.12
per option (2015: $Nil).
There were no options granted during the year ended December 31, 2015.
The weighted average remaining contractual life of the options outstanding at December 31, 2016 is 6.46 years.
Options Issued to Employees
The fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the
exercise price, the term of the option, the impact of dilution, the share price at grant date, the expected price volatility
of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option.
Options Issued to Non-Employees
Options issued to non-employees are measured based on the fair value of the goods or services received, at the date of
receiving those goods or services. If the fair value of the goods or services received cannot be estimated reliably, the
options are measured by determining the fair value of the options granted using the Black-Scholes option pricing
model.
The model inputs for options granted during the year ended December 31, 2016 included:
Grant date
Expiry date
Share price
at grant
date
Exercise
price
Risk-free
interest
rate
Expected
life
Volatility
factor
Dividend
yield
Oct 19, 2016
Oct 18, 2026
$0.145
$0.15
1.29%
10 years
88%
0%
The expected volatility is based on the historical volatility (based on the remaining life of the options), adjusted for any
expected changes to future volatility due to publicly available information. The risk free rate of return is the yield on a
zero-coupon Canadian Treasury Bill of a term consistent with the assumed option life. The expected average option
term is the average expected period to exercise, based on the historical activity patterns for each individually vesting
tranche.
Option pricing models require the input of highly subjective assumptions, including the expected price volatility.
Changes in these assumptions can materially affect the fair value estimate and, therefore, the existing models do not
necessarily provide a reliable single measure of the fair value of the Company’s stock options.
c) Expenses Arising from Share-based Payment Transactions
Total expenses arising from the share-based payment transactions recognized during the year as part of share-based
compensation expense were $213,150 (2015: $Nil).
As of December 31, 2016 and 2015 there was no amount of total unrecognized compensation cost related to unvested
share-based compensation awards.
d) Amounts Capitalized Arising from Share-based Payment Transactions
There were no expenses arising from the share-based payment transactions that were capitalized during the years ended
December 31, 2016 and 2015.
27
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
14. INCOME TAXES
Taxation in the Company and its subsidiaries’ operational jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
The difference between tax expense for the year and the expected income taxes based on the statutory tax rate arises as
follows:
Income (loss) before income taxes
Tax charge/(recovery) based on the statutory rate of 26%
Non-deductible expenses
Different tax rates in other jurisdictions
Non-taxable portion of capital gains
Initial recognition exemption and other
Changes in unrecognized deferred tax assets
December 31, 2016
$ 1,862,266
December 31, 2015
$ (1,875,449)
484,000
77,000
194,000
(328,000)
(76,000)
(351,000)
(488,000)
210,000
(70,000)
229,000
241,000
(122,000)
Total income tax expense / (recovery)
$ -
$ -
Effective January 1, 2015, the Canadian Federal corporate tax rate and provincial tax rate remained at 15% and 11%
respectively.
The tax rates represent the federal statutory rate applicable for the 2016 taxation year, 0% for Cayman Islands, 30.0%
for Mexico, 5.0% for Guatemala and 30.0% for Nicaragua.
No deferred tax asset has been recognized in respect of the following losses and temporary differences as it is not
considered probable that sufficient future taxable profit will allow the deferred tax asset to be recovered:
Loss carry forwards
Property and equipment
Mineral properties
Available-for-sale investments
Investment in Associates
Other deductible temporary differences
Unrecognized tax assets
December 31, 2016
$ 2,005,000
89,000
460,000
(4,000)
69,000
53,000
(2,672,000)
December 31, 2015
$ 1,402,000
82,000
548,000
738,000
130,000
123,000
(3,023,000)
$ -
$ -
As at December 31, 2016, the Company has estimated non-capital losses of $6,036,000 (2015: $5,046,000) for
Canadian income tax purposes that may be carried forward to reduce taxable income derived in future years. Non-
capital Canadian tax losses expire in various amounts from 2027 to 2036.
28
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
15. RELATED PARTY TRANSACTIONS
The Company’s related parties with transactions during the years ended December 31, 2016 and 2015 consist of
directors, officers and companies with common directors as follows:
Related Party
Mill Street Services Ltd. (“Mill Street”)
Gold Group Management Inc. (“Gold Group”)
Fortuna
Focus
Medgold
Rackla (Associate)
Nature of Transactions
Management fees
Shared general and administrative expenses
Shared general and administrative expenses
Investment and shared general and administrative expenses
Investment and shared general and administrative expenses
Investment
In addition to related party transactions disclosed elsewhere in the consolidated financial statements, the Company
incurred the following expenditures charged by non-key management officers and companies which have common
directors with the Company in the years ended December 31, 2016 and 2015:
General and administrative expenses:
Salaries and benefits
Exploration expenditures:
Geological fees
Salaries and benefits
2016
2015
$ 36,827
$ 23,420
18,542
4,326
-
2,471
$ 59,695
$ 25,891
The Company reimburses Gold Group, a company controlled by the Chief Executive Officer of the Company, for
shared administrative costs and other business related expenses paid by Gold Group on behalf of the Company. During
the years ended December 31, 2016 and 2015, the Company reimbursed Gold Group the following:
General and administrative expenses:
Office and miscellaneous
Shareholder communications
Salaries and benefits
Transfer agent and regulatory fees
Travel and accommodation
2016
2015
$ 41,263
1,289
118,658
3,378
9,327
$ 40,396
3,019
124,043
2,763
13,471
$ 173,915
$ 183,692
Exploration expenditures
$ 2,930
$ 1,587
Salary and benefits costs for the years ended December 31, 2016 and 2015 include those for the Chief Financial Officer
and Corporate Secretary.
29
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
15. RELATED PARTY TRANSACTIONS – (cont’d)
Prepaid expenses and deposits include an amount of $5,797 (2015: $7,084) paid to Gold Group for shared office and
administrative services.
Long-term deposits include an amount of $60,000 (2015: $60,000) paid to Gold Group as a deposit on the shared office
and administrative services agreement.
Due from related parties consist of $13,693 (2015: $8,224) is due from Medgold, a company which has a common
director with the Company, and arose from shared administrative costs and $3,107 (2015: $Nil) is due from Focus, a
company which has two common directors with the Company, and arose from shared administrative costs. These
amounts were unsecured, non-interest bearing and due on demand.
Accounts payable and accrued liabilities include $2,828 (2015: $21,913) payable to Gold Group for shared
administrative costs, $4,033 (2015: $Nil) to a Director of the Company for geological fees and $Nil (2015: $8,925) to
Mill Street, a company controlled by the Chief Executive Officer of the Company, for management and geological
fees.
During the year ended December 31, 2016, the following transactions also occurred:
i) The Company acquired 2,250,000 common shares of Focus of which 770,000 shares were acquired by way of a
private placement for a cost of $50,050, another 770,000 shares acquired upon the exercise of share purchase
warrants at a cost of $57,750, and 710,000 shares acquired on the open market for a cost of $65,159 (Note 6);
ii) The Company acquired 2,000,000 common shares of Medgold upon the exercise of 2,000,000 share purchase
warrants at a cost of $300,000 (Note 6).
During the year ended December 31, 2015, the follow transactions also occurred:
iii) The Company acquired 40,000 common shares in Medgold on the open market at a cost of $4,085;
iv) The Company acquired 1,831,000 common shares and 1,831,000 share purchase warrants in Focus by way of a
private placement that closed on May 26, 2015 at a cost of $366,200 (Note 6).
v)
The Company acquired 1,000,000 common shares and 1,000,000 share purchase warrants in Rackla by way of a
private placement that closed on October 19, 2015 at a cost of $50,000 (Note 9).
Key management compensation
Key management personnel are persons responsible for planning, directing and controlling the activities of an entity,
and include certain directors and officers. Key management compensation comprises:
Management fees
Geological fees included in Exploration expenditures
Salaries, benefits and fees
Share-based payments
2016
2015
$ 42,000
60,000
34,833
49,000
$ 102,000
-
34,375
-
$ 185,833
$ 136,375
Total share-based payments to directors not included in the above table during the year ended December 31, 2016 was
$55,125 (2015: $Nil).
30
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
16. SEGMENTED INFORMATION
Operating segments are defined as components of an enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate
resources and in assessing performance. All of the Company’s operations are within the mining sector relating to
mineral exploration except for a royalty interest in a gold producing property. Due to the geographic and political
diversity, the Company’s exploration operations are decentralized whereby exploration managers are responsible for
business results and regional corporate offices provide support to the exploration programs in addressing local and
regional issues. The Company’s operations are therefore segmented on a district basis. The Company’s assets were
located in Canada, USA, Guatemala, Peru, Mexico, Nicaragua, and Caymans. Details of identifiable assets by
geographic segments are as follows:
Year ended December 31, 2016
Canada
USA
Guatemala
Peru
Mexico
Other
Consolidated
Royalty income
$ -
$ -
$ 431,643 $ -
$ - $ -
$ 431,643
Exploration expenditures
Gain on sale of available-for-sale
investments
Investment income
Amortization
Net income (loss)
Capital expenditures*
-
194,460
69,525
-
140,205
140,396
544,586
2,688,336
13,068
18,674
-
-
-
-
-
6,138
2,679,715
(194,460)
(362,724)
-
88,659
-
-
-
-
-
-
-
-
-
-
-
-
2,688,336
13,068
24,812
(44,315)
(215,950)
1,862,266
23,748
-
112,407
Year ended December 31, 2015
Canada
USA
Guatemala
Peru
Mexico
Other
Consolidated
Royalty income
$ -
$ -
$ 1,098,912 $ -
$ - $ -
$ 1,098,912
Exploration expenditures
Exploration and evaluation
assets written off
Loss on sale of available-for-sale
investments
Investment income
Amortization
Net income (loss)
-
39,630
99,311
-
383,004
67,217
589,162
-
32,022
531,368
(29,787)
17,293
22,598
-
-
-
(1,489,907)
(71,652)
-
-
14,795
58,684
-
-
-
-
-
23,821
-
-
-
-
-
-
-
587,211
(29,787)
17,293
37,393
(356,863)
(15,711)
(1,875,449)
Capital expenditures*
1,288
-
-
1,259,505
23,821
-
1,284,614
*Capital expenditures consists of additions of property and equipment and exploration and evaluation assets
As at December 31, 2016
Canada
USA
Guatemala
Peru
Mexico
Other
Consolidated
Total current assets
$ 8,211,529
$ -
$ 10,945
$ -
$ 32,161
$ 69,610
$ 8,324,245
Total non-current assets
176,454
88,659
-
1,259,505
-
-
1,524,618
Total assets
$ 8,387,983
$ 88,659
$ 10,945
$ 1,259,505
$ 32,161
$ 69,610
$ 9,848,863
Total liabilities
$ 94,130
$ -
$ 1,609
$ -
$ 4,439
$ 7,706
$ 107,884
As at December 31, 2015
Canada
Guatemala
Peru
Mexico
Other
Consolidated
Total current assets
$ 4,338,675
$ 755,962
$ -
$ 29,537
$ 132,745
$ 5,256,919
Total non-current assets
565,041
6,552
1,259,505
-
-
1,831,098
Total assets
Total liabilities
$ 4,903,716
$ 762,514
$ 1,259,505
$ 29,537
$ 132,745
$ 7,088,017
$ 96,353
$ 567
$ -
$ 4,718
$ -
$ 106,407
31
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
17. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company is exposed to the following financial risks:
• Market Risk
• Credit Risk
• Liquidity Risk
In common with all other businesses, the Company is exposed to risks that arise from its use of financial instruments.
This note describes the Company’s objectives, policies and processes for managing those risks and the methods used to
measure them. Further quantitative information in respect of these risks is presented throughout these financial
statements.
General Objectives, Policies and Processes
The Board of Directors has overall responsibility for the determination of the Company’s risk management objectives
and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and
operating processes that ensure the effective implementation of the objectives and policies to the Company’s finance
function. The Board of Directors receive periodic reports through which it reviews the effectiveness of the processes
put in place and the appropriateness of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting
the Company’s competitiveness and flexibility. Further details regarding these policies are set out below.
a) Market Risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes
in market prices. Market prices are comprised of three types of risk: foreign currency risk, interest rate risk, and equity
price risk.
Foreign Currency Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because
of changes in foreign exchange rates. The Company is exposed to fluctuations in foreign currencies through its
operations in foreign countries. The Company monitors this exposure, but has no hedge positions. As at December 31,
2016 and 2015, the Company is exposed to currency risk through the following financial assets and liabilities
denominated in currencies other than the Canadian dollar:
December 31, 2016
December 31, 2015
US Dollar
(CDN
equivalent)
Mexican
Peso
(CDN
equivalent)
Guatemala
Quetzal
(CDN
equivalent)
Cash
Receivables
Current liabilities
$ 20,012
-
(11,507)
$ 930
27,047
(4,439)
$ 24
2,872
(1,609)
Nicaragua
Cordoba
(CDN
equivalent)
$ 525
-
(7,706)
US Dollar
(CDN
equivalent)
$ 93,498
743,682
(19,141)
Mexican
Peso
(CDN
equivalent)
Guatemala
Quetzal
(CDN
equivalent)
Nicaragua
Cordoba
(CDN
equivalent)
$ 1,290
27,592
(4,718)
$ 411
2,261
(567)
$ 1,045
-
(4,769)
$ 8,505
$ 23,538
$ 1,287
$ (7,181)
$ 818,039
$ 24,164
$ 2,105
$ (3,724)
Based on the above net exposures at December 31, 2016, a 10% depreciation or appreciation of the above currencies
against the Canadian dollar would result in approximately a $2,600 (2015: $84,000) increase or decrease in profit or
loss, respectively.
32
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
17. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT – (cont’d)
a) Market Risk – (cont’d)
Commodity Price Risk
The Company’s royalty revenue is derived from a royalty interest that is based on the extraction and sale of gold.
Factors beyond the control of the Company may affect the marketability of gold discovered. Gold prices have
historically fluctuated widely. Consequently, the economic viability of the Company’s royalty interest cannot be
accurately predicted and may be adversely affected by fluctuations in gold prices. The Company has not engaged in
any hedging activities.
Interest Rate Risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The
Company does not have any borrowings. Interest rate risk is limited to potential decreases on the interest rate offered
on cash held with chartered Canadian financial institutions. The Company considers this risk to be limited as it holds
no assets or liabilities subject to variable rates of interest.
Equity Price Risk
Equity price risk is the uncertainty associated with the valuation of assets arising from changes in equity markets. The
Company’s available-for-sale investments are exposed to significant equity price risk due to the potentially volatile and
speculative nature of the businesses in which the investments are held. The available-for-sale investments held in
Medgold, Focus, Southern Silver, Advantage, GrowMax, and Champagne are monitored by the Board with decisions
on sale taken by Management. A 10% decrease in fair value of the shares would result in an approximate $279,000
decrease in equity.
b) Credit Risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its
contractual obligations. The Company’s credit risk is primarily attributable to its cash and cash equivalents, available-
for-sale investments and receivables. The Company limits exposure to credit risk by maintaining its cash and cash
equivalents with large financial institutions. The Company does not have cash and cash equivalents or available-for-
sale investments that are invested in asset based commercial paper. For advances and other receivables, the Company
estimates, on a continuing basis, the probable losses and provides a provision for losses based on the estimated
realizable value.
c) 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’s approach to managing liquidity risk is to provide reasonable assurance that it will have sufficient funds to
meet liabilities when due. The Company manages its liquidity risk by forecasting cash flows required by operations
and anticipated investing and financing activities. At December 31, 2016, the Company had working capital of $8.22
million (2015: $5.15 million) available to apply against short-term business requirements. All of the Company’s
financial liabilities have contractual maturities of less than 45 days and are subject to normal trade terms.
Determination of Fair value
Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When
applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific
to that asset or liability.
Management considers that due to their short-term nature the carrying amounts of financial assets and financial
liabilities, which include cash and cash equivalents, investments in available-for-sale investments, receivables,
receivable derivatives, amounts due from related parties, deposits, and accounts payables and accrued liabilities are
assumed to approximate their fair values.
33
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016
(Expressed in Canadian Dollars)
17. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT – (cont’d)
The fair value investments in associates are detailed in the following table:
December 31,
2016
Book value
December 31,
2016
Fair value
Financial assets
Shares held in Rackla and recorded as investment in associate (Note 9)
$ 1
$ 445,991
Fair Value Hierarchy
Financial instruments that are measured subsequent to initial recognition at fair value are grouped in Levels 1 to 3
based on the degree to which the fair value is observable:
Level 1
Level 2
Level 3
Unadjusted quoted prices in active markets for identical assets or liabilities;
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
Inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
The available-for-sale investments for B2Gold, Focus, Southern Silver, Medgold, Advantage, and GrowMax are based
on quoted prices and are therefore considered to be Level 1. The available-for-sale investment for Champagne is based
on inputs other than quoted prices and therefore considered to be Level 2. As of December 31, 2016, there was no
embedded derivative on royalty income receivables derived from gold prices to include as a Level 2 measurement and
therefore no fair value measurement was necessary.
There were no transfers between Levels in the year.
18. CAPITAL MANAGEMENT
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going
concern in order to advance its mineral properties. In order to facilitate the management of its capital requirements, the
Company prepares periodic budgets that are updated as necessary. The Company manages its capital structure and
makes adjustments to it to effectively support the acquisition and exploration of mineral properties. The properties in
which the Company currently has an interest are in the exploration stage; as such the Company is dependent on
external financing to fund its activities. In order to carry out the planned exploration and pay for general administrative
costs, the Company will spend its existing working capital and raise additional amounts as needed. The Company will
continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient
geologic or economic potential and if it has adequate financial resources to do so.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the
relative size of the Company, is reasonable. The Company monitors its cash, available-for-sale investments, common
shares, warrants and stock options as capital. There were no changes in the Company’s approach to capital
management during the year ended December 31, 2016. The Company’s investment policy is to hold cash in interest
bearing bank accounts and highly liquid short-term interest bearing investments with maturities of one year or less and
which can be liquidated at any time without penalties. Neither the Company nor any of its subsidiaries is subject to
externally imposed capital requirements and does not have exposure to asset-backed commercial paper or similar
products. The Company expects its current capital resources to be sufficient to carry out its planned exploration
programs and operating costs for the next twelve months.
19. CHANGE IN PRESENTATION
The Company has reclassified certain prior period expenses to conform to the current year presentation of expenses.
34
(the “Company”)
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year End Report – December 31, 2016
General
This Management’s Discussion and Analysis (“MD&A”) supplements, but does not form part of, the annual
audited consolidated financial statements of the Company for the fiscal year ended December 31, 2016. The
following information, prepared as of May 1, 2017, should be read in conjunction with the December 31, 2016
consolidated financial statements. The Company reports its financial position, results of operations and cash
flows in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”). All amounts are expressed in Canadian dollars unless otherwise indicated.
The Company’s public filings, including its most recent unaudited and audited financial statements can be
reviewed on the SEDAR website (www.sedar.com).
Forward Looking Information
This MD&A contains certain statements which constitute forward-looking information within the meaning of
applicable Canadian securities legislation (“Forward-looking Statements”). All statements included herein, other
than statements of historical fact, are Forward-looking Statements and are subject to a variety of known and
unknown risks and uncertainties which could cause actual events or results to differ materially from those
reflected in the Forward-looking Statements. The Forward-looking Statements in this MD&A include, without
limitation, statements relating to:
the Company’s planned exploration activities for its mineral properties;
•
• The Company’s available-for-sale and equity investments;
•
•
•
the suspension of receiving royalty payments from the Tambor Project;
the intended use of proceeds received from past and possible future financing activities;
the sufficiency of the Company’s cash position and its ability to raise, if needed, equity capital or access
debt facilities; and
• maturities of the Company’s financial liabilities or other contractual commitments.
Often, but not always, these Forward-looking Statements can be identified by the use of words such as
“anticipates”, “believes”, “plans”, “estimates”, “expects”, “forecasts”, “scheduled”, “targets”, “possible”,
“strategy”, “potential”, “intends”, “advance”, “goal”, “objective”, “projects”, “budget”, “calculates” or statements
that events, “will”, “may”, “could” or “should” occur or be achieved and similar expressions, including negative
variations.
- 2 -
Forward-looking Statements involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company to be materially different from any results,
performance or achievements expressed or implied by the Forward-looking Statements. Such uncertainties and
factors include, among others:
•
risks associated with mineral exploration activities, and investing in companies which conduct mineral
exploration and development activities;
• due diligence investigations on potential investments not identifying all relevant facts;
•
•
•
•
•
•
inability to dispose of illiquid securities;
receipt of royalty payments from the Tambor Project;
fluctuations in commodity prices;
fluctuations in foreign exchange rates and interest rates;
credit and liquidity risks;
changes in national and local government legislation, taxation, controls, regulations and political or
economic developments in countries in which the Company does or may carry on business;
reliance on key personnel;
•
• property title matters and local community relationships;
•
risks associated with potential legal claims generally or with respect to environmental matters;
•
adequacy of insurance coverage;
• dilution from further equity financing;
•
• uncertainties relating to general economic conditions.
competition; and
as well as those factors referred to in the “Risks and Uncertainties” section in this MD&A.
Forward-looking Statements contained in this MD&A are based on the assumptions, beliefs, expectations and
opinions of management, including but not limited to:
•
•
all required third party contractual, regulatory and governmental approvals will be obtained for the
exploration and development of the Company’s properties;
there being no significant disruptions affecting operations, whether relating to labor, supply, power, damage
to equipment or other matter;
• permitting, exploration and/or development activities proceeding on a basis consistent with the Company’s
current expectations;
ability to sell our available-for-sale and equity investments as needed;
royalty payments from the Tambor Project to begin being received again;
•
•
• due diligence investigations on potential investments will reveal all relevant facts;
•
expected trends and specific assumptions regarding commodity prices and currency exchange rates; and
• prices for and availability of fuel, electricity, equipment and other key supplies remaining consistent with
current levels.
These Forward-looking Statements are made as of the date hereof and the Company disclaims any obligation to
update any Forward-looking Statements, whether as a result of new information, future events or results or
otherwise, except as required by law. There can be no assurance that Forward-looking Statements will prove to
be accurate, as actual results and future events could differ materially from those anticipated in such statements.
Accordingly, investors should not place undue reliance on Forward-looking Statements.
Business of the Company
- 3 -
The Company has been exploring for gold in Latin America for over a decade which has resulted in the discovery
of several gold deposits in Central America. Following the sale of its Trebol and El Pavon projects in Nicaragua
to B2Gold Corp. (“B2Gold”), the Company established a strong treasury which previously included shares of
B2Gold. Management has been conducting an ongoing review of exploration projects and/or distressed junior
companies that may be available for acquisition or joint venture with the aim of expanding the geographic and
commodity focus of the Company.
Since commencement of commercial production at the Tambor Project, Guatemala in December 2014 and until
suspension of operations in May 2016, the Company has received royalty payments from the project owner. To
date, the Company has recognized net royalty income of $1,530,555, of which $746,375 has been received to
date. For further details on this royalty, see “Royalty Interests – Guatemala-Tambor Project Royalty” below.
In order to give the Company more flexibility in the way it is allowed to put its capital to work, the Company
completed in April 2015 a change of business from a Tier 2 Mining Issuer to a Tier 1 Investment Issuer in
accordance with the rules and policies of the TSX Venture Exchange (“TSXV”). There have been no changes in
the Company’s management or Board members as a result of the change of business. The Company remains
involved only in the resource sector and is not seeking to become solely a royalty company or investment fund.
The change of business has simply given the Company more flexibility to apply its working capital to a wider
range of projects within the resource sector.
A summary of the Company’s investments, royalties and properties is provided below:
Investments
In order to capitalize on rebounding markets, the Company sold in 2016 its remaining shares in B2Gold and a
portion of its shares in Southern Silver Exploration Corp. The following is a summary of investment activities
since January 1, 2016 and until the date of this report:
• 2,590,000 shares of B2Gold were sold, for net proceeds of $5.72 million.
• 4,525,000 shares of Southern Silver Exploration Corp. (“Southern Silver”) were sold, for net proceeds of
approximately $828,000.
• 4,992,700 shares of Focus Ventures Ltd. (“Focus”) were purchased at a cost of $310,094, of which
3,512,700 shares were acquired by way of private placements, 770,000 shares by exercising share
purchase warrants, and 710,000 shares by purchases in the open market.
• 2,000,000 common shares of Medgold Resources Corp. (“Medgold”) were acquired at a cost of $300,000
upon the exercise of 2,000,000 share purchase warrants.
• 250,000 common shares of Advantage Lithium Corp. (“Advantage”) were acquired pursuant to a mineral
property option agreement.
• 500,000 common shares of GrowMax Resources Corp. (“GrowMax”) were purchased at a cost of
$70,355 in the open market.
• 625,000 common shares of Champagne Resources Limited (“Champagne”), a private company, were
acquired by way of a private placement at a cost of $50,000.
• 1,263,883 common shares of Volcanic Gold Mines Inc. (“Volcanic”), a publicly listed company, were
received with a fair value of $606,664 at the time of issuance, pursuant to a mineral property assignment
agreement.
• 1,959,000 common shares of Volcanic were acquired by way of private placements at a cost of $575,100.
The Company’s current cash and cash equivalents on hand is approximately $4.3 million and its current
investments consist of:
- 4 -
Advantage
250,000 shares
Current market value: $135,000
Advantage is a resource company specializing in the
strategic acquisition, exploration and development of
lithium properties.
Champagne
625,000 shares
Current market value: N/A
Plus: warrants to purchase an additional 312,500
shares
Champagne is a private company engaged in the
exploration of mineral resource properties in northern
Ontario with a focus on gold deposits. It has a
significant land position in the world class Kirkland
Lake Gold Camp five kilometres from the Town of
Kirkland Lake and adjacent to Kirkland Lake Gold
Inc.’s high grade producing gold mine.
Focus
7,831,106 shares
Current market value: $391,000
Focus is a Canadian-listed exploration company
developing the Bayovar 12 sedimentary phosphate
resource in northern Peru.
Plus: warrants to purchase an additional 4,573,700
shares
GrowMax
500,000 shares
Current market value: $57,000
GrowMax is a TSXV listed company focused on
exploration and development of phosphate and
potassium-rich brine resources on its Bayovar
concessions in northwestern Peru.
Medgold
10,040,000 shares (10+% of issued)
Current market value: $2,058,000
Medgold is a European-focused TSXV listed gold
exploration and development company, focussing on
the orogenic gold provinces of northwest Iberia and
the under-explored provinces of southern Europe.
Rackla Metals Inc. (“Rackla”)
2,973,275 shares (10+% of issued)
Current market value: $401,000
Rackla is a mineral exploration company actively
looking for new projects in the Americas to add to its
portfolio of mineral claims in the Yukon Territory.
Plus: warrants to purchase an additional 1,000,000
shares
- 5 -
Southern Silver
1,475,000 shares
Current market value: $567,000
Southern Silver is engaged in the acquisition,
exploration and development of high-grade precious /
base metals properties within North America, and is
continuing to advance its flagship Cerro Las Minitas
silver-lead-zinc property in Mexico.
Volcanic
3,222,883 shares
Current market value: $1,933,000
Volcanic is a TSXV listed company focused on
consolidating an under-explored gold district in West
Africa.
Plus: warrants to purchase an additional 1,542,000
shares
Property Interests
USA – Nevada – Bald Peak Property
In March 2017, the Company purchased the Bald Peak gold property from Ely Gold & Minerals Inc. (TSX-V:
ELY) and its wholly owned subsidiary, Nevada Select Royalty Inc. (“Nevada Select”), adding to the Company’s
portfolio of epithermal gold prospects in the Aurora gold camp, Nevada.
The Bald Peak Property consists of 38 unpatented mining claims in Mineral County, Nevada and one mineral
prospecting licence in Mono County, California. The Property overlies a 6 kilometres long, NE-trending zone of
gold-bearing quartz-chalcedony veins, stockworks and hot spring silica sinters that has seen minimal historical
exploration work.
Bald Peak Mountain is a rhyolite dome complex located 7 kilometres WNW of the historic Aurora Gold mine that
was recently acquired by Klondex Mines Inc. The high level gold bearing veins/stockworks and sinters
discovered on the Property occur in a rhyolitic sedimentary unit intermittently exposed beneath more recent
volcanic flows along a NE-trending depression, potentially a graben structure. Previous explorers in the area
collected rock chip samples along this trend. Historical exploration documentation shows that within the Property
boundaries, 201 rock chip samples from exposed outcrops returned assay values ranging from trace to 7 g/t Au,
with 40 samples returning assay values above 1 g/t Au. Rock chip samples also contain highly anomalous levels
of Hg, Sb, and As, elements typical of shallowly-exposed epithermal systems. The historical geochemical data
suggest that these outcrops may represent the upper portions of a productive hydrothermal system.
The Company intends to leverage its prior experience in these high level environments to advance the Bald Peak
Property, exploring for bonanza epithermal gold-silver veins similar to those seen within the Bodie-Aurora-
Borealis district. Initial work on the Property will entail geological mapping, rock sampling and the establishment
of a soil sampling grid over the entire claim group with multi-element I.C.P. This program will likely be followed
by a geophysical survey.
The historical results given here are from previous explorers’ exploration summary documents, and have not been
independently verified by a Qualified Person. The exploration work summarized appears to have been done to an
appropriate technical standard, however, and the Company’s Qualified Person believes them to be reliable. The Company
will be selectively resampling surface outcrop as part of its due diligence exploration work.
Acquisition Terms
- 6 -
The Company has acquired a 100% interest in the Bald Peak Property in consideration of the payment to Nevada
Select of US$35,115, the granting to Nevada Select and/or a former property owner, of a total 3% NSR royalty,
and making annual advance royalty payments to Nevada Select of US$25,000. The Company has the right to
reduce either royalty by 1% by paying US$1.0 million to Nevada Select, and/or US$500,000 to the former owner.
USA - Nevada – Spring Peak Property
In May 2016, the Company acquired an option to earn a 100% interest in the Spring Peak gold property in
Mineral County, Nevada, from Kinetic Gold (US) Inc. The terms of the option agreement are described in the
Company’s December 31, 2016 financial statements.
The Spring Peak Property consists of 37 contiguous United States Federal Mineral Claims comprising 309
hectares located approximately 37 kilometres southwest of the town of Hawthorne, Nevada. The Property is
situated in the historic Aurora-Borealis-Bodie mining district which lies within the Walker Lane gold trend of
western Nevada. The gold deposits in the Aurora-Borealis-Bodie district occur as both high grade vein-hosted
low sulphidation deposits (Aurora, Bodie), and as high-sulphidation alunite-kaolinite gold-deposits (Borealis).
Total historical precious metal production along this trend, from the mid-19th century to the mid-1990s, has been
estimated at 4.0 million ounces Au, and 11.2 million ounces Ag (MDA, 2002).
The Spring Peak Property is approximately 6 kilometres southeast of the historical open pit mines at Aurora. At
Spring Peak, a sinter terrace is exposed overlying altered volcaniclastic deposits and basement Cretaceous
granites (USGS, 2012). The sinter system contains anomalous concentrations of Au, Ag, Hg, Sb, and As. Recent
ash fall deposits cover much of the area, but frequent vein float with multi-ppm gold concentrations can be found
across the Property. The area was drilled with shallow holes in the 1980s, the majority of which were vertical.
The sinter terrace and potential structures beneath it were never adequately drill tested. The Company believes
the Property has the potential to host subvertical high grade veins as feeders to the sinter terraces.
The Company has completed a 13-line CSAMT survey (see news release dated October 19, 2016) and has
generated new drill targets on the Spring Peak Property. Previous exploration activities by the Company include
due diligence sampling of sinter terraces, and vein float on the Property, prospecting along the structure of
interest, and conducting a soil sampling survey (100m x 25m grid oriented orthogonal to the NE-SW targeted
structure).
The Company is currently preparing a Plan of Operations for a drilling program at Spring Peak, to be submitted to
the United States Forest Service. Drill-testing of the Property is planned once the Plan of Operations has been
approved, anticipated for mid- to late-2017.
USA - Nevada – ABC Property
During the year ended December 31, 2016, the Company staked 122 contiguous United States federal mining
claims covering approximately 992 hectares in in the historic Walker Lane Gold Trend in Mineral County,
Nevada. The ABC Property is located along the structural trend that hosts the historical Aurora mining district,
the Borealis mine and the historical Bodie mining camp in California. The gold deposits in the Aurora-Borealis-
Bodie district occur as both high grade vein-hosted low sulphidation deposits (Aurora, Bodie), and as high-
sulphidation alunite-kaolinite gold-deposits (Borealis). Total historical precious metal production along this
approximately 32 kilometre trend, from the mid-19th century to the mid-1990s, has been estimated at 4.0 million
ounces Au, and 11.2 million ounces Ag (1).
The Aurora-Borealis-Bodie district hosts both oxidized and gold-sulphide deposits. From studies of the
mineralized deposits of the Borealis mine, gold-sulphide mineralization is observed at the bottom of most pits, the
most significant of which is beneath the Freedom Flats deposit (4). Previous operators of the Borealis mine also
believe that potential high-grade feeder structures remain beneath existing pits. Drilling of these zones has
intercepted thick zones of high-grade, in particular, the Freedom Flats area, including (4):
- 7 -
• FF-50 with 18.3 m averaging 7.95 g/t Au
• FF-173 with 16.8 m averaging 17.55 g/t Au
• FF-223 with 6.2 m averaging 16.11 g/t Au
• FF-229 with 33.5 m averaging 29.35 g/t Au
The results from the Borealis mine above are solely displayed to illustrate the existence of high-grade feeder
structures in the Aurora-Borealis-Bodie district.
The Company’s Qualified Person has been unable to verify the above information, and it is not necessarily indicative that
similar mineralization will be found on the ABC Property.
The ages of mineralization within the district span 6 million years (Ma) (Bodie 8.5 Ma, Aurora 10.5 Ma (2) and
Borealis 4.5 Ma (3), evidencing a long-lived structure that has facilitated significant fluid flow and produced three
significant gold deposits. The Company believes the long-lived and well-mineralized nature of this structure make
the covered untested sections compelling areas to explore for blind high-grade gold deposits.
The ABC Property covers seven kilometres of what management believes to be an untested portion of the
structure that acted as the conduit system for these gold deposits, and is covered by thin extrusive trachyandesites
of the Aurora Volcanic Field. It is the Company’s belief that no previous operator in the area has attempted to
identify the regional structure beneath these extrusive flows. The Company is targeting relatively shallow high-
grade prospects, similar to those observed at the Freedom Flats deposit, using IP to delineate new targets. IP has
been successfully used in the area to identify buried targets in the Borealis mine area.
References:
1) Technical Report on the Esmeralda Project, Mineral County, Nevada USA. P. Knudsen & N. Prenn, Mine
Development Associates (MDA). Prepared for Metallic Ventures Inc., 2002.
2) Gold-Silver Mining Districts, Alteration Zones, and Paleolandforms in the Miocene Bodie Hills Volcanic Field,
California and Nevada. USGS Scientific Investigations Report 2015-2012.
3) Geologic Discussion of the Borealis Gold Deposit, Mineral County, Nevada. Strachan D. G. USGS Bull. 1982.
4) NI 43-101 Pre-Feasibility Study Update of the Mineral Resources of the Borealis Gold Project Located in
Mineral County, Nevada, USA. J. D. Welsh & J. M. Brown. Prepared for Gryphon Gold Corp., 2011.
Mexico – Lithium Brine Projects
During 2016, the Company submitted applications for mineral concessions totaling 37,000 hectares covering four
lithium brine projects in the States of Chihuahua and Coahuila in northern Mexico.
While working in northern Mexico, the Company’s exploration team recognized the potential of the large salar
basins and compiled a database from historic lithium exploration conducted by the Mexican geological survey
between 1987 and 1993. Highlights of the Company’s lithium projects include:
• The projects are located in large, salar closed basins, in geological settings analogous to the Clayton
Valley Basin, Nevada, host of Albemarle’s Silver Peak lithium producing mine operation.
• Historic work in the area by the Mexican Geologic Survey included a 1982 drill hole at La Union which
returned a brine sample of 283 ppm Li.
- 8 -
• The Company conducted controlled surface samples which delivered numerous anomalous lithium results
including 189ppm Li at La Viesca.
• Region is underexplored.
• Mexico is considered a mining friendly jurisdiction. The area has excellent infrastructure and is road
accessible, allowing for potentially low exploration costs.
Key geographical highlights similar to Clayton Valley and/or associated with brine deposits:
• Located in a desert climate with historic evaporate ponds.
• Large closed basin salar targets.
• Geothermal hotsprings observed at two of the salars.
• Suitable lithium source-rocks.
• Subsurface highly saline aquifers described in historic data.
In September 2016, the Company granted to Advantage an option to earn up to a 70% interest in the projects.
However, prior to commencing any exploration work on the projects, Advantage has recently advised the
Company that it has decided to focus its efforts in countries other than Mexico and therefore will be terminating
its option agreement. The Company is identifying other lithium companies to initiate discussions on a joint
venture on the projects.
Mexico - Tlacolula Property
The Company discovered silver mineralization in 2005 following a regional stream geochemical survey in various
areas of the state of Oaxaca. An initial trenching program on the Tlacolula property defined a broad low grade
silver/gold anomaly associated with opaline silica, indicating a high level system. In late 2009, the Company
optioned the Tlacolula silver project to Fortuna Silver Mines Inc. (TSX-FVI) (“Fortuna”) and the option
agreement was amended in December 2012 and in November 2014. The 12,642 hectare property is located 14
kilometres east-southeast of the city of Oaxaca and 30 kilometres northeast of Fortuna’s 100%-owned San Jose
silver-gold mine.
Pursuant to the option agreement as amended, Fortuna had the right until January 2017 to earn a 60% interest in
the Tlacolula project by making certain cash payments and share issuances to the Company and by spending
US$2.0 million on exploration, which includes a commitment to drill 1,500 metres within 12 months of issuance
of a drill permit for the project. To date, the Company has received US$200,000 in cash and 34,589 shares of
Fortuna.
Fortuna advanced the property with sampling and trenching but has been unsuccessful to date in obtaining social
licence to conduct a drill testing program. As the deadline for meeting the required expenditures under the option
agreement has lapsed, the Company and Fortuna have agreed to amend the option so that Fortuna will acquire a
100% interest in the property by paying to the Company US$150,000 in cash, issuing such number of Fortuna
shares that is equal to 250,000 Fortuna shares less such number of Fortuna shares that is equal to US$50,000, and
granting the Company a 2% NSR royalty. Fortuna will retain the right to purchase one-half of the royalty (equal
to 1%) by paying the Company US$1.5 million. This amendment is subject to stock exchange approval.
The Company and Fortuna are related parties.
Guatemala - Southeast Guatemala Ag-Au Epithermal Fields
As a result of continued uncertainty surrounding the granting of both exploration and exploitation concessions in
Guatemala, and a general increase in the level of anti-mining activism in many parts of the country, the Company
- 9 -
ceased its ongoing exploration activities in the country in the third quarter of 2013 though care and maintenance
of the properties continue. Management will reassess the Company’s plans for this country on a regular basis and
exploration activities may be ramped back up if the mining investment climate improves. Discussions are
underway with a number of potential partners to joint venture this ground.
Royalty Interests
Guatemala – Tambor Project Royalty
In 2012, the Company sold its interest in its subsidiary, Exploraciones Mineras de Guatemala S.A., which holds
the Tambor gold project in Guatemala, to Kappes, Cassiday & Associates (“KCA”), giving KCA a 100% interest
in the project. In part consideration therefor, KCA agreed that upon commercial production at Tambor, KCA
would commence making royalty payments to the Company.
Commercial production commenced in December 2014 and royalty payments are now due to the Company based
on the price of gold at the time and the number of ounces of gold produced as follows:
Gold Price (US$)
Below $1,200
$1,201 - $1,300
$1,301 - $1,400
$1,401 - $1,500
$1,501 and greater
Per Ounce of Gold
$100
$125
$150
$200
$250
up to a maximum of US$10.0 million. After the US$10.0 million has been paid and cumulative gold production
from the Tambor Project has exceeded 100,000 ounces, the cash payments will be based on the then price of gold
and the number of ounces of gold produced as follows:
Gold Price (US$)
Below $1,500
$1,501 - $1,750
$1,751 - $2,000
$2,001 and greater
Per Ounce of Gold
$25
$35
$40
$50
Receipt of royalty payments by the Company commenced during the third quarter of 2015. To date, the Company
has recognized net royalty income of $1,530,555 of which $746,375 has been received to date.
On May 11, 2016, the project owner informed the Company that mining operations were suspended by the
Supreme Court of Guatemala due to a lack of consultation by the Guatemalan Ministry of Mines with local
indigenous people when the mine was permitted in 2011. To date, the Supreme Court has not made a decision on
when the mine may re-open. The Company has allowed KCA to defer payment of the remaining receivable
balance while KCA prepares a legal strategy to overturn the suspension of operations and seek compensation
from the Guatemalan authorities, from which the Company would benefit as well. Due to these circumstances, for
accounting purposes, a provision was recorded against the KCA receivable for the year ended December 31,
2016.
Peru – Bayovar 12 Project Royalty
In April 2015, the Company purchased from Focus a production royalty, equivalent to a 2% net smelter return, on
Focus’s 70% interest in future phosphate production from the Bayovar 12 project located in the Sechura district of
- 10 -
northern Peru. The purchase price for the royalty was US$1.0 million. Focus had the right until April 15, 2016 to
buy back one-half of the royalty for US$1.0 million, but did not elect to make such purchase. Should the
Company decide at any time in the future to sell the royalty, Focus will retain a first right of refusal. In May
2016, Focus published a pre-feasibility study for production of phosphate rock concentrate from the Bayovar 12
project. The Company and Focus are related parties.
Nicaragua – San Jose Royalty
In 2013, an agreement was reached whereby the Company would sell to B2Gold its 40% interest in the San Jose
and La Magnolia properties in consideration of a 2% NSR royalty on each property, and B2Gold would have the
right to purchase one-half of each royalty for US$1.0 million. The Company and B2Gold have since decided to
relinquish the La Magnolia concession. Formal agreements were signed by the companies in October 2014, and
the closing of the San Jose sale, and the royalty grant to the Company, took place on June 30, 2015.
Outlook
The Company continues to conduct its property investigations in various jurisdictions and with various
commodities but with a focus on gold and silver in Nevada and Mexico. The Company’s geologists are using a
low cost and effective method of field testing targets that are generated through desktop research and through
submittals.
Qualified Person: David Clark, M.Sc., P.Geo., a member of the Association of Professional Engineers and
Geoscientists of British Columbia, is the Company’s Qualified Person as defined by National Instrument 43-101,
and has approved the disclosure of the technical information in this MD&A.
Selected Annual Information
The following table sets forth selected annual financial information of the Company for, and as at, the end of each
of the last three financial years ending December 31, 2016, 2015, and 2014:
Royalty income
Investment and other income
Exploration expenditures(1)
Net income (loss) for the year
Total
Basic & fully diluted per share
Total assets
Total long-term liabilities
Cash dividends
2016 ($)
431,643
13,068
544,586
1,862,266
0.02
9,848,863
-
-
2015 ($)
1,098,912
17,293
589,162
2014 ($)
-
43,245
1,502,453
(1,875,449)
(0.02)
7,088,017
-
-
(1,369,907)
(0.02)
9,045,049
-
-
(1) The Company has reclassified certain prior period exploration expenses to conform to the current year presentation of expenses.
The Company first started recording royalty income in the 2015 fiscal year as a result of the previously held
Tambor Project going into production in December 2014. Royalty revenue was less in the 2016 fiscal year due to
the suspension of mine operations since May 2016.
Quarterly Information
- 11 -
The following table provides information for the eight fiscal quarters ended December 31, 2016:
Quarter ended
Royalty revenue, net
Investment and other income
Exploration
expenditures(1)
Dec. 31,
2016 ($)
47,960
4,689
Sep. 30,
2016 ($)
26,973
4,764
June 30,
2016 ($)
Mar. 31,
2016 ($)
Dec. 31,
2015 ($)
Sep. 30,
2015 ($)
June 30,
2015 ($)
Mar. 31,
2015 ($)
135,303
221,407
343,350
267,729
487,833
-
2,930
685
18
34
412
16,829
Net income (loss)
(1,101,528)
738,793
2,320,061
(95,060)
(842,842)
(1,287,262)
58,318
102,932
215,591
107,590
118,473
132,381
114,923
194,966
146,892
196,337
Basic and diluted
income (loss) per share
(0.01)
0.01
0.02
(0.00)
(0.01)
(0.02)
0.00
0.00
(1) The Company has reclassified certain prior period exploration expenses to conform to the current year presentation of expenses.
The Company started to record royalty revenue from production at the Tambor Project during the quarter ended
June 30, 2015 and continued to the quarter ended June 30, 2016, the period in which mining operations were
suspended. The royalty revenue recorded in the two most recent quarters was due to adjustments to income
recorded in a prior period. The quarter ended September 30, 2016 recorded a net income due to a gain on the sale
of available-for-sale investments of $697,610 resulting from the disposition of B2Gold and Southern Silver shares
and a gain of $311,252 from mineral property option agreement payments consisting of cash and common shares
received from Advantage. The quarter ended June 30, 2016 recorded a net income due to the disposition of
B2Gold and Southern Silver shares resulting in a gain of $1,818,398 and a gain of $520,727 on the
reclassification of an investment. The net losses for the quarters ended December 31, 2015 and September 30,
2015 were impacted by impairment charges against available-for-sale investments with the most significant being
$1,243,199 in the quarter ended September 30, 2015. The quarter ended March 31, 2015 recorded a net income
due to a recovery of a previously written off receivable of $423,055 related to the Tambor Project, and a gain of
$180,000 resulting from the receipt of Southern Silver shares as partial settlement of a loan.
Results of Operations
Quarter ended December 31, 2016
The quarter ended December 31, 2016 had a net loss of $1,101,528 compared to a net loss of $842,842 for the
quarter ended December 31, 2015, an increase of $258,686. Due to the suspension of Tambor operations in May
2016, the current quarter included net royalty income of only $47,960 which was an adjustment to income
recorded in a prior period. The comparative period recorded a net royalty income of $343,350. The net loss for
the comparative quarter was also significantly impacted by a provision of $784,180 against a receivable on
royalty revenue. The current quarter recorded an impairment charge of $63,401 on available-for-sale investments
compared to an impairment charge of $370,691 in the comparative quarter. Exploration expenditures in the
current quarter totaled $102,932 compared to $132,381 in the comparative quarter, a decrease of $29,449.
However, the comparative quarter recorded a write-off of $555,189 on exploration and evaluation asset costs
whereas there was no such expense in the current quarter. Exploration expenditures include property investigation
costs which relate to evaluating new opportunities, and exploration activities on properties held by the Company.
General and administrative expenses for the quarter ended December 31, 2016 were $358,417 compared to
$152,299 for the comparative quarter, an increase of $206,118. This increase was due to a share-based
compensation expense of $213,150 in the current quarter that related to the granting of stock options compared to
no such expense in the comparative quarter. Notable cost decreases in the current quarter were in management
fees and office and miscellaneous. Office costs were higher in the comparative quarter due to higher office lease
costs. Management fees are lower during the current quarter as the compensation for the Chief Executive Officer
- 12 -
has been allocated between management and geological services whereas they were not in the comparative year;
otherwise total compensation to the Chief Executive Officer remained the same for both years.
Year ended December 31, 2016
The year ended December 31, 2016 had a net income of $1,862,266 compared to a net loss of $1,875,449 for the
year ended December 31, 2015, a difference of $3,737,715. The current year net income is due to a gain on sale of
available-for-sale investments of $2,688,336, a gain of $691,727 on the reclassification of an investment, and a
gain of $276,252 from mineral property option payments received. Royalty income during the current year totaled
$431,643 compared to $1,098,912 in the comparative year, a decrease of $667,269. The comparative year
recorded a $423,055 recovery of a previously written off receivable relating to the Tambor Project and a $180,000
gain on a loan conversion, whereas no such items were recorded in the current year. The current year recorded a
share of post-tax losses of Medgold, an associated company up until June 2016, of $136,000 compared to
$243,000 in the comparative year. Both years also included an impairment charge on available-for-sale
investments, with the amount for the current year being $205,321 and the comparative year $1,642,154.
Exploration expenditures in the current year totaled $544,586 compared to $589,162 in the comparative year.
Similar to the quarterly comparison, the comparative year also recorded a write-off of $587,211 on exploration
and evaluation asset costs whereas there was no such write-off in the current year.
General and administrative expenses for the year ended December 31, 2016 were $701,432 compared to $745,821
for the year ended December 31, 2015, a decrease of $44,389. As in the quarterly comparison, the current year
recorded a share-based compensation expense of $213,150 compared to no such expense in the comparative year.
All other categories of general and administrative expenses in the current year were lower than those in the
comparative year. The most notable decreases were in legal and audit fees, management fees, and office and
miscellaneous costs. Legal and audit fees and office costs were higher in the comparative year due to additional
activities relating to the change of business of the Company that took effect in 2015 and higher office lease costs.
Management fees were lower in the current year for the same reason in the quarterly comparison.
Mineral Properties Expenditures
A summary of the Company’s expenditures on its mineral properties during the year ended December 31, 2016 is
as follows:
United States – A total of $194,460 on property investigation and exploration related costs were incurred, of
which $87,675 was on general property investigation, $75,214 on the Spring Peak property, and $31,571 on the
ABC property. Acquisition costs of $19,472 and $69,187 were also incurred on the Spring Peak and ABC
properties, respectively.
Mexico - A total of $140,205 was incurred on exploration, property investigation, and miscellaneous
administrative costs. In addition, acquisition costs of $23,748 were incurred on the Lithium Brine Projects.
Guatemala – A total of $69,525 was incurred on property investigation and care and maintenance related costs.
Other – A total of $140,396 was incurred on property investigation and care and maintenance related costs in
regions other than USA, Mexico and Guatemala.
Further details regarding exploration expenditures for the years ended December 31, 2016 and 2015 are provided
in the schedules at the end of this MD&A.
Liquidity and Capital Resources
The Company’s cash and cash equivalents increased from $151,861 at December 31, 2015 to $5,130,064 at
December 31, 2016. As at December 31, 2016, working capital was $8.22 million compared to $5.15 million at
- 13 -
December 31, 2015. Included in working capital is the value of the Company’s available-for-sale investments in
Focus, Southern Silver, Medgold, Advantage, GrowMax, and Champagne common shares which as at December
31, 2016, had a combined fair value of $2.79 million compared to $4.25 million as at December 31, 2015. The
decrease in total available-for-sale investment value during the current year is due to the disposition of all
remaining B2Gold shares and a significant amount of Southern Silver shares.
During the year ended December 31, 2016, the Company sold its remaining 2,590,000 B2Gold shares for net
proceeds of $5.72 million and sold 4,500,000 Southern Silver shares for net proceeds of $814,508. Subsequent to
December 31, 2016, an additional 25,000 Southern Silver shares were sold for net proceeds of $13,725, leaving a
current balance of 1,475,000 Southern Silver shares held.
Pursuant to the option agreement entered into with Advantage on the Lithium Brine Projects, the Company
received 250,000 common shares of Advantage and $75,000 in cash during the year ended December 31, 2016.
The Company’s investment in Medgold was previously accounted for as an investment in associate but was
reclassified as an available-for-sale investment during the year ended December 31, 2016.
The Company holds 2,973,275 common shares in Rackla with a fair value as at December 31, 2016 of $445,991;
however, the investment is being accounted for as an investment in associate, using the equity method, since the
Company may be able to exercise significant influence on Rackla. The Company also currently holds 1,000,000
Rackla warrants and although these are transferable, they are not traded on an exchange.
Since 2012, the Company has relied mostly on selling B2Gold shares to provide working capital for operations. In
2015, the Company also started to earn royalty revenue from production at the previously held Tambor Project.
However, royalty revenue since May 2016 is uncertain due to the current suspension of operations at Tambor.
The Company intends to use the proceeds from sales of its equity investments, option payments received and any
royalty income payments it may receive to fund its exploration programs, investment opportunities, and general
working capital requirements. The Company expects its current capital resources to be sufficient to carry out its
exploration and investment plans and operating costs for the next twelve months.
Commitment
The Company has entered into an operating lease agreement for its office premises. The Company also rents
space to other companies related by common directors and officers on a month to month basis, the amounts of
which are netted against rental expense; however, there are no commitments from these companies and thus the
amounts presented below are the gross commitments. The annual commitments under the lease are as follows:
2017
2018
2019
$ 190,608
190,608
190,608
$ 571,824
Financial Instruments and Risk Management
The Company is exposed to the following financial risks:
• Market Risk
• Credit Risk
• Liquidity Risk
In common with all other businesses, the Company is exposed to risks that arise from its use of financial
instruments. This section describes the Company’s objectives, policies and processes for managing those risks
- 14 -
and the methods used to measure them. Further quantitative information in respect of these risks is presented
throughout the accompanying financial statements.
General Objectives, Policies and Processes
The Board of Directors has overall responsibility for the determination of the Company’s risk management
objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for
designing and operating processes that ensure the effective implementation of the objectives and policies to the
Company’s finance function. The Board of Directors receives periodic reports through which it reviews the
effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly
affecting the Company’s competitiveness and flexibility. Further details regarding these policies are set out
below.
a) Market Risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of
changes in market prices. Market prices are comprised of three types of risk: foreign currency risk, interest rate
risk, and equity price risk.
Foreign Currency Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in foreign exchange rates. The Company is exposed to fluctuations in foreign currencies
through its operations in foreign countries. The Company monitors this exposure, but has no hedge positions. As
at December 31, 2016 and 2015, the Company is exposed to currency risk through the following financial assets
and liabilities denominated in currencies other than the Canadian dollar:
December 31, 2016
December 31, 2015
US Dollar
(CDN
equivalent)
Mexican
Peso
(CDN
equivalent)
Guatemala
Quetzal
(CDN
equivalent)
Nicaragua
Cordoba
(CDN
equivalent)
US Dollar
(CDN
equivalent)
Mexican
Peso
(CDN
equivalent)
Guatemala
Quetzal
(CDN
equivalent)
Nicaragua
Cordoba
(CDN
equivalent)
Cash
Receivables
Current liabilities
$ 20,012
-
(11,507)
$ 930
27,047
(4,439)
$ 24
2,872
(1,609)
$ 525
-
(7,706)
$ 93,498
743,682
(19,141)
$ 1,290
27,592
(4,718)
$ 411
2,261
(567)
$ 1,045
-
(4,769)
$ 8,505
$ 23,538
$ 1,287
$ (7,181)
$ 818,039
$ 24,164
$ 2,105
$ (3,724)
Based on the above net exposures at December 31, 2016, a 10% depreciation or appreciation of the above
currencies against the Canadian dollar would result in approximately a $2,600 (2015: $84,000) increase or
decrease in profit or loss, respectively.
Commodity Price Risk
The Company’s royalty revenue is derived from a royalty interest and is based on the extraction and sale of gold.
Factors beyond the control of the Company may affect the marketability of gold discovered. Gold prices have
historically fluctuated widely. Consequently, the economic viability of the Company’s royalty interest cannot be
accurately predicted and may be adversely affected by fluctuations in mineral prices. The Company has not
engaged in any hedging activities.
- 15 -
Interest Rate Risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The
Company does not have any borrowings. Interest rate risk is limited to potential decreases on the interest rate
offered on cash held with chartered Canadian financial institutions. The Company considers this risk to be limited
as it holds no assets or liabilities subject to variable rates of interest.
Equity Price Risk
Equity price risk is the uncertainty associated with the valuation of assets arising from changes in equity markets.
The Company’s available-for-sale investments are exposed to significant equity price risk due to the potentially
volatile and speculative nature of the businesses in which the investments are held. The available-for-sale
investments held in Medgold, Focus, Southern Silver, Advantage, GrowMax, and Champagne are monitored by
the Board with decisions on sale taken by Management. A 10% decrease in fair value of the shares would result
in an approximate $279,000 decrease in equity.
b) Credit Risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its
contractual obligations. The Company’s credit risk is primarily attributable to its cash and cash equivalents,
available-for-sale investments and receivables. The Company limits exposure to credit risk by maintaining its
cash and cash equivalents with large financial institutions. The Company does not have cash and cash equivalents
or available-for-sale investments that are invested in asset based commercial paper. For advances and other
receivables, the Company estimates, on a continuing basis, the probable losses and provides a provision for losses
based on the estimated realizable value.
c) 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’s approach to managing liquidity risk is to provide reasonable assurance that it will have sufficient
funds to meet liabilities when due. The Company manages its liquidity risk by forecasting cash flows required by
operations and anticipated investing and financing activities. The Company believes that these sources will be
sufficient to cover the known requirements at this time.
Related Party Transactions
The Company’s related parties with transactions during the years ended December 31, 2016 and 2015 consist of
directors, officers and the following companies with common directors:
Related party
Mill Street Services Ltd. (“Mill Street”)
Gold Group Management Inc. (“Gold Group”)
Fortuna
Focus
Medgold
Rackla (Associate)
Nature of transactions
Management fees
Shared general and administrative expenses
Shared general and administrative expenses
Investment and shared general and administrative expenses
Investment and shared general and administrative expenses
Investment
The Company incurred the following expenditures charged by non-key management officers and companies
which have common directors with the Company during the periods ended December 31, 2016 and 2015:
- 16 -
Three months ended
December 31,
2015
2016
Year ended
December 31,
2015
2016
$ 10,000
$ 4,080
$ 36,827
$ 23,420
18,542
163
-
1,562
18,542
4,326
-
2,471
$ 28,705
$ 5,642
$ 59,695
$ 25,891
General and administrative expenses:
Salaries and benefits
Exploration expenditures:
Geological fees
Salaries and benefits
During the periods ended December 31, 2016 and 2015, the Company reimbursed Gold Group, a company
controlled by the Chief Executive Officer of the Company, for the following costs:
General and administrative expenses:
Office and miscellaneous
Shareholder communications
Salaries and benefits
Transfer agent and regulatory fees
Travel and accommodation
Three months ended
December 31,
2015
2016
Year ended
December 31,
2015
2016
$ 10,619
-
30,923
522
2,013
$ 12,346
-
23,918
-
2,518
$ 41,263
1,289
118,658
3,378
9,327
$ 40,396
3,019
124,043
2,763
13,471
$ 44,077
$ 38,782
$ 173,915
$ 185,279
Exploration expenditures
$ 2,930
$ -
$ 2,930
$ 1,587
Gold Group is reimbursed by the Company for certain shared costs and other business related expenses paid by
Gold Group on behalf of the Company. Salary and benefits costs for the periods ended December 31, 2016 and
2015 include those for the Chief Financial Officer and Corporate Secretary.
Prepaid expenses and deposits include an amount of $5,797 (2015: $7,084) paid to Gold Group for shared office
and administrative services.
Long-term deposits as of December 31, 2016 include an amount of $60,000 (2015: $60,000) paid to Gold Group
as a deposit on the shared office and administrative services agreement.
Amounts due from related parties as of December 31, 2016 consists of $13,693 (2015: $8,224) due from
Medgold, a company with a common director with the Company, and arose from shared administrative costs and
$3,107 (2015: $Nil) is due from Focus, a company which has two common directors with the Company, and arose
from shared administrative costs. These amounts were unsecured, non-interest bearing and due on demand.
Accounts payable and accrued liabilities include $2,828 (2015: $21,913) payable to Gold Group for shared
administrative costs $4,033 (2015: $Nil) to a Director of the Company for geological fees, and $Nil (2015:
$8,925) to Mill Street for management and geological fees.
During the year ended December 31, 2016, the following transactions also occurred:
i) The Company acquired 2,250,000 common shares of Focus of which 770,000 shares were acquired by way of
a private placement for a cost of $50,050, another 770,000 shares acquired upon the exercise of share
purchase warrants at a cost of $57,750, and 710,000 shares acquired on the open market for a cost of $65,159;
and
- 17 -
ii) The Company acquired 2,000,000 common shares of Medgold upon the exercise of 2,000,000 share purchase
warrants at a cost of $300,000.
During the year ended December 31, 2015, the following transactions also occurred:
i) The Company acquired 40,000 common shares in Medgold on the open market at a cost of $4,085;
ii) The Company acquired 1,831,000 common shares and 1,831,000 share purchase warrants in Focus by way of
a private placement that closed on May 26, 2015 at a cost of $366,200; and
iii) The Company acquired 1,000,000 common shares and 1,000,000 share purchase warrants in Rackla by way
of a private placement that closed on October 19, 2015 at a cost of $50,000.
Key management compensation
Key management personnel are persons responsible for planning, directing and controlling the activities of an
entity, and include certain directors and officers. Key management compensation comprises:
Three months ended
December 31,
2015
2016
Year ended December 31,
2015
2016
Management fees
Geological fees
Salaries, benefits and fees
Share-based payments
$ 10,500
15,000
8,708
49,000
$ 25,500
-
8,708
-
$ 42,000
60,000
34,833
49,000
$ 102,000
-
34,375
-
$ 83,208
$ 34,208
$ 185,833
$ 136,375
Total share-based payments to directors not included in the above table during the year ended December 31, 2016
was $55,125 (2015: $Nil).
Other Data
Additional information related to the Company is available for viewing at www.sedar.com.
Share Position and Outstanding Options
As at May 1, 2017, the Company’s outstanding share position is 86,675,617 common shares and the following
incentive stock options are outstanding:
Number of
options
1,245,000
100,000
100,000
1,885,000
1,740,000
5,070,000
STOCK OPTIONS
Exercise
price
$0.29
$0.36
$0.69
$0.20
$0.15
Expiry date
January 7, 2020
May 25, 2020
September 23, 2020
December 12, 2022
October 18, 2026
Investments in Associates
Rackla
- 18 -
The Company currently has an investment in one associated company, Rackla, which is equity accounted for in the
consolidated financial statements.
As at December 31, 2016, the Company’s holding of 2,973,275 (2015: 2,973,275) common shares of Rackla,
represented 19.7% (2015: 19.7%) of Rackla’s outstanding common shares.
The following table shows the continuity of the Company’s interest in Rackla for the period from January 1, 2015
to December 31, 2016:
Balance, December 31, 2014
Increase in investment
Less: share of losses in associate
Balance, December 31, 2015
Balance, December 31, 2016
$ 1
50,000
(50,000)
1
$ 1
Prior to the 2015 fiscal year the Company’s share of losses in Rackla exceeded the carrying value of its interest
and therefore the Company discontinued recognizing its share of further losses. During the 2015 fiscal year, with
the additional 1,000,000 common shares being purchased at a cost of $50,000, the Company recognized losses in
Rackla totaling $50,000 and once again reduced the carrying amount to a nominal $1. The cumulative
unrecognized share of losses for the associate is $567,482.
The financial statement balances of Rackla are as follows:
Total current assets
Total assets
Total liabilities
Net loss
Medgold
December 31,
2016
December 31,
2015
$ 36,537
104,597
133,476
$ 83,887
231,419
41,760
219,288
161,835
Medgold previously met the definition of an associate and was equity accounted for in prior consolidated
financial statements. During the year ended December 31, 2016, Medgold no longer met the definition of an
associate when its interest in Medgold was further diluted to a level significantly below 20% on June 17, 2016
when Medgold issued 10,000,000 common shares by way of a private placement to a different party. Therefore
the Company’s investment in Medgold was reclassified as an available-for-sale investment. Upon discontinuing
the use of the equity method, an investment that is a financial asset is to be measured at fair value and the
difference between the fair value and the carrying value of the investment recognized in profit or loss. The fair
value of the investment in Medgold as at the time of reclassification was $924,600 and its carrying cost was
$403,873. As a result, a gain of $520,727 was recognized in the consolidated statement of operations for the year
ended December 31, 2016.
During the year ended December 31, 2016, Company recorded $136,000 for its share of Medgold’s losses during
the period from January 1, 2016 to the time of de-recognition as an investment in associate.
- 19 -
From January 1, 2016 and until the point of reclassification to an available-for-sale investment during the year
ended December 31, 2016, the Company’s shareholdings in Medgold decreased from 15.5% to 12.6% (2015:
19.1% to 15.5%). As a result, the Company recorded a gain on dilution of $170,045 for the current year (2015:
$85,743).
The following table shows the continuity of the Company’s interest in Medgold for the period from January 1,
2015 to December 31, 2016:
Balance, December 31, 2014
Increase in investment
Less: share of losses in associate
Gain on dilution
Balance, December 31, 2015
Less: share of losses in associate
Gain on dilution
Reclassification as available-for-sale investment
$ 473,000
4,085
(193,000)
85,743
369,828
(136,000)
170,045
(403,873)
Balance, December 31, 2016
$ -
The financial statement balances of Medgold are as follows:
Total current assets
Total assets
Total liabilities
Net loss(2)
June 30,
2016(1)
December 31,
2015
$ 1,507,091
2,039,702
497,674
1,016,621
$ 254,480
1,089,109
548,625
1,182,037
(1) June 30, 2016 was the last financial statements of Medgold used for the accounting treatment as an investment in associate.
(2) Net loss for the six months ended June 30, 2016.
Future Changes in Accounting Policies
The following new standard has been issued by the IASB but is not yet effective:
Disclosure Initiative (Amendments to IAS 7 Statement of Cash Flows)
The amendments require entities to provide disclosures that enable users of financial statements to evaluate
changes in liabilities arising from financing activities.
Effective for the Company's annual period beginning January 1, 2017. This new amendment is not expected to
have a material impact on the Company’s consolidated financial statements.
Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12 Income Taxes)
The amendments clarify how to account for deferred tax assets related to debt instruments measured at fair value.
Effective for the Company's annual period beginning January 1, 2017. This new amendment is not expected to
have a material impact on the Company’s consolidated financial statements.
- 20 -
IFRS 9 Financial Instruments
IFRS 9 will replace IAS 39 Financial Instruments: Recognition and Measurement and IFRIC 9 Reassessment of
Embedded Derivatives. The final version of this new standard supersedes the requirements of earlier versions of
IFRS 9.
The main features introduced by this new standard compared with predecessor IFRS are as follows:
• Classification and measurement of financial assets:
Debt instruments are classified and measured on the basis of the entity's business model for managing the
asset and its contractual cash flow characteristics as either: “amortized cost”, “fair value through other
comprehensive income”, or “fair value through profit or loss” (default). Equity instruments are classified
and measured as “fair value through profit or loss” unless upon initial recognition elected to be classified
as “fair value through other comprehensive income”.
• Classification and measurement of financial liabilities:
•
When an entity elects to measure a financial liability at fair value, gains or losses due to changes in the
entity’s own credit risk is recognized in other comprehensive income (as opposed to previously profit or
loss). This change may be adopted early in isolation of the remainder of IFRS 9.
Impairment of financial assets:
An expected credit loss impairment model replaced the incurred loss model and is applied to financial
assets at “amortized cost” or “fair value through other comprehensive income”, lease receivables, contract
assets or loan commitments and financial guarantee contracts. An entity recognizes twelve-month
expected credit losses if the credit risk of a financial instrument has not increased significantly since
initial recognition and lifetime expected credit losses otherwise.
• Hedge accounting:
Hedge accounting remains a choice, however, is now available for a broader range of hedging strategies.
Voluntary termination of a hedging relationship is no longer permitted. Effectiveness testing now needs to
be performed prospectively only. Entities may elect to continue to applying IAS 39 hedge accounting on
adoption of IFRS 9 (until the IASB has completed its separate project on the accounting for open
portfolios and macro hedging).
Effective for the Company's annual period beginning December 1, 2018.
IFRS 15 Revenue from Contracts with Customers
IFRS 15, Revenue from Contracts with Customers specifies how and when revenue should be recognized as well
as requiring more informative and relevant disclosures. The standard supersedes IAS 18 Revenue, IAS 11
Construction Contracts, and a number of revenue-related interpretations. Application of the standard is mandatory
and it applies to nearly all contracts with customers: the main exceptions are leases, financial instruments and
insurance contracts. IFRS 15 is effective for annual periods starting on or after January 1, 2018, with earlier
application permitted.
IFRS 16 Leases
On January 13, 2016, the IASB issued IFRS 16 Leases of which requires lessees to recognize assets and liabilities
for most leases. For lessors, there is little change to the existing accounting in IAS 17 Leases. The new standard
will be effective for annual periods beginning on or after January 1, 2019. Early application is permitted, provided
the new revenue standard, IFRS 15 Revenue from Contracts with Customers, has been applied, or is applied at the
same date as IFRS 16.
Risks and Uncertainties
Royalty revenue
- 21 -
The Company cannot predict future revenues from or operating results of mining activity. Management expects
future royalty revenues from the Tambor Project to fluctuate depending on the level of future production and the
price of gold. The owner of the Tambor Project is not obligated to continue production from the Tambor Project
and the Company will not be entitled to any compensation if this mining operation does not meet its forecasted
gold production targets or if the mine operations are discontinued on a temporary or permanent basis. Risks that
could negatively affect a mine’s operations include, but are not limited to economics, lack of financial capital,
floods, fire, mechanical malfunctions, social unrest, expropriation, environmental regulations, and legal and/or
political changes. The Tambor Project is currently subject to a suspension of operations imposed by the Supreme
Court of Guatemala.
Competition
The Company faces competition from other capital providers, all of which compete with it for investment
opportunities. These competitors may limit the Company’s opportunities to acquire interests in investments that
are attractive to the Company. The Company may be required to invest otherwise than in accordance with its
Investment Policy and strategy in order to meet its investment objectives. If the Company is required to invest
other than in accordance with its Investment Policy and strategy, its ability to achieve its desired rates of return on
its investments may be adversely affected.
Inability to dispose of illiquid securities
There is a possibility that the Company will be unable to dispose of illiquid securities held in its portfolio and if
the Company is unable to dispose of some or all of its investments at the appropriate time, a return on such
investment may not be realized.
Due diligence
The due diligence process undertaken by the Company in connection with investments that it makes or wishes to
make may not reveal all relevant facts in connection with an investment. Before making investments, the
Company will conduct due diligence investigations that it deems reasonable and appropriate based on the facts
and circumstances applicable to each investment. The due diligence investigations that are carried out with
respect to any investment opportunity may not reveal or highlight all relevant facts that may be necessary or
helpful in evaluating such investment opportunity. Moreover, such an investigation will not necessarily result in
the investment being successful.
Mineral property exploration and mining
The business of mineral deposit exploration and extraction involves a high degree of risk. Few properties that are
explored ultimately become producing mines. At present, none of the Company’s properties has a known
commercial ore deposit. The main operating risks include: securing adequate funding to maintain and advance
exploration properties; ensuring ownership of and access to mineral properties by confirmation that option
agreements, claims and leases are in good standing; and obtaining permits for drilling and other exploration
activities.
If the Company does not satisfactorily complete its contribution requirements to any joint ventures it may be a
party to, the Company’s interest in a joint venture can be diluted to a point where all interest in the joint venture is
forfeited.
- 22 -
Joint venture funding
The Company’s strategy includes seeking partners through joint ventures to fund exploration and project
development. The main risk of this strategy is that funding partners may not be able to raise sufficient capital in
order to satisfy exploration and other expenditure terms in a particular joint venture agreement. As a result,
exploration and development of one or more of the Company’s property interests may be delayed depending on
whether the Company can find another partner or has enough capital resources to fund the exploration and
development on its own.
Commodity price
The Company is exposed to commodity price risk. Declines in the market price of gold, base metals and other
minerals may adversely affect the Company’s ability to raise capital or attract joint venture partners in order to
fund its ongoing operations. Commodity price declines could also reduce the amount the Company would receive
on the disposition of one of its mineral properties to a third party. The Company’s royalty revenue is derived from
a royalty interest that is based on the extraction and sale of gold. Factors beyond the control of the Company may
affect the marketability of gold discovered. Gold prices have historically fluctuated widely. Consequently, the
economic viability of the Company’s royalty interest cannot be accurately predicted and may be adversely
affected by fluctuations in gold prices.
Financing and share price fluctuation
The Company has a limited source of operating cash flow which depends on royalty revenue from a property that
is subject to suspension of operations and has no assurance that additional funding will be available to it when
needed for further exploration and development of its projects. Further exploration and development of one or
more of the Company’s projects may be dependent upon the Company’s ability to obtain financing through equity
or debt financing or other means. Failure to obtain this financing could result in delay or indefinite postponement
of further exploration and development of its projects which could result in the loss of one or more of its
properties.
Securities markets have at times in the past experienced a high degree of price and volume volatility, and the
market price of securities of many companies, particularly those considered to be exploration stage companies
such as the Company, have experienced wide fluctuations in share prices which have not necessarily been related
to their operating performance, underlying asset values or prospects. There can be no assurance that these kinds of
share price fluctuations will not occur in the future, and if they do occur, how severe the impact may be on the
Company’s ability to raise additional funds through equity issues or the value of the Company’s available-for-sale
investments and corresponding effect on the Company’s financial position.
Political, regulatory and currency
The Company’s mineral property interests are located in emerging nations. Properties in emerging nations may
be subject to a higher level of risk compared to developed countries. Operations, the status of mineral property
rights, title to the properties and the recoverability of amounts shown for mineral properties in emerging nations
can be affected by changing economic, regulatory and political situations. The Company’s equity financings are
sourced in Canadian dollars but for the most part it incurs its exploration and property maintenance expenditures
in US dollars, Guatemalan quetzals, and Mexican pesos. At this time there are no currency hedges in place.
Therefore a weakening of the Canadian dollar against the US dollar, Guatemalan quetzal, or Mexican peso could
have an adverse impact on the amount of exploration conducted.
- 23 -
Insurance
In the course of exploration, development and production of mineral properties, the Company is subject to a
number of hazards and risks in general, including adverse environmental conditions, operational accidents, labor
disputes, unusual or unexpected geological conditions, changes in the regulatory environment and natural
phenomena such as inclement weather conditions, floods, and earthquakes. Such occurrences could result in
damage to the Company’s properties or facilities and equipment, personal injury or death, environmental damage
to properties of the Company or others, delays, monetary losses and possible legal liability.
Although the Company may maintain insurance to protect against certain risks in such amounts as it considers
reasonable, its insurance may not cover all the potential risks associated with its operations. The Company may
also be unable to maintain insurance to cover these risks at economically feasible premiums or for other reasons.
Should such liabilities arise, they could reduce or eliminate future profitability and result in increased costs, have
a material adverse effect on the Company’s results and a decline in the value of the securities of the Company.
Environmental and social
The activities of the Company are subject to environmental regulations issued and enforced by government
agencies. Environmental legislation is evolving in a manner that will require stricter standards and enforcement
and involve increased fines and penalties for non-compliance, more stringent environmental assessments of
proposed projects, and a heightened degree of responsibility for companies and their officers, directors and
employees. There can be no assurance that future changes in environmental regulation, if any, will not adversely
affect the Company’s operations. Environmental hazards may exist on properties in which the Company holds
interests which are unknown to the Company at present. Social risks are fairly significant in some of the
Company’s areas of operations. Violence, kidnapping, theft and other criminal activities could disrupt supply
chains and discourage qualified individuals from being involved with the Company's operations.
Mineral Properties Expenditure Detail (see following page)
- 24 -
Mineral Properties Expenditure Detail
CONSOLIDATED SCHEDULE OF EXPLORATION EXPENDITURES
For the year ended December 31, 2016
USA
Guatemala
Mexico
Other
General
Mineral
Exploration Concessions
General
General
Exploration Concessions Exploration Concessions Exploration
Mineral
Mineral
General
Exploration administration $ 3,572 $ 96 $ 23,497
3,301 6,959 -
Geochemistry
68,029 55,290 24,076
Geological services
-
Legal and accounting
- 2,036
- 35,797 526
Licenses, rights and taxes
12,773 8,643 5,882
Travel and accommodation
Total
$ 8,632 $ 1,950 $ - $ 8,732 $ 46,479
28,048
373,264
14,915
49,558
65,187
15,182 - 2,606
102,689 541 119,182
11,311 - 998
739 11,647 -
29,011 - 8,878
-
3,457
570
849
-
Expenditures recovered
87,675 106,785 56,017
- -
-
13,508
-
160,882 12,188 140,396
(32,865) - -
577,451
(32,865)
$ 87,675 $ 106,785 $ 56,017
$ 13,508 $ 128,017 $ 12,188 $ 140,396 $ 544,586
CONSOLIDATED SCHEDULE OF EXPLORATION EXPENDITURES
For the year ended December 31, 2015
USA
Guatemala
General
Mineral
General
Mineral
Nicaragua
General
Mexico
General
Camp, food and supplies
Environment
Exploration administration
Geochemistry
Geological consulting
Legal and accounting
Licenses, rights and taxes
Public relations
Rent and utilities
Salaries and wages
Travel and accommodation
Exploration Concessions Exploration Concessions Exploration Exploration
$ 2,066
$ -
-
-
3,628
704
24,057
823
288,914
1,149
9,290
-
-
-
-
-
-
-
37,975
8,580
73,923
515
$ 3,144
7,835
-
-
-
-
12,353
-
-
3,303
1,224
$ -
-
1,639
-
-
2,243
-
-
-
6,486
-
$ -
2,097
7,758
-
-
-
-
3,462
-
-
-
$ -
-
7,106
772
21,897
5,513
-
-
9,338
33,997
7,371
Total
$ 5,210
9,932
20,835
25,652
311,960
17,046
12,353
3,462
9,338
90,341
83,033
$ 11,771
$ 27,859
$ 85,994
$ 13,317
$ 10,368
$ 439,853
$ 589,162