FINANCIAL REVIEW
Fiscal Year Ended December 31, 2017
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017
(Expressed in Canadian Dollars)
TO THE SHAREHOLDERS OF RADIUS GOLD INC.
INDEPENDENT AUDITORS’ REPORT
We have audited the accompanying consolidated financial statements of Radius Gold Inc., which comprise
the consolidated statement of financial position as at December 31, 2017 and the consolidated statements
of income and comprehensive income, changes in shareholders’ equity and cash flows for the year then
ended, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated 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.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 auditors’ 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 overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained 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. as at December 31, 2017, and its financial performance and its cash flows for
the year then ended in accordance with International Financial Reporting Standards.
Other Matter
The financial statements of Radius Gold Inc. as at December 31, 2016 and for the year then ended were
audited by another auditor who expressed an unmodified opinion on those statements dated May 1, 2017.
Chartered Professional Accountants
Vancouver, British Columbia
April 26, 2018
Nanaimo201 – 1825 Bowen RdNanaimo, BC V9S 1H1T: 250 755 2111F: 250 984 0886T: 604 282 3600F: 604 357 1376Langley305 – 9440 202 StLangley, BC V1M 4A6Vancouver7th Floor 355 Burrard StVancouver, BC V6C 2G8T: 604 687 1231F: 604 688 4675Smythe LLP | smythecpa.com
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)
Derivative 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,
2017
December 31,
2016
$ 3,317,667
4,938,978
204,252
78,752
-
44,426
$ 5,130,064
2,793,962
-
194,586
16,800
188,833
8,584,075
8,324,245
123,098
71,053
1,410,142
1
1,604,294
123,098
53,354
1,348,165
1
1,524,618
$ 10,188,369
$ 9,848,863
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities (Note 15)
$ 199,278
$ 107,884
Shareholders' equity
Share capital (Note 12)
Other equity reserve
Deficit
Accumulated other comprehensive income
Total shareholders' equity
56,592,613
6,849,808
(54,326,100)
872,770
56,592,613
6,849,808
(54,520,103)
818,661
9,989,091
9,740,979
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 10,188,369
$ 9,848,863
APPROVED ON BEHALF OF THE BOARD OF DIRECTORS AND AUTHORIZED FOR ISSUE ON APRIL 26, 2018 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 AND COMPREHENSIVE INCOME
For the years ended December 31, 2017 and 2016
(Expressed in Canadian Dollars)
Royalty Revenue (Note 10)
$ -
$ 431,643
2017
2016
Exploration expenditures (Notes 15)
Write-down of exploration and evaluation assets (Note 10)
General and administrative expenses
Amortization (Note 8)
Legal and audit fees
Management fees (Note 15)
Office and miscellaneous (Note 15)
Salaries and benefits (Note 15)
Share-based compensation (Note 13)
Shareholder communications (Note 15)
Transfer agent and regulatory fees (Note 15)
Travel and accommodation (Note 15)
1,140,432
69,187
1,209,619
544,586
-
544,586
19,758
72,797
42,000
104,399
114,076
-
13,346
18,125
23,441
24,812
107,584
42,000
141,286
128,020
213,150
18,745
14,548
11,287
407,942
701,432
Loss from operations
(1,617,561)
(814,375)
Share of post-tax losses of associates (Note 9)
Gain on sale of mineral property interest (Note 10)
Gain on property assignment (Note 6)
Gain on dilution in associated company (Note 9)
Gain on reclassification as available-for-sale investment (Notes 6 and 9)
Foreign currency exchange gain (loss)
Gain on sale of available-for-sale investments (Note 6)
Impairment of available-for-sale investments (Note 6)
Fair value gain of derivative investments (Note 6)
Gain from mineral property option agreements (Note 10)
Investment income
Impairment of receivables (Notes 7 and 10)
(50,000)
1,658,928
606,664
-
-
16,256
204,346
(839,555)
204,252
-
10,673
-
(136,000)
-
-
170,045
691,727
(37,286)
2,688,336
(205,321)
-
276,252
13,068
(784,180)
Net income for the year
$ 194,003
$ 1,862,266
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Fair value gains on available-for-sale investments (Note 6)
54,109
683,953
Total comprehensive income
$ 248,112
$ 2,546,219
Basic and diluted income per share
$0.00
$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 SHAREHOLDERS’ EQUITY
For the years ended December 31, 2017 and 2016
(Expressed in Canadian Dollars)
Number of
common
shares
86,675,617
-
-
-
86,675,617
-
-
Other
equity
reserve
Accumulated
other
comprehensive
income
Share
capital
Accumulated
deficit
Total
$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
56,592,613
-
-
6,849,808
-
-
818,661
-
54,109
(54,520,103)
194,003
-
9,740,979
194,003
54,109
Balance, December 31, 2015
Income for the year
Available-for-sale investments
Share-based compensation
Balance, December 31, 2016
Income for the year
Available-for-sale investments
Balance, December 31, 2017
86,675,617
$56,592,613
$ 6,849,808
$ 872,770 $(54,326,100)
$ 9,989,091
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, 2017 and 2016
(Expressed in Canadian Dollars)
Cash provided by (used in):
OPERATING ACTIVITIES
Net income for the year
Items not involving cash:
Amortization
Gain from mineral property option agreements
Gain on sale of mineral property interest
Gain on property assignment
Impairment of receivable
Write-down of exploration and evaluation assets
Gain on reclassification as available-for-sale investment
Impairment of available-for-sale investments
Gain on sale of available-for-sale investments
Fair value gain of derivative investments
Share of post-tax losses of associates
Gain on dilution in associate
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
Purchase of investments
Investment in associate
Expenditures on exploration and evaluation asset acquisition costs
Proceeds from disposal of mineral property
Proceeds from mineral property option agreements
Proceeds from sale of available-for-sale investments
Purchase of property and equipment
Cash provided by (used for) investing activities
2017
2016
$ 194,003
$ 1,862,266
19,758
-
(1,658,928)
(606,664)
-
69,187
-
839,555
(204,346)
(204,252)
50,000
-
-
(1,501,687)
115,834
144,407
-
16,800
91,394
(1,133,252)
(951,230)
(50,000)
(131,164)
186,710
-
303,996
(37,457)
(679,145)
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
Increase (decrease) in cash and cash equivalents
(1,812,397)
4,978,203
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental Cash Flow Information (Note 19)
5,130,064
151,861
$ 3,317,667
$ 5,130,064
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, 2017
(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 under the laws of British Columbia.
The Company is engaged in acquisition and exploration of mineral properties and investment in companies which
hold mineral property interests. The address of the Company’s head office and principal place of business is 650 –
200 Burrard Street, Vancouver, BC, Canada V6C 3L6.
2. BASIS OF PREPARATION
These consolidated 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.
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, except for certain financial
instruments measured at fair value. In addition, these consolidated financial statements have been prepared using the
accrual basis of accounting, except for cash flow information.
The consolidated financial statements are presented in Canadian dollars (“CDN”), which is the Company’s and its
subsidiaries’ 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 consolidated financial statements are disclosed in Note 4.
5
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(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
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, 2017 and 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 the Company 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, 2017 and 2016, there was
no embedded derivative.
c) Investment in Associates
Where the Company has significant influence over 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 profit or loss, 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, 2017
(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 profit or loss.
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 income and 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, 2017
(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, 2017
(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 the Company.
For the years ended December 31, 2017 and 2016, potentially dilutive common shares (relating to options
outstanding at year-end) totalling 5,070,000 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 periods
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. The proceeds received
are first allocated to common shares at the time the units are priced, and any excess is allocated to warrants.
9
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(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 profit or loss 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 profit or loss 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 profit or loss 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 profit or loss. 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, 2017 and 2016, the Company had no significant asset retirement or rehabilitation obligations.
10
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(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.
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.
11
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (cont’d)
n) Financial Instruments – (cont’d)
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.
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 equivalents
Available-for-sale investments
Receivables
Due from related parties
Deposits
Accounts payable and accrued liabilities
Derivative instruments
Fair value through profit or loss
Available-for-sale financial assets
Loans and receivables
Loans and receivables
Loans and receivables
Other financial liabilities
Fair value through profit or loss
12
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(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 standards 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:
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 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. The Company expects the above standard to
have a significant impact on the presentation of the consolidated financial statements and is currently in the process
of evaluating its impact on the consolidated financial statements.
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 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, 2017
(Expressed in Canadian Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (cont’d)
o) Standards, Amendments and Interpretations Not Yet Effective – (cont’d)
IFRS 16 Leases
On January 13, 2016, the IASB issued IFRS 16 Leases, 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 the Company’s annual period beginning 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.
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration.
On December 8, 2016, the IASB issued IFRIC Interpretation 22 Foreign Currency Transactions and Advance
Consideration. The Interpretation clarifies which date should be used for translation when a foreign currency
transaction involves an advance payment or receipt. The Interpretation is applicable for the Company’s annual period
beginning January 1, 2018. The Interpretation clarifies that the date of the transaction for the purpose of determining
the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on
which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or
receipt of advance consideration.
Effective for the Company’s annual period beginning January 1, 2018.
Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2 Share-based
Payment)
The amendments provide guidance on the accounting for:
• the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments;
• share-based payment transactions with a net settlement feature for withholding tax obligations; and
• a modification to the terms and conditions of a share-based payment that changes the classification of the
transaction from cash-settled to equity-settled.
Effective for the Company’s annual period beginning January 1, 2018.
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 profit or 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”);
14
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS – (cont’d)
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 than 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 are 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
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, and derivative instruments, 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.
As at December 31,
Cash and cash equivalents is comprised of:
Cash
Cash equivalents
2017
$ 2,858,611
459,056
$ 3,317,667
2016
$ 2,644,302
2,485,762
$ 5,130,064
15
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
6.
INVESTMENTS
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 are carried at cost. As of December 31, 2017, and 2016, available-for-
sale investments consisted of the following:
Number of common shares held as at December 31:
Advantage Lithium Corp. (“Advantage”)
CROPS Inc. (formerly Focus Ventures Ltd.) (“CROPS”)
Fortuna Silver Mines Inc. (“Fortuna”)
GrowMax Resources Corp. (“GrowMax”)
Medgold Resources Corp. (“Medgold”)
Southern Silver Exploration Corp. (“Southern Silver”)
ValGold Resources Ltd (“ValGold”)
Volcanic Gold Mines Inc. (“Volcanic”)
War Eagle Mining Company Inc. (formerly Champagne
Resources Limited) (“War Eagle”)
2017
2016
-
2,564,027
239,385
1,200,000
10,040,000
1,407,000
1,000,000
3,222,883
250,000
1,272,102
-
500,000
10,040,000
1,500,000
-
-
625,000
625,000
Balance, December 31, 2015
$ -
$ 3,626,000
$ 326,417
$ -
$ -
$ -
Advantage
B2Gold
CROPS
Fortuna
GrowMax
Medgold
225,000
-
172,958
(3,626,000)
-
Acquisition of shares
Disposition of shares
Impairment adjustment
Reclassification as investment in
associate (Note 9)
Net change in fair value recorded in
other comprehensive income
Balance, December 31, 2016
Acquisition of shares
Disposition of shares
Impairment adjustment
Net change in fair value recorded in
other comprehensive income
-
-
-
17,500
242,500
-
(95,000)
(130,000)
(17,500)
-
-
-
-
-
-
1,472,218
-
-
70,355
300,000
-
-
-
7,145
77,500
81,649
-
-
-
-
1,095,600
261,000
1,656,600
-
-
-
(205,321)
-
(14,192)
279,862
229,481
-
(252,940)
-
-
-
-
-
-
-
-
-
98,148
(33,149)
(50,200)
Balance, December 31, 2017
$ -
$ -
$ 256,403
$ 1,570,366
$ 126,000
$ 1,606,400
Southern
Silver
ValGold
Volcanic
War Eagle
Total
Balance, December 31, 2015
$ 300,000
$ -
$ -
$ -
$ 4,252,417
Acquisition of shares
Disposition of shares
Impairment adjustment
Reclassification as investment in associate (Note 9)
Net change in fair value recorded in other
comprehensive income
Balance, December 31, 2016
Acquisition of shares
Disposition of shares
Impairment adjustment
Net change in fair value recorded in other
comprehensive income
-
(225,000)
-
-
412,500
487,500
-
-
-
-
-
-
-
-
-
-
-
-
-
65,000
1,181,764
(4,650)
-
-
-
-
(456,615)
51,810
5,000
-
50,000
818,313
-
-
-
-
50,000
-
-
-
-
(3,851,000)
(205,321)
1,095,600
683,953
2,793,962
3,030,112
(99,650)
(839,555)
54,109
Balance, December 31, 2017
$ 534,660
$ 70,000
$ 725,149
$ 50,000
$ 4,938,978
16
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
6.
INVESTMENTS – (cont’d)
CROPS and Fortuna each have two common directors with the Company. Medgold and Volcanic each have one
common director with the Company. All companies are publicly listed companies with the exception of War Eagle
which was a private company as of December 31, 2017. Subsequent to December 31, 2017, Champagne completed
a merger with War Eagle Mining Company Inc. whereby the 625,000 common shares of Champagne held by the
Company were converted to 233,781 common shares of War Eagle. War Eagle is a publicly listed company. Also
subsequent to December 31, 2017, CROPS changed its name from Focus Ventures Ltd. and completed a share
consolidation so that every four existing common shares of CROPS were exchanged for one new common share of
CROPS.
As at December 31, 2017, the fair value based on published market prices of the available-for-sale investments that
are publicly listed was $4,888,978 (2016: $2,743,962) and the cost of the War Eagle available-for-sale investment
was $50,000 (2016: $50,000).
During the year ended December 31, 2017, impairment charges of $130,000 and $456,615 were recorded against the
Advantage and Volcanic shares, respectively, due to their fair value declining significantly below their cost base and
an impairment charge of $252,940 was recorded against the CROPS shares due to the fair value of the shares being
less than the cost base (2016: an impairment charge of $205,321 was recorded against the CROPS shares).
During the year ended December 31, 2017, the Company completed the following transactions:
i) Sold 93,000 shares of Southern Silver for net proceeds of $41,188 and recorded a gain of $36,538;
ii) Purchased 685,675 units of a CROPS private placement at a cost of $137,135. Each unit consists of one
common share of CROPS and one share purchase warrant; each full warrant entitling the Company to purchase
one additional common share of CROPS at $0.40 for five years. The 685,675 share purchase warrants acquired
in this private placement are recorded as a derivative investment as of December 31, 2017 with a corresponding
gain of $30,717 being charged to operations. The fair value of the warrants was determined using the Black-
Scholes option pricing model with inputs being an expected volatility factor of 77%; risk-free interest rate of
1.81%, expected life of 4.22 years, and expected dividend yield of 0%. The CROPS share purchase warrants are
not tradable on an exchange;
iii) Purchased 606,250 common shares of CROPS in the open market at a cost of $92,346;
iv) Received 1,263,883 common shares of Volcanic with a fair value of $606,664 at the time of issuance, pursuant
to a mineral property assignment agreement described below;
v) Received 239,385 common shares of Fortuna with a fair value of $1,472,218 at the time of issuance, pursuant
to a sale of a mineral property (Note 10);
vi) 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. The 417,000 share purchase warrants acquired in this private placement are
recorded as a derivative investment with a gain of $1,255 being charged to operations. The fair value of the
warrants was determined using the Black-Scholes option pricing model with inputs being an expected volatility
factor of 89%; risk-free interest rate of 1.66%, expected life of 0.01 years, and expected dividend yield of 0%.;
vii) 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 1,125,000 share purchase warrants
acquired in this private placement are recorded as a derivative investment with a gain of $106,457 being charged
to operations. The fair value of the warrants was determined using the Black-Scholes option pricing model with
inputs being an expected volatility factor of 89%; risk-free interest rate of 1.81%, expected life of 4.19 years,
and expected dividend yield of 0%. The Volcanic share purchase warrants are not tradable on an exchange;
17
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
6.
INVESTMENTS – (cont’d)
viii) Purchased 700,000 common shares of GrowMax in the open market at a cost of $81,649;
ix) Purchased 1,000,000 units of a ValGold private placement at a cost of $65,000. Each unit consists of one
common share of ValGold and one share purchase warrant; each full warrant entitling the Company to purchase
one additional common share of ValGold at $0.10 for two years. The 1,000,000 share purchase warrants
acquired in this private placement are recorded as a derivative investment with a gain of $58,301 being charged
to operations. The fair value of the warrants was determined using the Black-Scholes option pricing model with
inputs being an expected volatility factor of 221%; risk-free interest rate of 1.68%, expected life of 1.76 years,
and expected dividend yield of 0%. The ValGold share purchase warrants are not tradable on an exchange; and
x) Sold in the open market 250,000 common shares of Advantage for net proceeds of $262,808 and recorded a gain
of $167,808.
xi) The 312,500 share purchase warrants of War Eagle acquired in the year ended December 31, 2016, are recorded
as a derivative investment with a gain of $7,522 being charged to operations. The fair value of the warrants are
determined using the Black-Scholes option pricing model with inputs being an expected volatility factor of
100%; risk-free interest rate of 1.68%, expected life of 1.50 years, and expected dividend yield of 0%. The War
Eagle share purchase warrants are not tradeable on an exchange.
The Company also held as at December 31, 2017, 3,973,275 free trading common shares of Rackla with a fair value
of $456,927 as of December 31, 2017 but they are recorded as an investment in associate (Note 9).
Subsequent to the year ended December 31, 2017, the Company completed the following transactions:
i) Purchased in the open market 86,500 common shares of Medgold at a cost of $18,064; and
ii) Sold in the open market 147,500 common shares of Southern Silver for net proceeds of $39,487.
During the year ended December 31, 2016, the Company 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 192,500 units of a CROPS private placement at a cost of $50,050. Each unit consists of one common
share of CROPS and one share purchase warrant; each full warrant entitling the Company to purchase one
additional common share of CROPS at $0.30 for one year. The CROPS share purchase warrants are not tradable
on an exchange;
iii) Acquired 192,500 CROPS shares upon the exercise of 192,500 share purchase warrants at a cost of $57,750,
and 177,500 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 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 War Eagle 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.
18
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
6.
INVESTMENTS – (cont’d)
In 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”). During the year ended December 31, 2017, 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 (note 6(iv)). 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. As at December 31, 2017, the Company and
Volcanic have one common director.
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 $1,095,600. 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 and 2017 to 10,040,000.
7. RECEIVABLES
December 31,
2017
December 31,
2016
Royalty revenue receivable
Provision for impairment (Note 10 – Guatemala Tambor Project)
Royalty revenue receivable, net
Sales taxes
Other receivables
$ 784,180
(784,180)
-
70,945
7,807
$ 784,180
(784,180)
-
34,253
160,333
$ 78,752
$ 194,586
The provision for impairment of the royalty receivable was included in profit or loss during 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 and 2017 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).
19
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
8. PROPERTY AND EQUIPMENT
Leasehold
improvements
Trucks
Computer
equipment
Furniture
and
equipment
Geophysical
equipment
Field
equipment
Total
Cost
Balance, December 31, 2015
$ 62,762
$ 215,638
$ 252,068
$ 62,656
$ 84,882
$ 2,480
$ 680,486
Balance, December 31, 2016
62,762
215,638
252,068
62,656
84,882
2,480
680,486
Additions
-
37,457
-
-
-
-
37,457
Balance, December 31, 2017
$ 62,762
$ 253,095
$ 252,068
$ 62,656
$ 84,882
$ 2,480
$ 717,943
Accumulated amortization
Balance, December 31, 2015
$ 42,367
$ 208,680
$ 232,085
$ 49,653
$ 67,409
$ 2,126
$ 602,320
Charge for year
6,300
6,958
5,901
2,052
3,495
106
24,812
Balance, December 31, 2016
48,667
215,638
237,986
51,705
70,904
2,232
627,132
Charge for year
6,300
4,173
4,225
2,191
2,795
74
19,758
Balance, December 31, 2017
$ 54,967
$ 219,811
$ 242,211
$ 53,896
$ 73,699
$ 2,306
$ 646,890
Carrying amounts
At December 31, 2016
$ 14,095
$ -
$ 14,082
$ 10,951
$ 13,978
$ 248
$ 53,354
At December 31, 2017
$ 7,795
$ 33,284
$ 9,857
$ 8,760
$ 11,183
$ 174
$ 71,053
20
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
9.
INVESTMENT IN ASSOCIATES
Medgold
As at December 31, 2017, the Company held 10,040,000 (2016: 10,040,000) common shares of Medgold, representing
11.2% of Medgold’s outstanding common shares.
Medgold previously met the definition of an associate and was equity accounted for in the consolidated financial
statements. During the year ended December 31, 2016, Medgold no longer met the definition of an associate when the
Company’s 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 third 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 $1,095,600 and its carrying cost was $403,873. As a result, a gain of $691,727 was recognized in
the consolidated statement of income and comprehensive income 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% as a result of an increase
in the issued capital of Medgold. Accordingly, the Company recorded a gain on dilution of $170,045 for the year ended
December 31, 2016.
The following table shows the continuity of the Company’s interest in Medgold for the period from January 1, 2016 to
December 31, 2016:
Balance, December 31, 2015
Less: share of losses in associate
Gain on dilution
Reclassification to an available-for-sale investment
Balance, December 31, 2016
The financial statement balances of Medgold were as follows:
Total current assets
Total assets
Total liabilities
Net loss(2)
$ 369,828
(136,000)
170,045
(403,873)
$ -
June 30,
2016(1)
$ 1,507,091
$ 2,039,702
$ 497,674
$ 1,016,621
(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.
21
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
9.
INVESTMENT IN ASSOCIATES – (cont’d)
Rackla
As at December 31, 2017, the Company held 3,973,275 (2016: 2,973,275) common shares of Rackla, representing 19.8%
(2016: 19.7%) of Rackla’s outstanding common shares. During the year ended December 31, 2017, the Company
exercised its 1,000,000 share purchase warrants for 1,000,000 common shares of Rackla at a cost of $50,000. The Rackla
share purchase warrants were not tradable on an exchange.
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, 2016 to
December 31, 2017:
Balance, December 31, 2015 and 2016
Increase in investment
Less: share of losses in associate
Balance, December 31, 2017
$ 1
50,000
(50,000)
$ 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 2017 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 as at December 31, 2017. The cumulative
unrecognized share of losses for the associate is $567,382.
The financial statement balances of Rackla are as follows:
Total current assets
Total assets
Total liabilities
Net loss
December 31,
2017
December 31,
2016
$ 250,862
$ 316,474
$ 225,230
$ 130,627
$ 36,537
$ 104,597
$ 133,476
$ 219,288
At December 31, 2017, the fair value of the 3,973,275 common shares of Rackla was $456,927 (2016: $445,991 fair
value of 2,973,275 common shares).
22
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
10. MINERAL INTERESTS AND ROYALTIES
Acquisition costs
Balance, December 31, 2015
Additions - cash
Acquisition costs recovered
Balance, December 31, 2016
Additions - cash
Write-off acquisition costs
Peru United States
Guatemala
Mexico
Total
$ 1,259,505
-
-
$ -
88,659
-
$ 1
-
-
$ -
23,748
(23,748)
$ 1,259,506
112,407
(23,748)
1,259,505
-
-
88,659
117,816
(69,187)
1
-
-
-
13,348
-
1,348,165
131,164
(69,187)
Balance, December 31, 2017
$ 1,259,505
$ 137,288
$ 1
$ 13,348
$ 1,410,142
USA
i) Bald Peak Property
In February 2017, 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 to Nevada Select of $46,032 (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.
Subsequent to its agreement with Nevada Select, the Company staked an additional 113 unpatented mining claims
at a cost of $71,784, increasing the land position of the Bald Peak Property to 151 unpatented mining claims in
Mineral County, Nevada, and one mineral prospecting licence in Mono County, California.
ii) 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
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 totaling 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.
iii) ABC Property
In 2016, the Company staked 122 contiguous United States federal mining claims (covering approximately 992
hectares) in Mineral County, Nevada. During the year ended December 31, 2017, the Company wrote off acquisition
costs of $69,187 relating to the ABC Property as the Company allowed the claims to lapse.
23
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
10. MINERAL INTERESTS AND ROYALTIES – (cont’d)
USA – (cont’d)
iv) Coyote Property
Subsequent to December 31, 2017, the Company was granted a lease and option agreement with Geologic Services
Inc. (“Geologic”) on the Coyote gold property which consists of 58 unpatented mineral claims located in Elko
County, Nevada.
Geologic granted the Company an exclusive lease of a 100% interest in the property for a period of up to 15 years,
in consideration for the granting to Geologic of a 2.0% to 3.0% NSR royalty, the percentage to depend on the
prevailing price of gold. In order to keep the lease in good standing, the Company is to make annual advance royalty
payments to Geologic, beginning with a payment of US$25,000 that was made upon the execution of the agreement.
At any time during the term of the lease, the Company may elect to acquire a 100% interest in the Coyote property
by making a cash payment of US$2.0 million to Geologic.
Mexico
i) Amalia Project
In June 2017, the Company signed a binding agreement with a private individual to option the (380-hectare) Amalia
Project in the State of Chihuahua, Mexico. The Company can earn a 100% interest in the Amalia Project by making
an initial cash payment of US$5,000 (paid) and by completing staged payments over a period of five years totaling
US$845,000 cash and, subject to stock exchange approval, US$15,000 in shares of the Company.
Following the signing of the option agreement, the Company staked an additional 10,000 hectares surrounding the
Amalia Project. A total of $13,348 in acquisition costs have been recorded for this property during the year ended
December 31, 2017.
ii) Tarros Project
In September 2017, the Company signed a binding agreement with a private Mexican company to option the (473-
hectare) Tarros Project in the State of Chihuahua, Mexico. The Company could earn a 100% interest in the Tarros
Project by making an initial cash payment of US$3,250 (paid) and by completing staged payments over a period of
4.5 years totaling US$1,098,500. As at December 31, 2017, the carrying value of the Tarros Project was $Nil. The
Company expensed the US$3,250 paid as the project is no longer recoverable.
Subsequent to December 31, 2017, the Company terminated the option agreement prior to the due date of the next
required cash option payment.
iii) Tlacolula Property
The Tlacolula Property consists of one granted exploration concession.
By an agreement signed in September 2009, as amended, the Company granted to 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.
Fortuna did not meet the January 31, 2017 deadline for making the required exploration expenditures. Accordingly,
during the year ended December 31, 2017, the Company and Fortuna amended the option so that Fortuna could
acquire a 100% interest in the Property, subject to a 2% royalty being retained by the Company. On July 31, 2017,
the sale of the Tlacolula Property to Fortuna was completed with a cash payment of $187,710 (US$150,000),
granting of the 2% royalty, and issuance of 239,385 Fortuna shares with a fair value of $1,472,218. The Company
incurred $1,000 in transaction costs. A gain of $1,658,928 was recorded for this transaction during the year ended
December 31, 2017.
The Company and Fortuna have two common directors.
24
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
10. MINERAL INTERESTS AND ROYALTIES – (cont’d)
Mexico – (cont’d)
iii) Lithium Brine Projects
In 2016, the Company submitted applications for mineral concessions covering four lithium brine projects in the
States of Chihuahua and Coahuila, 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.
During the year ended December 31, 2017, Advantage advised the Company that it had decided to focus its efforts
in countries other than Mexico and therefore terminated the option agreement. Also during the current year, the
Company submitted an application for an additional 10,000 hectare mineral concession covering an adjacent lithium
brine project in the State of Chihuahua, but subsequently withdrew this and allowed the three other lithium
applications in Chihuahua to lapse. The Company currently retains one application in the State of Coahuila. As at
December 31, 2017, the carrying value of the Lithium Brine Projects is $nil (2016: $nil).
Guatemala
i) Tambor Project Royalty
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. In May 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.
There was no royalty income recognized for the year ended December 31, 2017 (2016: $431,643).
As at December 31, 2017, 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 was
charged to operations in 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, 2017 consist of 34
concessions (one granted exploration licence, twenty-nine exploration applications, three exploitation applications,
and one reconnaissance application) filed with the Guatemala Ministry of Energy and Mines covering a total of
228,264 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, the property has a nominal carrying value
of $1.
25
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
10. MINERAL INTERESTS AND ROYALTIES – (cont’d)
Peru
Bayovar 12 Project Royalty
In April 2015, the Company purchased from CROPS a production royalty equivalent to 2% of CROPS’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, CROPS will retain a first right of refusal. The Company and CROPS have two common directors.
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:
2018
2019
$ 190,608
190,608
$ 381,216
For the year ended December 31, 2017, the Company received a total of $160,663 (2016: $147,441) from those
companies which share office space with the Company.
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, 2017 and 2016.
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, 2017:
Grant date
Expiry date
Exercise
price
Opening
balance
Granted
Exercised
Forfeited /
expired
Closing
balance
Vested and
exercisable
During the year
Jan 08, 2010
Jan 07, 2020
$0.29
1,245,000
May 26, 2010 May 25, 2020
$0.36
100,000
Sep 24, 2010
Sep 23, 2020
$0.69
100,000
Dec 13, 2012
Dec 12, 2022
$0.20
1,885,000
Oct 19, 2016
Oct 18, 2026
$0.15
1,740,000
-
-
-
-
-
-
-
-
-
-
Weighted average exercise price
$0.22
-
-
5,070,000
-
-
-
-
-
-
-
-
-
1,245,000
1,245,000
100,000
100,000
100,000
100,000
1,885,000
1,885,000
1,740,000
1,740,000
5,070,000
5,070,000
$0.22
$0.22
26
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
13. SHARE-BASED PAYMENTS – (cont’d)
a) Option Plan Details – (cont’d)
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
b) Fair Value of Options Granted During the Year
There were no options granted during the year ended December 31, 2017.
The weighted average fair value at grant date of options granted during the year ended December 31, 2016 was $0.12
per option.
The weighted average remaining contractual life of the options outstanding at December 31, 2017 is 5.46 years (2016:
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.
27
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
13. SHARE-BASED PAYMENTS – (cont’d)
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
During the year ended December 31, 2017, there were no expenses arising from the share-based payment transactions
recognized as part of share-based compensation expense (2016: $213,150).
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 before income taxes
Tax charge 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
Effect of change in tax rates
Under provided in prior years
Changes in unrecognized deferred tax assets
Total income tax expense / (recovery)
December 31, 2017
December 31, 2016
$ 194,003
$ 1,862,266
$ 50,000
13,000
64,000
(211,000)
(58,000)
(132,000)
(124,000)
398,000
$ 484,000
77,000
194,000
(328,000)
(76,000)
-
-
(351,000)
$ -
$ -
The tax rates represent the federal statutory rate applicable for the 2017 taxation year, 0% for Cayman Islands, 30.0%
for Mexico, 25.0% 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, 2017
December 31, 2016
$ 1,949,000
71,000
520,000
10,000
110,000
412,000
(3,072,000)
$ 2,005,000
89,000
460,000
(4,000)
69,000
53,000
(2,672,000)
$ -
$ -
As at December 31, 2017, the Company has estimated non-capital losses of $7,218,000 (2016: $6,036,000) 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 2037.
28
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
15. RELATED PARTY TRANSACTIONS
The Company had transactions during the years ended December 31, 2017 and 2016 with related parties who consisted
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
CROPS
Medgold
Volcanic
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 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, 2017 and 2016:
General and administrative expenses:
Salaries and benefits
Exploration expenditures:
Geological fees
Salaries and benefits
2017
2016
$ 21,200
$ 36,827
57,688
7,087
18,542
4,326
$ 85,975
$ 59,695
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, 2017 and 2016, 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
2017
2016
$ 43,434
1,594
103,967
3,983
11,900
$ 41,263
1,289
118,658
3,378
9,327
$ 164,878
$ 173,915
Exploration expenditures
$ -
$ 2,930
Gold Group salary and benefits costs for the years ended December 31, 2017 and 2016 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, 2017
(Expressed in Canadian Dollars)
15. RELATED PARTY TRANSACTIONS – (cont’d)
Prepaid expenses and deposits include an amount of $1,142 (2016: $5,797) paid to Gold Group for shared office and
administrative services.
Long-term deposits include an amount of $60,000 (2016: $60,000) paid to Gold Group as a deposit on the shared office
and administrative services agreement.
Due from related parties consist of $Nil (2016: $13,693) due from Medgold, a company which has a common director
with the Company, arising from shared administrative costs and $Nil (2016: $3,107) due from CROPS, a company which
has two common directors with the Company, arising from shared administrative costs. These amounts were unsecured,
non-interest bearing and due on demand.
Accounts payable and accrued liabilities include $44,471 (2016: $2,828) payable to Gold Group for shared administrative
costs and $2,594 (2016: $4,033) to a Director of the Company for geological fees.
During the year ended December 31, 2017, the following transactions also occurred:
i) The Company acquired 606,250 common shares of CROPS on the open market for a cost of $92,346 (Note 6).
ii) The Company acquired 685,675 common shares of CROPS by way of private placement at a cost of $137,135 (Note
6).
iii) The Company received net cash of $186,710 and 239,385 common shares of Fortuna with a fair value of $1,472,218
as proceeds on the sale of a mineral property to Fortuna (Note 6).
iv) The Company acquired 1,959,000 common shares of Volcanic by way of private placements for a cost of $575,100
and received 1,263,883 common shares with a fair value of $606,664 pursuant to a mineral property assignment
agreement (Note 6).
v) The Company acquired 1,000,000 common shares of Rackla upon the exercise of 1,000,000 share purchase warrants
at a cost of $50,000 (Note 9).
During the year ended December 31, 2016, the follow transactions also occurred:
i) The Company acquired 562,500 common shares of CROPS of which 192,500 shares were acquired by way of a
private placement for a cost of $50,050, another 192,500 shares acquired upon the exercise of share purchase
warrants at a cost of $57,750, and 177,500 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).
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
2017
2016
$ 42,000
60,000
33,321
-
$ 42,000
60,000
34,833
49,000
$ 135,321
$ 185,833
*Included in reimbursements to Gold Group
Total share-based payments to directors not included in the above table during the year ended December 31, 2017 was
$Nil (2016: $55,125).
30
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(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 Cayman Islands. Details of identifiable assets by geographic segments are as
follows:
Year ended December 31, 2017
Canada
USA
Guatemala
Mexico
Other Consolidated
Exploration expenditures
$ -
$ 492,991
$ 50,834
$ 510,010
$ 86,597
$ 1,140,432
Mineral property acquisition costs written off
-
69,187
Gain on property assignment
Gain on sale of available-for-sale investments
Investment income
Amortization
Net income (loss)
Capital expenditures*
606,664
204,346
10,673
15,585
-
-
-
-
-
-
-
-
-
-
-
-
-
4,173
-
-
-
-
-
(205,037)
(664,377)
(49,721)
1,169,675
(56,537)
-
117,816
-
50,805
-
69,187
606,664
204,346
10,673
19,758
194,003
168,621
Year ended December 31, 2016
Canada
USA
Guatemala
Mexico
Other Consolidated
Royalty income
Exploration expenditures
Gain on sale of available-for-sale
investments
Investment income
Amortization
Net income (loss)
Capital expenditures*
$ -
$ -
$ 431,643 $ -
$ -
$ 431,643
-
194,460
69,525
140,205
140,396
544,586
2,688,336
13,068
18,674
-
-
-
-
-
6,138
-
-
-
-
-
-
2,688,336
13,068
24,812
2,679,715
(194,460)
(362,724)
(44,315)
(215,950)
1,862,266
-
88,659
-
23,748
-
112,407
*Capital expenditures consist of additions of property and equipment and exploration and evaluation assets.
As at December 31, 2017
Canada
USA
Guatemala
Peru
Mexico
Other Consolidated
Total current assets
$ 8,343,930
$ -
$ 10,874
$ -
$ 194,521
$ 34,750
$ 8,584,075
Total non-current assets
160,869
137,288
-
1,259,505
46,632
-
1,604,294
Total assets
$ 8,504,799
$ 137,288
$ 10,874
$ 1,259,505
$ 241,153
$ 34,750
$ 10,188,369
Total liabilities
$ 175,116
$ -
$ 896
$ -
$ 30,867
$ -
$ 199,278
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
31
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(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 consolidated
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, 2017 and
2016, the Company is exposed to currency risk through the following financial assets and liabilities denominated in
currencies other than the Canadian dollar:
December 31, 2017
December 31, 2016
US Dollar
Mexican
Peso
Guatemala
Quetzal
Nicaragua
Cordoba
US Dollar
Mexican
Peso
Guatemala
Quetzal
Nicaragua
Cordoba
(CDN
equivalent)
(CDN
equivalent)
(CDN
equivalent)
(CDN
equivalent)
(CDN
equivalent)
(CDN
equivalent)
(CDN
equivalent)
(CDN
equivalent)
Cash
Receivables
Current liabilities
$ 172,803
-
(74,910)
$ 3,969
59,386
(28,409)
$ -
2,899
(896)
$ 574
-
-
$ 20,012
-
(11,507)
$ 930
27,047
(4,439)
$ 24
2,872
(1,609)
$ 525
-
(7,706)
$ 97,893
$ 34,946
$ 2,003
$ 574
$ 8,505
$ 23,538
$ 1,287
$ (7,181)
Based on the above net exposures at December 31, 2017, a 10% depreciation or appreciation of the above currencies
against the Canadian dollar would result in approximately a $13,500 (2016: $2,600) increase or decrease in profit or loss,
respectively.
32
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(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 consisting of common shares and derivative investments consisting of share
purchase warrants 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 Advantage, CROPS, Fortuna,
GrowMax, Medgold, Southern Silver, ValGold, Volcanic, and War Eagle and the warrants held in CROPS, Volcanic,
ValGold and War Eagle are monitored by the Board with decisions on sale taken by Management. A 10% decrease in
fair value of the shares and warrants would result in an approximate $514,000 decrease in comprehensive income and
shareholders’ 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, derivative 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, 2017, the Company had working capital of $8.38 million
(2016: $8.22 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, available-for-sale investments, receivables, receivable derivatives, derivative
instruments, 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, 2017
(Expressed in Canadian Dollars)
17. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT – (cont’d)
The fair value investments in associates are detailed in the following table:
Financial assets
Shares held in Rackla (Note 9)
Fair Value Hierarchy
December 31,
2017
Book value
December 31,
2017
Fair value
$ 1
$ 456,927
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 CROPS, Fortuna, Southern Silver, Medgold, Advantage, GrowMax, ValGold, and
Volcanic are based on quoted prices and are therefore considered to be Level 1. The available-for-sale investment for
War Eagle as of December 31, 2017 and derivative instruments are based on inputs other than quoted prices and therefore
considered to be Level 3. As of December 31, 2017, 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.
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, 2017. 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.
34
Radius Gold Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017
(Expressed in Canadian Dollars)
19. SUPPLEMENTAL CASH FLOW INFORMATION
Shares acquired due to a mineral property assignment agreement
Shares acquired from a sale of a mineral property
Shares acquired from a mineral property option agreement
2017
2016
$ 606,664
$ 1,472,218
$ -
$ -
$ -
$ 225,000
There were no financing activities during the years ended December 31, 2017 and 2016.
35
(the “Company”)
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year End Report – December 31, 2017
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, 2017. The
following information, prepared as of April 26, 2018, should be read in conjunction with the December 31, 2017
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 the Americas for over a decade which has resulted in the discovery
of several gold deposits in Central America. 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 April 2015 the Company completed 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”). The Company remains
involved only in the resource sector and has not sought 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
On April 23, 2018, one of the Company’s investments, Focus Ventures Ltd., changed its name to CROPS Inc.
(“CROPS”) and completed a share consolidation so that every four existing common shares were exchanged for
one new common share of CROPS.
The following is a summary of investment activities from January 1, 2017 and until the date of this MD&A:
• 685,675 common shares and 685,675 warrants of CROPS were purchased by way of a private placement
at a cost of $137,135.
• 606,250 common shares of CROPS were purchased on the open market at a cost of $92,346.
• 700,000 common shares of GrowMax Resources Corp. (“GrowMax”) were purchased on the open market
at a cost of $81,649.
• 239,385 shares of Fortuna Silver Mines Inc. (“Fortuna”) were received with a fair market value at time of
issuance of $1,472,218 as part consideration for the sale of the Company’s Tlacolula Property, Mexico.
• 1,263,883 common shares of Volcanic Gold Mines Inc. (“Volcanic”) 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 and 1,542,000 warrants of Volcanic were acquired by way of private
placements at a cost of $575,100.
• 240,000 common shares of Southern Silver Exploration Corp. (“Southern Silver”) were sold on the open
market for net proceeds of $80,675.
• 1,000,000 common shares of Rackla Metals Inc. (“Rackla”) were acquired by way of a warrant exercise
at a cost of $50,000.
• 1,000,000 common shares and 1,000,000 warrants of ValGold Resources Ltd. (“ValGold”) were acquired
by way of a private placement at a cost of $65,000.
• 250,000 common shares of Advantage Lithium Corp. (“Advantage”) were sold on the open market for net
proceeds of $262,808.
• 86,500 common shares of Medgold Resources Corp. (“Medgold”) were purchased on the open market at
a cost of $18,064.
- 4 -
• 625,000 common shares and 312,500 warrants of Champagne Resources Limited (“Champagne”) were
exchanged for 233,785 common shares and 116,890 warrants of War Eagle Mining Company Limited
(“War Eagle”), a public company which amalgamated with Champagne.
The Company’s current cash and cash equivalents on hand is approximately $2.8 million and its current
investments consist of:
CROPS
2,564,027 shares
Current market value: $205,000
CROPS is a Canadian-listed exploration company
developing the Bayovar 12 sedimentary phosphate
resource in northern Peru.
Plus: warrants to purchase an additional 1,143,425
shares
Fortuna
239,385 shares
Current market value: $1,779,000
GrowMax
1,200,000 shares
Current market value: $120,000
Fortuna is a growth oriented, precious metal producer
with its primary assets being the Caylloma silver
mine in southern Peru, the San Jose silver-gold mine
in Mexico and the Lindero gold project in Argentina.
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
10,126,500 shares (10+% of issued)
Current market value: $1,924,000
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
3,973,275 shares (10+% of issued)
Current market value: $377,000
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.
Southern Silver
1,259,500 shares
Current market value: $353,000
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.
- 5 -
ValGold
1,000,000 shares
Current market value: $80,000
Plus: warrants to purchase an additional 1,000,000
shares
ValGold is a mineral exploration and development
company based in Ontario which holds a 2% NSR on
the Garrison Gold Project on the “Golden Highway”
east of Timmins, Ontario, a 100% interest in the
Tower Mountain gold project near Thunder Bay,
Ontario, and exploration projects in Venezuela.
Volcanic
3,222,883 shares
Current market value: $677,000
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
War Eagle
233,785 shares
Current market value: $34,000
Plus: warrants to purchase an additional 116,890
shares
War Eagle is a TSXV listed 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.
Property Interests
USA – Nevada – Bald Peak Property
In March 2017, the Company added to the Company’s portfolio of epithermal gold prospects in the Aurora gold
camp, Nevada with the acquisition of the Bald Peak gold property from Ely Gold & Minerals Inc. (TSX-V: ELY)
and its wholly owned subsidiary, Nevada Select Royalty Inc. Subsequently, the Company increased its land
position by staking an additional 113 unpatented mining claims which are contiguous to the claims acquired from
Ely Gold.
The Bald Peak Property currently consists of 151 unpatented mining claims in Mineral County, Nevada, and one
mineral prospecting licence in Mono County, California. The Property now covers an 8 kilometre by 2 kilometre
area trends northeast from inside the California border into Nevada, parallel to the trend of the neighboring Bodie,
Aurora, and Borealis mining camps.
Bald Peak is an un-eroded epithermal gold prospect in the Aurora-Bodie mining district. Sinter terraces outcrop
along the length of the Property, evidence that the epithermal system has not been eroded beyond its paleo-surface
elevation, and is thus likely fully preserved. Despite the Property’s proximity to several Au-rich mining districts,
the area has seen limited exploration activity. Several operators have acquired the Property over the last 30 years
and mapped alteration zones and various other criteria pertinent to epithermal gold discoveries. The area has seen
very limited drilling however, and its potential remains untested.
- 6 -
Work by the Company at Bald Peak in 2017 consisted of geological mapping and prospecting, rock and soil
geochemistry, and compilation work of historical exploration and academic and government datasets. The work
has demonstrated the presence of a strong gold-bearing epithermal alteration system that can be traced along
strike for over six kilometres in a northeast trend, with an anomalous zone of up to several hundred metres in
width on surface. Within this global target area are several high priority drill targets. They are described below,
in order from SW to NE, and maps showing the property and the targets have been placed on the Company’s
website.
West Bald Peak
West Bald Peak is a high-level epithermal drill target located in Mono County, California, at the southwestern end
of the property. West Bald Peak exhibits a high Au, As, Sb, Hg response in both rocks and soils and a ~2-3
metres thick approximately flat lying silica sinter terrace observed over 250 metres. The sinter terrace is bound to
the southeast by an approximately 30 metres wide northeast trending, steeply west dipping gold-bearing fault
zone that is observed for 300 metres along strike and is open in both directions. The sinter terrace is hosted
within a thick volcaniclastic sequence and displays cross-cutting quartz veining with anomalous gold values.
Planned drill holes will test beneath the sinter terrace/fault zone at productive levels beneath paleosurface.
Bald Peak Flats
Located southwest of the Bald Peak rhyolite, Bald Peak Flats is a ~1.3 kilometre long by 500 metres wide As, Sb,
Hg-in-soil anomaly hosted within a volcaniclastic sequence. The soil anomaly drapes over a local topographic
high exhibiting northeast-trending chalcedonic quartz veins and zones of silicification, mapped by previous
operators. Two historical drill holes are known in this area; however, were not drilled to sufficient depths to test
the mineralized system. High-level chalcedonic quartz, low Au and pathfinder elements (As, Sb, Hg) are
indicative that this target is at high levels with an epithermal system.
Little Bald Peak
Little Bald Peak, located 200 metres lower in elevation and to the northwest of Bald Peak, is a possible side vent
or flow dome of the Bald Peak rhyolite. Where outcropping, brittle/fissile flow-banded rhyolite hosts both
concordant and discordant <2 mm quartz veins and lenses. A historical prospecting pit is found on the southern
side of Little Bald peak; no clear vein or vein orientation was observed but the spoil pile contained fine-grained,
maroon-coloured jasperoid which returned anomalous Au and high As, Sb, Hg values. The target displays a high
As, Sb-in-soil anomaly over Little Bald Peak itself and is located along strike and at higher elevations of a known
mineralized zone (Great Wall).
The Great Wall
The Great Wall is a NNE-trending, steeply dipping, up to 3 metre wide zone containing three parallel quartz veins
hosted within a trachyandesitic unit. The outcrop is exposed over a ~25 metre strike length. Rock channel
sampling returned relatively high Au values in quartz veins displaying slightly coarser quartz crystallinity
compared to the chalcedonic quartz observed within other zones. This increase in quartz crystallinity with a
corresponding increase in gold grade is a positive indication that gold grade is increasing with depth.
NE Sinters
This target contains an extensive area of outcrop and float comprising two distinct zones of sinter within a
widespread 1.5 kilometre by 600 metres wide As, Sb, Hg-in-soil anomaly. NE Sinter 1 is a broad topographic
- 7 -
high with widely distributed sinter outcrops; NE Sinter 2 located on the northern slopes of the Bald Peak rhyolite
is identified by zones of limited vegetation. This target is bound to the west by an approximately north-south
trending fault that has down dropped and preserved these sinter areas. The occurrence of sinter combined with
high As, Sb, Hg pathfinder elements are indicative of being at the top of a fully preserved mineralized system.
Planned Work at Bald Peak
During the summer of 2018, as permitting a plan of operations proceeds with the United States Forest Service, the
Company intends to better these targets by geophysical surveys and further geological and structural mapping
programs. The permitting process may allow for a late 2018 drill program, but more likely the process will run
into early 2019 before drilling is authorized.
Quality Assurance / Quality Control
The work program at the Bald Peak Property was planned by Company personnel and implemented by Company
personnel, consultants and contractors. Rock samples were collected by Company personnel and/or consultants.
During the prospecting phase, suitable certified reference materials were added to the sample stream. Rock
samples were delivered to ALS Chemex, prepared using method Prep-31, and fire assayed by method Au-ICP21,
as well as analysed for multi-elements by method code ME-ICP61.
The soil survey was contracted to Ethos Geological. Soil samples were collected in kraft bags and sent in sealed
containers to ALS Geochemistry, Reno, Nevada. All sample sites were labelled with flagging tape displaying
their unique sample number. The samples were sieved to minus 180 microns (Prep-41), and then analyzed by
ICP-MS for 51 elements (method AuME-TL43).
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 annual consolidated 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 (Gold-Silver Mining Districts, Alteration Zones,
and Paleolandforms in the Miocene Bodie Hills Volcanic Field, California and Nevada. USGS Scientific
Investigations Report 2015-2012).
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.
- 8 -
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 (100 metre x 25 metre grid oriented orthogonal to the NE-SW
targeted structure).
The Company has completed all the necessary studies for its NEPA (National Environmental Policy Act) Plan of
Operation to drill the Spring Peak Property. A plan of operations has been approved by the United States Forest
Service for drilling the Property, and the Company is in the final stages of completing the necessary bonding for
issuance of the drill permit. Drilling is planned to begin in mid-July 2018.
USA – Nevada – Coyote Property
In March 2018, the Company was granted a lease and option to purchase on the Coyote gold property from
Geologic Services Inc. (“Geologic”), adding to the Company’s portfolio of epithermal gold projects in Nevada.
The property is located in northern Elko County on the eastern flank of the Independence Valley, an area known
for its prolific gold production.
The Coyote property consists of 58 unpatented mining claims located on the east side of a Tertiary basin.
Chalcedonic lenses and siliceous sinter deposits are localized along north-east trending normal faults that form the
basin boundary and have been traced along strike on the property for 8,500 feet. The alteration extends into the
hillsides for 2,000 feet.
In 1990, Chevron Resources drilled the Coyote property as part of their Independence Valley district program.
They drilled four angle holes each approximately 800 feet apart, along one of the bounding structures of the basin
in the area of the largest siliceous sinter terrace. The holes ranged from 240 feet to 500 feet deep maximum
depth. All four holes encountered an altered structural zone ranging from 40 feet to 100 feet thick exhibiting
strong argillic alteration with the rock mostly altered to clay.
Geochemical results of Chevron’s drilling returned anomalous values in mercury (high of 19 ppm), antimony
(high of 1,900 ppm) and arsenic (high of 910 ppm) with weak gold values (high of 93 ppb) – geochemical results
consistent with the top of a low-sulfidation epithermal gold system. The deepest drill hole intercepted the
structural zone at 125 feet below surface.
The results described above are summarized from historical exploration data provided to the Company by
Geologic. The Company believes the historical work was performed according to best practices and the
historical exploration data are reliable, but a Qualified Person has not verified the results independently.
The Company plans to conduct due diligence and exploration field studies this spring and summer on the Coyote
property, including surface prospecting and alteration mapping, and a geophysical CSAMT survey. The latter
will investigate the subsurface along the range-bounding fault in the vicinity of the siliceous sinters for evidence
of a structural feeder to the hydrothermal system.
.
Agreement Terms
Geologic has granted to the Company a lease of the Coyote property for up to 15 years, in consideration for the
granting by the Company to Geologic of a 2.0% to 3.0% net smelter return royalty, the percentage to depend on
the prevailing price of gold. In order to keep the lease in good standing, the Company has the right to make
annual advance royalty payments to the Geologic. At any time during the term of the lease, the Company may
- 9 -
elect to acquire a 100% interest in the Coyote property by making a cash payment of US$2.0 million to Geologic.
The Company has also agreed to reimburse Geologic for the filing costs of a portion of the claims comprising the
Coyote property.
USA - Nevada – ABC Property
In 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. Following detailed analysis and project ranking, the Company decided in 2017
to allow the ABC Property claims to lapse, in order to focus on higher priority targets in Nevada.
Mexico – Amalia Project
The Amalia Project comprises 9,461 hectares located in the Sierra Madre gold belt in the State of Chihuahua,
Mexico. In June 2017, the Company signed a binding agreement with a private individual to option 380 hectares
of the project area which is host to high grade epithermal silver-gold mineralization. Following the signing of the
option agreement, the Company staked an additional 9,081 hectares surrounding the Amalia Project, covering
three new regional target areas.
The Project is located approximately 25 kilometres SW of the historic Guadalupe y Calvo mining district in
Chihuahua, Mexico. During due diligence evaluation the Company’s geologists sampled bonanza grade outcrop
containing 20.4 g/t Au and 5,360 g/t Ag from a 1.2 metre chip. The Company has established a 10 man camp at
Amalia and completed an initial exploration program comprising geological mapping, prospecting and channel
sampling of the main targets. Epithermal Au-Ag mineralization has been sampled by the Company in several
veins, vein breccias and disseminated zones over 3.5 kilometres of strike length and a 600 metre vertical interval
following the trace of a large regional fault zone.
Campamento Target
At the main target area, known as Campamento, a 150 by 300 metre zone of intense silicification, and brecciation
with massive and stockwork veining has been mapped at the contact between the upper Rhyolite and lower
Andesite volcanic sequence. The zone strikes roughly 350/70E.
101 continuous chip channel samples between 1 and 2 metres wide were sampled across the middle of the
Campamento zone, as outcrop allowed, representing the full estimated width of the zone at 148 metres. The
weighted average of all 101 samples was 0.20 g/t Au and 49 g/t Ag. The main mineralized interval graded:
62 metres at 0.43 g/t Au and 98 g/t Ag
including: 30 metres at 0.58 g/t Au and 151 g/t Ag
A second, 14 metre wide continuous chip sample (open to expansion) located 60 metres north of the main sample
line, near a historic tunnel graded:
14 metres at 1.47 g/t Au and 167 g/t Ag
including: 7 metres at 2.37 g/t Au and 239 g/t Ag
Sampling conducted in the most recent field campaign resulted in a new high-grade extension northward of
Campamento zone with a continuous rock chip channel assaying 4.5 metres at 10.3 g/t Au and 202 g/t Ag. This
- 10 -
extends the total strike length of outcrop of the high level chalcedonic breccias and stockwork zone at
Campamento to 500 metres.
Guadalupe Target
Located 700 metres southeast of Campamento, and 250 metres vertically below, the Guadalupe target includes a
historic tunnel and shaft which expose a high-grade quartz sulphide vein breccia, hosted in andesite volcanics.
The Company collected three continuous chip samples within the historic workings where the main vein is well
exposed. The results include:
Guadalupe shaft:
Guadalupe tunnel cross-cut:
Guadalupe tunnel 10 metres above cross-cut:
including:
7 metres at 3.62 g/t Au and 1,048 g/t Ag
4 metres at 6.04 g/t Au and 1,702 g/t Ag
7 metres at 2.4 g/t Au and 188 g/t Ag
4 metres at 3.92 g/t Au and 888 g/t Ag
The sampling at Guadalupe shows consistent high grade over a vertical interval of approximately 60 metres, from
the upper shaft to lower tunnel. The area around Guadalupe is steep and bush covered with limited outcrop, hence
the extent of the mineralized zone is not yet known
Dulces Target
Located 800 metres northeast of Campamento, at roughly similar elevation, the Dulces vein is exposed in an
historic underground tunnel within an extensive area of argillic altered andesite volcanics. The vein varies from 1
to 1.5 metres and chip samples of the vein within the short 15 metre tunnel returned:
AM377: 1 metre at 34 g/t Au and 13 g/t Ag
AM378: 1 metre at 20.3 g/t Au and 44 g/t Ag
AM379: 1.5 metres at 114.5 g/t Au and 57 g/t Ag
The Company is currently negotiating access with the landowner for a trenching and sampling program at Dulces.
Exploration Summary
During the past several months, the Company has focused its exploration efforts on defining drill targets within
the central area covering the Campamento and Guadalupe targets at Amalia over strike length of approximately 1
kilometre and vertical interval of 250 metres. A new discovery located between Campamento and Guadalupe,
called San Pedro, returned 13 metres at 2.51 g/t Au and 164 g/t Ag in a continuous chip (10 samples) across the
discovery outcrop. New sampling 50 metres vertically above and along strike from Guadalupe returned 8 metres
at 0.21 g/t Au and 264 g/t Ag (8 samples).
The Company has now defined a central corridor of mineralization, along the north-west trending major structural
break. In the north at Campamento, a 500 metre x 70 metre zone of intense silicification, and brecciation with
massive and stockwork veining has been mapped at the contact between the upper rhyolite and lower andesite
volcanic sequence. The mineralization at Campamento is hosted in high level white chalcedonic banded veins
and breccias. Southeast along the fault system and vertically down in the system, the mineralization transitions
from Campamento style rhyolite-hosted chalcedonic silica veins, to andesite-hosted sulphide rich fault breccias
observed at San Pedro and Guadalupe, where the mineralization is narrower and higher grade as shown at San
Pedro 300 metres south and 175 metres lower with 13 metres at 2.51 g/t Au and 164 g/t Ag.
- 11 -
Geologically similar gold-silver epithermal deposits of the Sierra Madre belt have mineralization defined over a
vertical interval of 600 to 700 metres, and the transition from upper rhyolite hosted mineralization into higher
grade andesite host at depth is commonly observed. The Company believes that the system is preserved at
Amalia and along the controlling regional fault system mineralization occurs over a 600 metre vertical interval.
The Company plans to target high grade mineralization at depth below the Campamento silica zone and at the
Guadalupe and San Pedro targets. Maps and photos of the Amalia Project are available on the Company’s
website.
Quality Assurance / Quality Control
Sampling at Amalia followed a standardized protocol to ensure representative and unbiased quantities of material
from across each sample. Chip samples were taken using hammer and chisel continuously along the walls of the
underground mines and cleaned surface outcrops. Nominally widths were between 1 and 2 metres. Continuous
chip samples were taken across strike and are the best estimate of true width.
The Company utilizes industry-standard QA/QC program. Rock samples were prepared and analyzed at ALS
laboratories in Mexico and Canada. Blanks and certified reference standards are inserted into the sample stream
to monitor laboratory performance and the results have been within acceptable limits.
Option Terms
The Company can earn a 100% interest in the Amalia Project by making cash payments to the property owner
staged payments over a period of five years totaling US$845,000 (US$10,000 paid) and, subject to stock
exchange approval, US$15,000 in shares of the Company.
Mexico – Tarros Project
After conducting a detailed mapping and sampling program, the Company relinquished in January 2018 its option
to acquire the 473-hectare Tarros Project located 50 kilometres north of the Company’s Amalia Project in the
Sierra Madre Gold Silver belt in the State of Chihuahua, Mexico.
Mexico – Lithium Brine Project
The Company holds a 10,000 hectare application at Salar Viesca in Coahuila State, Mexico. The Company is
identifying lithium companies to initiate discussions on a joint venture on this lithium brine project.
Highlights of the Viesca project include:
• The project is 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.
• The Company conducted controlled surface samples which delivered numerous anomalous lithium results
including 189 ppm Li.
• 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:
- 12 -
• Located in a desert climate with historic evaporate ponds.
• Large closed basin salar targets.
• Suitable lithium source-rocks.
• Subsurface highly saline aquifers described in historic data.
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
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.
- 13 -
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. 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 in the 2016 fiscal year.
Mexico - Tlacolula Property Royalty
In July 2017, the Company completed the sale of its Tlacolula silver property, Mexico to Fortuna in consideration
for a cash payment of US$150,000, 239,385 common shares of Fortuna, and a 2% NSR royalty on the property.
Fortuna retains the right to purchase one-half of the royalty by paying the Company US$1.5 million. The
Company and Fortuna are related parties.
Peru – Bayovar 12 Project Royalty
In April 2015, the Company purchased from CROPS a production royalty, equivalent to a 2% net smelter return,
on CROPS’ 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 US$1.0 million. CROPS 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, CROPS will retain a first right of refusal. In May
2016, CROPS published a pre-feasibility study for production of phosphate rock concentrate from the Bayovar 12
project. The Company and CROPS 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$1.0 million. The Company and B2Gold subsequently decided to
relinquish the La Magnolia concession. Closing of the San Jose sale, and the royalty grant to the Company, took
place on in 2015.
Outlook
The Company continues to conduct its property investigations in various jurisdictions and with various
commodities but with a focus on gold and silver in Nevada and Mexico. The Company’s geologists are using a
low cost and effective method of field testing targets that are generated through desktop research and through
submittals.
Qualified Person: Bruce A Smith, M.Sc., MAIG., a member of the Australian Institute of Geoscientists, is the
Company’s Qualified Person as defined by National Instrument 43-101, and has approved the disclosure of the
technical information in this MD&A.
Selected Annual Information
- 14 -
The following table sets forth selected annual financial information of the Company for, and as at, the end of each
of the last three financial years ended December 31, 2017, 2016, and 2015:
Royalty income
Investment and other income
Exploration expenditures
Net income (loss) for the year
Total
Basic & fully diluted per share
Total assets
Total long-term liabilities
Cash dividends
2017 ($)
-
10,673
1,140,432
194,003
0.00
10,188,369
-
-
2016 ($)
431,643
13,068
544,586
1,862,266
0.02
9,848,863
-
-
2015 ($)
1,098,912
17,293
589,162
(1,875,449)
(0.02)
7,088,017
-
-
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
The following table provides information for the eight fiscal quarters ended December 31, 2017:
Quarter ended
Dec. 31,
2017 ($)
Sep. 30,
2017 ($)
June 30,
2017 ($)
Mar. 31,
2017 ($)
Royalty revenue, net
Investment and other income
-
2,213
-
1,973
-
2,438
-
4,049
Dec. 31,
2016 ($)
47,960
4,689
Sep. 30,
2016 ($)
26,973
4,764
June 30,
2016 ($)
Mar. 31,
2016 ($)
135,303
221,407
2,930
685
Exploration
expenditures
373,698
421,265
260,902
84,567
102,932
215,591
107,590
Net income (loss)
(620,477)
1,024,002
(569,184)
359,662
(1,101,528)
738,793
2,320,061
118,473
(95,060)
Basic and diluted
income (loss) per share
(0.01)
0.01
(0.01)
0.00
(0.01)
0.01
0.02
(0.00)
The Company recorded royalty revenue from production at the Tambor Project up to the quarter ended June 30,
2016, the period in which mining operations were suspended. The royalty revenue recorded in the following two
quarters was due to adjustments to income recorded in the prior periods. The quarter ended September 30, 2017
recorded a net income due to a gain of $1,658,928 on the sale of the Tlacolula property. The quarter ended March
31, 2017 recorded a net income due to a gain of $606,664 from a property assignment agreement. 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.
Results of Operations
Quarter ended December 31, 2017
The quarter ended December 31, 2017 had a net loss of $620,477 compared to $1,101,528 for the quarter ended
December 31, 2016, a decrease of $481,051. The comparative quarter’s loss was higher primarily due to a
- 15 -
provision for impairment of a receivable of $784,180 relating to royalty revenue from the Tambor Project that is
yet to be paid. The current quarter also recorded a gain on sale of available-for-sale investments of $167,808 and
a gain of $204,252 on the fair value of derivative investments. The derivative investments consist of share
purchase warrants that were acquired along with common shares in private placement investments. There were
no such gains recorded for the comparative year. However, the current quarter also recorded an impairment
charge of $456,615 on available-for-sale investments compared to $63,401 in the comparative quarter.
Exploration expenditures in the current quarter totaled $373,698 compared to $102,932 in the comparative
quarter, an increase of $270,766. 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, 2017 were $129,728 compared to
$358,417 for the comparative quarter, a decrease of $228,689. This decrease is mostly due to the comparative
quarter recording a share-based compensation expense of $213,150 relating to the issuance of stock options
whereas there was no such charge for the current quarter.
Year ended December 31, 2017
The year ended December 31, 2017 had a net income of $194,003 compared to $1,862,266 for the year ended
December 31, 2016, a decrease of $1,668,263. Exploration expenditures in the current year totaled $1,140,432
compared to $544,586 in the comparative year, an increase of $595,846. Besides less exploration expenditures
being incurred in the comparative year, the comparative year also recorded royalty income of $431,643 compared
to none for the current year.
The current year net income includes a gain of $1,658,928 on the sale of the Tlacolula property in addition to a
gain of $606,664 on a property assignment agreement with Volcanic and the gain of $204,252 on derivative
investments. There were no such gains in the comparative year though it did record a gain on sale of available-
for-sale investments of $2,688,336 compared to $204,346 for the current year. Both the current and comparative
years also recorded impairment charges relating to available-for-sale investments which were $839,555 and
$205,321 respectively.
General and administrative expenses for the current year were $407,942 compared to $701,432 for the
comparative year, a decrease of $293,490. As in the quarterly comparison, the comparative year included the
share-based payment expense of $213,150 whereas there was no such charge for the current year. All general and
administrative expenses in the current year, except for regulatory fees and travel costs, were lower than those in
the comparative year. The most notable cost decreases were in office and miscellaneous, salaries, and legal and
audit fees. Office and salary costs were lower in the current year due to the Company’s portion of shared office
lease and personnel costs being reduced. Legal and audit fees were lower in the current year due to the timing of
audit fees.
Mineral Properties Expenditures
A summary of the Company’s expenditures on its mineral properties during the year ended December 31, 2017 is
as follows:
United States – A total of $492,991 was incurred on property investigation and exploration related costs, of which
$15,727 was on general property investigation, $33,505 on the Spring Peak property, and $443,759 on the Bald
Peak property. Acquisition costs totaling $117,816 were also incurred on the Bald Peak property.
Mexico - A total of $510,010 was incurred on exploration, property investigation, and miscellaneous
administrative costs, of which $227,551 was incurred on the Amalia property and $39,839 on the Tarros property.
Acquisition costs totaling $13,348 were also recorded for the Amalia property.
Guatemala – A total of $50,834 was incurred on property investigation and care and maintenance related costs.
- 16 -
Other – A total of $86,597 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, 2017 and 2016 are provided
in the schedules at the end of this MD&A.
Liquidity and Capital Resources
The Company’s cash and cash equivalents decreased from $5.13 million at December 31, 2016 to $3.32 million at
December 31, 2017. As at December 31, 2017, working capital was $8.38 million compared to $8.22 million at
December 31, 2016. Included in working capital is the value of the Company’s available-for-sale investments
which as at December 31, 2017 had a fair value of $4.94 million compared to $2.79 million as at December 31,
2016. A significant transaction that decreased cash and cash equivalents and increased available-for-sale
investment value during the current year was the acquisition of 1,959,000 common shares of Volcanic at a cost of
$575,100 by way of private placements. Available-for-sale investments also increased in the current year due to
the receipt of 1,263,883 common shares of Volcanic with a fair value of $606,664 at the time of issuance,
pursuant to a mineral property assignment agreement, and the receipt of 239,385 Fortuna shares with a fair value
of $1,491,369 at the time of issuance, pursuant to the Tlacolula mineral property sale.
During the year ended December 31, 2017, the Company sold 93,000 Southern Silver shares for net proceeds of
$41,188 and sold 250,000 Advantage shares for net proceeds of $262,808.
The Company held 3,973,275 common shares in Rackla with a fair value of $456,927 as at December 31, 2017;
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. During the year ended December 31, 2017, the
Company acquired an additional 1,000,000 common share in Rackla upon the exercise of share purchase warrants
at a cost of $50,000.
The Company did not earn any royalty revenue from the previously held Tambor Project during the current year
as the operations at Tambor continue to be suspended.
The Company intends to use the proceeds from any sales of its equity investments, option payments received and
royalty income payments received 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:
2018
2019
$ 190,608
190,608
$ 381,216
Financial Instruments and Risk Management
The Company is exposed to the following financial risks:
- 17 -
• 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
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, 2017 and 2016, the Company is exposed to currency risk through the following financial assets
and liabilities denominated in currencies other than the Canadian dollar:
December 31, 2017
December 31, 2016
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
$ 172,803
-
(74,910)
$ 3,969
59,386
(28,409)
$ -
2,899
(896)
$ 574
-
-
$ 20,012
-
(11,507)
$ 930
27,047
(4,439)
$ 24
2,872
(1,609)
$ 525
-
(7,706)
$ 97,893
$ 34,946
$ 2,003
$ 574
$ 8,505
$ 23,538
$ 1,287
$ (7,181)
- 18 -
Based on the above net exposures at December 31, 2017, a 10% depreciation or appreciation of the above
currencies against the Canadian dollar would result in approximately a $13,500 (2016: $2,600) increase or
decrease in profit or loss, respectively.
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 consisting of common shares and derivative investments
consisting of share purchase warrants 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 Advantage, CROPS, Fortuna, GrowMax, Medgold, Southern Silver, ValGold, Volcanic, and War Eagle
and the warrants held in CROPS, Volcanic, ValGold and War Eagle are monitored by the Board with decisions on
sale taken by Management. A 10% decrease in fair value of the shares and warrants would result in an
approximate $514,000 decrease in comprehensive income and shareholders’ 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, derivative 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.
Related Party Transactions
The Company had transactions during the years ended December 31, 2017 and 2016 with related parties who
consisted of directors, officers and the following companies with common directors:
- 19 -
Related party
Mill Street Services Ltd. (“Mill Street”)
Gold Group Management Inc. (“Gold Group”)
Fortuna
CROPS
Medgold
Volcanic
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 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, 2017 and 2016:
General and administrative expenses:
Salaries and benefits
Exploration expenditures:
Geological fees
Salaries and benefits
Three months ended
December 31,
2016
2017
Year ended
December 31,
2016
2017
$ 6,800
$ 10,000
$ 21,200
$ 36,827
10,648
-
18,542
163
57,688
7,087
18,542
4,326
$ 17,448
$ 28,705
$ 85,975
$ 59,695
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, 2017 and 2016, 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
Three months ended
December 31,
2016
2017
Year ended December 31,
2016
2017
$ 10,584
74
28,677
22
3,018
$ 10,619
-
30,923
522
2,013
$ 43,434
1,594
103,967
3,983
11,900
$ 41,263
1,289
118,658
3,378
9,327
$ 42,375
$ 44,077
$ 164,878
$ 173,915
Exploration expenditures
$ -
$ 2,930
$ -
$ 2,930
Gold Group salary and benefits costs for the years ended December 31, 2017 and 2016 include those for the Chief
Financial Officer and Corporate Secretary.
Prepaid expenses and deposits include an amount of $1,142 (2016: $5,797) paid to Gold Group for shared office
and administrative services.
Long-term deposits as of December 31, 2017 include an amount of $60,000 (2016: $60,000) paid to Gold Group
as a deposit on the shared office and administrative services agreement.
Amounts due from related parties consist of $Nil (2016: $13,693) due from Medgold, a company which has a
common director with the Company, arising from shared administrative costs and $Nil (2016: $3,107) due from
- 20 -
CROPS, a company which has two common directors with the Company, arising from shared administrative
costs. These amounts were unsecured, non-interest bearing and due on demand.
Accounts payable and accrued liabilities include $44,471 (2016: $2,828) payable to Gold Group for shared
administrative costs, and $2,594 (2016: $4,033) to a Director of the Company for geological fees.
During the year ended December 31, 2017, the following transactions also occurred:
i) The Company acquired 510,250 common shares of CROPS on the open market for a cost of $74,986.
ii) The Company acquired 685,675 common shares of CROPS by way of private placement at a cost of
$137,135.
iii) The Company received net cash of $187,710 and 239,385 common shares of Fortuna with a fair value of
$1,472,218 as proceeds on the sale of a mineral property to Fortuna.
iv) The Company acquired 1,959,000 common shares of Volcanic by way of private placements for a cost of
$575,100 and received 1,263,883 common shares with a fair value of $606,664 pursuant to a mineral property
assignment agreement.
v) The Company acquired 1,000,000 common shares of Rackla upon the exercise of 1,000,000 share purchase
warrants at a cost of $50,000.
During the year ended December 31, 2016, the following transactions also occurred:
i) The Company acquired 562,500 common shares of CROPS of which 192,500 shares were acquired by way of
a private placement for a cost of $50,050, another 192,500 shares acquired upon the exercise of share
purchase warrants at a cost of $57,750, and 177,500 shares acquired on the open market for a cost of $65,159.
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.
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,
2016
2017
Year ended
December 31,
2016
2017
Management fees
Geological fees
Salaries, benefits and fees
Share-based payments
$ 10,500
15,000
9,946
-
$ 10,500
15,000
8,708
49,000
$ 42,000
60,000
33,321
-
$ 42,000
60,000
34,833
49,000
$ 35,446
$ 83,208
$ 135,321
$ 185,833
Total share-based payments to directors not included in the above table during the year ended December 31, 2017
was $Nil (2016: $55,125).
Other Data
Additional information related to the Company is available for viewing at www.sedar.com.
Share Position and Outstanding Options
- 21 -
As at April 26, 2018, 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
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, 2017, the Company held 3,973,275 (2016: 2,973,275) common shares of Rackla, representing
19.8% (2016: 19.7%) of Rackla’s outstanding common shares. During the year ended December 31, 2017, the
Company exercised its 1,000,000 share purchase warrants for 1,000,000 common shares of Rackla at a cost of
$50,000. The Rackla share purchase warrants were not tradable on an exchange.
The following table shows the continuity of the Company’s interest in Rackla for the period from January 1, 2016
to December 31, 2017:
Balance, December 31, 2015 and 2016
Increase in investment
Less: share of losses in associate
Balance, December 31, 2017
$ 1
50,000
(50,000)
$ 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 2017 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 as at December 31, 2017.
The cumulative unrecognized share of losses for the associate is $567,382.
The financial statement balances of Rackla are as follows:
Total current assets
Total assets
Total liabilities
Net loss
December 31,
2017
December 31,
2016
$ 250,862
316,474
225,230
130,627
$ 36,537
104,597
133,476
219,288
- 22 -
At December 31, 2017, the fair value of the 3,973,275 common shares of Rackla was $456,927 (2016: $445,991
fair value of 2,973,275 common shares).
Medgold
As at December 31, 2017, the Company held 10,040,000 (2016: 10,040,000) common shares of Medgold,
representing 11.2% of Medgold’s outstanding common shares.
Medgold previously met the definition of an associate and was equity accounted for in the consolidated financial
statements. In 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 third 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 $1,095,600 and its carrying cost was $403,873. As a result, a gain of $691,727 was
recognized in the consolidated statement of income and comprehensive income 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% as a result
of an increase in the issued capital of Medgold. Accordingly, the Company recorded a gain on dilution of
$170,045 for the year ended December 31, 2016.
The following table shows the continuity of the Company’s interest in Medgold for the period from January 1,
2016 to December 31, 2016:
Balance, December 31, 2015
Less: share of losses in associate
Gain on dilution
Reclassification to an available-for-sale investment
Balance, December 31, 2016
The financial statement balances of Medgold are as follows:
Total current assets
Total assets
Total liabilities
Net loss(2)
$ 369,828
(136,000)
170,045
(403,873)
$ -
June 30,
2016(1)
$ 1,507,091
2,039,702
497,674
1,016,621
(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.
- 23 -
Future Changes in Accounting Policies
The following new standard has been issued by the IASB but is not yet effective:
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. The Company expects the above standard
to have a significant impact on the presentation of its consolidated financial statements and are currently in the
process of evaluating its impact on its consolidated financial statements.
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.
- 24 -
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.
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration.
On December 8, 2016, the IASB issued IFRIC Interpretation 22 Foreign Currency Transactions and Advance
Consideration. The Interpretation clarifies which date should be used for translation when a foreign currency
transaction involves an advance payment or receipt. The Interpretation is applicable for annual periods beginning
on or after January 1, 2018. Earlier application is permitted. The Interpretation clarifies that the date of the
transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset,
expense or income (or part of it) is the date on which an entity initially recognizes the non-monetary asset or non-
monetary liability arising from the payment or receipt of advance consideration.
Effective for the Company’s annual period beginning January 1, 2018.
Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2 Share-based
Payment)
Issued by IASB November 2016
The amendments provide guidance on the accounting for:
•
•
•
the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based
payments;
share-based payment transactions with a net settlement feature for withholding tax obligations; and
a modification to the terms and conditions of a share-based payment that changes the classification of the
transaction from cash-settled to equity-settled.
Effective for annual periods beginning January 1, 2018
Risks and Uncertainties
Royalty revenue
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
- 25 -
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.
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.
- 26 -
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.
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
- 27 -
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.
- 28 -
Mineral Properties Expenditure Detail
INTERIM CONSOLIDATED SCHEDULE OF EXPLORATION EXPENDITURES
For the year ended December 31, 2017
USA
Guatemala
Mexico
Other
General
Exploration
Mineral
Properties
General
Exploration
Mineral
Properties
General
Exploration
Mineral
Properties
General
Exploration
Exploration administration
Field and camp
Geochemistry
Geological services
Legal and accounting
Licenses, rights and taxes
Travel and accommodation
$ 1,028
-
230
11,130
-
-
3,339
$ 637
17,603
84,306
309,781
-
28,308
36,629
$ 19,843
-
-
5,540
2,899
-
8,933
$ 12,919
-
-
-
700
-
-
$ 3,741
4,511
17,078
121,943
25,128
41,938
34,221
$ 11,121
30,431
17,240
128,368
-
9,747
70,483
$ 6,986
-
-
77,668
-
-
1,943
Total
$ 56,333
52,545
118,854
654,430
28,727
79,993
155,490
Expenditures recovered
-
-
-
-
(5,940)
-
-
(5,940)
15,727
477,264
37,215
13,619
248,560
267,390
86,597
1,146,372
$ 15,727
$ 477,264
$ 37,215
$ 13,619
$ 242,620
$ 267,390
$ 86,597
$ 1,140,432
CONSOLIDATED SCHEDULE OF EXPLORATION EXPENDITURES
For the year ended December 31, 2016
USA
Guatemala
Mexico
Exploration administration
Geochemistry
Geological services
Legal and accounting
Licenses, rights and taxes
Travel and accommodation
General
Mineral
Exploration Concessions
$ 3,572
$ 96
3,301 6,959
68,029 55,290
-
-
- 35,797
12,773 8,643
General
Mineral
Exploration Concessions Exploration Concessions
Mineral
General
$ 23,497
-
24,076
2,036
526
5,882
$ 8,632
-
3,457
570
849
-
$ 1,950
$ -
15,182 -
102,689 541
11,311 -
739 11,647
29,011 -
Other
General
Exploration
$ 8,732
2,606
119,182
998
-
8,878
Total
$ 46,479
28,048
373,264
14,915
49,558
65,187
Expenditures recovered
-
-
-
-
(32,865) -
-
(32,865)
87,675 106,785
56,017
13,508
160,882 12,188
140,396
577,451
$ 87,675
$ 106,785
$ 56,017
$ 13,508
$ 128,017
$ 12,188
$ 140,396
$ 544,586