2015 CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2015
(Expressed in Canadian dollars)
INDEX
Unaudited Condensed Interim Consolidated Financial Statements
Management’s Responsibility for Financial Reporting
Independent Auditor’s Report
Consolidated Statement of Financial Position
Consolidated Statement of Comprehensive Loss
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Management’s Responsibility for Financial Reporting
The consolidated financial statements of Silver Bear Resources Inc. have been prepared by, and are the
responsibility of the Company’s management.
The consolidated financial statements are prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board. In the opinion of management
the accounting practices utilized are appropriate in the circumstances and the consolidated financial
statements fairly reflect the financial position and results of operations of the Company within reasonable
limits of materiality.
Management has developed and is maintaining a system of internal controls to obtain reasonable assurance
that the Company’s assets are safeguarded, transactions are authorized, and financial information is reliable.
All internal control systems have inherent limitations, including the possibility of circumvention and overriding
controls, and, therefore, can provide only reasonable assurance as to financial statement preparation and
safeguarding of assets.
The Board of Directors is responsible for ensuring management fulfills its responsibilities. The Audit
Committee meets with the Company’s management and external auditors to discuss the results of the audit
and to review the annual consolidated financial statements prior to the Audit Committee’s submission to the
Board of Directors for approval. The Audit Committee also reviews the quarterly financial statements and
recommends them for approval to the Board of Directors, reviews with management the systems of internal
control and security, approves the scope of the external auditors audit and non-audit work. The Audit
Committee is composed entirely of directors not involved in the daily operations of the Company and thus is
considered to be free from any relationship that could interfere with the exercise of independent judgment as
a Committee member.
The consolidated financial statements have been audited by PricewaterhouseCoopers LLP, Chartered
Accountants and their report outlines the scope of their examination and gives their opinion on the
consolidated financial statements.
“Graham Hill”
_______________________________
Graham Hill
Director, President and
Chief Executive Officer
Toronto, Ontario, Canada
March 29, 2016
“Derk Hartman”
_______________________________
Derk Hartman
Chief Financial Officer
Page | 2
March 29, 2016
Independent Auditor’s Report
To the Shareholders of
Silver Bear Resources Inc.
We have audited the accompanying consolidated financial statements of Silver Bear Resources Inc. and its
subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2015
and December 31, 2014 and the consolidated statements of loss and comprehensive loss, the consolidated
statements of changes in equity, and the consolidated statements of cash flows for the years then ended,
and the related notes, which comprise 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.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Silver Bear Resources Inc. and its subsidiaries as at December 31, 2015 and December 31, 2014
and their financial performance and their cash flows for the years then ended in accordance with
International Financial Reporting Standards.
Emphasis of matter
Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements
which describes matters and conditions that indicate the existence of a material uncertainty that may cast
significant doubt about the corporation’s ability to continue as a going concern.
(Signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants, Licensed Public Accountants
Silver Bear Resources Inc.
Consolidated Statement of Financial Position
(Canadian dollars)
ASSETS
Current assets
Cash and cash equivalents
Receivable (note 4)
Inventories (note 5)
Prepaid expenses (note 6)
Total current assets
Non-current assets
Prepaid long-term assets (note 6)
Mineral property (note 7)
Property, plant and equipment (note 8)
Total assets
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities (note 9)
Short-term loans (note 10)
Finance lease (note 11)
Total current liabilities
Non-current liabilities
Asset retirement obligation (note 18)
Finance lease (note 11)
Total liabilities
EQUITY
December 31,
2015
December 31,
2014
9,966,104
572,528
734,745
1,776,748
13,050,125
3,262,320
5,891,369
4,992,398
14,146,087
27,196,212
2,995,207
31,008,577
175,348
34,179,132
918,910
13,634
932,544
35,111,676
1,593,133
349,942
518,604
355,855
2,817,534
-
1,607,824
1,017,864
2,625,688
5,443,222
463,886
-
146,981
610,867
826,758
139,555
966,313
1,577,180
Equity attributable to owners of Silver Bear Resources Inc.
Share capital (note 12)
Contributed surplus (note 12)
Accumulated other comprehensive loss
Deficit
Total (deficit)/equity
Total liabilities and shareholders' equity
98,277,254
14,173,136
(3,153,970)
(117,211,884)
(7,915,464)
27,196,212
98,265,379
14,009,495
(1,880,025)
(106,528,807)
3,866,042
5,443,222
Going concern (note 1)
Commitments and contingencies (note 16)
Approved by the Board of Directors on March 29, 2016
“Graham Hill”
_______________________________
Graham Hill
Director
“Trevor Eyton”
_______________________________
Trevor Eyton
Director
Page | 5
Silver Bear Resources Inc.
Consolidated Statement of Comprehensive Loss
For the years ended December 31, 2015 and 2014
(Canadian dollars)
Income
Interest income
Expenses (Note 14)
Exploration costs
General and administrative
Depreciation
Share-based payments
Accretion expense
Interest expense
Foreign exchange loss
Expenses from operations
2015
2014
2,314
2,314
12,608
12,608
4,289,170
3,939,852
256,465
175,516
68,839
1,231,670
723,879
10,685,391
4,994,803
2,451,467
254,071
738,320
95,566
133,957
426,757
9,094,941
Net loss for the year
(10,683,077)
(9,082,333)
Other comprehensive loss
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations (1,273,945)
(1,325,881)
Comprehensive loss for the year
(11,957,022)
(10,408,214)
Weighted average number of common shares outstan 161,326,366
126,128,878
Basic and diluted loss per share (Note 12)
(0.07)
(0.07)
The accompanying notes are an integral part of these consolidated financial statements
Page | 6
Silver Bear Resources Inc.
Consolidated Statement of Changes in Equity
For the years ended December 31, 2015 and 2014
(Canadian dollars)
Share
capital
Contributed
surplus
Accumulated
other
comprehensive
loss
Deficit Total equity
Balance - December 31, 2013
87,542,402 13,499,050
(554,144) (97,446,474)
3,040,834
Net loss for the year
Other comprehensive loss:
Cumulative translation adjustment
Comprehensive loss for the year
Net proceeds from issuance shares in
private placement
Shares issued for debt
Shares issued under share bonus plan
Share-based payments
-
-
- (9,082,333)
(9,082,333)
- - (1,325,881)
- (1,325,881)
- - (1,325,881) (9,082,333) (10,408,214)
10,466,420 - -
-
28,682
-
227,875
-
-
-
-
510,445
-
-
-
-
10,466,420
28,682
227,875
510,445
Balance -December 31, 2014
98,265,379 14,009,495
(1,880,025) (106,528,807)
3,866,042
Balance -December 31, 2014
98,265,379 14,009,495
(1,880,025) (106,528,807)
3,866,042
Net loss for the year
Other comprehensive loss:
Cumulative translation adjustment
Comprehensive loss for the year
-
-
- (10,683,077)
(10,683,077)
- - (1,273,945)
-
-
- (1,273,945)
(11,957,022)
(1,273,945) (10,683,077)
Shares issued under share bonus plan
Share-based payments
11,875
-
-
163,641
-
-
-
-
11,875
163,641
Balance - December 31, 2015
98,277,254 14,173,136
(3,153,970) (117,211,884)
(7,915,464)
Page | 7
Silver Bear Resources Inc.
Consolidated Statement of Cash Flow
For the years ended December 31, 2015 and 2014
(Canadian dollars)
Cash provided by (used in)
Operating activities
Total loss for the year
Adjustments for items not affecting cash:
Depreciation
Share-based payments
Accretion expense
Interest expense
Net change in non-cash working capital (note 15)
Net cash used in operations
Investing activities
Acquisition of property, plant and equipment
Mineral Property addition
Long term prepayments
Net cash used in investing activities
Financing activities
2015
2014
(10,683,077)
(9,082,333)
256,465
175,516
68,839
1,313,723
254,071
738,320
95,566
(35,818)
(2,138,411)
(867,839)
(11,006,945)
(8,898,033)
(4,753,766)
(3,312,279)
(3,646,517)
(146,818)
-
-
(11,712,562)
(146,818)
Net proceeds from issuance shares in private placement
Finance lease repayment
Short-term loans drawn
Short-term loans repaid
-
(141,398)
31,008,577
-
10,466,420
(142,075)
1,250,000
(1,250,000)
Net cash generated from financing activities
30,867,179
10,324,345
Effect of exchange rate changes on cash and cash equivalents
Increase in cash and cash equivalents during the year
Cash and cash equivalents - beginning of the year
Cash and cash equivalents - end of the year
225,299
8,372,971
1,593,133
9,966,104
36,730
1,316,224
276,909
1,593,133
Cash and cash equivalents consist of:
Cash
Cash equivalents
9,966,104
-
9,966,104
1,593,133
-
1,593,133
The accompanying notes are an integral part of these consolidated financial statements.
Page | 8
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
1. NATURE OF OPERATIONS AND GOING CONCERN
Silver Bear Resources Inc. (“Silver Bear”) was incorporated under the Business Corporations Act of the Province of Ontario,
Canada, on April 8, 2004 and continued under Articles of Continuance dated August 30, 2004 under the Business Corporations Act
(Yukon) and February 1, 2005 under the Business Corporations Act (Ontario). The primary business of Silver Bear and its
subsidiaries (‘the Company”) is the acquisition, exploration, evaluation and development of precious metal properties. The head
office of the Company is registered in Toronto, Canada. The principal asset of the Company is the project described in Note 7. The
strategy of the Company is to focus on exploration and development of precious metal deposits. To date, Silver Bear has not
earned revenue from operations and is considered to be in the development stage.
It was determined that development, exploration and evaluation costs incurred from July 1, 2015 have future economic benefits and
are economically recoverable. In making this judgement, management has assessed various sources of information including the
geological and metallurgical information, scoping and pre-feasibility studies, proximity of operating facilities, operating management
expertise and existing permits. In 2015 the company decided to start the construction of the Mangezeisky silver project.
These audited consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) applicable to a going concern which contemplates that the Company will be able to realize its assets and settle
its liabilities in the normal course as they come due for the foreseeable future. As at December 31, 2015, the Company had no
source of operating cash flows and reported a net loss for the year of $10,683,077 and a cumulative deficit of $117,211,884. In
order to fund development operations, repay short term loans of $31 million and maintain rights under licenses and agreements, the
Company must secure sufficient future funding. In these circumstances, there exist material uncertainties resulting in significant
doubt as to the ability of the Company to continue to meet its obligations as they come due and, hence the ultimate appropriateness
of the use of accounting principles applicable to a going concern. The Company has a need for additional capital and while it has
been successful in obtaining short term bridge financing in order to meet its funding requirements to date (see Notes 10 and 21),
there can be no assurance that it will be able to do so or to obtain full project financing.
These consolidated financial statements do not include adjustments or disclosures that may result should the Company not be able
to continue as a going concern. If the going concern assumption were not appropriate for these consolidated financial statements,
then adjustments would be required to the carrying value of assets and liabilities, the expenses, the reported comprehensive loss
and balance sheet classifications used that would be necessary if the company were unable to realize its assets and settle its
liabilities as a going concern in the normal course of operations. These adjustments could be material.
2. BASIS OF PREPARATION
These consolidated financial statements have been prepared in accordance with the Handbook of the Canadian Institute of Charted
Accountants, in accordance with IFRS, as issued by International Accounting Standards Board (“IASB”), applicable to the
preparation of consolidated financial statements and in accordance with accounting policies based on IFRS standards and
International Financial Reporting Interpretations Committee (“IFRIC”) interpretations. The Company has consistently applied the
accounting policies used in the preparation of its IFRS financial statements throughout all periods presented, as if these policies had
always been in effect.
These consolidated financial statements comprise the financial statements of the Company and its 100% owned subsidiaries: Silver
Bear Holdings Limited (a Barbados corporation) (“Holdings”), and ZAO Prognoz (a Russian Federation corporation). All significant
inter-company accounts and transactions have been eliminated on consolidation.
These audited consolidated financial statements were reviewed, approved and authorized for issue by the Board of Directors on
March 29, 2016.
Page | 9
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
2. BASIS OF PREPARATION (Continued)
Significant Accounting Policies
Foreign currency translation
Items included in the financial statements of each entity are measured using the currency of the primary economic environment in
which it operates (“functional currency”). The consolidated financial statements are presented in Canadian dollars which is Silver
Bear’s functional currency, as well as the functional currency of Silver Bear Holdings. The financial statements of ZAO Prognoz
have the Russian rouble as its functional currency and are translated into the Canadian dollar presentation currency for
consolidation purposes as follows: assets and liabilities – at the closing rate at the date of the statements of financial position, and
income and expenses at the average rate for each quarter (as this is considered a reasonable approximation to actual rates). All
resulting changes are recognized in other comprehensive income as cumulative translation adjustments.
Foreign currency transactions are translated into the functional currency of the entity in which they occur using the exchange rates
prevailing at the dates of transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency
transactions and from the translation of monetary assets and liabilities denominated in currencies other than functional currency at
period-end exchange rates are recognized in the statement of comprehensive loss.
Mineral properties
Mineral properties include the costs of acquiring exploration and mining licenses, as well as the cost of assets associated with the
obligation for environmental rehabilitation and costs of developing the mining properties. Licenses are valued at cost at the date of
acquisition less impairment. Mining properties under development are accounted for at cost and are not amortised until production
has commenced. Cost includes expenditure that is directly attributable to the development of mining properties and preparing them
for production.
Property, plant and equipment
Property, plant and equipment are carried at cost, less accumulated depreciation and impairment losses. All property, plant and
equipment, with the exception of leasehold improvements, are depreciated on a straight line basis over three to five years.
Leasehold improvements are amortized over the remaining life of the lease. Significant components of property, plant and
equipment are recorded and depreciated separately. Residual values, the method of depreciation and the useful lives of assets are
revised annually and adjusted prospectively, if appropriate, if there is an indicator of a significant change since the last reporting
date.
Exploration costs
Field exploration, supervisory costs and costs associated with maintaining the mineral property are expensed until the Company
has a reasonable expectation that the property is technically feasible and commercially viable.
Impairment of non-financial assets
The Company reviews and evaluates the recoverable amount of its mineral properties, property, plant and equipment annually and
when events or changes in circumstances indicate that the carrying amounts of related assets or groups of assets might not be
recoverable.
For the purpose of measuring recoverable amounts, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units).The recoverable amount is the higher of an asset’s fair value less costs of disposal
and its value in use (being the present value of the expected future cash flows of the relevant asset). Any resulting write-down of the
excess of carrying value over the recoverable amount is charged to the consolidated statement of operations.
Page | 10
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
2. BASIS OF PREPARATION (Continued)
Provision for decommissioning and restoration liability
Mining and exploration activities normally give rise to obligations for environmental rehabilitation. Rehabilitation work may include
facility decommissioning and dismantling; removal or treatment of waste materials; site and land rehabilitation, including compliance
with and monitoring of environmental regulations; security and other site-related costs required to perform the rehabilitation work;
and operation of equipment designed to reduce or eliminate environmental effects. The extent of work required and the associated
costs are dependent on the requirements of relevant authorities and our environmental policies. Routine operating costs that may
impact the ultimate closure and rehabilitation activities, such as waste material handling conducted as an integral part of a mining or
exploration process, are not included in the provision. The timing of the actual rehabilitation expenditure is dependent upon a
number of factors such as the life and nature of the asset, the license conditions and the operating environment. Expenditures may
occur before and after the site closure and can continue for an extended period of time depending on rehabilitation requirements.
Rehabilitation provisions are measured at the expected value of future cash flows associated with the settlement of the obligation
and discounted to their present value using a pre-tax discount rate which reflects current assessments of the time value of money.
The expected future cash flows exclude the effect of inflation. The unwinding of the discount in subsequent periods is presented as
interest expense. The asset associated with retirement obligations represents the part of the cost of acquiring the future economic
benefits of the operation and is capitalized to mineral properties as part of the carrying amount of the long-lived asset and amortized
over the expected economic life of the operation to which it relates. The Company re-measures the liability at each reporting date.
Changes in estimates are recorded using current discount rate assumptions. Adjustments are also accounted for as a change in the
corresponding value of the related assets.
Financial instruments
Financial assets:
Financial assets within the scope of IAS 39 are initially recognised at fair value and are classified as financial assets at fair value
through profit and loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or derivatives. The
Company determines the classification of its financial assets at initial recognition.
The Company’s financial assets include cash and amounts receivable. Initially they are recognized at fair value and subsequently
measured at amortized cost using the effective interest method. Amortized cost approximates fair value due to the short-term
maturity of these assets. They are included in current assets, except for maturities greater than twelve months after the year-end.
Regular purchases and sales of financial assets are recognized on the trade-date, being the date on which the Company commits
to purchase or sell assets.
Financial assets are derecognized when the rights to receive cash flows from investments and the Company has transferred
substantially all risks and rewards of ownership.
Financial liabilities:
Financial liabilities within the scope of IAS 39 are initially recognised at fair value and are classified as financial liabilities at fair value
through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as
appropriate.
The Company’s financial liabilities include accounts payable, accrued liabilities and short-term loans. Initially they are recognized at
fair value, and subsequently measured at amortized cost using the effective interest method. Amortized cost approximates fair value
due to the short-term maturity of these liabilities.
Financial instruments are initially recorded at fair value. The fair values of cash and cash equivalents, miscellaneous receivables
and accounts payable and accrued liabilities approximate their recorded amounts because of their short-term nature.
Page | 11
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
2. BASIS OF PREPARATION (Continued)
Cash and cash equivalents
Cash represents cash on hand and demand deposits. Cash equivalents represent short-term, highly liquid investments that are
readily convertible to known amounts of cash and subject to insignificant risk of change in value. Such short-term investments
include treasury bills with original maturities of less than 90 days. Treasury bills with original maturities in excess of 90 days are
classified under short-term investments. Monies held within foreign exchange trading accounts are also recognised as cash
equivalent. Equity investments are excluded from cash equivalents.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes, under which deferred income tax assets and
liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement
carrying value of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are
measured using tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The
effect on deferred income tax assets and liabilities of a change in tax rates or laws is recognized as part of the provision for income
tax in the year the changes are considered substantively enacted. Deferred tax benefits attributable to these differences, if any, are
recognized to the extent that the realization of such benefits is more likely than not.
Loss per share
Basic loss per share is computed by dividing loss for the period by the weighted average number of common shares outstanding for
the year. In the event of the Company reporting net profit, the diluted loss per share will be similar to basic earnings per share,
except that the denominator will be increased to include the number of additional shares that would have been outstanding if the
dilutive potential common shares in connection with the issued share options had been issued using the treasury stock method.
Share-based payments
The fair value of any stock options granted to directors, officers, consultants and employees is recognized as an expense over the
vesting period with a corresponding increase recorded to contributed surplus. The fair value of share-based compensation is
determined using the Black-Scholes option pricing model and management's assumptions as disclosed in Note 12. An estimate for
forfeitures is made when determining the number of equity instruments expected to vest. Upon exercise of the stock options,
consideration paid by the option holder together with the amount previously recognized in contributed surplus is recorded as an
increase to share capital.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until
such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognized in profit or
loss in the period in which they are incurred.
Prepaid expenses
Prepaid expenses represent payments made or obligations incurred in advance of the receipt of goods or rendering of services.
Prepaid expenses are typically included in other current assets on the consolidated statement of financial position.
Inventories
Inventories consist of fuel, supplies and spare parts to be consumed in exploration activities and are stated at the lower of weighted
average cost and net realizable value.
Page | 12
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
2. BASIS OF PREPARATION (Continued)
Contingencies
In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in
such proceedings, the Company and its legal counsel evaluate the perceived merits of any legal proceedings or unasserted claims
of the amount of relief sought or expected to be sought.
If the assessment of a contingency suggests that a loss is probable, the amount can be reliably estimated, and there is a present
obligation as a result of a past event, then a loss is recorded. The details of a contingent loss are disclosed unless the possibility of
any outflow in settlement is remote. Legal fees incurred with pending legal proceedings are expensed as incurred.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the agreement at the inception
date.
Finance leases
Finance leases which transfer substantially all the risks and rewards incidental to ownership of the leased item to the Company as a
lessee are capitalized at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the
minimum lease payments. Lease payments are apportioned between finance charges and the reduction of the lease liability.
Finance charges are recognized in finance cost in the consolidated statements of earnings. Capitalized leased assets are
depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the
Company will obtain ownership by the end of the term of the lease.
Operating leases
Leases that do not transfer substantially all the risks and rewards incidental to ownership to the Company as a lessee are classified
as operating leases. Operating lease payments are recognized as an expense in the consolidated statements of earnings on a
straight-line basis over the lease term.
Accounting estimates and management judgments
The preparation of consolidated financial statements in accordance with IFRS requires management to make judgments, estimates
and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results may
differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in any future periods affected.
The significant areas of estimation and uncertainties considered by management in preparing the consolidated financial statements
include:
Page | 13
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
2. BASIS OF PREPARATION (Continued)
Critical judgements in applying accounting policies:
Determination of functional currency
Based on the primary indicators in IAS 21 – The Effects of Change in Foreign Exchange Rates – the Russian rouble has
been determined as the functional currency of ZAO Prognoz, an operating subsidiary of Silver Bear, because the Russian
rouble is the currency that mainly influences labour, material and other costs of providing goods or services, and is the
currency in which these costs are denominated and settled.
Significant management judgment was exercised, since the second primary indicator related to the currency influencing
the sales price is not applicable, as ZAO Prognoz does not yet generate any revenue. Effects of changes in foreign
exchange rates on the consolidation of the financial statements are recorded in other comprehensive income and carried in
the form of a cumulative translation adjustment in the accumulated other comprehensive income section of the Statement
of financial position of the Company.
If the functional currency of the Russian entity had been Canadian dollar, the effect of changes in foreign exchange rates
would have been reflected in net income as foreign exchange gain (loss) on the Statement of comprehensive loss.
Assets’ carrying values and impairment charges
Subsequent to the identification of an impairment trigger, in the determination of carrying values and impairment charges,
management looks at the recoverable amount of the asset, which is the higher of value in use or fair value less costs to
sell in the case of assets, and at objective evidence of significant or prolonged decline in fair value on financial assets
indicating impairment. These determinations and their individual assumptions require that management make a decision
based on the best available information at each reporting period.
Contingencies
Refer to Note 16.
Capitalization of development and exploration and evaluation costs
Management has determined that development and exploration and evaluation costs incurred from July 1 have future
economic benefits and are economically recoverable. In making this judgement, management has assessed various
sources of information including the geological and metallurgic information, scoping and feasibility studies, proximity of
operating facilities, operating management expertise and existing permits.
Key sources of estimation uncertainty:
Depreciation rates
All property, plant and equipment, with the exception of leasehold improvements, are depreciated on a straight line basis
over three to five years, which the Company believes is the best approximation of the useful life. If the estimated life had
been longer than management’s estimate, the carrying amount of the asset would have been higher.
Rehabilitation provisions and asset retirement obligations
Exploration and development activities carried out by the Company give rise to obligations for environmental rehabilitation.
Significant uncertainty exists as to the amount and timing of associated cash flows and regulatory requirements. A Russian
Central Bank borrowing rate is used in discounting of future cash flows as a pre-tax discount rate.
The term of the exploration license is used as the discounting period. If the estimated pre-tax discount rate used in the
calculation had been higher than the management estimate, the carrying amount of the provision would have been lower
and interest expense higher.
If the estimated period over which the cash flows associated with the asset retirement obligations are calculated had been
longer than management’s estimates, the carrying amount of the provision would have been lower as would have been
interest expense.
Page | 14
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
2. BASIS OF PREPARATION (Continued)
Share-based payment transactions
The Company records share-based compensation at fair value over the vesting period. The fair value of the grant is
determined using the Black-Scholes options pricing model and management assumptions regarding dividend yield,
expected volatility, forfeiture rate, risk free rate and expected life. Should the underlying assumptions change, it will impact
the fair value of the share-based compensation.
Impairment of mineral properties
While assessing whether any indications of impairment exist for mineral properties, consideration is given to both external
and internal sources of information. Information the Company considers includes changes in the market, economic and
legal environment in which the Company operates that are not within its control that could affect the recoverable amount of
mineral properties. Internal sources of information include the manner in which mineral properties are being used or are
expected to be used and indications of expected economic performance of the assets. Estimates include but are not
limited to estimates of the discounted future after-tax cash flows expected to be derived from the Company’s mineral
properties, costs to sell the properties and the appropriate discount rate. Reductions in metal price forecasts, reductions in
the amount of recoverable mineral reserves and mineral resources, and/or adverse current economics can result in a write-
down of the carrying amounts of the Company’s mineral properties.
New accounting standards
The Company has adopted the following annual improvements to IFRSs.
Annual Improvements to IFRSs 2010-2012 Cycle. The annual improvements include amendments to the definition of vesting
conditions for share-based payments, disclosure about judgments involved in deciding whether or not to aggregate operating
segments and disclosure as related party transactions, where key management personnel services are provided by a management
entity, of any amounts paid to the management entity for the service.
Annual Improvements to IFRSs 2011-2013 Cycle
The following new accounting standards and amendments to existing standards and interpretations that have been issued by the
IASB are not yet applied by the Company when preparing these consolidated financial statements.
IFRS 9 – Financial Instruments (“IFRS 9”)
IFRS 9 was issued in November 2009 and contained requirements for financial assets. This standard addresses classification and
measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a
new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also
replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through profit or loss
or at fair value through other comprehensive income. Where such equity instruments are measured at fair value through other
comprehensive income, dividends are recognized in profit or loss to the extent not clearly representing a return of investment;
however, other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive
income indefinitely.
Requirements for financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39,
Financial Instruments – Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at
fair value through profit and loss would generally be recorded in other comprehensive income.
The effective date of the standard is January 1, 2018. The Company has not yet assessed the impact of the standard or determined
whether it will adopt the standard early.
Page | 15
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
2. BASIS OF PREPARATION (Continued)
Amendments to IAS 1, Presentation of Financial Statements (“IAS 1”)
On December 18, 2014, the IASB issued amendments to IAS 1 as part of its major initiative to improve presentation and disclosure
in financial reports. The amendments are effective for annual periods beginning on or after January 1, 2016 with early adoption
permitted. The Company intends to adopt these amendments in its financial statements for the annual period beginning on January
1, 2016. The extent of the impact of adoption of the amendments has not yet been determined.
On May 28, 2014, IFRS 15, Revenue from Contracts with Customers was issued. It provides a single principles based five step
model to be applied to all contracts with customers. New estimates and judgmental thresholds have been introduced, which may
affect the amount and/or timing of revenue recognized. New disclosures about revenue are also introduced. This standard is
effective for annual periods beginning on or after January 1, 2018. The Company is still assessing the impact of this standard.
On January 13, 2016, IFRS 16 Leases was issued. This standard sets out the principles for the recognition, measurement,
presentation and disclosure of leases for both parties to a contract. IFRS 16 is effective from January 1, 2019. The Company has
not yet assessed the impact of this standard.
3. CAPITAL MANAGEMENT AND FINANCIAL RISK FACTORS
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to
support the acquisition, exploration and development of precious metal properties.
The Board of Directors does not establish quantitative return on capital (shareholders’ equity) criteria for management, but rather
relies on the expertise of management to sustain future development of the business.
The Company considers excess cash balances, all the components of shareholders’ equity and loans as capital. The Board of
Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the
Company’s management to sustain future development of the business.
The property in which the Company currently has an interest is in the exploration and development stage; as such the Company is
dependent on external financing to fund ongoing activities.
In order to carry out the ongoing development and pay for administrative costs, the Company will spend existing working capital and
plans to raise additional amounts as needed through equity and/or debt. The Company will continue to assess new properties and
seek to acquire an interest in additional properties where sufficient geologic or economic potential are noted and if financial
resources exist 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.
There were no changes in the Company’s approach to capital management during the year ended December 31, 2015 compared to
the year ended December 31, 2014. Neither the Company nor its subsidiaries are subject to externally imposed capital
requirements.
FINANCIAL RISK FACTORS
The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:
Credit risk
The Company has no significant concentration of credit risk arising from operations. Cash balances consist of interest earning bank
accounts, which are invested with Canadian chartered banks and a major Russian bank with credit rating of AA for the Canadian
banks and BB for the Russian bank and a stable future outlook.
Miscellaneous receivables and prepaid expenses other than taxes due from the Federal Government of Canada and Russian Value
Added Tax refunds from the Russian tax authorities are insignificant. Management believes that the credit risk with respect to
accounts receivable is low.
Page | 16
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
3. CAPITAL MANAGEMENT AND FINANCIAL RISK FACTORS (Continued)
Liquidity risk
The Company’s approach to managing liquidity risk is to ensure it will have sufficient liquidity to meet liabilities when due by
continual review of budgets and forecasts and discusses with shareholders and other providers of finance as appropriate. During
the year the Company obtained short term loans amounting to $31,008,577 (December 31, 2014 – $Nil). As at December 31, 2015,
the Company had a cash balance of $9,966,104 (December 31, 2014 – $1,593,133).
The Company had total obligations of $188,982 at December 31, 2015 (December 31, 2014 – $286,536) under a three-year finance
lease of exploration equipment.
At December 31, 2015 the Company had total current assets of $13,050,125 (December 31, 2014 - $2,817,534) to settle current
liabilities of $34,179,132 (December 31, 2014 – $610,867), as well as its commitments outlined in Note 16.
Interest rate risk
The Company has cash balances and interest-bearing debt on short term loans at commercial rates. The Company’s current policy
is to invest excess cash in interest-earning bank accounts with Canadian and Russian financial institutions. The Company
periodically monitors the investments it makes and is satisfied with the credit ratings of its banks.
Foreign currency risk
The Company has funded certain exploration, development and administrative expenses on a transaction by transaction basis using
U.S. dollar and Russian rouble currencies converted from its Canadian dollar bank accounts held in Canada.
Management believes the foreign exchange risk derived from currency conversions is low and therefore does not hedge its foreign
exchange risk. The Company does not keep substantial balances in Russian rubles for a long period of time to minimize impact of
volatile exchange rates.
Sensitivity analysis
The effect of changes in foreign exchange rates on net loss is moderate due to the number and amount of foreign-currency
transactions. The Company minimizes impact of changes in foreign exchange rates by converting into Russian rubles only amounts
required for immediate use. Had the foreign exchange rates been higher (lower) by 5%, the cumulative translation adjustment in the
other comprehensive income section of the Statement of financial position would have been lower (higher) by $54,223.
4. RECEIVABLE
Russian Value Added Tax
Canadian Harmonized Sales Tax
Other
December 31,
2015
265,216
31,359
275,953
572,528
$
December 31,
2014
256,676
31,322
61,944
349,942
$
Page | 17
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
5. INVENTORIES
Material and supplies inventories are stated at the lower of weighted average costs and net realizable value. Inventories consist of
the following:
Fuel and lubricants
Parts and supplies
6. PREPAID EXPENSES
Prepaid expenses consist of the following:
Insurance
Exploration services and goods
Rent and administrative costs
Prepaid long-term assets consist of the following:
Construction supplies
7. MINERAL PROPERTY
December 31,
2015
December 31,
2014
207,921
526,824
734,745
$
76,412
442,192
518,604
$
December 31,
2015
December 31,
2014
38,315
1,670,498
67,935
1,776,748
$
19,844
326,576
9,435
355,855
$
December 31,
2015
3,262,320
3,262,320
$
December 31,
2014
-
-
$
Mineral property includes the cost of acquiring exploration and mining licenses, as well as the value of assets associated with asset
retirement obligations and capitalised project development costs.
Mineral property consists of the following:
Balance at the beginning of the year
Additions
Translation adjustment
Balance at the end of the year
December 31,
2015
December 31,
2014
1,607,824
4,612,987
(329,442)
5,891,369
2,519,401
-
(911,577)
1,607,824
$
$
The Company acquired the exploration licence in respect of the Mangazeisky property when it acquired all the shares of ZAO
Prognoz on October 21, 2004. On December 27, 2012, the Mangazeisky License was extended by the Federal Subsoil Use Agency
in the Russian Federation (“Rosnedra”) through December 31, 2016.
In September 2013, the Company acquired the mining license in respect of the Mangazeisky property which is valid for a period of
20 years from the grant date.
Page | 18
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
7. MINERAL PROPERTY (Continued)
The cumulative exploration costs incurred and expensed from inception to date are as follows:
Mangazeisky
December 31,
2015
December 31,
2014
$ 63,204,676 $ 58,915,506
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost, less accumulated depreciation and consist of the following:
December 31, 2015
December 31, 2014
Property plant and equipment:
Mangazeisky site
Yakutsk office
Other office furniture, equipment
and leasehold improvements
Accumulated
depreciation
Net book
value
Cost
Accumulated
depreciation
Net book
value
Cost
7,602,989
72,492
2,610,591
72,492
4,992,398
-
3,515,540
76,094
2,497,676
76,094
1,017,864
-
59,620
7,735,101
$
59,620
2,742,703
$
-
4,992,398
$
59,620
3,651,254
$
59,620
2,633,390
$
-
1,017,864
$
Reconciliation of the carrying amount at the beginning and end of the years ended December 31, 2015 and 2014:
Carrying amount at January 1, 2013
Additions
Disposals
Depreciation
Exchange differences
Carrying amount at December 31, 2014
Additions
Disposals
Depreciation
Exchange differences
Carrying amount at March 31, 2015
Mangazeisky
site
equipment
1,770,284
146,818
-
(254,071)
(645,167)
1,017,864
$
4,753,766
-
(256,465)
(522,767)
4,992,398
$
Total
1,770,284
146,818
-
(254,071)
(645,167)
1,017,864
$
4,753,766
-
(256,465)
(522,767)
4,992,398
$
The carrying value of equipment held under finance leases as at December 31, 2015 was $154,827 (December 31, 2014 -
$284,409). The Company aquired capital assets for $4,753,766 during the year ended December 31, 2015 and disposed of a
number of fully depreciated capital assets with a cost value of $184,660. The additions in the year include $3,837,919 of assets that
are not yet ready for use and as such no depreciation has been charged on them. Leased assets are pledged as security for the
related finance lease obligations.
Page | 19
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
Exploration costs and construction costs - Mangazeisky project
Corporation
December 31,
2015
December 31,
2014
396,286
2,598,921
2,995,207
$
99,859
364,027
463,886
$
Within Accounts payable and accrued liability in the table above is $1,313,723 of accrued interest.
10. SHORT-TERM LOANS
On March 2, 2015, the Company entered into unsecured non-convertible promissory notes with FrontDeal Limited ("FrontDeal") and
with Inflection Management Corporation (“Inflection”), pursuant to which FrontDeal and Inflection have each agreed to lend the
Company US$3,500,000 respectively for a total of US$7,000,000. The promissory notes bear interest at a rate of 15% per year and
the principal and accrued interest are payable on the maturity date which was initially agreed as June 27, 2015. Subsequently, the
maturity date was extended from June 27, 2015 to March 31, 2016.
In October 2015, A.B. Aterra Resources Ltd. (“Aterra”) and Inflection provided additional loans to the Company of $2,310,000 and
$3,300,000 respectively. These additional loans were made under contingent convertible promissory notes that bore interest at 15%
per year and had a maturity date of December 31, 2015 and were contingently convertible into Common Shares of the Company at
a price of $0.075 per Common Share. In November 2015, Inflection advanced a further $5,610,000 under convertible promissory
note with a maturity date of December 31, 2015 and which was convertible into Common Shares at a price of $0.045 per Common
Share, subject to an upward ratchet on the conversion price. This note also bore interest at 15% per year.
In December 2015 loan notes from Aterra and accrued interest thereon were consolidated into a new convertible loan note for
$5,669,807 in favour of FrontDeal.
In December 2015 all loan notes from Inflection and accrued interest thereon were also consolidated into a new convertible loan
note with a value of $12,350,770.
Both these convertible loan notes bear interest at 15% per year, mature on December 31, 2016 and give the holder the right to
convert the principal and any accrued interest into fully paid Common share of the Company at conversion price of $0.045 per
Common Share. Management considers 15% per year to be the prevailing market rate on loans that do not have an associated
equity conversion option; accordingly all of the principal is recognised as a liability.
In December 2015, Inflection also paid $3,300,000 as partial consideration for the Company issuing a contingent convertible loan
note bearing interest at 15% and maturing on December 31, 2016; the loan note was issued on January 11, 2016. No interest has
been accrued on this partial payment.
Interest accruing on all these loans amounted to $1,313,723 at December 31, 2015.
FrontDeal and Aterra are indirectly wholly-owned by Alexey Mordashov, who is also the owner of Aterra Investments Limited, an
insider and related party to the Company. Mr. Boris Granovsky, a director of the Company, is a managing partner of Aterra Capital,
a management company for Aterra Investments Limited. Inflection is an insider and related party of Silver Bear. Mr. Alexey Sotskov,
a director of the Company, is also a director of Inflection.
Page | 20
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
11. FINANCE LEASE
The Company entered into a long-term lease agreement, extended in 2014, with Caterpillar Financial Ltd. for the purchase of
certain exploration equipment payable in monthly installments of US$11,300. The lease payments were discounted at a rate of
11.5%. The Company made a down-payment for 50% of the cost of equipment.
Future minimum lease payments under finance lease, together with the present value of the net minimum lease payments, are as
follows:
Payments due by period
Within one year
Within two to five years
Future finance charges on finance lease
Present value of the net lease payments
Current portion
Long-term portion
Total obligations under finance lease
12. SHAREHOLDERS’ EQUITY
Common shares
December 31,
2015
December 31,
2014
187,682
15,640
203,322
(14,340)
188,982
175,348
13,634
188,982
$
157,319
170,430
327,749
(41,213)
286,536
146,981
139,555
286,536
$
Authorized: Unlimited number of common shares and preferred shares issued with no par value.
All issued shares are fully paid. Reconciliation of the number and value of common shares at the beginning and end of the year
ended December 31, 2015 and 2014:
Balance - Beginning of the period
Issued pursuant to private placement, net
Issued for debt
Issued under share bonus plan
Balance - End of the period
Share Bonus Plan
December 31, 2015
December 31, 2014
Number of
common
shares
161,089,517
-
-
237,500
161,327,017
$
98,265,379
-
-
11,875
98,277,254
Number of
common
shares
94,642,170
64,420,467
220,630
1,806,250
161,089,517
$
87,542,402
10,466,420
28,682
227,875
98,265,379
In June 2013, the shareholders of the Company approved a share bonus plan whereby an aggregate of up to 2.5 million common
shares of the Company have been reserved for issuance to officers, directors and employees of the Company.
Page | 21
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
12. SHAREHOLDERS’ EQUITY (Continued)
On August 22, 2013 the board approved the issuance of up to 1,100,000 common shares and on February 21, 2014 the allocation
issuance of up to a further 1,375,000 common shares pursuant to the share bonus plan, subject to the terms of the share bonus
plan and final approval by the President and Chief Executive Officer (“CEO”) prior to issuance on or about the following dates:
October 1, 2013
January 1, 2014
April 1, 2014
July 1, 2014
October 1, 2014
January 1, 2015
- 275,000 common shares
- 275,000 common shares
- 618,750 common shares
- 618,750 common shares
- 293,750 common shares
- 237,500 common shares
Stock options and warrants
The Company has a stock option plan which is intended to provide an incentive to officers, employees, directors and consultants of
the Company. Stock options are granted from time to time and the option price is determined by the Compensation Committee of
the Board of Directors at its sole discretion but shall not be less than the closing price of the Company’s common stock on the
Toronto Stock Exchange (“TSX”) on the last trading date preceding the date of the grant. The term of each option is granted for a
period not exceeding five years from the date of the grant. Except as expressly provided for in the option holder’s employment,
consulting or termination contract, the option holder may exercise the option to the extent exercisable on the date of such
termination at any time within twelve months after the date of termination.
The maximum aggregate number of Shares reserved by the Company for issuance and which may be purchased upon the exercise
of all Options granted under its option plan together will all shares reserved for issuance under the share bonus plan must not
exceed 10% of the outstanding Shares (on a non-diluted basis) issued and outstanding at the time of the granting of the Options.
As at December 31, 2015 the total number of options available for issue was 16,132,702. A total of 3,673,952 options are available
for future issue as at December 31, 2015.
On February 28, 2014, 2,240,000 options were granted to directors, officers and consultants of the Company. The exercise price of
the options is $0.17 per option. Granted stock options vest immediately on the day of the grant and expire on February 28, 2019.
The fair value of these options was estimated to be $295,402 with the following assumptions: expected volatility of 132%, dividend
yield of 0%, risk-free interest rate of 1.25% and expected life of 3.3 years.
On November 17, 2014, 6,500,000 options were granted to the President and CEO of the Company, as follows: 2,500,000 stock
options at an exercise price of $0.175 per option, 2,500,000 stock options at an exercise price of $0.25 per option and 1,500,000
stock options at an exercise price of $0.30 per option. Granted stock options vest in three equal tranches from the date of grant over
a two-year period and expire on November 17, 2019. The fair value of these options was estimated to be $355,802 with the
following assumptions: expected volatility of 140%, dividend yield of 0%, risk-free interest rate of 1.19% and expected life of 3.3
years.
During the year ended December 31, 2015, options generated a share based payments expense of $163,641 (year ended
December 31, 2014: $510,445). The fair value of options is estimated on the date of grant using the Black-Scholes option pricing
model. Where relevant, the expected life used in the model has been adjusted based on management’s best estimate for the effects
of non-transferability, exercise restrictions (including the probability of meeting market conditions attached to the option). Expected
volatility is based on the historical share price volatility over the past 4 years. The expected life of the option was calculated based
on the history of option exercises.
Page | 22
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
12. SHAREHOLDERS’ EQUITY (Continued)
Reconciliation of the number of options at the beginning and end of the year ended December 31, 2015 and 2014 follows:
Balance - Beginning of the period
Granted
Surrendered
Exercised
Expired / Cancelled / Forfeited
Balance - End of the period
December 31, 2015
Number
12,572,500
-
-
-
(2,432,500)
10,140,000
Weighted
average
exercise price,
$
0.37
-
-
-
0.52
0.33
December 31, 2014
Weighted
average
exercise price,
$
0.68
0.22
-
-
0.56
0.37
Number
4,522,500
8,740,000
-
-
(690,000)
12,572,500
As at December 31, 2015, the Company had share options outstanding and exercisable as follows:
Expiry year
2016
2017
2018
2019
Outstanding
Exercisable
Number
1,330,000
585,000
375,000
7,850,000
10,140,000
Weighted
average
exercise price,
$
0.89
0.54
0.23
0.22
0.33
Weighted
average
exercise price,
$
0.89
0.54
0.23
0.50
0.57
Number
1,330,000
585,000
375,000
3,516,666
5,806,666
Contributed surplus consists of the following:
Balance-Beginning of year
Share-based payments
Warrants
Exercised options
Balance- End of year
December 31,
2015
December 31,
2014
14,009,495
163,641
-
-
14,173,136
$
13,499,050
510,445
-
-
14,009,495
$
Share purchase warrant transactions are summarized as follows:
Balance - Beginning of the period
Expired / Cancelled / Forfeited
Balance - End of the period
December 31, 2015
Number of
share
purchase
warrants
38,383,422
(34,860,924)
3,522,498
Weighted
average
exercise price,
$
0.26
0.27
0.33
Number of
share
purchase
warrants
38,383,422
-
38,383,422
December 31, 2014
Weighted
average
exercise price,
$
0.26
-
0.26
Page | 23
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
12. SHAREHOLDERS’ EQUITY (Continued)
At December 31, 2015, the following warrants were outstanding:
Expiry
June 4, 2016
Exercise
price,
$
0.33
Number
of
warrants
3,522,498
3,522,498
Grant date
fair value
recorded, $
296,789
296,789
The fair value of warrants is estimated on the date of grant using the Black-Scholes pricing model with the following assumptions:
risk free rate of return 1.17%, volatility of 116.2% and expected life of 3 years.
Loss per share
Basic and diluted loss per share is calculated by dividing the net loss by the weighted average number of shares in issue during the
year. As a result of net losses in each of the periods, the potential effect of exercising stock options and warrants has not been
included in the calculation of loss per share because to do so would be anti-dilutive.
Net loss
Weighted average number of common shares outstanding
Basic and diluted loss per share
13. RELATED PARTY DISCLOSURES
Year ended
December 31,
2014
(9,082,333)
126,128,878
$ (0.07) $ (0.07)
December 31,
2015
(10,683,077)
161,326,366
The Company shared office space and services with companies that had officers or directors in common with the Company. The
costs associated with this space and certain other services were administered by 2227929 Ontario Inc. A fee of $14,000 per month
was charged by 2227929 Ontario Inc. On June 1, 2015, an agreement was reached between the Company and 2227929 Ontario
Inc. to terminate the management agreement between the companies. A termination fee of $84,000 was paid pursuant to the
agreement. This fee is included in the table below.
In addition, effective May 11, 2011, an administration fee of $25,000 per month was charged by Forbes & Manhattan Inc. pursuant
to a consulting agreement entered into between the companies. Mr. Stan Bharti, a former director of the Company, is the Executive
Chairman of Forbes & Manhattan Inc. On March 17, 2015, an agreement was reached between the Company and Forbes &
Manhattan Inc. to terminate the management agreement between the companies. A termination fee of $75,000 was paid pursuant
to the agreement. This fee is included in the table below.
On March 2, 2015, the Company entered into unsecured non-convertible promissory notes with FrontDeal and with Inflection,
pursuant to which FrontDeal and Inflection each agreed to lend the Company US$3,500,000 respectively for a total of
US$7,000,000, such notes having a maturity date of June 27, 2015. Amounts outstanding under the promissory notes incur interest
at a rate of 15% per year and the principal and accrued interest are payable on the maturity date. Subsequently, Inflection and
FrontDeal agreed to extend the maturity date from June 27, 2015 to March 31, 2016.
In October 2015, A.B. Aterra Resources Ltd. (“Aterra”) and Inflection provided additional loans to the Company of $2,310,000 and
$3,300,000 respectively. These additional loans were made under contingent convertible promissory notes that bore interest at 15%
per year and had a maturity date of December 31, 2015 and were contingently convertible into Common Shares of the Company at
a price of $0.075 per Common Share. In November 2015, Inflection advanced a further $5,610,000 under convertible promissory
note with a maturity date of December 31, 2015 and which was convertible into Common Shares at a price of $0.045 per Common
Share, subject to an upward ratchet on the conversion price. This note also bore interest at 15% per year.
In December 2015 loan notes from Aterra and accrued interest thereon were consolidated into a new convertible loan note for
$5,669,807 in favour of FrontDeal.
Page | 24
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
13. RELATED PARTY DISCLOSURES (Continued)
In December 2015 all loan notes from Inflection and accrued interest thereon were also consolidated into a new convertible loan
note with a value of $12,350,770.
Both these convertible loan notes bear interest at 15% per year, mature on December 31, 2016 and give the holder the right to
convert the principal and any accrued interest into fully paid Common share of the Company at conversion price of $0.045 per
Common Share. Management considers 15% per year to be the prevailing market rate on loans that do not have an associated
equity conversion option; accordingly all of the principal is recognised as a liability.
In December 2015, Inflection also paid $3,300,000 as partial consideration for the Company issuing a contingent convertible loan
note bearing interest at 15% and maturing on December 31, 2016; the loan note was issued on January 11, 2016. No interest has
been accrued on this partial payment.
Interest accruing on all these loans amounted to $1,313,723 at December 31, 2015.
FrontDeal and Aterra are indirectly wholly-owned by Alexey Mordashov, who is also the owner of Aterra Investments Limited, an
insider and related party to the Company. Mr. Boris Granovsky, a director of the Company, is a managing partner of Aterra Capital,
a management company for Aterra Investments Limited. Inflection is an insider and related party of Silver Bear. Mr. Alexey Sotskov,
a director of the Company, is also a director of Inflection.
During the years ended December 31, 2015 and 2014 the Company entered into transactions for goods and services with the
following related parties:
Goods and
services
received from
(provided to):
2227929 Ontario Inc.
Forbes & Manhattan Inc.
Goods and services received
December 31,
2015
December 31,
2014
170,952
150,000
320,952
$
172,724
300,000
472,724
$
There were no balances related to goods and services outstanding at the end of the reporting period:
See also Note 21 for events after the reporting period.
Compensation of key management
Key management includes the Company’s directors and officers. Compensation awarded to key management included:
Salaries, fees and short-term employee benefits
Termination payments
Share-based payments
December 31,
2015
December 31,
2014
887,121
91,800
175,516
1,154,437
$
1,473,755
-
194,054
1,667,809
$
A one-time fee of $499,992 was been paid to the former Chief Executive Officer of the Company in 2014. The fee was paid as a
result of a change of control provision in his contract. The amount has been included in the line item, general and administrative
expenses in the Consolidated Statement of Comprehensive Loss
.
Page | 25
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
14. EXPENSES BY NATURE
The following table provides the breakdown of Company’s expenses by nature.
Employee compensation
Drilling and trenching
Depreciation
Professional fees
Geological & environmental studies
Transportation
Camp maintenance
Taxes
Office expenses
Project expenses
Travel expenses
Air transportation
Accretion expense
Interest expense
Foreign exchange
Other expenses
December 31,
2015
December 31,
2014
2,760,500
1,097,112
257,887
981,084
1,722,825
131,296
341,855
6,326
230,527
113,490
211,603
173,231
69,212
1,208,313
761,505
618,625
10,685,391
$
3,523,048
1,524,735
245,472
436,476
1,243,613
310,934
342,844
32,425
302,302
-
157,507
-
92,107
132,576
462,539
288,363
9,094,941
$
Certain comparative figures have been reclassified to conform to the current period’s presentation.
Employee benefits expense for the years ended December 31, 2015 and 2014 consisted of the following:
Salaries, fees and short-term employee benefits
Share-based payments
December 31,
2015
December 31,
2014
2,584,984
175,516
2,760,500
$
2,784,729
738,319
3,523,048
$
15. NET CHANGE IN NON-CASH WORKING CAPITAL
Net change in non-cash working capital consists of the following:
Receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
December 31,
2015
(1,152,023)
(269,032)
(1,606,957)
889,602
(2,138,411)
$
December 31,
2014
(107,387)
250,945
(380,344)
(631,053)
(867,839)
$
Page | 26
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
16. COMMITMENTS AND CONTINGENCIES
In order to maintain the exploration license at the Mangazeisky Project in good standing, Silver Bear is required to conduct certain
minimum levels of exploration activity. The Company is required to undertake 5,000 cubic metres of trenching and 3,000 metres of
drilling to satisfy exploration license agreement requirements in 2015.
Minimum requirement under the mining license for the 2015-2017 period is 15,000 metres of drilling and 15,000 cubic metres of
trenching.
The Company entered into a long-term lease agreement with Caterpillar Financial Ltd. for the purchase of certain exploration
equipment payable in monthly installments of US$11,300 over a three-year period.
The Company is party to certain management contracts and severance obligations. These contracts contain clauses requiring that
additional payments of up to $640,000 be made upon the occurrence of certain events such as a change of control. As the
likelihood of these events taking place is not determinable, the contingent payments have not been reflected in these consolidated
financial statements.
The Company paid an amount of RUR 17,884,000 to Toms Engineering, an entity that had been contracted to provide exploration
work, which is now in dispute. After obtaining external legal counsel it is considered probable that RUR 8 million of this is potentially
recoverable. The full amount has been expensed in year as the recovery is not considered virtually certain.
The Company may be involved in legal proceedings from time to time, arising in the ordinary course of its business. The amount of
ultimate liability with respect to these actions will not, in the opinion of management, materially affect Silver Bear’s financial position,
results of operations or cash flows. There were no material outstanding legal proceedings as of December 31, 2015
17. SEGMENTED INFORMATION
The Company’s operating segments are based on geographical location and include one property in the Russian Federation
(Mangazeisky) and a corporate registered office in Toronto, Canada.
Country/Property
Cash
Inventories
Prepaid
Receivables
Mineral
Properties
Property
plant and
equipment
Depreciation
Interest
expense
Net loss for
the period
As at December 31, 2015
Russia - Mangazeisky
1,450,741
734,745
4,952,550
539,475
5,891,369
4,992,398
256,465
30,291
5,992,369
Canada - corporate
8,515,363
-
86,518
33,054
-
-
-
1,201,379
4,690,708
$
9,966,104
$
734,745
$
5,039,068
$
572,528
$
5,891,369
$
4,992,398
$
256,465
$
1,231,670
$
10,683,077
As at December 31, 2014
Country/Property
Cash
Inventories
Prepaid
Receivables
Mineral
Properties
Property
plant and
equipment
Depreciation
Interest
expense
Net loss for
the period
Russia - Mangazeisky
58,357
518,604
200,298
318,620
1,607,824
1,017,864
254,071
42,605
5,024,978
Canada - corporate
1,534,776
-
155,557
31,332
-
-
-
91,352
4,057,355
$
1,593,133
$
518,604
$
355,855
$
349,952
$
1,607,824
$
1,017,864
$
254,071
$
133,957
$
9,082,333
Page | 27
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
18. PROVISION FOR DECOMMISSIONING AND RESTORATION LIABILITY
The Company’s mining, exploration and development activities are subject to various governmental laws and regulations relating to
the protection of the environment. These environmental regulations are continually changing and are generally becoming more
restrictive. The Company has made, and intends to make in the future, expenditures to comply with such laws and regulations. The
Company has recorded a liability and corresponding asset for the estimated future cost of reclamation and closure, including site
rehabilitation and long-term treatment and monitoring costs, discounted to net present value. Such estimates are, however, subject
to change based on negotiations with regulatory authorities, or changes in laws and regulations.
The Company’s provision for decommissioning and restoration liability consist of management’s best estimate of reclamation and
closure costs for Mangazeisky exploration project located in the Republic of Sakha, Yakutia in the Russian Federation.
Significant reclamation and closure activities include land rehabilitation, demolition of buildings and site facilities and other costs
defined by the license requirements.
Asset retirement obligation consists of the following:
Balance at the beginning of the year
Accretion expense
Impact of rates adjustment
Translation adjustment
Balance at the end of the year
December 31,
2015
December 31,
2014
826,758
68,839
69,363
(46,050)
918,910
1,241,223
95,566
-
(510,031)
826,758
$
$
The estimated value of the obligation to rehabilitate the site expressed in Canadian dollars is $994,675. A Russian Central bank
borrowing rate of 8.25% has been used in discounting of future cash flows.
19. FINANCIAL INSTRUMENTS
Financial instruments measured at fair value on the consolidated statements of financial position are classified into one of three
levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of
the fair value hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
Level 3 – Inputs that are not based on observable market data.
The Company’s financial instruments consist of cash, restricted cash, accounts receivable, and accounts payable and accrued
liabilities. The fair value of these financial instruments approximates their carrying values due to the short-term nature of these
instruments.Financial assets and financial liabilities as at December 31, 2015 and 2014 were as follows:
As at December 31, 2015
Cash and cash equivalents
Accounts Receivable
Short-term loans
Accounts payables and accrued liabilities
Finance lease
Loans and
receivables
9,966,104
572,528
-
-
Other
liabilities
-
-
31,008,577
2,995,207
188,982
TOTAL
9,966,104
572,528
31,008,577
2,995,207
188,982
Page | 28
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
19. FINANCIAL INSTRUMENTS (Continued)
As at December 31, 2014
Cash and cash equivalents
Accounts Receivables
Short-term loans
Accounts payables and accrued liabilities
Finance lease
Loans and
receivables
1,593,133
349,942
-
-
-
Other
liabilities
-
-
-
463,886
286,536
TOTAL
1,593,133
349,942
-
463,886
286,536
The carrying value of cash equivalents, amounts receivable, short-term loans, and accounts payable and accrued liabilities reflected
in the consolidated statement of financial position approximate fair value because of the relatively short-term maturities.
20. INCOME TAXES
Reconciliation between tax expense and the product of accounting loss multiplied by the Company's domestic tax rate is as follows:
Statutory tax rate
Tax benefit of statutory rate
Expenses not deductible for income tax purposes
Prior year true-up
Tax effect of unrecognized temporary difference
Losses not previously recognized
Foreign tax rate differential
Total tax expense
2015
2014
26.50%
(2,815,664)
702,199
-
1,938,148
-
175,318
-
26.50%
(2,406,818)
390,575
-
1,690,728
-
325,515
-
The 2015 statutory tax rate of 26.50% is consistent with the 2014 statutory tax rate of 26.50%.
The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off the current tax assets and
current tax liabilities or deferred tax assets and liabilities and they relate to taxes levied by the same tax authority.
The tax benefit of the following unused tax losses and deductible temporary differences has not been recognized in the financial
statements due to the unpredictability of future earnings:
Deductible Temporary Differences
Tax loss carry-forwards
Exploration and development
Share issue costs
Asset retirement obligation
Property plant and equipment
December 31,
2015
31,639,683
25,931,390
325,694
849,547
7,090,934
65,837,247
December 31,
2014
27,609,428
28,969,247
458,269
826,758
6,812,560
64,676,262
Page | 29
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
20. INCOME TAXES (Continued)
At December 31, 2015, the Company has unclaimed non-capital losses that expire as follows:
Expiry Date
Amount
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2,104,195
2,934,330
3,240,724
3,527,150
2,401,498
3,109,109
2,484,534
2,076,956
2,669,955
4,888,144
29,436,595
$
In addition, ZAO Prognoz has approximately $705,708 (2014 – $493,031) of non-capital losses for Russian income tax purposes
that expire at the end of the years 2017 through 2025 (2014 – 2017 through 2024).
21. EVENTS AFTER THE REPORTING PERIOD
On January 13, 2016, The Company sought and obtained minority and disinterested shareholder approvals at a special meeting of
the Company held on January 11, 2016 (the "Special Meeting") for the issuance of the Inflection Note as required by Multilateral
Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101") and the TSX Company Manual
(the “Manual”). The Inflection Note bears interest at a rate of 15% per annum until its maturity on December 31, 2016 and is non-
convertible. The financing was conducted on a non-brokered basis. No fee is payable by the Company in respect of the issuance of
securities under the Private Placement.
At the Special Meeting, the Company also obtained minority and disinterested shareholder approvals, as required under MI 61-101
and the Manual, for the payment of interest on and conversion into common shares of the Corporation ("Common Shares") of
certain consolidated contingent convertible notes (the "Consolidated Contingent Convertible Notes") in the aggregate principal
amounts of $12,350,769.86 and $5,669,806.85 previously issued by the Company to Inflection and Aterra., respectively, on
December 4, 2015. The Consolidated Contingent Convertible Notes will now bear interest at a rate of 15% per annum and mature
on December 31, 2016. All interest accrued under the Consolidated Contingent Convertible Notes will be convertible into Common
Shares on the same terms as the principal amount.
In March 2016, the Company entered into an agreement with its major shareholders, Aterra and Inflection, to provide the Company
with loans in the aggregate principal amount of US$20,000,000. As part of the Financing, the Company agreed to issue unsecured
contingent non-convertible promissory notes to each of Inflection and Aterra in the principal amounts of US$14,500,000 and
US$5,500,000, respectively, for a total of US$20,000,000 (together, the “Contingent Non-Convertible Notes”), which notes will
mature and will be due and payable on December 31, 2016. Details of the terms of the Contingent Non-Convertible Notes are
discussed below.
The Company intends to use the gross proceeds from the Financing to finance further construction and development of the
Mangazeisky property and for general working capital purposes.
Page | 30
Silver Bear Resources Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
21. EVENTS AFTER THE REPORTING PERIOD (Continued)
The Contingent Non-Convertible Notes, once issued, will pay no interest until such time as the Company obtains disinterested
shareholder approval (as required under the TSX Company Manual) for the payment of interest thereon (the "Shareholder
Approval"). If the Contingent Non-Convertible Notes receive the Shareholder Approval, the notes will bear interest at a rate of 15%
per annum. The Toronto Stock Exchange (the “TSX”) has conditionally approved the issuance of the Contingent Non-Convertible
Notes, subject to, among other things, receipt of the Shareholder Approval. The Company intends to call and hold an annual
general and special meeting of its shareholders on or before June 30, 2016 to, among other things, seek the required Shareholder
Approval. The Contingent Non-Convertible Notes were approved by the board of directors of Silver Bear with Mr. Alexey Sotskov
and Mr. Boris Granovsky abstaining from participating in the vote as a result of their respective relationship with Inflection and
Aterra, respectively.
The Financing was conducted on a non-brokered basis. No fee will be payable by the Company in respect of the issuance of the
Contingent Non-Convertible Notes. Completion of the Financing is expected in early April, 2016.
Page | 31