TIDMGAL
RNS Number : 7587P
Galantas Gold Corporation
12 June 2020
GALANTAS GOLD CORPORATION
TSXV & AIM : Symbol GAL
GALANTAS REPORTS RESULTS FOR THE YEARED DECEMBER 31, 2019
June 12, 2020: Galantas Gold Corporation (the 'Company') is
pleased to announce its audited annual financial results for the
year ended December 31, 2019. A copy of the Financial Statements
and Management Discussion and Analysis will be sent to shareholders
in due course and are available on the Company's website at
www.galantas.com/investors .
Financial Highlights
Highlights of the 2019 audited annual results, which are
expressed in Canadian Dollars, are summarized below:
Year Ended December 31
All in CDN$ 2019 2018
Revenue $ 5,788 $ 71,243
Cost of Operations $ (221,691) $ (185,058)
Loss before the items below $ (215,903) $ (113,815)
Aggregates levy (0) $ (352,168)
Depreciation $ (457,134) $ (350,999)
General administrative expenses $ (2,690,952) $ (2,131,872)
Foreign exchange (loss) gain $ (16,659) $ 53,417
Impairment of exploration and evaluation assets $ (155,482) $ 0
Loss on disposal of property, plant and equipment $(28,479) $ 0
Unrealized gain on fair value of derivative financial liability $ 0 $ 10,000
Net loss for the year $ (3,564,609) $ (2,885,437)
Working Capital (Deficit) $ (6,093,200) $ (272,783)
Cash loss generated from operations before changes in non-cash working capital $ (1,826,066) $ (1,848,019)
Cash at December 31, 2019 $ 1,913,420 $ 6,188,554
Revenue for the years ended December 31, 2019 and 2018
consisting of jewellery sales amounted to $5,788 and $71,243
respectively. Shipments of concentrate commenced during the second
quarter of 2019. Concentrate sales provisional revenues totalled
approximately US$1,518,000 for the year. However, until the mine
commences commercial production, the net proceeds from concentrate
sales are being offset against Development assets.
The Net Loss for the year ended December 31, 2019 amounted to
$3,564,609 (2018: $2,885,437) and the cash outflow from operating
activities before changes in non-cash working capital for the year
ended December 31, 2019 amounted to $1,826,066 (2018:
$1,848,019).
The Company had a cash balance of $1,913,420 at December 31,
2019 compared to $6,188,554 at December 31, 2018. The working
capital deficit at December 31, 2018 amounted to $ 6,093,200
compared to a working capital deficit
of $ 272,783 at December 31, 2018.
Galantas completed one private placement of common shares in
2019 during the third quarter. The placement included funds raised
in both UK and Canadian currency for 2,352,941 shares, at an issue
price of UKGBP 0.425 ($ 0.68) per share for gross proceeds of
UKGBP1,000,000 ($ 1,600,000). In addition, in December 2019
Galantas completed the issue of a Convertible Debenture for
UKGBP1,000,000 ($1,731,190). The debenture is unsecured, is for a
term of one year, carries a coupon of 15% per annum and is
convertible into common shares of the Company. The debenture was
fully subscribed by Melquart Limited, an Insider and Control person
of the Company.
Production/Mine Development
During 2019 the Omagh gold mine continued limited production of
gold concentrate from feed produced in the development of the
Kearney vein. The plant, which produces a gold & silver
concentrate using a non-toxic, froth-flotation process, ran on a
batch basis from a stockpile of underground vein material plus
additional feed produced from on-vein development operations (prior
to the cessation of blasting).
Underground development of the decline tunnel continued to be
progressed during 2019 with further crosscuts allowing access to
lower levels of vein development which forms the development
necessary to demarcate production panels. On-vein development
continued on the 1084 (second) level and the 1072 (third) level
during the first half of 2019. Development then continued
southwards on the third (1072) level with gold grades within the
expected range.
During the third quarter the Company reported that the access
drive on the fourth (1060) level has intersected the Kearney vein
ahead of schedule. The intersection showed strongly developed
mineralization. The north and south faces of the vein were channel
sampled. The average of the two channels was 8.35 g/t gold over an
average true width of 2.65 metres. The Company also reported that
drivage from the 1072 access has been taken northwards, in-vein,
for approximately 40 metres. Mineralisation beyond the first 20
metres is currently excluded from the geological model, due to
paucity of data. The mineralisation was shown to be persistent and
has been followed in an in-vein development. Two channel samples,
taken across the face as the drivage was developed at 24.1m and
27.6m into the third level (1072) north development, showed a grade
of 6.2g/t gold and 16.3 g/t gold respectively, each with a true
width of 3 metres. The vein will continue to be followed northwards
on the third (1072) level and elevates potential for additional
mineralisation to be added to the resource model if discovered on
the adjacent first (1096), second (1084) and fourth (1060) levels.
Underground drivages have now been developed to expose the main
Kearney vein on four levels with a fifth level at the point of
intersection. The mine is serviced by a decline tunnel of 1 in 6
gradient, of dimensions approximately 4.5m by 4.5m.
Milling operations progressed during 2019 and moved to a
two-shift basis in the third quarter. The processing plant, which
was used formerly for open-pit operations, has had the benefit of a
recent upgrade and further upgrades are planned. Shipments of
concentrate under the off-take arrangements commenced during the
second quarter of 2019. Concentrate sales provisional revenues
during the year ended December 31, 2019 totalled approximately US$
1,519,000 and until the mine reaches the commencement of commercial
production, the net proceeds from concentrate sales will be offset
against Development assets.
However, during the fourth quarter Galantas announced a
temporary suspension of blasting operations at its Omagh gold mine
(see press release dated October 29, 2019). Blasting operations are
currently limited since all blasting must be supervised by the
Police Service of Northern Ireland (PSNI) and were not sufficient
for the desired level of operations. The Company had been working
with the PSNI to increase blasting availability to normal levels
for an underground mine. While progress has been made and
substantive investment incurred in accordance with recommendations
the Company was still awaiting final approvals from the authorities
to be able to implement its increased blasting protocols prior to
the suspension. The Company had been waiting for some time for
these approvals and although the Company expected to receive the
approvals based on previous discussions with the relevant
authorities, a date for receipt of the required approvals and
therefore the date for implementation of the increased blasting
schedule was not known. The arrangements, current at that time were
not sufficient to allow for the expansion of mine operations as
envisaged by the Company's existing mine plan and until changes
were agreed, the present inefficiencies caused by those
arrangements formed an increasing financial burden, which has
proved a significant drain on the financial resources of the
Company. Accordingly, to reduce costs, the number of people
employed at the operation were reduced from 46 to 21. Some mine
operations continue at the Omagh gold mine, on a single shift.
Subsequent to December 31, 2019 Galantas reported that confirmation
has been received from PSNI, in regard to their satisfaction of
certain secure storage and handling protocols required for an
increase in blasting to a commercial level subject to financial
matters being agreed. The Company now understands that these
financial matters have now been mutually agreed. Certain
underground work continues but ore production is suspended until
finance is available to expand the underground operation.
A probe drilling campaign was subsequently carried out using the
retained personnel and equipment. The results of this campaign,
combined with detailed mapping of the exposed mineralisation
underground suggests zones of higher width of mineralisation within
the vein, linking adjacent levels. This supports an implication
that such zonal mineralisation may continue at depth, with enhanced
exploration potential for targeting gold resources particularly to
the north and within the Company's license area. Probe drilling
does not provide samples suitable for use in mineral resource
estimates but can provide strong indications where mineralisation
is concentrated and is of significantly less cost than core
drilling. Subsequently in May 2020, the Company reported that it
had filed a short technical report in respect of the probe drilling
campaign. The report is available on www.sedar.com and
www.galantas.com .
Considering the economic impingement on the Company's
operations, the Company is seeking strategic alternatives including
reviewing its licenses and operations; and considering the
possibility of engaging in a sale, joint venture, partnership or
other options with third parties and alternative financing
structures. The company is actively engaged in that process.
In March 2020 and following UK government guidelines regarding
Covid-19, processing operations temporarily ceased until later in
May when the Company announced that concentrate processing has
recommenced. The company carried out maintenance to the processing
plant during the milling suspension, to minimise future maintenance
interruptions. The restart follows a review of Northern Ireland /
UK government health advice regarding Covid-19, a risk assessment
and the introduction of appropriate modifications to working
practices. Feedstock for the processing plant is from low grade
stock until suitable arrangements are in place to recommence vein
development underground. The number of employees furloughed under a
NI/UK government scheme has been reduced to three from seven.
Safety is a high priority and the company continued to invest in
safety-related training and infra-structure. The zero lost time
accident rate since the start of underground operations, continues.
Environmental monitoring demonstrates a high level of regulatory
compliance. Phased site restoration works continue with thousands
of tree saplings recently planted.
The detailed results and Management Discussion and Analysis
(MD&A) are available on www.sedar.com and www.galantas.com and
the highlights in this release should be read in conjunction with
the detailed results and MD&A. The MD&A provides an
analysis of comparisons with previous periods, trends affecting the
business and risk factors.
Click on, or paste the following link into your web browser, to
view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/7587P_1-2020-6-12.pdf
Qualified Person
The financial components of this disclosure has been reviewed by
Leo O' Shaughnessy (Chief Financial Officer) and the production,
exploration and permitting components by Roland Phelps (President
& CEO), qualified persons under the meaning of NI. 43-101. The
information is based upon local production and financial data
prepared under their supervision.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS: This press
release contains forward-looking statements within the meaning of
the United States Private Securities Litigation Reform Act of 1995
and applicable Canadian securities laws, including revenues and
cost estimates, for the Omagh Gold project. Forward-looking
statements are based on estimates and assumptions made by Galantas
in light of its experience and perception of historical trends,
current conditions and expected future developments, as well as
other factors that Galantas believes are appropriate in the
circumstances. Many factors could cause Galantas' actual results,
the performance or achievements to differ materially from those
expressed or implied by the forward looking statements or strategy,
including: gold price volatility; discrepancies between actual and
estimated production, actual and estimated metallurgical recoveries
and throughputs; mining operational risk, geological uncertainties;
regulatory restrictions, including environmental regulatory
restrictions and liability; risks of sovereign involvement;
speculative nature of gold exploration; dilution; competition; loss
of or availability of key employees; additional funding
requirements; uncertainties regarding planning and other permitting
issues; and defective title to mineral claims or property. These
factors and others that could affect Galantas's forward-looking
statements are discussed in greater detail in the section entitled
"Risk Factors" in Galantas' Management Discussion & Analysis of
the financial statements of Galantas and elsewhere in documents
filed from time to time with the Canadian provincial securities
regulators and other regulatory authorities. These factors should
be considered carefully, and persons reviewing this press release
should not place undue reliance on forward-looking statements.
Galantas has no intention and undertakes no obligation to update or
revise any forward-looking statements in this press release, except
as required by law.
Galantas Gold Corporation
Roland Phelps C.Eng - President & CEO
Email: info@galantas.com
Website: www.galantas.com
Telephone: +44 (0) 2882 241100
Grant Thornton UK LLP (Nomad)
Philip Secrett, Richard Tonthat
Telephone: +44(0)20 7383 5100
Whitman Howard Ltd (Broker & Corporate Adviser)
Ranald McGregor-Smith, Nick Lovering
Telephone: +44(0)20 7659 1234
GALANTAS GOLD CORPORATION
Consolidated Financial Statements
(Expressed in Canadian Dollars)
Years Ended December 31, 2019 and 2018
Galantas Gold Corporation
Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
As at December 31, 2019 2018
----------------------------------------------------- ------------- -------------
ASSETS
Current assets
Cash and cash equivalents $ 1,913,420 $ 6,188,554
Accounts receivable and prepaid expenses (note 8) 416,699 287,273
Inventories (note 9) 70,328 11,335
----------------------------------------------------- ------------- -------------
Total current assets 2,400,447 6,487,162
Non-current assets
Property, plant and equipment (note 10) 21,159,716 16,487,501
Long-term deposit (note 12) 515,220 523,170
Exploration and evaluation assets (note 11) 661,726 760,023
----------------------------------------------------- ------------- -------------
Total non-current assets 22,336,662 17,770,694
----------------------------------------------------- ------------- -------------
Total assets $ 24,737,109 $ 24,257,856
----------------------------------------------------- ------------- -------------
EQUITY AND LIABILITIES
Current liabilities
Accounts payable and other liabilities (note 13) $ 2,131,715 $ 2,257,329
Current portion of financing facilities (note 14) 242,280 382,974
Due to related parties (note 21) 4,719,058 4,119,642
Convertible debenture (note 15) 1,400,594 -
----------------------------------------------------- ------------- -------------
Total current liabilities 8,493,647 6,759,945
Non-current liabilities
Non-current portion of financing facilities (note
14) 1,440,185 1,081,190
Decommissioning liability (note 12) 580,303 578,242
----------------------------------------------------- ------------- -------------
Total non-current liabilities 2,020,488 1,659,432
----------------------------------------------------- ------------- -------------
Total liabilities 10,514,135 8,419,377
----------------------------------------------------- ------------- -------------
Capital and reserves
Share capital (note 16(a)(b)) 50,123,910 48,628,055
Reserves 9,416,412 8,963,163
Deficit (45,317,348) (41,752,739)
----------------------------------------------------- ------------- -------------
Total equity 14,222,974 15,838,479
----------------------------------------------------- ------------- -------------
Total equity and liabilities $ 24,737,109 $ 24,257,856
----------------------------------------------------- ------------- -------------
The notes to the consolidated financial statements
are an integral part of these statements.
Going concern (note 1) Contingency (note 23)
Event after the reporting period (note 25)
Galantas Gold Corporation
Consolidated Statements of Loss
(Expressed in Canadian Dollars)
Year Ended December 31, 2019 2018
Revenues
Jewellery sales (note 18) $ 5,788 $ 71,243
Cost and expenses of operations
Aggregates levy (note 19) - 352,168
Cost of sales 221,691 185,058
Depreciation (note 10) 457,134 350,999
------------------------------------------------------ --------------- ---------------
678,825 888,225
------------------------------------------------------ --------------- ---------------
Loss before general administrative and other
income (673,037) (816,982)
------------------------------------------------------ --------------- ---------------
General administrative expenses
Management and administration wages (note 21) 902,822 784,545
Other operating expenses 436,585 198,493
Accounting and corporate 63,897 68,933
Legal and audit 74,690 91,419
Stock-based compensation (note 16(d)) 321,433 225,169
Shareholder communication and investor relations 209,903 194,992
Transfer agent 11,206 10,213
Director fees (note 21) 35,500 29,250
General office 11,653 9,486
Accretion expenses (notes 12, 14 and 15) 271,365 251,547
Loan interest and bank charges less deposit interest
(notes 15 and 21) 351,898 267,825
------------------------------------------------------ --------------- ---------------
Other expenses (income) 2,690,952 2,131,872
Foreign exchange loss (gain) 16,659 (53,417)
Impairment of exploration and evaluation assets
(note 11) 155,482 -
Loss on disposal of property, plant and equipment 28,479 -
Unrealized gain on fair value of derivative financial
liability - (10,000)
------------------------------------------------------ --------------- ---------------
200,620 (63,417)
------------------------------------------------------ --------------- ---------------
Net loss for the year $ (3,564,609) $ (2,885,437)
------------------------------------------------------ --------------- ---------------
Basic and diluted net loss per share (note 17) $ (0.12) $ (0.15)
------------------------------------------------------ --------------- ---------------
Weighted average number of common shares outstanding
- basic and diluted (i) 30,819,025 19,755,402
------------------------------------------------------ --------------- ---------------
(i) Adjusted for 10:1 share consolidation effective
December 31, 2019 (note 17).
The notes to the consolidated financial statements
are an integral part of these statements.
Galantas Gold Corporation
Consolidated Statements of Comprehensive Loss
(Expressed in Canadian Dollars)
Year Ended December 31, 2019 2018
Net loss for the year $ (3,564,609) $ (2,885,437)
Other comprehensive (loss) income
Items that will be reclassified subsequently to
profit or loss
Exchange differences on translating foreign operations (116,262) 293,807
-------------------------------------------------------- --------------- ---------------
Total comprehensive loss $ (3,680,871) $ (2,591,630)
-------------------------------------------------------- --------------- ---------------
The notes to the consolidated financial statements
are an integral part of these statements.
Galantas Gold Corporation
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
Year Ended December 31,
2019 2018
---------------------------------------------------- ------------- -------------
Operating activities
Net loss for the year $ (3,564,609) $ (2,885,437)
Adjustment for:
Depreciation (note 10) 457,134 350,999
Stock-based compensation (note 16) 321,433 225,169
Interest expense (notes 15 and 21) 359,293 263,744
Foreign exchange loss (gain) 145,357 (44,041)
Accretion expenses (notes 12, 14 and 15) 271,365 251,547
Unrealized gain on fair value of derivative
financial liability - (10,000)
Impairment of exploration and evaluation assets
(note 11) 155,482 -
Loss on disposal of property, plant and equipment 28,479 -
Non-cash working capital items:
Accounts receivable and prepaid expenses (135,992) 36,586
Inventories (60,078) 4,071
Accounts payable and other liabilities (96,138) 992,086
Due to related parties 313,906 348,644
---------------------------------------------------- ------------- -------------
Net cash and cash equivalents used in operating
activities (1,804,368) (466,632)
---------------------------------------------------- ------------- -------------
Investing activities
Purchase of property, plant and equipment (6,417,630) (4,892,423)
Proceeds from sale of property, plant and equipment 981,905 -
Exploration and evaluation assets (70,836) (254,140)
---------------------------------------------------- ------------- -------------
Net cash and cash equivalents used in investing
activities (5,506,561) (5,146,563)
---------------------------------------------------- ------------- -------------
Financing activities
Proceeds of private placements (note 16(b)) 1,600,000 8,471,771
Proceeds from convertible debenture (note 15) 1,731,190 -
Share issue costs (notes 15 and 16(b)) (209,048) (465,388)
Advances from related parties - 883,128
Proceeds from financing facilities (note 14) - 2,021,280
Financing charges related to financing liabilities
(note 14) - (41,674)
Repayment of financing facilities (note 14) (56,854) (6,357)
---------------------------------------------------- ------------- -------------
Net cash and cash equivalents provided by financing
activities 3,065,288 10,862,760
---------------------------------------------------- ------------- -------------
Net change in cash and cash equivalents (4,245,641) 5,249,565
Effect of exchange rate changes on cash held
in foreign currencies (29,493) 159,231
Cash and cash equivalents, beginning of year 6,188,554 779,758
---------------------------------------------------- ------------- -------------
Cash and cash equivalents, end of year $ 1,913,420 $ 6,188,554
---------------------------------------------------- ------------- -------------
Cash $ 1,913,420 $ 2,700,754
Cash equivalents - 3,487,800
---------------------------------------------------- ------------- -------------
Cash and cash equivalents $ 1,913,420 $ 6,188,554
---------------------------------------------------- ------------- -------------
Galantas Gold Corporation
Consolidated Statements of Changes in Equity
(Expressed in Canadian Dollars)
Reserves
-------------------- ------------- --------- ------------ ------------ ------------ --------------- -----------
Share capital Warrants Equity Foreign Equity Deficit Total
reserve settled currency component
share-based translation of
payments reserve convertible
reserve debenture
-------------------- ------------- --------- ------------ ------------ ------------ --------------- -----------
Balance, December
31, 2017 $ 39,759,17 $- $ 7,038,978 $ 619,209 $- $- (38,867,302) $ 8,550,057
Shares issued in
private
placements (note
16(b)(i)(ii)) 8,471,771 - - - - - 8,471,771
Share issue costs (465,388) - - - - - (465,388)
Warrants issued
(note
14(ii)- - 786,000 - - - - 786,000
Common shares issued
for
debt (note
16(b)(iii) 862,500 - - - - - 862,500
Stock-based
compensation
(note 16(d)) - - 225,169 - - - 225,169
Exchange differences
on
translating foreign
operations- - - - 293,807 - - 293,807
Net loss for the
year- - - - - - (2,885,437) (2,885,437)
-------------------- ------------- --------- ------------ ------------ ------------ --------------- -----------
Balance, December
31, 2018 48,628,055 786,000 7,264,147 913,016 - (41,752,739) 15,838,479
Shares issued in
private
placement (note
16(b)(iv)) 1,600,000 - - - - - 1,600,000
Share issue costs (104,145) - - - - - (104,145)
Convertible
debenture
issued
(note 15)- - - - - 248,078 - 248,078
Stock-based
compensation
(note 16(d))- - - 321,433 - - - 321,433
Exchange differences
on
translating foreign
operations- - - - (116,262) - - (116,262)
Net loss for the
year- - - - - (3,564,609) (3,564,609)
-------------------- ------------- --------- ------------ ------------ ------------ --------------- -----------
Balance, December
31, 2019 $ 50,123,910 $ 786,000 $ 7,585,580 $ 796,754 $248,078 $ (45,317,348) $14,222,974
-------------------- ------------- --------- ------------ ------------ ------------ --------------- -----------
The notes to the consolidated financial statements are an
integral part of these statements.
Galantas Gold Corporation
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
(Expressed in Canadian Dollars)
1. Going Concern
These consolidated financial statements have been prepared on a
going concern basis which contemplates that Galantas Gold
Corporation (the "Company") will be able to realize assets and
discharge liabilities in the normal course of business. In
assessing whether the going concern assumption is appropriate,
management takes into account all available information about the
future, which is at least, but is not limited to, twelve months
from the end of the reporting period. Management is aware, in
making its assessment, of uncertainties related to events or
conditions that may cast doubt on the Company's ability to continue
as a going concern. The Company's future viability depends on the
consolidated results of the Company's wholly-owned subsidiary
Cavanacaw Corporation ("Cavanacaw"). Cavanacaw has a 100%
shareholding in both Flintridge Resources Limited ("Flintridge")
who are engaged in the acquisition, exploration and development of
gold properties, mainly in Omagh, Northern Ireland and Omagh
Minerals Limited ("Omagh") who are engaged in the exploration of
gold properties, mainly in the Republic of Ireland. The Omagh mine
has an open pit mine, which was in production until 2013 when
production was suspended and is reported as property, plant and
equipment and as an underground mine which having established
technical feasibility and commercial viability in December 2018 has
resulted in associated exploration and evaluation assets being
reclassified as an intangible development asset and reported as
property, plant and equipment.
The going concern assumption is dependent upon forecast cash
flows being met, negotiations for the extension of the short-term
loans being finalized, further financing currently being negotiated
being completed and blasting arrangement with the Police Service of
Northern Ireland being resolved. The directors assumptions in
relation to future levels of production, gold prices and mine
operating costs are crucial to forecast cash flows being achieved.
Should production be significantly delayed, revenues fall short of
expectations or operating costs and capital costs increase
significantly, there may be insufficient cash flows to sustain day
to day operations without seeking further finance.
Negotiations with current finance providers to extend short-term
loans are progressing satisfactory. The Company is also in advanced
negotiations with potential new investors to meet the financial
requirements of the Company for the foreseeable future. Based on
the five-year period financial projections prepared, the directors
believe its appropriate to prepare the consolidated financial
statements on the going concern basis.
On April 17, 2020, the Company completed a share consolidation
of its share capital on the basis of ten existing common shares for
one new common share consolidation. All common shares, per common
share amounts, stock options and warrants in these consolidated
financial statements have been retroactively restated to reflect
the share consolidation.
As at December 31, 2019, the Company had a deficit of
$45,317,348 (December 31, 2018 - $41,752,739). Comprehensive loss
for the year ended December 31, 2019 was $3,680,871 (year ended
December 31, 2018 - comprehensive loss of $2,591,630). These losses
raise material uncertainties which cast significant doubt as to
whether the Company will be able to continue as a going concern.
Management is confident that it will continue as a going concern.
However, this is subject to a number of factors including market
conditions.
As at December 31, 2019, the Company had a deficit of
$45,317,348 (December 31, 2018 - $41,752,739). Comprehensive loss
for the year ended December 31, 2019 was $3,680,871 (year ended
December 31, 2018 - comprehensive loss of $2,591,630). These losses
raise material uncertainties which cast significant doubt as to
whether the Company will be able to continue as a going concern.
Management is confident that it will continue as a going concern.
However, this is subject to a number of factors including market
conditions.
These consolidated financial statements do not reflect
adjustments to the carrying values of assets and liabilities, the
reported expenses and financial position classifications used that
would be necessary if the going concern assumption was not
appropriate. These adjustments could be material.
2. Incorporation and Nature of Operations
The Company was formed on September 20, 1996 under the name
Montemor Resources Inc. on the amalgamation of 1169479 Ontario Inc.
and Consolidated Deer Creek Resources Limited. The name was changed
to European Gold Resources Inc. by articles of amendment dated July
25, 1997. On May 5, 2004, the Company changed its name from
European Gold Resources Inc. to Galantas Gold Corporation. The
Company was incorporated to explore for and develop mineral
resource properties, principally in Europe. In 1997, it purchased
all of the shares of Omagh which owns a mineral property in
Northern Ireland, including a delineated gold deposit. Omagh
obtained full planning and environmental consents necessary to
bring its property into production.
The Company entered into an agreement on April 17, 2000,
approved by shareholders on June 26, 2000, whereby Cavanacaw, a
private Ontario corporation, acquired Omagh. Cavanacaw has
established an open pit mine to extract the Company's gold deposit
near Omagh, Northern Ireland. Cavanacaw also has developed a
premium jewellery business founded on the gold produced under the
name Galántas Irish Gold Limited ("Galántas"). As at July 1, 2007,
the Company's Omagh mine began production and in 2013 production
was suspended. On April 1, 2014, Galántas amalgamated its jewelry
business with Omagh.
On April 8, 2014, Cavanacaw acquired Flintridge. Following a
strategic review of its business by the Company during 2014 certain
assets owned by Omagh were acquired by Flintridge.
The Company's operations include the consolidated results of
Cavanacaw, and its wholly-owned subsidiaries Omagh, Galántas and
Flintridge.
The Company's common shares are listed on the TSX Venture
Exchange ("TSXV") and London Stock Exchange AIM under the symbol
GAL. The primary office is located at The Canadian Venture
Building, 82 Richmond Street East, Toronto, Ontario, Canada, M5C
1P1.
3. Basis of Preparation
a) Statement of compliance
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS") issued by the International Accounting Standards Board
("IASB") and interpretations issued by the IFRS Interpretations
Committee ("IFRIC"). The Board of Directors approved the
consolidated financial statements on June 10, 2020.
b) Basis of presentation
These consolidated financial statements have been prepared on a
historical cost basis with the exception of certain financial
instruments, which are measured at fair value. In addition, these
consolidated financial statements have been prepared using the
accrual basis of accounting except for cash flow information.
In the preparation of these consolidated financial statements,
management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
expenses during the year. Actual results could differ from these
estimates. Of particular significance are the estimates and
assumptions used in the recognition and measurement of items
included in note 3(e).
c) Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries.
The results of subsidiaries acquired or disposed of during the
years presented are included in the consolidated statement of loss
from the effective date of control and up to the effective date of
disposal or loss of control, as appropriate. An investor controls
an investee if the investor has the power over the investee, has
the exposure, or rights, to variable returns from its involvement
with the investee and the ability to use its power over the
investee to affect the amount of the investor's returns. All
intercompany transactions, balances, income and expenses are
eliminated upon consolidation.
The following wholly owned companies have been consolidated
within the consolidated financial statements:
Company Registered Principal activity
---------------------------- ---------------- ------------------
Galantas Gold Corporation Ontario, Canada Parent company
Cavanacaw Corporation Ontario, Canada Holding company
(1)
Omagh Minerals Limited Northern Ireland Operating company
(2)(3)
Galántas Irish Gold Northern Ireland Dormant company
Limited (2)(4)
Flintridge Resources Limited United Kingdom Operating company
(2)(5)
(1) 100% owned by Galantas Gold Corporation;
(2) 100% owned by Cavanacaw Corporation;
(3) Referred to as Omagh (as defined herein);
(4) Referred to as Galántas (as defined herein); and
(5) Referred to as Flintridge (as defined herein).
d) Functional and presentation currency
The consolidated financial statements are presented in Canadian
Dollars ("CAD"), which is the parent Company's presentation and
functional currency.
Items included in the financial statements of each of the
Company's operating subsidiaries are measured using the currency of
the primary economic environment in which the entity operates (the
"functional currency"). The functional currency of the operating
subsidiaries is the U.K. Pound Sterling ("GBP"). The functional
currency of the subsidiary Cavanacaw, the holding company, is the
CAD.
Assets and liabilities of entities with functional currencies
other than CAD are translated at the year-end closing rate of
exchange, and the results of their operations are translated at
average rates of exchange for the period unless this average is not
a reasonable approximation of the cumulative effect of the rates
prevailing on the transaction dates, in which case the results of
their operations are translated at the rate prevailing on the dates
of the transactions. The resulting translation adjustments are
recognized as a separate component of equity.
Year Ended December 31
2019 2018
Closing rate (GBP to CAD) 1.7174 1.7439
Average for the year 1.6945 1.7299
e) Use of estimates and judgments
The preparation of these consolidated financial statements in
conformity with IFRS requires management to make certain estimates,
judgments and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial
statements and reported amounts of revenues and expenses during the
reporting period. Actual outcomes could differ from these
estimates. These consolidated financial statements include
estimates that, by their nature, are uncertain. The impacts of such
estimates are pervasive throughout the consolidated financial
statements, and may require accounting adjustments based on future
occurrences. Revisions to accounting estimates are applied
prospectively. These estimates are based on historical experience,
current and future economic conditions and other factors, including
expectations of
future events that are believed to be reasonable under the circumstances.
Critical accounting estimates
Significant assumptions about the future that management has
made that could result in a material adjustment to the carrying
amounts of assets and liabilities, in the event that actual results
differ from assumptions made, relate to, but are not limited to,
the following:
-- the recoverability of accounts receivable that are included
in the consolidated statements of financial position;
-- the recoverability of property, plant and equipment in the
consolidated statements of financial position. The Omagh
underground mine and the open pit mine are considered as one Cash
generating unit ("CGU") and were tested for impairment at year end.
The calculations of the recoverable amount of CGU require the use
of methods such as the discounted cash flow method, which uses
assumptions to estimate future cash flows. Significant assumptions
applied in the discounted cash flow calculation include: discount
rate, foreign exchange rate, gold sale price, grade of ore mined,
mill throughput and mill recovery rate. No impairment was
noted.
-- the estimated life of the Omagh underground mine ore body
based on the estimated recoverable ounces or pounds mined from
proven and probable reserves of the mine development costs which
impacts the consolidated statements of financial position and the
related depreciation included in the consolidated statements of
loss;
-- the estimated useful lives and residual value of property,
plant and equipment which are included in the consolidated
statements of financial position and the related depreciation
included in the consolidated
statements of loss;
-- stock-based compensation - management is required to make a
number of estimates when determining the compensation expense
resulting from share-based transactions, including volatility,
which is an estimate based on historical price of the Company's
share, the forfeiture rate and expected life of the
instruments;
-- warrants - management is required to make a number of
estimates when determining the fair value of the warrants,
including volatility, the forfeiture rate and expected life of the
instruments;
-- convertible debenture is separated into its liability and
equity components using the effective interest rate method. The
fair value of the liability component at the time of issue is
calculated as the discounted cash flows for the convertible
debenture assuming a 18% effective interest rate which was the
estimated rate for a debenture without a conversion feature. The
fair value of the equity component was determined at the time of
issue as the difference between the face value of the convertible
debenture and the fair value of the liability component. Changes in
the input assumptions can materially affect the fair value
estimates and the Company's classification between debt and equity
components. The transaction costs incurred to obtain the credit
facility are pro-rated between equity and debt liability;
-- decommissioning liabilities has been created based on the
estimated settlement amounts. Assumptions, based on the current
economic environment, have been made which management believes are
a reasonable basis upon which to estimate the future liability.
These estimates take into account any material changes to the
assumptions that occur when reviewed regularly by management.
Estimates are reviewed quarterly and are based on current
regulatory requirements and constructive obligations. Significant
changes in estimates of contamination, restoration standards and
techniques will result in changes to liability on a quarterly
basis. Actual decommissioning costs will ultimately depend on
actual future settlement amount for the decommissioning costs which
will reflect the market condition at the time the decommissioning
costs are actually incurred. The final cost of the currently
recognized decommissioning provisions may be higher or lower than
currently provided for.
Critical accounting judgments
-- functional currency - the functional currency for the parent
entity and each of its subsidiaries, is the currency of the primary
economic environment in which the entity operates. Determination of
functional currency may involve certain judgments to determine the
primary economic environment and the parent entity reconsiders the
functional currency of its entities if there is a change in events
and conditions which determined primary economic environment;
-- exploration and evaluation assets - the determination of the
demonstration of technical feasibility and commercial viability is
subject to a significant degree of judgment and assessment of all
relevant factors;
-- Income taxes - measurement of income taxes payable and
deferred income tax assets and liabilities requires management to
make judgments in the interpretation and application of the
relevant tax laws. The actual amount of income taxes only becomes
final upon filing and acceptance of the tax return by the relevant
authorities, which occurs subsequent to the issuance of the
consolidated financial statements;
-- Going concern assumption - Going concern presentation of the
consolidated financial statements which assumes that the Company
will continue in operation for the foreseeable future and will be
able to realize its assets and discharge its liabilities in the
normal course of operations as they come due; and
-- Whether there are any indicators that the Company's property,
plant and equipment assets and exploration and evaluation assets
are impaired. Where an indicator of impairment exists for its
non-current assets, the Company performs an analysis to estimate
the recoverable amount, which includes various key estimates
and
assumptions as discussed above.
4. Significant Accounting Policies
a) Foreign currency transactions
Transactions in foreign currencies are translated to the
respective functional currencies of the operations at exchange
rates at the dates of transactions. Monetary assets and liabilities
denominated in foreign currencies at the reporting date are
retranslated to the functional currency at the exchange rate at
that date. Non-monetary assets and liabilities denominated in
foreign currencies that are measured at fair value are retranslated
to the functional currency at the exchange rate at the date that
the fair value was determined. Foreign currency differences arising
in retranslation are recognized in the consolidated statements of
loss, except for differences arising on the retranslation of
available-for-sale equity instruments which are recognised in other
comprehensive income (loss). Non-monetary items that are measured
in terms of historical cost in foreign currency are translated
using the exchange rate at the date of the transaction.
b) Cash and cash equivalents
Cash and cash equivalents comprise cash at banks and on hand,
and short-term deposits with an original maturity of three months
or less, which are readily convertible into a known amount of
cash.
c) Financial instruments
Under IFRS 9 - Financial Instruments ("IFRS 9"), financial
assets are classified and measured based on the business model in
which they are held and the characteristics of their contractual
cash flows. IFRS 9 contains the primary measurement categories for
financial assets: measured at amortized cost, fair value through
other comprehensive income ("FVTOCI") and fair value through profit
and loss ("FVTPL").
Below is a summary showing the classification and measurement
bases of our financial instruments.
Financial instruments Classification
Cash and cash equivalents FVTPL
Accounts receivable Amortized cost
Long-term deposit Amortized cost
Accounts payable and other liabilities Amortized cost
Financing facilities Amortized cost
Due to related parties Amortized cost
Convertible debenture Amortized cost
Financial assets
Financial assets are classified as either financial assets at
FVTPL, amortized cost, or FVTOCI. The Company determines the
classification of its financial assets at initial recognition.
i) Financial assets recorded at FVTPL
Financial assets are classified as FVTPL if they do not meet the
criteria of amortized cost or FVTOCI. Gains or losses on these
items are recognized in profit or loss.
The Company's cash and cash equivalents is classified as financial assets measured at FVTPL.
ii) Amortized cost
Financial assets are classified as measured at amortized cost if
both of the following criteria are met and the financial assets are
not designated as at FVTPL: 1) the object of the Company's business
model for these financial assets is to collect their contractual
cash flows; and 2) the asset's contractual cash flows
represent "solely payments of principal and interest".
The Company's accounts receivable and long-term deposit are
classified as financial assets measured at amortized cost.
iii) Financial assets recorded at FVTOCI
Financial assets are recorded at FVTOCI when the change in fair
value is attributable to changes in the Company's credit risk.
Financial liabilities
Financial liabilities are classified as either financial
liabilities at FVTPL or at amortized cost. The Company determines
the classification of its financial liabilities at initial
recognition.
i) Amortized cost
Financial liabilities are classified as measured at amortized
cost unless they fall into one of the following categories:
financial liabilities at FVTPL, financial liabilities that arise
when a transfer of a financial asset does not qualify for
derecognition, financial guarantee contracts, commitments to
provide a loan at a below-market interest rate, or contingent
consideration recognized by an acquirer in a business
combination.
The Company's accounts payable and other liabilities, financing
facilities, due to related parties and convertible debenture does
not fall into any of the exemptions and are therefore classified as
measured at
amortized cost.
ii) Financial liabilities recorded FVTPL
Financial liabilities are classified as FVTPL if they fall into
one of the five exemptions detailed above.
Transaction costs
Transaction costs associated with financial instruments, carried
at FVTPL, are expensed as incurred, while transaction costs
associated with all other financial instruments are included in the
initial carrying amount of
the asset or the liability.
Subsequent measurement
Instruments classified as FVTPL are measured at fair value with
unrealized gains and losses recognized in profit or loss.
Instruments classified as amortized cost are measured at amortized
cost using the effective interest rate method. Instruments
classified as FVTOCI are measured at fair value with unrealized
gains and losses
recognized in other comprehensive income (loss).
Derecognition
The Company derecognizes financial liabilities only when its
obligations under the financial liabilities are discharged,
cancelled, or expired. The difference between the carrying amount
of the financial liability derecognized and the consideration paid
and payable, including any non-cash assets transferred or
liabilities
assumed, is recognized in profit or loss.
Expected credit loss impairment model
IFRS 9 introduced a single expected credit loss impairment
model, which is based on changes in credit quality since initial
application. The adoption of the expected credit loss impairment
model had no impact on the Company's consolidated financial
statements.
The Company assumes that the credit risk on a financial asset
has increased significantly if it is more than 30 days past due.
The Company considers a financial asset to be in default when the
borrower is unlikely to pay its credit obligations to the Company
in full or when the financial asset is more than 90 days past
due.
The carrying amount of a financial asset is written off (either
partially or in full) to the extent that there is no realistic
prospect of recovery. This is generally the case when the Company
determines that the debtor does not have assets or sources of
income that could generate sufficient cash flows to repay the
amounts subject to the write-off.
d) Impairment of non-financial assets
When events or circumstances indicate that the carrying value
may not be recoverable, the Company reviews the carrying amounts of
its non-financial assets to determine whether events or changes in
circumstances indicate that the carrying value may not be
recoverable. If any such indication exists, the recoverable amount
of the asset is estimated in order to determine the extent of the
impairment loss (if any). The estimated recoverable amount is
determined on an asset by asset basis, except where such assets do
not generate cash flows independent of other assets, in which case
the recoverable amount is estimated at the CGU level.
The recoverable amount is the higher of fair value less costs of
disposal and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or CGU) is estimated to
be less than its carrying amount, the carrying amount of the asset
(or CGU) is reduced to its recoverable amount. An impairment loss
is recognized immediately in the consolidated statement of
comprehensive loss.
If an impairment loss subsequently reverses, the carrying amount
of the asset (or CGU) is increased up to the revised estimate of
its recoverable amount, but so that the increased carrying amount
does not exceed the carrying amount that would have been determined
had no impairment loss been recognized for the asset (or CGU) in
prior years.
d) Property, plant and equipment
Property, plant and equipment are carried at cost, less
accumulated depreciation and accumulated impairment losses.
The cost of an item of property, plant and equipment consists of
the purchase price, any costs directly attributable to bringing the
asset to the location and condition necessary for its intended use
and an initial estimate of the costs of dismantling and removing
the item and restoring the site on which it is located.
Depreciation is recognized based on the cost of an item of
property, plant and equipment, less its estimated residual value,
over its estimated useful life at the following rates:
Detail Percentage Method
------------------- ---------- -----------------
Buildings 20% Declining balance
Plant and machinery 20% Declining balance
Motor vehicles 25% Declining balance
Office equipment 15% Declining balance
Development assets No depreciation
------------------- ---------- -----------------
An asset's residual value, useful life and depreciation method
are reviewed, and adjusted if appropriate, on an annual basis.
e) Borrowing Costs
General and specific borrowing costs that are directly
attributable to the acquisition, construction or production of a
qualifying asset are capitalised during the period of time that is
required to complete and prepare the asset for its intended use or
sale.
Qualifying assets are assets that necessarily take a substantial
period of time to get ready for their intended use or sale.
Investment income earned on the temporary investment of specific
borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalisation.
Other borrowing costs are expensed in the period in which they are incurred.
f) Exploration and evaluation assets
These assets relate to the exploration and evaluation
expenditures incurred in respect to resource projects that are in
the exploration and evaluation stage.
Exploration and evaluation expenditures include costs which are
directly attributable to acquisition and evaluation activities,
assessing technical feasibility and commercial viability. These
expenditures are capitalized using the full cost method until the
technical feasibility and commercial viability of extracting the
mineral resource of a project are demonstrable. During the
exploration period, exploration and evaluation assets are not
amortized.
Exploration and evaluation assets are allocated to CGU for the
purpose of assessing such assets for impairment. At the end of each
reporting period, the asset is reviewed for impairment indicators
in accordance with IFRS 6.20:
i) the period for which the entity has the right to explore in
the specific area has expired during the period or will expire in
the near future, and is not expected to be renewed.
ii) substantive expenditure on further exploration for and
evaluation of mineral resources in the specific area is neither
budgeted nor planned.
iii) exploration for and evaluation of mineral resources in the
specific area have not led to the discovery of commercially viable
quantities of mineral resources and the entity has decided to
discontinue such
activities in the specific area.
iv) sufficient data exist to indicate that, although a
development in the specific area is likely to proceed, the carrying
amount of the exploration and evaluation asset is unlikely to be
recovered in full from successful development or by sale.
If such indicators exist, the asset is tested for impairment and
the recoverable amount of the asset is estimated. If the
recoverable amount of the asset is estimated to be less than its
carrying amount, the carrying amount of the asset is reduced to its
recoverable amount. An impairment loss is recognized
immediately
in consolidated statements of loss.
Once the technical feasibility and commercial viability of
extracting a mineral resource of a project are demonstrable, the
relevant exploration and evaluation asset is assessed for
impairment, and any impairment loss recognized, prior to the
balance being reclassified as a development asset in property,
plant and equipment.
The determination of the demonstration of technical feasibility
and commercial viability is subject to a significant degree of
judgment and assessment of all relevant factors. In general,
technical feasibility may be demonstrable once a positive
feasibility study is completed. When determining the commercial
viability of a project, in addition to the receipt of a feasibility
study, the Company also considers factors such as the availability
of project financing, the existence of markets and/or long term
contracts for the product, and the ability of obtaining the
relevant operating permits.
All subsequent expenditures to ready the property for production
are capitalized within development assets, other than those costs
related to the construction of property, plant and equipment.
Once production has commenced, all costs included in development
assets are reclassified to mine development costs.
Exploration and evaluation expenditures incurred prior to the
Company obtaining mineral rights related to the property being
explored are recorded as expense in the period in which they are
incurred.
g) Stripping costs
Till stripping costs involving the removal of overburden are
capitalized where the underlying ore will be extracted in future
periods. The Company defers these till stripping costs and
amortizes them on a unit-of-production basis as the underlying ore
is extracted.
h) Inventories
Inventories are comprised of finished goods, concentrate inventory and work-in-process amounts.
All inventories are recorded at the lower of production costs on
a first-in, first-out basis, and net realizable value. Production
costs include costs related to mining, crushing, mill processing,
as well as depreciation on production assets and certain
allocations of mine-site overhead expenses attributable to the
manufacturing process.
Net realizable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion
and selling expenses.
i) Revenue recognition
Revenue from sales of finished goods is recognized at the time
of shipment when significant risks and rewards of ownership are
considered to be transferred, the terms are fixed or determinable,
collection is probable, the associated costs and possible return of
goods can be estimated reliably, and there is no continuing
management involvement in the goods, and the amount of revenue can
be measured reliably.
Revenue from sales of gold concentrate is recognized at the time
of shipment when title passes and significant risks and benefits of
ownership are considered to be transferred and the amount of
revenue to be receivable by the Company is known or could be
accurately estimated. The final revenue figure at the end of any
given period is subject to adjustment at the date of ultimate
settlement as a result of final assay agreement and metal prices
changes.
j) Provisions
A provision is recognized when the Company has a present legal
or constructive obligation as a result of a past event, it is
probable that an outflow of economic benefits will be required to
settle the obligation, and the amount of the obligation can be
reliably estimated. If the effect is material, provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the
time value of money and, where appropriate, the risks specific to the liability.
A provision for onerous contracts is recognized when the
expected benefits to be derived by the Company from a
contract are lower than the unavoidable cost of meeting its obligations under the contract.
k) Share-based compensation transactions Share-based compensation transactions
Employees (including directors and senior executives) of the
Company receive a portion of their remuneration in the form of
share-based compensation transactions, whereby employees render
services as consideration for equity instruments ("equity-settled
transactions").
In situations where equity instruments are issued and some or
all of the goods or services received by the entity as
consideration cannot be specifically identified, such as
share-based payments to employees, they are measured at fair value
of the share-based payment.
Share-based payments to employees of the subsidiaries are
recognized as cash settled share-based compensation
transactions.
l) Equity-settled transactions
The costs of equity-settled transactions with employees are
measured by reference to the fair value at the date on which they
are granted.
The costs of equity-settled transactions are recognized,
together with a corresponding increase in equity, over the period
in which the performance and/or service conditions are fulfilled,
ending on the date on which the relevant employees become fully
entitled to the award ("the vesting date"). The cumulative expense
is recognized for equity-settled transactions at each reporting
date until the vesting date reflects the Company's best estimate of
the number of equity instruments that will ultimately vest. The
profit or loss charge or credit for a period represents the
movement in cumulative expense recognized as at the beginning and
end of that period and the corresponding amount is represented in
"equity settled share-based payments reserve".
No expense is recognized for awards that do not ultimately vest,
except for awards where vesting is conditional upon a market
condition, which are treated as vesting irrespective of whether or
not the market condition is satisfied provided that all other
performance and/or service conditions are satisfied.
Where the terms of an equity-settled award are modified, the
minimum expense recognized is the expense as if the terms had not
been modified. An additional expense is recognized for any
modification which increases the total fair value of the
share-based payment arrangement, or is otherwise beneficial to the
employee as measured at the
date of modification.
The dilutive effect of outstanding options (if any) is reflected
as additional dilution in the computation of loss per share.
Cash-settled transactions
The cost of cash-settled transactions is measured initially at
fair value. The liability is re-measured to fair value at each
reporting date up to, and including the settlement date, with
changes in fair value recognised in employee benefits expense.
m) Income taxes
Income tax on the consolidated statements of loss for the years
presented comprises current and deferred tax. Income tax is
recognized in the consolidated statements of loss except to the
extent that it relates to items recognized directly in equity, in
which case it is recognized in equity.
Current tax expense is the expected tax payable on the taxable
income for the year, using tax rates enacted or substantively
enacted at period end, adjusted for amendments to tax payable with
regards to previous years.
Deferred tax is recognized in respect of taxable temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is not recognized for the following
temporary differences: the initial recognition of assets or
liabilities in a transaction that is not a business combination and
that affects neither accounting nor taxable profit or loss, and
differences relating to investments in subsidiaries and joint
ventures to the extent that it is probable that they will not
reverse in the foreseeable future. In addition, deferred tax is not
recognized for taxable temporary differences arising on the initial
recognition of goodwill. Deferred tax is measured at the tax rates
that are expected to be applied to taxable temporary differences
when they reverse, based on the laws that have been enacted or
substantively enacted by the reporting date. Deferred tax assets
and liabilities are offset if there is a legally enforceable right
to offset current tax liabilities and assets, and they relate to
income taxes levied by the same tax authority on the same taxable
entity, but they intend to settle current tax liabilities and
assets on a net basis or their tax assets and liabilities will be
realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax
credits and deductible temporary differences, to the extent that it
is probable that future taxable profits will be available against
which they can be utilized. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no
longer
probable that the related tax benefit will be realized.
n) Convertible debentures
The component parts of convertible debentures (e.g., debt issued
with a conversion feature) issued by the Company are classified
separately as financial liabilities and equity in accordance with
the substance of the contractual arrangements and the definitions
of a financial liability and an equity instrument. A conversion
option that will be settled by the exchange of a fixed number of
the Company's own equity instruments is an equity instrument.
At the date of issue, the fair value of the liability component
is estimated using the prevailing market interest rate for similar
debt without conversion features. This amount is recorded as a
liability on the amortized cost basis using the effective interest
method until extinguished or at the instrument's maturity date.
The conversion features classified as equity are determined by
deducting the amount of the liability component from the fair value
of the instrument as a whole. This is recognized and included in
equity, net of income tax effects, and is not subsequently
remeasured. In addition, conversion features and warrants
classified as equity will remain in equity until the conversion
option is exercised, in which case the balance recognized in equity
will be transferred to common shares within equity. When the
conversion feature remains unexercised at their maturity date, the
balance recognized in equity will be transferred to retained
earnings or deficit.
Transaction costs that relate to the issue of the instruments
are allocated to the liability and equity components in proportion
to the allocation of the gross proceeds. Transaction costs relating
to the equity component are recognized directly in equity.
Transaction costs relating to the liability component are included
in the carrying amount of the liability component and are amortized
over the life of the debt using the effective interest method.
o) Decommissioning liability
A legal or constructive obligation to incur restoration,
rehabilitation and environmental costs may arise when environmental
disturbance is caused by the exploration, development or ongoing
production of a mineral property interest. Such costs arising from
the decommissioning of plant and other site preparation work,
discounted to their net present value, are provided for and
capitalized at the start of each project to the carrying amount of
the asset, when there is a present obligation, as a result of a
past event, it is probable to be settled by a future outflow of
resources and a reliable estimate can be made of the obligation.
Discount rates using a pretax rate that reflects the risk and the
time value of money are used to calculate the net present value.
These costs are charged against the consolidated statements of loss
over the economic life of the related asset, through amortization
using either a unit-of-production or the straight-line method as
appropriate. The related liability is adjusted for each period for
the unwinding of the discount rate and for changes to the current
market-based discount rate, amount or timing of the underlying cash
flows needed to settle the obligation. Costs for restoration of
subsequent site damage that is created on an ongoing basis during
production are provided for at their net present values and charged
against profits and/or inventories
as extraction progresses.
p) Loss per share
The Company presents basic and diluted loss per share data for
its common shares, calculated by dividing the loss attributable to
common shareholders of the Company by the weighted average number
of common shares outstanding during the year. Diluted loss per
share is computed similarly to basic loss per share except that the
weighted average shares outstanding are increased to include
additional shares for the assumed exercise of stock options and
warrants, if dilutive. The number of additional shares is
calculated by assuming that outstanding stock options and warrants
were exercised and that the proceeds from such exercises were used
to acquire common stock at the average market price during the
years. Options and warrants are anti-dilutive and, therefore, have
not been taken into account in the per share calculation.
q) Accounting pronouncements adopted during the year
On June 7, 2017, the IASB issued IFRIC 23 - Uncertainty Over
Income Tax Treatments. The interpretation provides guidance on the
accounting for current and deferred tax liabilities and assets in
circumstances in which there is uncertainty over income tax
treatments. The interpretation is applicable for annual periods
beginning on or after January 1, 2019. At January 1, 2019, the
Company adopted this standard and there was no material impact on
the Company's consolidated financial statements.
On January 13, 2016, the IASB issued IFRS 16 - Leases ("IFRS
16"). The new standard is effective for annual periods beginning on
or after January 1, 2019. IFRS 16 will replace IAS 17 - Leases
("IAS 17"). This standard introduces a single lessee accounting
model and requires a lessee to recognize assets and liabilities for
all leases with a term of more than 12 months, unless the
underlying asset is of low value. A lessee is required to recognize
a right-of-use asset representing its right to use the underlying
asset and a lease liability representing its obligation to make
lease payments. IFRS 16 substantially carries forward the lessor
accounting requirements of IAS 17, while requiring enhanced
disclosures to be provided by lessors. Other areas of the lease
accounting model have been impacted, including the definition of a
lease. Transitional provisions have been provided. The Company
adopted IFRS 16 in its consolidated financial statements for the
period beginning on January 1, 2019. As the Company has no material
lease contracts that fall under IFRS 16, the adoption of this
standard has not resulted in any material changes in the
consolidated financial statements.
5) Capital Risk Management
The Company manages its capital with the following objectives:
-- to ensure sufficient financial flexibility to achieve the
ongoing business objectives including funding of future growth
opportunities, and pursuit of accretive acquisitions; and
-- to maximize shareholder return.
The Company monitors its capital structure and makes adjustments
according to market conditions in an effort to meet its objectives
given the current outlook of the business and industry in general.
The Company may manage its capital structure by issuing new shares,
repurchasing outstanding shares, adjusting capital spending, or
disposing of assets. The capital structure is reviewed by
management and the Board of Directors on an ongoing basis.
The Company considers its capital to be equity, comprising share
capital, reserves and deficit which at December 31, 2019 totaled
$14,222,974 (December 31, 2018 - $15,838,479). The Company manages
capital through its financial and operational forecasting
processes. The Company reviews its working capital and forecasts
its future cash flows based on future sales revenues, operating
expenditures, and other investing and financing activities. The
forecast is updated based on its operating and exploration
activities. Selected information is provided to the Board of
Directors of the Company. The Company's capital management
objectives, policies and processes have remained unchanged during
the year ended December 31, 2019. The Company is not subject to any
capital requirements imposed by a lending institution or regulatory
body.
6) Financial and Property Risk Management
Property risk
The Company's significant project is the Omagh mine. Unless the
Company acquires or develops additional significant projects, the
Company will be solely dependent upon the Omagh mine. If no
additional projects are acquired by the Company, any adverse
development affecting the Omagh mine would have a material effect
on the Company's consolidated financial condition and results of
operations.
Financial risk
The Company's activities expose it to a variety of financial
risks: credit risk and sales concentration, liquidity risk and
market risk (including interest rate risk, foreign currency risk
and commodity and equity price risk). Risk management is carried
out by the Company's management team with guidance from the Audit
Committee under policies approved by the Board of Directors. The
Board of Directors also provides regular guidance for overall risk
management.
i) Credit risk and sales concentration
Credit risk is the risk of loss associated with a counterparty's
inability to fulfill its payment obligations. The Company's credit
risk is primarily attributable to cash and cash equivalents,
accounts receivable and long-term deposit. Cash and long-term
deposit are held with financial institutions and the United Kingdom
Crown, respectively, from which management believes the risk of
loss to be minimal. All the revenue from sales are from one
customer and the accounts receivable consist mainly of a trade
account receivable from one customers, value added tax receivable
and sales tax receivable. The Company is exposed to concentration
of credit and sales risk with one of its customers. Management
believes that the credit risk is minimized due to the financial
worthiness of this company. Valued added tax receivable is
collectable from the Government of Northern Ireland.
Sales tax receivable is collectable from government authorities in Canada.
ii) Liquidity risk
Liquidity risk is the risk that the Company will not have
sufficient cash resources to meet its financial obligations as they
come due. The Company's liquidity and operating results may be
adversely affected if the Company's access to the capital market is
hindered, whether as a result of a downturn in stock market
conditions generally or matters specific to the Company. The
Company manages liquidity risk by monitoring maturities of
financial commitments and maintaining adequate cash reserves and
available borrowing facilities to meet these commitments as they
come due. As at December 31, 2019, the Company had working capital
deficit of $6,093,200 (December 31, 2018 - working capital deficit
of $272,783). All of the Company's financial liabilities have
contractual maturities of less than 30 days other than certain
related party loans which are due on demand.
During the fourth quarter, the Company announced a temporary
suspension of blasting operations at its Omagh mine. Some mine
operations continue at the Omagh gold mine, on a single shift. The
processing plant has continued to operate on a limited basis in the
near term and is being fed from underground stock.
Considering the economic impingement on the Company's
operations, the Company is seeking strategic alternatives including
reviewing its licenses and operations; and considering the
possibility of engaging in a sale, joint venture, partnership or
other options with third parties and alternative financing
structures.
iii) Market risk
Market risk is the risk of loss that may arise from changes in
market factors such as interest rate risk, foreign exchange rate
risk and commodity price risk.
a) Interest rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate due to changes
in market interest rates. The Company has cash balances,
significant interest-bearing debt due to related parties, financing
facility and convertible debenture. The Company is exposed to
interest rate risk on both certain related party loans and third
party loans which bear interest at variable rates. The
Company's convertible debenture is at fixed interest rates.
b) Foreign currency risk
Certain of the Company's assets, liabilities are designated in
GBP and expenses are incurred in GBP which is the currency of
Northern Ireland and the United Kingdom while the Company's primary
revenues are received in the currency of United States and are
therefore subject to gains and losses due to fluctuations in these
currencies against the functional currency. The loan from third
party is designated in US dollars.
c) Commodity price risk
The Company is exposed to price risk with respect to commodity
prices. Commodity price risk is defined as the potential adverse
impact on earnings and economic value due to commodity price
movements and volatilities. The Company closely monitors commodity
prices, as it relates to gold to determine the appropriate course
of
action to be taken by the Company.
Sensitivity analysis
Based on management's knowledge and experience of the financial
markets, the Company believes the following movements are
reasonably possible over a twelve month period:
i) Certain related party loans and a loan facility with a third
party are subject to interest rate risk. As at December 31, 2019,
if interest rates had decreased/increased by 1% with all other
variables held constant, the net loss for the year ended December
31, 2019, would have been approximately $60,000 lower/higher
respectively, as a result of lower/higher interest rates from
certain related party loans and a loan facility. Similarly, as at
December 31, 2019, shareholders' equity would have been
approximately $60,000 higher/lower as a result of a 1%
decrease/increase in interest rates from certain related party
loans and a loan facility.
ii) The Company is exposed to foreign currency risk on
fluctuations related to cash and cash equivalents, accounts
receivable, long-term deposit, accounts payable and other
liabilities, financing liability, due to related parties and
convertible debenture that are denominated in GBP. As at December
31, 2019, had the GBP weakened/strengthened by 5% against the CAD
with all other variables held constant, the Company's consolidated
other comprehensive income (loss) for the year ended December 31,
2019 would have been approximately $279,000 higher/lower as a
result of foreign exchange losses/gains on translation of non-CAD
denominated financial instruments. Similarly, as at December 31,
2019, shareholders' equity would have been approximately $279,000
higher/lower had the GBP weakened/strengthened by 5% against the
CAD as a result of foreign exchange losses/gains on translation of
non-CAD denominated financial instruments.
iii) Commodity price risk could adversely affect the Company. In
particular, the Company's future profitability and viability of
development depends upon the world market price of gold. Gold
prices have fluctuated widely in recent years. There is no
assurance that, even as commercial quantities of gold may be
produced in the future, a profitable market will exist for them. A
decline in the market price of gold may also require the Company to
reduce production of its mineral resources, which could have a
material and adverse effect on the Company's value. Management
believes that the impact would be immaterial for the year ended
December 31, 2019.
7. Categories of Financial Instruments
As at December 31, 2019 2018
Financial assets:
FVTPL
Cash and cash equivalents $ 1,913,420 $ 6,188,554
Amortized cost
Accounts receivable 347,079 271,504
Long-term deposit 515,220 523,170
Financial liabilities:
Amortized cost
Accounts payable and
other liabilities 2,131,715 2,257,329
Financing facilities 1,682,465 1,464,164
Due to related parties 4,719,058 4,119,642
Convertible debenture 1,400,594 -
As of December 31, 2019 and 2018, the fair value of all the
Company's financial instruments approximates the carrying
value.
8. Accounts Receivable and Prepaid Expenses
As at December 31, 2019 2018
Sales tax receivable - Canada $ 2,682 $ 7,629
Valued added tax receivable - Northern
Ireland 93,864 153,948
Accounts receivable 250,533 109,927
Prepaid expenses 69,620 15,769
--------------------------------------- -------------- --------------
$ 416,699 $ 287,273
--------------------------------------- -------------- --------------
Prepaid expenses includes advances for consumables and for
construction of the passing bays in the Omagh mine.
The following is an aged analysis
of receivables:
As at December 31, 2019 2018
--------------------------------------- -------------- --------------
Less than 3 months $ 235,934 $ 268,995
3 to 12 months 108,674 -
More than 12 months 2,471 2,509
--------------------------------------- -------------- --------------
Total accounts receivable $ 347,079 $ 271,504
--------------------------------------- -------------- --------------
9. Inventories
As at December As at December
31, 31,
2019 2018
--------------------------------------- -------------- --------------
Concentrate inventories $ 70,328 $ 11,335
--------------------------------------- -------------- --------------
10. Property, Plant and Equipment
Freehold Plant and Mine development
land and machinery Motor Office costs Development
Cost buildings vehicles equipment assets Total
------------------ ----------- ----------- ---------- ----------- ---------------- ------------- ------------
Balance, December
31, 2017 $ 2,340,221 $ 5,477,586 $ 141,364 $ 104,456 $ 15,340,722 $- $ 23,404,349
Additions - 557,607 21,014 46,996 - 4,266,806 4,892,423
Transfer (1) - - - - (15,340,722) 10,468,410 (4,872,312)
Foreign exchange
adjustment 65,953 153,418 3,984 2,944 - (38,803) 187,496
------------------ ----------- ----------- ---------- ----------- ---------------- ------------- ------------
Balance, December
31, 2018 2,406,174 6,188,611 166,362 154,396 - 14,696,413 23,611,956
Additions - 1,807,493 30,771 37,092 - 4,542,274 6,417,630
Disposals - (1,036,502) (33,968) - - - (1,070,470)
Foreign exchange
adjustment (36,564) (93,527) (2,528) (2,346) - (221,783) (356,748)
------------------ ----------- ----------- ---------- ----------- ---------------- ------------- ------------
Balance, December
31, 2019 $ 2,369,610 $ 6,866,075 $ 160,637 $189,142 $- $ 19,016,904 $ 28,602,368
------------------ ----------- ----------- ---------- ----------- ---------------- ------------- ------------
Freehold Plant Mine
land and and Motor Office development
Accumulated buildings machinery vehicles equipment costs Total
depreciation
------------------ ----------- ----------- ---------- ----------- ---------------- ---------------------------
Balance, December
31, 2017 $ 1,908,720 $ 4,496,935 $91,189 $88,977 $8,651,776 $ 15,237,597
Depreciation 12,433 311,201 18,005 9,360 - 350,999
Transfer (1) - - - - (8,651,776) (8,651,776)
Foreign exchange
adjustment 53,892 128,444 2,716 2,583 - 187,635
------------------ ----------- ----------- ---------- ----------- ---------------- ---------------------------
Balance, December
31, 2018 1,975,045 4,936,580 111,910 100,920 - 7,124,455
Depreciation 9,742 414,756 19,351 13,285 - 457,134
Disposal - (45,590) (14,497) - - (60,087)
Foreign exchange
adjustment (29,880) (46,177) (1,439) (1,354) - (78,850)
------------------ ----------- ----------- ---------- ----------- ---------------- ---------------------------
Balance, December
31, 2019 $ 1,954,907 $ 5,259,569 $ 115,325 $ 112,851 $ - $ 7,442,652
------------------ ----------- ----------- ---------- ----------- ---------------- ---------------------------
Freehold Plant Mine
land and and Motor Office development Development
Carrying value buildings machinery vehicles equipment costs assets Total
------------------ ----------- ----------- ---------- ----------- ---------------- ------------- ------------
Balance, December $54,452 $53,476
31, 2018 $ 431,129 $ 1,252,031 54,452 53,476 $- 14,696,413 $ 16,487,501
------------------ ----------- ----------- ---------- ----------- ---------------- ------------- ------------
Balance, December $45,312 $76,291
31, 2019 $ 414,703 $ 1,606,506 45,312 76,291 $- 19,016,904 $ 21,159,716
------------------ ----------- ----------- ---------- ----------- ---------------- ------------- ------------
(1) During the year ended December 31, 2018, the Company
transferred the cost of its Exploration and evaluation assets (note
11) to Development assets.
11. Exploration and Evaluation Assets
Exploration and evaluation assets are expenditures for the
underground mining operations in Omagh. The Company had announced
in December 2016 that it would commence the first phase of
underground development and re-start concentrate shipments at its
Omagh mine. Underground development of a decline tunnel, located at
the base of the existing open pit, commenced in the first quarter
2017. During 2018 the mine commenced limited production of gold
concentrate from feed produced in the development of the Kearney
vein and in the fourth quarter Galantas reported that delivery of
the first consignment of concentrate derived from underground
feedstock at the mine had been made. Underground development of the
decline tunnel continued to be progressed during 2019 with further
crosscuts allowing access to lower levels of vein development which
forms the development necessary to demarcate production panels. By
the end of the third quarter of 2019 some two kilometres of
underground drivages had been developed, with exposure of the main
Kearney vein on four levels with a fifth level is near the point of
intersection. The mine is serviced by a decline tunnel of 1 in 6
gradients, of dimensions approximately 4.5m by 4.5m. However,
during the fourth quarter Galantas announced a temporary suspension
of blasting operations at its Omagh gold mine. Blasting operations
had been limited, since all blasting must be supervised by the
Police Service of Northern Ireland. Presently the blasting
arrangements are not sufficient for the desired level of operations
and are not sufficient to allow for the expansion of mine
operations as envisaged by the Company's existing mine plan. Until
changes are agreed, the present inefficiencies caused by these
blasting arrangements form an increasing financial burden, which
has proved a significant drain on the financial resources of the
Company. Accordingly, in order to reduce costs, while some mine
operations will continue at the Omagh gold mine, consultation with
the workforce has resulted in the numbers employed at the operation
being reduced from 46 to 21. Some mine operations continue at the
Omagh gold mine, on a single shift.
Cost Exploration and evaluation assets
----------------------------- -----------------------------------
Balance, December 31, 2017 $ 3,948,452
Additions 254,140
Transfer (i) (3,624,624)
Foreign exchange adjustment 182,055
----------------------------- -----------------------------------
Balance, December 31, 2018 760,023
Additions 70,836
Impairment (157,583)
Foreign exchange adjustment (11,550)
----------------------------- -----------------------------------
Balance, December 31, 2019 $ 661,726
----------------------------- -----------------------------------
Carrying value
----------------------------- -----------------------------------
Balance, December 31, 2018 $ 760,023
----------------------------- -----------------------------------
Balance, December 31, 2019 $ 661,726
----------------------------- -----------------------------------
(i) During the year ended December 31, 2018, the Company
transferred the cost of its Exploration and evaluation assets (note
10) to Development assets.
12. Decommissioning Liability
The Company's decommissioning liability is a result of mining
activities at the Omagh mine in Northern Ireland. The Company
estimated its decommissioning liability at December 31, 2019 based
on a risk-free discount rate of 1% (December 31, 2018 - 1%) and an
inflation rate of 1.50% (December 31, 2018 - 1.50%). The expected
undiscounted future obligations allowing for inflation are GBP
330,000 and based on management's best estimate the decommissioning
is expected to occur over the next 5 to 10 years. On December 31,
2019, the estimated fair value of the liability is
$580,303 (December 31, 2018 - $578,242). Changes in the
provision during the year ended December 31, 2019 are as
follows:
As at December 31, 2019 2018
Decommissioning liability, beginning of year $ 578,242 $ 551,680
Accretion 10,702 10,926
Foreign exchange (8,641) 15,636
----------------------------------------------- ----------- -----------
Decommissioning liability, end of year $ 580,303 $ 578,242
----------------------------------------------- ----------- -----------
As required by the Crown in Northern Ireland, the Company is
required to provide a bond for reclamation related to the Omagh
mine in the amount of GBP 300,000 (December 31, 2018 - GBP
300,000), of which GBP 300,000 was funded as of December 31, 2019
(GBP 300,000 was funded as of December 31, 2018) and reported as
long-term deposit of $515,220 (December 31, 2018 - $523,170).
13. Accounts Payable and Other Liabilities
Accounts payable and other liabilities of the Company are
principally comprised of amounts outstanding for purchases relating
to exploration costs on exploration and evaluation assets, general
operating activities and
professional fees activities.
As at December 31, 2019 2018
--------------------------------------------- -------------- --------------
Accounts payable $ 1,084,574 $ 1,017,939
Accrued liabilities 1,047,141 1,239,390
--------------------------------------------- -------------- --------------
Total accounts payable and other liabilities $ 2,131,715 $ 2,257,329
--------------------------------------------- -------------- --------------
The following is an aged analysis of the
accounts payable and other liabilities:
As at December As at December
31, 31,
2019 2018
--------------------------------------------- -------------- --------------
Less than 3 months $ 1,232,089 $ 1,066,881
3 to 12 months 221,328 775,693
12 to 24 months 357,073 71,394
More than 24 months 321,225 343,361
--------------------------------------------- -------------- --------------
Total accounts payable and other liabilities $ 2,131,715 $ 2,257,329
--------------------------------------------- -------------- --------------
14. Financing Facilities
Amounts payable on the long-term debts are as
follow:
As at December 31, 2019 2018
-------------------------------------------------- ------------- -----------
Financing facilities, beginning of year (i)(ii) $ 1,081,190 $ 19,689
Financing facility received (ii) - 2,021,280
Less bonus warrants issued (ii) - (786,000)
Less financing costs (ii) - (41,674)
Less current portion (242,280) (382,974)
Repayment of financing facilities (56,854) (6,357)
Accretion (ii) 248,238 240,621
Interest 279,151 -
Foreign exchange adjustment 130,740 16,605
-------------------------------------------------- ------------- -----------
Financing facilities - long term portion $ 1,440,185 $ 1,081,190
-------------------------------------------------- ------------- -----------
i) In June 2015, the Company obtained financing in the amount of
GBP 19,900 for the purchase of a vehicle. The financing is for
three years at interest of 6.79% per annum with monthly principal
and interest payments of GBP 377 together with a final payment in
August 2019 of GBP 9,540. The financing was secured on the
vehicle.
ii) In April 2018, the Company signed a concentrate pre-payment
agreement and loan facility for US$1.6 million with a United
Kingdom based company (the "Lender"), with a maturity date of
December 31, 2020. The interest is set at US$ 12 month LIBOR +
8.75% and payable monthly. No interest shall be charged for 6
months and repayments shall commence against deliveries in 2019.
There was a US$25,000 arrangement fee.
In respect of the loan facility, a fixed and floating security,
subordinated to an existing security to G&F Phelps Ltd.
("G&F Phelps"), is being put in place over Flintridge assets.
G&F Phelps has a first charge on Flintridge assets in respect
of its loan facility and the Lender required an intercreditor
agreement between G&F Phelps and the Lender.
As consideration for the loan facility, the United Kingdom based
company received 1,500,000 bonus warrants of the Company. Each
bonus warrant is exercisable into one common share of the Company
and is subject to an initial four months plus one day hold period
from the date of issuance of the bonus warrants. The bonus warrants
have a maximum life of two years (the "Expiry Time"). On April 19,
2018, the 1,500,000 bonus warrants were granted. In the event that
the weighted average closing price per common share of the Company
is more than $2.00 per share for more than five consecutive trading
days, the Company shall be entitled to accelerate the Expiry Time
to a date that is 30 days from the date on which the Company
announces the accelerated Expiry Time by press release.
The fair value of the 1,500,000 bonus warrants was estimated at
$786,000 using the Black-Scholes option pricing model with the
following assumptions: expected dividend yield - 0%, expected
volatility - 113.55%, risk-free interest rate - 1.91% and an
expected average life of 2 years.
During the year ended December 31, 2019, the Company recorded
accretion expense of $248,238 in the consolidated statements of
loss in regards with this loan facility (year ended December 31,
2018 - $240,621).
During the year ended December 31, 2019, the Company recorded a
repayment of $56,854 in regards with this loan facility (year ended
December 31, 2018 - $nil).
15. Convertible Debenture
On December 17, 2019, the Company closed a $1,731,190 (GBP
1,000,000) convertible debenture consisting of 3,000 units. The
convertible debenture is unsecured, is for a term of one year
commencing on the date that it is issued, carries a coupon of 15%
per annum and is convertible into common shares of the Company. The
conversion price is fixed at $0.15, being a 25% discount to the
closing price of the common shares of the Company on the issue
date.
The convertible debenture has been fully subscribed by Melquart
Limited ("Melquart"), an insider and control person of the Company
(as defined by the TSXV). Melquart held 7,756,572 common shares
equivalent to 24% of the Company at December 31, 2019. Melquart are
under no obligation to convert the convertible debenture and should
Melquart choose not to convert, the Company will need to raise
further funds to repay the convertible debenture within 12
months.
A four month hold period will apply to common shares converted
through the convertible debenture. The hold period will expire on
April 18, 2020. The share issued pursuant to the convertible
debenture will rank pari passu with the existing common shares
issued by the Company.
Commission payable to Whitman Howard Ltd. for acting as the
broker in relation to the convertible debenture offering total
$86,308 (GBP 50,000).
The debentures consist of the liability component and equity
component. The fair value of the liability was recorded at
$1,467,110, discounted at an effective interest rate of 18%. The
residual value of the debentures is allocated to the conversion
feature. The value of the conversion feature was $264,080. The
Company incurred transaction costs of $104,903 which was allocated
pro-rata on the value of the conversion feature and the liability
component.
During the year ended December 31, 2019, the Company recorded
accretion expense of $12,425 and interest expense of $9,960 as
finance interest expense in profit or loss.
Balance, December 31, 2017 and December $-
31, 2018
Principal amount 1,731,190
Equity allocation - conversion feature (264,080)
Transaction costs (104,903)
Transaction costs allocated to equity 16,002
Interest expense 9,960
Accretion expense 12,425
------------------------------------------ -----------
Balance, December 31, 2019 $ 1,400,594
------------------------------------------ -----------
16. Share Capital and Reserves
a) Authorized share capital
At December 31, 2019, the authorized share capital consisted of
an unlimited number of common and preference shares issuable in
Series.
On April 17, 2020, the Company completed a share consolidation
of its share capital on the basis of ten then existing common
shares for one new common share consolidation. All common shares,
per common share amounts, stock options and warrants in these
consolidated financial statements have been retroactively restated
to
reflect the share consolidation.
The common shares do not have a par value. All issued shares are fully paid.
No preference shares have been issued. The preference shares do not have a par value.
b) Common shares issued
At December 31, 2019, the issued share capital amounted to
$50,123,910. The change in issued share capital for the years
presented is as follows:
Number of common Amount
shares
Balance, December 31, 2017 18,754,769 $ 39,759,172
Shares issued in private placements
(i)(ii) 10,213,762 8,471,771
Share issue costs - (465,388)
Common shares issued for debt (iii) 1,000,000 862,500
------------------------------------ ---------------- --------------
Balance, December 31, 2018 29,968,531 48,628,055
Shares issued in private placement
(iv) 2,352,941 1,600,000
Share issue costs - (104,145)
------------------------------------ ---------------- --------------
Balance, December 31, 2019 32,321,472 $ 50,123,910
------------------------------------ ---------------- --------------
i) On September 25, 2018, the Company closed a private placement
of 2,213,762 common shares for gross proceeds of $1,571,771. United
Kingdom placees have subscribed at a price of GBP 0.42 per common
share. Canadian placees have subscribed at a price of $0.71 per
common share.
Melquart subscribed for a total of 1,190,476 common shares and
Melquart's staked increased to 19.2% of the Company's issued common
shares. Ross Beaty subscribed for 238,095 common shares, which, in
addition to the shares he already holds, give rise to an 17.9%
holding.
Roland Phelps (President and Chief Executive Officer ("CEO"))
subscribed for 476,191 common shares, which, in addition to the
shares he already holds, give rise to an 18.7% holding.
ii) On December 12, 2018, the Company completed the first part
of a private placement. It consisted of 5,743,507 common shares of
no par value. United Kingdom placees have subscribed at a price of
GBP 0.50 per common share. Canadian placees have subscribed at a
price of $0.8625 per common share. Receipts attached to
the first part of the placement total $4,953,774.
On December 21, 2018, the Company completed the second part of a
private placement. It consisted of 2,256,493 common shares of no
par value for receipt of $1,946,226. United Kingdom placees have
subscribed at a price of GBP 0.50 per common share.
Miton Assets Management Limited ("Miton"), a UK based investment
institution, subscribed for a total of 5,000,000 common shares,
representing 16.68% of the Company's issued common shares.
Melquart subscribed for a total of 2,200,000 common shares and
Melquart's staked increased to 20.76% of the Company's issued
common shares. Roisin Ann Magee, a director of the Company,
subscribed for 50,000 common shares.
iii) On December 12, 2018, the Company issued 1,000,000 common
shares as settlement of due to related parties of $862,500. Due to
related parties consisted of an amount owing to Roland Phelps
(President and CEO).
iv) On August 21, 2019, the Company closed a private placement
of 2,352,941 common shares for gross
proceeds of GBP 1,000,000 ($1,600,000) at an issue price of GBP 0.425 (CAD$0.68) per share.
Miton subscribed for a total of 376,471 common shares and
Miton's staked increased to 15.51% of the Company's issued common
shares. Melquart subscribed for a total of 1,534,117 common shares
and Melquart's staked increased to 24.00% of the Company's issued
common shares.
c) Warrant reserve
The following table shows the continuity of warrants for the years presented:
Number of warrants Weighted average exercise
price
Balance, December 31,
2017 63,600 0.70
Issued (note 14(ii)) 1,500,000 1.58
Expired (63,600) 0.70
Balance, December 31,
2018 and December 31,
2019 1,500.000 1.58
The following table reflects the actual warrants issued and
outstanding as of December 31, 2019:
Expiry date Number of warrants Grant date fair Exercise price
value ($) ($)
April 19, 2020 1,500,000 786,000 1.575
d) Stock options
The Company has a stock option plan (the "Plan"), the purpose of
which is to attract, retain and compensate qualified persons as
directors, senior officers and employees of, and consultants to the
Company and its affiliates and subsidiaries by providing such
persons with the opportunity, through share options, to acquire an
increased proprietary interest in the Company. The number of shares
reserved for issuance under the Plan cannot be more than a maximum
of 10% of the issued and outstanding shares at the time of any
grant of options. The period for exercising an option shall not
extend beyond a period of five years following the date the option
is granted.
Insiders of the Company are restricted on an individual basis
from holding options which when exercised would entitle them to
receive more than 5% of the total issued and outstanding shares at
the time the option is granted. The exercise price of options
granted in accordance with the Plan must not be lower than the
closing price of the shares on the TSXV immediately preceding the
date on which the option is granted and in no circumstances may it
be less than the permissible discounting in accordance with the
Corporate Finance Policies of the TSXV.
The Company records a charge to the consolidated statements of
loss using the Black-Scholes option pricing model. The valuation is
dependent on a number of inputs and estimates, including the strike
price, exercise price, risk-free interest rate, the level of stock
volatility, together with an estimate of the level of forfeiture.
The level of stock volatility is calculated with reference to the
historic traded daily closing share price at the date of issue.
Option pricing models require the inputs including the expected
price volatility. Changes in the inputs can materially affect the
fair value estimate.
The following table shows the continuity of
stock options for the years presented:
Weighted
average
Number of exercise
options price
-------------------------------------------- --------- --------
Balance, December 31, 2017 860,000 $ 1.20
Granted (i) 100,000 1.10
Expired (75,000) 1.40
-------------------------------------------- --------- --------
Balance, December 31, 2018 885,000 1.20
Granted (ii)(iii) 570,000 0.90
Expired (60,000) 1.10
-------------------------------------------- --------- --------
Balance, December 31, 2019 1,395,000 $ 0.92
-------------------------------------------- --------- --------
i) On April 19, 2018, 100,000 stock options were granted to key
employees and consultants of the Company to purchase common shares
at a price of $1.10 per share until April 19, 2023. The options
will vest as to one third on April 19, 2018 and one third on each
of the following two anniversaries. The fair value attributed to
these options was $99,400 and was expensed in the consolidated
statements of loss and credited to equity settled share- based
payments reserve. During the year ended December 31, 2019, included
in stock-based compensation is $26,462 (year ended December 31,
2018 $67,991) related to the vested portion of these options.
The fair value of the options was estimated using the
Black-Scholes option pricing model with the following assumptions:
dividend yield - 0%; volatility - 172%; risk-free interest rate -
2.16% and an expected life of
5 years.
ii) On February 13, 2019, 320,000 stock options were granted to
directors, officers, consultants and employees of the Company to
purchase common shares at a price of $0.90 per share until February
13, 2024. The options will vest as to one third on February 13,
2019 and one third on each of the following two anniversaries. The
fair value attributed to these options was $231,900 and was
expensed in the consolidated statements of loss and credited to
equity settled share-based payments reserve. During the year ended
December 31, 2019, included in stock-based compensation is $184,426
related to the vested portion of these options.
The fair value of the options was estimated using the
Black-Scholes option pricing model with the following assumptions:
dividend yield - 0%; volatility - 129%; risk-free interest rate -
1.84% and an expected life of 5 years.
iii) On June 27, 2019, 250,000 stock options were granted to
directors and employees of the Company to purchase common shares at
a price of $0.90 per share until June 27, 2024. The options will
vest as to one third on June 27, 2019 and one third on each of the
following two anniversaries. The fair value attributed to these
options was $145,500 and was expensed in the consolidated
statements of loss and credited to equity settled share-based
payments reserve. During the year ended December 31, 2019, included
in stock-based compensation is $85,772 related to the vested
portion of these options.
The fair value of the options was estimated using the
Black-Scholes option pricing model with the following assumptions:
dividend yield - 0%; volatility - 128%; risk-free interest rate -
1.37% and an expected life of
5 years.
iv) The portion of the estimated fair value of options granted
in the prior years and vested during the year ended December 31,
2019, amounted to $24,773 (year ended December 31, 2018 -
$nil).
The following table reflects the actual stock options issued and
outstanding as of December 31, 2019:
Weighted average Number of
remaining Number of options vested Number of
Expiry date Exercise price contractual options outstanding (exercisable) options unvested
($) life (years)
------------------ ---------------- ---------------- --------------------- --------------- ------------------
June 1, 2020 1.05 0.42 335,000 335,000 -
June 12, 2020 1.05 0.45 15,000 15,000 -
March 25, 2022 1.35 2.23 395,000 395,000 -
April 19, 2023 1.10 3.30 100,000 100,000 -
February 13, 2024 0.90 4.12 300,000 100,000 200,000
June 27, 2024 0.90 4.49 250,000 83,333 166,667
------------------ ---------------- ---------------- --------------------- --------------- ------------------
1.07 2.67 1,395,000 1,028,333 366,667
------------------ ---------------- ---------------- --------------------- --------------- ------------------
17. Net Loss per Common Share
The calculation of basic and diluted loss per share for the year
ended December 31, 2019 was based on the loss attributable to
common shareholders of $3,564,609 (year ended December 31, 2018 -
$2,885,437) and the weighted average number of common shares
outstanding of 30,819,025 (year ended December 31, 2018 -
19,755,402) for basic and diluted loss per share. Diluted loss did
not include the effect of 1,500,000 warrants (year ended December
31, 2018 - 1,500,000) and 1,395,000 options (year ended December
31, 2018 - 885,000) for the year ended December 31, 2019, as they
are anti-dilutive. The calculation of basic and diluted loss per
share is adjusted for 10:1 share consolidation effective December
31, 2019.
18. Revenues
Shipments of concentrate under the off-take arrangements
commenced during the second quarter of 2019. Concentrate sales
provisional revenues during the year ended December 31, 2019
totalled approximately US$1,518,000. However, until the mine
reaches the commencement of commercial production, the net proceeds
from
concentrate sales will be offset against Development assets.
19. Aggregate Levy Provision
The Company's subsidiary Omagh was unsuccessful in respect of
its aggregates levy appeal. As a result Omagh Minerals will now
have to pay an aggregates levy plus interest and a penalty which
has been accounted for as an aggregate levy in the prior year
consolidated financial statements.
20. Taxation
a) Provision for income taxes
The reported recovery of income taxes differs from amounts
computed by applying the statutory income tax rates to the reported
loss before income taxes due to the following:
Year Ended December 31, 2019 2018
---------------------------------------- --------------- ---------------
Loss before income taxes $ (3,564,609) $ (2,885,437)
---------------------------------------- --------------- ---------------
Expected tax recovery at statutory rate
of 26.5% (2018 - 26.5%) (944,621) (764,641)
Difference resulting from:
Foreign tax rate differential 180,327 127,463
Stock-based compensation 85,180 59,670
Permanent differences and other 197,669 (67,716)
Tax benefits not recognized 481,445 645,224
---------------------------------------- --------------- ---------------
$ - $
---------------------------------------- --------------- ---------------
b) Deferred tax balances
The temporary differences and unused tax losses that give rise
to deferred income tax balances are presented below:
As at December 31, 2019 2018
----------------------------------------- ------------- -------------
Deferred income tax assets (liabilities)
Non-capital losses $ 8,718,385 $ 7,417,236
Share issue costs and other (14,551) 137,564
Non-current assets (2,592,077) (1,924,488)
Valuation allowance (impairment) (6,111,757) (5,630,312)
----------------------------------------- ------------- -------------
$- $-
----------------------------------------- ------------- -------------
c) Losses carried forward
As at December 31, 2019, the Company had non-capital losses
carried forward, available to offset future taxable income for
income tax purposes as follows:
Expires 2026 $ 1,064,484
2027 598,595
2029 373,962
2030 440,512
2031 993,770
2032 600,689
2033 1,100,268
2034 906,488
2035 884,526
2036 901,063
2037 772,787
2038 891,330
2039 1,009,546
Indefinite 31,188,473
------------
$ 41,726,493
============
At December 31, 2019, the potential benefit of these losses and
deductible temporary differences in excess of the deferred tax
liabilities have not been recognized in these consolidated
financial statements as it is not considered probable that
sufficient future tax profit will allow the deferred tax assets to
be recovered.
21. Related Party Disclosures
Related parties include the Board of Directors, close family
members, other key management individuals and enterprises that are
controlled by these individuals as well as certain persons
performing similar functions.
Related party transactions conducted in the normal course of
operations are measured at the fair value and approved by the Board
of Directors in strict adherence to conflict of interest laws and
regulations.
a) The Company entered into the following transactions with related parties:
Year Ended December 31,
Note 2019 2018
Interest on related
party loans (i) $ 349,333 $ 261,627
i) G&F Phelps, a company controlled by a director of the
Company, had amalgamated loans to the Company of $3,133,850 (GBP
1,824,764) (December 31, 2018 - $3,182,205 - GBP 1,824,764)
included with due to related parties bearing interest at 2% above
UK base rates, repayable on demand and secured by a mortgage
debenture on all the Company's assets. In April 2018, the interest
increased to 6.75% + US$ 12 month LIBOR. Interest accrued on
related party loans is included with due to related parties. As at
December 31, 2019, the amount of interest accrued is $1,002,388
(GBP 583,666) (December 31, 2018 - $658,338 - GBP 377,509).
ii) See note 15.
iii) See note 16(b).
b) Remuneration of officer and directors of the Company was as follows:
Year Ended December 31,
2019 2018
Salaries and benefits $ 454,096 $ 451,618
Stock-based compensation $ 82,156 38,493
$ 536,252 490,111
(1) Salaries and benefits include director fees. As at December
31, 2019, due to directors for fees amounted to $118,500 (December
31, 2018 -
$166,000) and due to officers, mainly for salaries and benefits
accrued amounted to $464,320 (GBP 270,362) (December 31, 2018 -
$113,099 - GBP 64,854), and is included with due to related
parties.
c) As of December 31, 2019, Ross Beaty owns 3,744,749 common
shares of the Company or approximately 11.59% of the outstanding
common shares. Roland Phelps, CEO and director, owns, directly and
indirectly, 4,933,817 common shares of the Company or approximately
15.26% of the outstanding common shares of the Company. Miton owns
5,012,800 common shares of the Company or approximately 15.51%.
Melquart owns, directly and indirectly, 7,756,572 common shares of
the Company or approximately 24.00% of the outstanding common
shares of the Company. The remaining 32.64% of the shares are
widely held, which includes various small holdings which are owned
by directors of the Company. These holdings can change at anytime
at the discretion of the owner.
The Company is not aware of any arrangements that may at a
subsequent date result in a change in control of the Company.
22. Segment Disclosure
The Company has determined that it has one reportable segment.
The Company's operations are substantially all related to its
investment in Cavanacaw and its subsidiaries, Omagh and Flintridge.
Substantially all of the Company's revenues, costs and assets of
the business that support these operations are derived or located
in Northern Ireland. Segmented information on a geographic basis is
as follows:
December 31, 2019 United Kingdom Canada Total
Current assets $ 891,210 $ 1,509,237 $ 2,400,447
Non-current assets 22,286,304 50,358 22,336,662
-------------------- ---------------- ------------- -------------
Revenues $ 5,788 $ - $ 5,788
-------------------- ---------------- ------------- -------------
December 31, 2018 United Kingdom Canada Total
Current assets $ 794,772 $ 5,692,390 $ 6,487,162
Non-current assets 17,706,643 64,051 17,770,694
-------------------- ---------------- ------------- -------------
Revenues $ 71,243 $ - $ 71,243
-------------------- ---------------- ------------- -------------
23. Contingency
During the year ended December 31, 2010, the Company's
subsidiary Omagh received a payment demand from Her Majesty's
Revenue and Customs ("HMRC") in the amount of $522,588 (GBP
304,290) in connection with an aggregate levy arising from the
removal of waste rock from the mine site during 2008 and early
2009. Omagh Minerals believed this claim to be without merit. An
appeal was lodged with the Tax Tribunals Service and the hearing
started at the beginning of March 2017 and following a number of
adjournments was completed in August 2018. During the year ended
December 31, 2019, the Tax Tribunals Service issued their judgement
dismissing the appeal by Omagh in respect of the assessments. A
provision has now been included in the consolidated financial
statements in respect of the aggregates levy plus interest and
penalty.
There is a contingent liability in respect of potential
additional interest which may be applied in respect of the
aggregates levy dispute. Omagh Minerals Limited is unable to make a
reliable estimate of the amount of the potential additional
interest that may be applied by HMRC.
24. Supplement Schedule of Non-Cash Transactions
Year Ended December 31,
2019 2018
Shares issued to settle accounts payable and
other liabilities (note 16(b)(iii)) $ - $ 862,500
25. Event After the Reporting Period
The Company's operations could be significantly adversely
affected by the effects of a widespread global outbreak of a
contagious disease, including the recent outbreak of respiratory
illness caused by COVID-19. The Company cannot accurately predict
the impact COVID-19 will have on its operations and the ability of
others to meet their obligations with the Company, including
uncertainties relating to the ultimate geographic spread of the
virus, the severity of the disease, the duration of the outbreak,
and the length of travel and quarantine restrictions imposed by
governments of affected countries. In addition, a significant
outbreak of contagious diseases in the human population could
result in a widespread health crisis that could adversely affect
the economies and financial markets of many countries, resulting in
an economic downturn that could
further affect the Company's operations and ability to finance its operations.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR KKBBQDBKKBAD
(END) Dow Jones Newswires
June 12, 2020 02:00 ET (06:00 GMT)
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