TIDMGAL
RNS Number : 7916W
Galantas Gold Corporation
28 April 2021
GALANTAS GOLD CORPORATION
TSXV & AIM: Symbol GAL
GALANTAS REPORT ANNUAL FINANCIAL RESULTS FOR THE YEARED DECEMBER
31, 2020
April 28, 2021: Galantas Gold Corporation (the 'Company') is
pleased to announce its audited annual financial results for the
year ended December 31, 2020.
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 2020 audited annual results, which are
expressed in Canadian Dollars, are summarized below:
All figures denominated in Canadian Dollars (CDN$)
Year Ended
December 31
2020 2019
Revenue $ 0 $ 5,788
Cost and expenses of operations $ (127,868) $ (221,691)
Loss before the undernoted $ (127,868) $ (215,903)
Depreciation $ (355,196) $ (457,134)
General administrative expenses $ (2,605,277) $ (2,690,952)
Foreign exchange (loss) $ (92,621) $ (16,659)
Impairment of Exploration and Evaluation Assets $ (47,490) $ (155,482)
Loss on disposal of property, plant and equipment $ 0 $ (28,479)
Net Loss for the year $ (3,228,452) $ (3,564,609)
Working Capital Deficit $ (7,710,084) $ (6,093,200)
Cash loss from operating activities before changes in non-cash working capital $ (1,249,659) $ (1,826,066)
Cash at December 31, 2020 $ 612,094 $ 1,913,420
Sales revenue for the year ended December 31, 2020 amounted to $
Nil compared to revenue of $5,788 for the year ended December 31,
2019, which consisted of jewelry sales. Shipments of concentrate
commenced during the third quarter of 2019. Provisional concentrate
sales totalled US$ 1,355,000 for 2020 compared to US $ 1,518,000
for the year 2019. 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, 2020 amounted to $
3,228,452 (2019: $3,564,609) and the cash outflow from operating
activities before changes in non-cash working capital for the year
ended December 31, 2020 amounted to $1,249,659 (2019:
$1,826,066).
The Company had a cash balance of $612,094 at December 31, 2020
compared to $ 1,913,420 at December 31, 2019. The working capital
deficit at December 31, 2019 amounted to $ 7,710,084 compared to a
working capital deficit of $6,093,200 at December 31, 2019.
Production/Mine Development
Certain underground work continued during 2020. The processing
plant operated on a limited basis with feedstock for the plant
being from low grade stock. In the fourth quarter of 2019 there was
a temporary suspension of blasting operations at the mine due
mainly to the blasting arrangement limitations imposed by the PSNI,
which arrangements were not sufficient to allow for the expansion
of mine operations. The Company has been working with the PSNI on
an ongoing basis to agree arrangements that would increase blasting
availability to normal levels for an underground mine. During the
second quarter the company reported that confirmation had been
received from PSNI, regarding 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.
These financial matters have now been mutually agreed and,
following a formal agreement, a limited re-start of underground
blasting commenced late in the first quarter of 2021 and was
announced March 12, 2021.
Following the suspension of blasting operations at the mine, the
processing plant continued to operate on a limited basis from low
grade stock. In March 2020 and following UK government guidelines
regarding Covid-19, processing operations temporarily ceased until
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 followed a review of Northern Ireland /
UK government health advice regarding Covid-19, a risk assessment
and the introduction of appropriate modifications to working
practices.
Until the mine reaches the commencement of commercial
production, the net proceeds from concentrate sales will be offset
against development assets.
During 2020, the Company sought 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. On April 19, 2021, the Company announced a proposed
Private Placing to provide sufficient funding to take the mine into
full production.
Safety is a high priority and the company continued to invest in
safety-related training and infrastructure. The zero lost time
accident rate since the start of underground operations continues.
Environmental monitoring demonstrates a high level of regulatory
compliance.
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/7916W_1-2021-4-27.pdf
Qualified Person
The financial components of this disclosure has been reviewed by
Alan Buckley (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.
Neither TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
Information communicated within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014 which is part of UK law by virtue of
the European Union (Withdrawal) Act 2018. Upon the publication of
this announcement, this inside information is now considered to be
in the public domain.
Enquiries
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, Harrison Clarke:
Telephone: +44(0)20 7383 5100
Premier Gordon & Co (AIM Broker & Corporate Adviser)
Nick Lovering, Hugh Rich:
Telephone: +44(0)20 7659 1234
GALANTAS GOLD CORPORATION
Consolidated Financial Statements
(Expressed in Canadian Dollars)
Years Ended December 31, 2020 and 2019
Galantas Gold Corporation
Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
As at December 31, 2020 2019
------------------------------------------------------- ----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 612,094 $ 1,913,420
Accounts receivable and prepaid expenses (note 8) 594,960 416,699
Inventories (note 9) 81,169 70,328
------------------------------------------------------- ----------- -----------
Total current assets 1,288,223 2,400,447
Non-current assets
Property, plant and equipment (note 10) 21,158,103 21,159,716
Long-term deposit (note 12) 521,430 515,220
Exploration and evaluation assets (note 11) 750,741 661,726
------------------------------------------------------- ----------- -----------
Total non-current assets 22,430,274 22,336,662
------------------------------------------------------- ----------- -----------
Total assets $ 23,718,497 $ 24,737,109
------------------------------------------------------- ----------- -----------
EQUITY AND LIABILITIES
Current liabilities
Accounts payable and other liabilities (note 13) $ 1,350,142 $ 2,131,715
Current portion of financing facilities (note 14) 2,186,272 242,280
Due to related parties (note 20) 5,461,893 4,719,058
Convertible debenture (note 15) - 1,400,594
------------------------------------------------------- ----------- -----------
Total current liabilities 8,998,307 8,493,647
Non-current liabilities
Non-current portion of financing facilities (note 14) - 1,440,185
Decommissioning liability (note 12) 598,275 580,303
------------------------------------------------------- ----------- -----------
Total non-current liabilities 598,275 2,020,488
------------------------------------------------------- ----------- -----------
Total liabilities 9,596,582 10,514,135
------------------------------------------------------- ----------- -----------
Equity
Share capital (note 16(a)(b)) 52,933,594 50,123,910
Reserves 9,734,121 9,416,412
Deficit (48,545,800) (45,317,348)
------------------------------------------------------- ----------- -----------
Total equity 14,121,915 14,222,974
------------------------------------------------------- ----------- -----------
Total equity and liabilities $ 23,718,497 $ 24,737,109
------------------------------------------------------- ----------- -----------
The notes to the consolidated financial statements are an
integral part of these statements.
Going concern (note 1)
Contingency (note 22)
Events after the reporting period (note 23)
Approved on behalf of the Board:
"Roland Phelps" , Director "Jim Clancy" , Director
Galantas Gold Corporation
Consolidated Statements of Loss
(Expressed in Canadian Dollars)
Year Ended
December 31,
2020 2019
----------------------------------------------------------------------------- ---------- ----------
Revenues
Jewellery sales (note 18) $ - $ 5,788
Cost and expenses of operations
Cost of sales 127,868 221,691
Depreciation (note 10) 355,196 457,134
----------------------------------------------------------------------------- ---------- ----------
483,064 678,825
----------------------------------------------------------------------------- ---------- ----------
Loss before general administrative and other expenses (483,064) (673,037)
----------------------------------------------------------------------------- ---------- ----------
General administrative expenses
Management and administration wages (note 20) 565,440 902,822
Other operating expenses 246,587 436,585
Accounting and corporate 63,364 63,897
Legal and audit 118,068 74,690
Stock-based compensation (note 16(d)) 9,802 321,433
Shareholder communication and investor relations 198,513 209,903
Transfer agent 67,590 11,206
Director fees (note 20) 35,000 35,500
General office 13,666 11,653
Accretion expenses (notes 12, 14 and 15) 711,871 271,365
Loan interest and bank charges less deposit interest (notes 14, 15 and 20) 575,376 351,898
----------------------------------------------------------------------------- ---------- ----------
2,605,277 2,690,952
Other expenses
Foreign exchange loss 92,621 16,659
Impairment of exploration and evaluation assets (note 11) 47,490 155,482
Loss on disposal of property, plant and equipment - 28,479
----------------------------------------------------------------------------- ---------- ----------
140,111 200,620
----------------------------------------------------------------------------- ---------- ----------
Net loss for the year $(3,228,452) $(3,564,609)
----------------------------------------------------------------------------- ---------- ----------
Basic and diluted net loss per share (note 17) $ (0.09) $ (0.12)
----------------------------------------------------------------------------- ---------- ----------
Weighted average number of common shares outstanding - basic and diluted (i) 34,034,582 30,819,025
----------------------------------------------------------------------------- ---------- ----------
(i) Adjusted for 10:1 share consolidation effective April 17,
2020 (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,
2020 2019
--------------------------------------------------------------- ---------- ----------
Net loss for the year $(3,228,452) $(3,564,609)
Other comprehensive income (loss)
Items that will be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations 215,985 (116,262)
--------------------------------------------------------------- ---------- ----------
Total comprehensive loss $(3,012,467) $(3,680,871)
--------------------------------------------------------------- ---------- ----------
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,
2020 2019
------------------------------------------------------------------- ---------- ----------
Operating activities
Net loss for the year $(3,228,452) $(3,564,609)
Adjustment for:
Depreciation (note 10) 355,196 457,134
Stock-based compensation (note 16(d)) 9,802 321,433
Accrued interest (notes 14, 15 and 20) 572,060 359,293
Foreign exchange loss 282,374 145,357
Accretion expenses (notes 12, 14 and 15) 711,871 271,365
Impairment of exploration and evaluation assets (note 11) 47,490 155,482
Loss on disposal of property, plant and equipment - 28,479
Non-cash working capital items:
Accounts receivable and prepaid expenses (171,310) (135,992)
Inventories (9,874) (60,078)
Accounts payable and other liabilities (795,025) (96,138)
Due to related parties 367,480 313,906
------------------------------------------------------------------- ---------- ----------
Net cash and cash equivalents used in operating activities (1,858,388) (1,804,368)
------------------------------------------------------------------- ---------- ----------
Investing activities
Purchase of property, plant and equipment (103,567) (6,417,630)
Proceeds from sale of property, plant and equipment - 981,905
Exploration and evaluation assets (129,031) (70,836)
------------------------------------------------------------------- ---------- ----------
Net cash and cash equivalents used in investing activities (232,598) (5,506,561)
------------------------------------------------------------------- ---------- ----------
Financing activities
Proceeds of private placements (note 16(b)) 637,454 1,600,000
Proceeds from convertible debenture (note 15) - 1,731,190
Share issue costs (notes 15 and 16(b)) (67,428) (209,048)
Proceeds from financing facilities (note 14) 262,460 -
Repayment of financing facilities (note 14) (49,705) (56,854)
------------------------------------------------------------------- ---------- ----------
Net cash and cash equivalents provided by financing activities 782,781 3,065,288
------------------------------------------------------------------- ---------- ----------
Net change in cash and cash equivalents (1,308,205) (4,245,641)
Effect of exchange rate changes on cash held in foreign currencies 6,879 (29,493)
Cash and cash equivalents, beginning of year 1,913,420 6,188,554
------------------------------------------------------------------- ---------- ----------
Cash and cash equivalents, end of year $ 612,094 $ 1,913,420
------------------------------------------------------------------- ---------- ----------
Cash $ 612,094 $ 1,913,420
Cash equivalents - -
------------------------------------------------------------------- ---------- ----------
Cash and cash equivalents $ 612,094 $ 1,913,420
------------------------------------------------------------------- ---------- ----------
The notes to the consolidated financial statements are an
integral part of these statements.
Galantas Gold Corporation
Consolidated Statements of Changes in Equity
(Expressed in Canadian Dollars)
Reserves
-------------------------
Equity
settled Foreign Equity
component
share-based currency of
Share Warrants payments translation convertible
capital reserve reserve reserve debenture Deficit Total
------------------ ---------- -------- ----------- ----------- ----------- ----------- ----------
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)(i)) 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
Shares issued in
private
placement (note
16(b)(ii)) 637,454 - - - - - 637,454
Warrants issued
(note 14(ii)) - 340,000 - - - - 340,000
Share issue costs (67,428) - - - - - (67,428)
Convertible
debenture
converted (note
15) 2,239,658 - - - (248,078) - 1,991,580
Stock-based
compensation
(note 16(d)) - - 9,802 - - - 9,802
Expiry of
warrants - (786,000) 786,000 - - - -
Exchange
differences on
translating
foreign
operations - - - 215,985 - - 215,985
Net loss for the
year - - - - - (3,228,452) (3,228,452)
------------------ ---------- -------- ----------- ----------- ----------- ----------- ----------
Balance, December
31, 2020 $52,933,594 $ 340,000 $ 8,381,382 $ 1,012,739 $ - $(48,545,800) $14,121,915
------------------ ---------- -------- ----------- ----------- ----------- ----------- ----------
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, 2020 and 2019
(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, further financing currently being negotiated. The
directors assumptions in relation to future levels of production,
gold prices and mine operating and capital 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 financial projections prepared, the directors believe it's
appropriate to prepare the consolidated financial statements on the
going concern basis.
As at December 31, 2020, the Company had a deficit of
$48,545,800 (December 31, 2019 - $45,317,348). Comprehensive loss
for the year ended December 31, 2020 was $3,012,467 (year ended
December 31, 2019 - $3,680,871). These conditions raise material
uncertainties which may 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.
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.
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.
In March 2020, the World Health Organization declared
coronavirus (COVID-19) a global pandemic. This contagious disease
outbreak, which has continued to spread, has adversely affected
workforces, economies, and financial markets globally, leading to
an economic downturn. It is not possible for the Company to predict
the duration or magnitude of the adverse results of the outbreak
and its effects on the Company's business or ability to raise
funds.
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 April 26, 2021.
(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 (1) Ontario, Canada Holding company
Omagh Minerals Limited (2)(3) Northern Ireland Operating company
Galántas Irish Gold Limited (2)(4) Northern Ireland Dormant company
Flintridge Resources Limited (2)(5) United Kingdom Operating company
--------------------------------------- ---------------- ------------------
(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,
2020 2019
-------------------------- ------ ------
Closing rate (GBP to CAD) 1.7381 1.7174
Average for the year 1.7199 1.6945
--------------------------- ------ ------
(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 determined using
the value-in-use method 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.
(e) 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.
(f) 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.
(g) 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.
(h) 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.
(i) 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.
(j) 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.
(k) 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.
(l) 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.
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
IFRS 3, Business Combinations ("IFRS 3")
Amendments to IFRS 3, issued in October 2018, provide
clarification on the definition of a business. The amendments
permit a simplified assessment to determine whether a transaction
should be accounted for as a business combination or as an asset
acquisition.
The amendments are effective for transactions for which the
acquisition date is on or after the beginning of the first annual
reporting period beginning on or after January 1, 2020. The
adoption of the amendments had no impact on the Company's
consolidated financial statements.
IAS 1, Presentation of Financial Statements ("IAS 1")
Amendments to IAS 1, issued in October 2018, provide
clarification on the definition of material and how it should be
applied. The amendments also align the definition of material
across IFRS and other publications.
The amendments are effective for annual periods beginning on or
after January 1, 2020 and are required to be applied prospectively.
The adoption of the amendments had no impact on the Company's
consolidated financial statements.
IAS 8, Accounting Policies, Changes in Accounting Estimates and
Errors ("IAS 8")
Amendments to IAS 8, issued in October 2018, provide
clarification on the definition of material and how it should be
applied. The amendments also align the definition of material
across IFRS and other publications.
The amendments are effective for annual periods beginning on or
after January 1, 2020 and are required to be applied prospectively.
The adoption of the amendments had no impact on the Company's
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, 2020 totaled
$14,121,915 (December 31, 2019 - $14,222,974). 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, 2020. 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, 2020, the Company had working capital
deficit of $7,710,084 (December 31, 2019 - working capital deficit
of $6,093,200). 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 and the financing
liabilities.
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 and
financing facility. The Company is exposed to interest rate risk on
both certain related party loans and third party loans which bear
interest at variable 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, 2020,
if interest rates had decreased/increased by 1% with all other
variables held constant, the net loss for the year ended December
31, 2020, would have been approximately $71,000 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, 2020, shareholders' equity would have been
approximately $71,000 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 and due to related parties that
are denominated in GBP. As at December 31, 2020, 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, 2020
would have been approximately $251,000 higher/lower as a result of
foreign exchange losses/gains on translation of non-CAD denominated
financial instruments. Similarly, as at December 31, 2020,
shareholders' equity would have been approximately $251,000
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, 2020.
7. Categories of Financial Instruments
As at December 31, 2020 2019
---------------------------------------- --------- ---------
Financial assets:
FVTPL
Cash and cash equivalents $ 612,094 $1,913,420
Amortized cost
Accounts receivable 355,919 347,079
Long-term deposit 521,430 515,220
---------------------------------------- --------- ---------
Financial liabilities:
Amortized cost
Accounts payable and other liabilities 1,350,142 2,131,715
Financing facilities 2,186,272 1,682,465
Due to related parties 5,461,893 4,719,058
Convertible debenture - 1,400,594
---------------------------------------- --------- ---------
As of December 31, 2020 and 2019, the fair value of all the
Company's financial instruments approximates the carrying
value.
8. Accounts Receivable and Prepaid Expenses
As at December 31, 2020 2019
----------------------------------------------- ------- -------
Sales tax receivable - Canada $ 3,987 $ 2,682
Valued added tax receivable - Northern Ireland 56,422 93,864
Accounts receivable 295,510 250,533
Prepaid expenses 239,041 69,620
----------------------------------------------- ------- -------
$594,960 $416,699
----------------------------------------------- ------- -------
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, 2020 2019
-------------------------- ------- -------
Less than 3 months $120,085 $235,934
3 to 12 months 117,615 108,674
More than 12 months 118,219 2,471
-------------------------- ------- -------
Total accounts receivable $355,919 $347,079
-------------------------- ------- -------
9. Inventories
As at December 31, 2020 2019
------------------------ ------ ------
Concentrate inventories $81,169 $70,328
------------------------ ------ ------
10. Property, Plant and Equipment
Freehold Plant
land and and Motor Office Development
Cost buildings machinery vehicles equipment assets (i) Total
-------------- --------- ---------- -------- --------- ----------- ----------
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
Additions - 2,781 - - 1,892,995 1,895,776
Cash receipts
from
concentrate
sales - - - - (1,792,209) (1,792,209)
Foreign
exchange
adjustment 28,561 82,352 1,934 2,280 227,986 343,113
-------------- --------- ---------- -------- --------- ----------- ----------
Balance,
December 31,
2020 $2,398,171 $ 6,951,208 $ 162,571 $ 191,422 $ 19,345,676 $29,049,048
-------------- --------- ---------- -------- --------- ----------- ----------
Freehold Plant
land and and Motor Office Development
Accumulated
depreciation buildings machinery vehicles equipment assets (i) Total
---------------- --------- --------- -------- --------- ----------- ---------
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
Disposals - (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
Depreciation 7,910 322,574 13,252 11,460 - 355,196
Foreign exchange
adjustment 23,644 66,443 1,530 1,480 - 93,097
---------------- --------- --------- -------- --------- ----------- ---------
Balance,
December 31,
2020 $1,986,461 $5,648,586 $ 130,107 $ 125,791 $ - $7,890,945
---------------- --------- --------- -------- --------- ----------- ---------
Freehold Plant
land and and Motor Office Development
Carrying value buildings machinery vehicles equipment assets (i) Total
------------------ --------- --------- -------- --------- ----------- ----------
Balance, December
31, 2019 $ 414,703 $1,606,506 $ 45,312 $ 76,291 $ 19,016,904 $21,159,716
------------------ --------- --------- -------- --------- ----------- ----------
Balance, December
31, 2020 $ 411,710 $1,302,622 $ 32,464 $ 65,631 $ 19,345,676 $21,158,103
------------------ --------- --------- -------- --------- ----------- ----------
(i) Development assets are expenditures for the underground
mining operations in Omagh.
11. Exploration and Evaluation Assets
Exploration
and
evaluation
Cost assets
---------------------------- -----------
Balance, December 31, 2018 $ 760,023
Additions 70,836
Impairment (157,583)
Foreign exchange adjustment (11,550)
---------------------------- -----------
Balance, December 31, 2019 661,726
Additions 129,031
Impairment (47,490)
Foreign exchange adjustment 7,474
---------------------------- -----------
Balance, December 31, 2020 $ 750,741
---------------------------- -----------
Carrying value
---------------------------- -----------
Balance, December 31, 2019 $ 661,726
---------------------------- -----------
Balance, December 31, 2020 $ 750,741
---------------------------- -----------
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, 2020 based
on a risk-free discount rate of 1% (December 31, 2019 - 1%) and an
inflation rate of 1.50% (December 31, 2019 - 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,
2020, the estimated fair value of the liability is $598,275
(December 31, 2019 - $580,303). Changes in the provision during the
year ended December 31, 2020 are as follows:
As at December 31, 2020 2019
--------------------------------------------- ------- -------
Decommissioning liability, beginning of year $580,303 $578,242
Accretion 10,863 10,702
Foreign exchange 7,109 (8,641)
--------------------------------------------- ------- -------
Decommissioning liability, end of year $598,275 $580,303
--------------------------------------------- ------- -------
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, 2019 - GBP
300,000), of which GBP 300,000 was funded as of December 31, 2020
(GBP 300,000 was funded as of December 31, 2019) and reported as
long-term deposit of $521,430 (December 31, 2019 - $515,220).
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, 2020 2019
--------------------------------------------- --------- ---------
Accounts payable $ 423,630 $1,084,574
Accrued liabilities 926,512 1,047,141
--------------------------------------------- --------- ---------
Total accounts payable and other liabilities $1,350,142 $2,131,715
--------------------------------------------- --------- ---------
The following is an aged analysis of the accounts payable and
other liabilities:
As at December 31, 2020 2019
--------------------------------------------- --------- ---------
Less than 3 months $ 432,946 $1,232,089
3 to 12 months 76,800 221,328
12 to 24 months 161,327 357,073
More than 24 months 679,069 321,225
--------------------------------------------- --------- ---------
Total accounts payable and other liabilities $1,350,142 $2,131,715
--------------------------------------------- --------- ---------
14. Financing Facilities
Amounts payable on the Company's long-term debts are as
follow:
As at December 31, 2020 2019
-------------------------------------------------- ---------- ---------
Financing facilities, beginning of period (i)(ii) $ 1,440,185 $1,081,190
Financing facility received (ii) 262,460 -
Less bonus warrants issued (ii) (340,000) -
Less current portion (2,186,272) (242,280)
Repayment of financing facilities (49,705) (56,854)
Accretion (ii) 360,452 248,238
Interest (ii) 214,377 279,151
Foreign exchange adjustment 298,503 130,740
-------------------------------------------------- ---------- ---------
Financing facilities - long term portion $ - $1,440,185
-------------------------------------------------- ---------- ---------
(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.
On July 9, 2020, the Company amended the terms of its loan
facility of an increase in the outstanding loan facility. The
amount of the loan facility increased by US$200,000 to a total of
US$1.8 million. On November 12, 2020, the additional US$200,000
loan facility was drawn down by the Company. The interest rate
applicable on the loan facility increased from US$ 12 month LIBOR +
8.75% to US$ 12 month LIBOR + 9.9% and the maturity date was
extended from December 31, 2020 to December 31, 2021. Interest may
be rolled into the loan facility until December 31, 2020, at the
Company's option.
As consideration for amending the terms of the loan facility,
the Lender received on August 14, 2020, 1,700,000 bonus warrants of
Galantas ("Bonus Warrants"). Each Bonus Warrant will be exercisable
for one common share of Galantas (a "Bonus Share") at an exercise
price of $0.33 per Bonus Share. The Bonus Warrants will expire on
December 31, 2021 (the "Expiry Date") and the Bonus Shares will be
subject to an initial four month plus one day hold period from the
date of their issuance. In the event that the weighted average
closing price per common share of the Company is more than $0.4125
per share for more than five consecutive trading days, the Company
shall be entitled to accelerate the Expiry Date to a date that is
30 days from the date on which the Company announces the
accelerated Expiry Date by press release.
The fair value of the 1,700,000 bonus warrants was estimated at
$340,000 using the Black-Scholes option pricing model with the
following assumptions: expected dividend yield - 0%, expected
volatility - 165.75%, risk-free interest rate - 0.27% and an
expected average life of 1.38 years.
During the year ended December 31, 2020, the Company recorded
accretion expense of $360,452 in the consolidated statements of
loss in regards with this loan facility (year ended December 31,
2019 - $248,238).
During the year ended December 31, 2020, the Company recorded
interest expense of $214,377 in the consolidated statements of loss
in regards with this loan facility (year ended December 31, 2019 -
$279,151).
During the year ended December 31, 2020, the Company recorded a
repayment of $49,705 in regards with this loan facility (year ended
December 31, 2019 - $56,854).
15. Convertible Debenture
On December 17, 2019, the Company closed a $1,731,190 (GBP
1,000,000) convertible debenture. 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 a 25%
discount to the closing price of the common shares of the Company
on the day prior to announcement.
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 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. As at December 31, 2019,
Melquart held 7,756,572 common shares equivalent to 24% of the
Company.
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, 2020, the Company recorded
accretion expense of $340,556 (year ended December 31, 2019 -
$12,425) and interest expense of $250,430 (year ended December 31,
2019 - $9,960) as loan interest and bank charges less deposit
interest in the consolidated statement of loss.
On December 21, 2020, the convertible debenture was converted
into 11,410,933 common shares of the Company. The convertible
debenture carried a 15% coupon and was exercisable at a 25%
discount to the market price. The capital an interest accruing on
the debenture totals GBP1,150,000 ($1,991,580). Following the
issuance, Melquart held 20,673,528 common shares, representing
44.4% of the issued share capital of the Company and the debenture
was satisfied in full (refer to note 20(c)).
Balance, 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
Interest expense 250,430
Accretion expense 340,556
Conversion to common shares (1,991,580)
------------------------------------------- ----------
Balance, December 31, 2020 $ -
--------------------------------------- ----------
16. Share Capital and Reserves
a) Authorized share capital
At December 31, 2020, 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.
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, 2020, the issued share capital amounted to
$52,933,594. The change in issued share capital for the years
presented is as follows:
Number of
common
shares Amount
------------------------------------------ ---------- ----------
Balance, December 31, 2018 29,968,531 $48,628,055
Shares issued in private placement (i) 2,352,941 1,600,000
Share issue costs - (104,145)
------------------------------------------- ---------- ----------
Balance, December 31, 2019 32,321,472 50,123,910
Shares issued in private placement (ii) 2,833,132 637,454
Share issue costs - (67,428)
Convertible debenture converted (note 15) 11,410,933 2,239,658
------------------------------------------- ---------- ----------
Balance, December 31, 2020 46,565,537 $52,933,594
------------------------------------------- ---------- ----------
(i) 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 Assets Management Limited ("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.
(ii) On July 17, 2020, the Company completed a private placement
for 2,833,132 common shares at an issue price of $0.225
(UKGBP0.1328) per share for gross proceeds of $637,454 (GBP
376,240). The net proceeds to be raised by the private placement
are intended to be used to support mine operations and provide
general working capital of the Company.
The private placement included a subscription by LF Miton UK
Smaller Companies Fund, which has subscribed for 527,108 common
shares in the private placement and is managed by Premier Fund
Managers Ltd ("Premier Miton"). Post-closing, this fund holds
3,222,330 shares, equivalent to 9.17% of the Company's common
shares. The total number of shares controlled by Premier Miton post
completion of the private placement is 4,848,243, representing
10.41% of the Company's enlarged issued and outstanding common
shares.
(ii) (continued) The private placement also included a
subscription from Melquart, for 1,506,024 common shares, which
gives rise to an enlarged holding of 9,262,595 common shares post
completion of the private placement, or 26.35% of the Company's
enlarged issued and outstanding common shares.
Commission payable to brokers in Canada and the United Kingdom
in relation to the private placement totals $33,673 (GBP
19,874).
c) Warrant reserve
The following table shows the continuity of warrants for the
years presented:
Weighted
average
Number of exercise
warrants price
------------------------------------------------- ---------- --------
Balance, December 31, 2018 and December 31, 2019 1,500,000 $ 1.58
Issued (note 14(ii)) 1,700,000 0.33
Expired (1,500,000) 1.58
-------------------------------------------------- ---------- --------
Balance, December 31, 2020 1,700,000 $ 0.33
-------------------------------------------------- ---------- --------
The following table reflects the actual warrants issued and
outstanding as of December 31, 2020:
Grant date Exercise
Number fair value price
Expiry date of warrants ($) ($)
------------------ ----------- ---------- --------
December 31, 2021 1,700,000 340,000 0.33
------------------- ----------- ---------- --------
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, 2018 885,000 $ 1.20
Granted (i)(ii) 570,000 0.90
Expired (60,000) 1.10
---------------------------- --------- --------
Balance, December 31, 2019 1,395,000 0.92
Expired (285,000) 1.05
Cancelled (i)(ii)(iii) (540,000) 1.01
---------------------------- --------- --------
Balance, December 31, 2020 570,000 $ 1.16
---------------------------- --------- --------
(i) 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 $247,360 and was
expensed in the consolidated statements of loss and credited to
equity settled share-based payments reserve. During the year ended
December 31, 2020, included in stock-based compensation is $33,352
(year ended December 31, 2019 - $184,426) related to the vested
portion of these options. During the year ended December 31, 2020,
175,000 stock options were cancelled and therefore, $22,257 of
stock-based compensation was reversed related to the unvested
portion of the options cancelled.
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.
(ii) 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, 2020, included
in stock-based compensation is $30,070 (year ended December 31,
2019 - $85,772) related to the vested portion of these options.
During the year ended December 31, 2020, 150,000 stock options were
cancelled and therefore, $33,246 of stock-based compensation was
reversed related to the unvested portion of the options
cancelled.
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.
(iii) The portion of the estimated fair value of options granted
in the prior years and vested during the year ended December 31,
2020, amounted to $4,334 (year ended December 31, 2019 - $51,235).
In addition, during the year ended December 31, 2020, 215,000
options granted in the prior years were cancelled and therefore,
$2,451 of stock-based compensation was reversed related to the
unvested portion of the options cancelled.
The following table reflects the actual stock options issued and
outstanding as of December 31, 2020:
Weighted average Number of
remaining Number of options Number of
Exercise contractual options vested options
Expiry date price ($) life (years) outstanding (exercisable) unvested
------------------ --------- ---------------- ----------- ------------- ---------
March 25, 2022 1.35 1.23 320,000 320,000 -
April 19, 2023 1.10 2.30 25,000 25,000 -
February 13, 2024 0.90 3.12 125,000 83,333 41,667
June 27, 2024 0.90 3.49 100,000 66,667 33,333
------------------ --------- ---------------- ----------- ------------- ---------
1.16 2.09 570,000 495,000 75,000
------------------ --------- ---------------- ----------- ------------- ---------
17. Net Loss per Common Share
The calculation of basic and diluted loss per share for the year
ended December 31, 2020 was based on the loss attributable to
common shareholders of $3,228,452 (year ended December 31, 2019 -
$3,564,609) and the weighted average number of common shares
outstanding of 34,034,582 (year ended December 31, 2019 -
30,819,025) for basic and diluted loss per share. Diluted loss did
not include the effect of 1,700,000 warrants (year ended December
31, 2019 - 1,500,000) and 570,000 options (year ended December 31,
2019 - 1,395,000) for the year ended December 31, 2020, as they are
anti-dilutive.
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, 2020
totaled approximately US$1,355,000 (year ended December 31, 2019 -
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. 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, 2020 2019
---------------------------------------------------------------- ---------- ----------
Loss before income taxes $(3,228,452) $(3,564,609)
---------------------------------------------------------------- ---------- ----------
Expected tax recovery at statutory rate of 26.5% (2019 - 26.5%) (855,540) (944,621)
Difference resulting from:
Foreign tax rate differential 26,361 180,327
Stock-based compensation 2,598 85,180
Change in foreign tax rate (1,039,835) -
Permanent differences and other 81,790 197,669
Tax benefits not recognized 1,784,626 481,445
---------------------------------------------------------------- ---------- ----------
$ - $ -
---------------------------------------------------------------- ---------- ----------
(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, 2020 2019
----------------------------------------- ---------- ----------
Deferred income tax assets (liabilities)
Non-capital losses $11,776,488 $ 8,718,385
Share issue costs and other 1,839 (14,551)
Non-current assets (3,881,944) (2,592,077)
Valuation allowance (impairment) (7,896,383) (6,111,757)
----------------------------------------- ---------- ----------
$ - $ -
----------------------------------------- ---------- ----------
(c) Losses carried forward
As at December 31, 2020, 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 1,027,232
2040 1,311,266
Indefinite 34,526,960
----------
$46,393,932
==========
At December 31, 2020, 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.
20. 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 2020 2019
-------------------------------- ----- ------- -------
Interest on related party loans (i) $321,630 $349,333
-------------------------------- ----- ------- -------
(i) G&F Phelps, a company controlled by a director of the
Company, had amalgamated loans to the Company of $3,171,622 (GBP
1,824,764) (December 31, 2019 - $3,133,850 - GBP 1,824,764)
included with due to related parties bearing interest at 2% above
UK base rates, repayable on demand and secured by a mortgage
debenture on all the Company's assets. In April 2018, the interest
increased to 6.75% + US$ 12 month LIBOR. Interest accrued on
related party loans is included with due to related parties. As at
December 31, 2020, the amount of interest accrued is $1,339,503
(GBP 770,671) (December 31, 2019 - $1,002,388 - GBP 583,666).
(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,
2020 2019
-------------------------- ------- -------
Salaries and benefits (1) $470,516 $454,096
Stock-based compensation 9,802 82,156
-------------------------- ------- -------
$480,318 $536,252
-------------------------- ------- -------
(1) Salaries and benefits include director fees. As at December
31, 2020, due to directors for fees amounted to $126,536 (December
31, 2019 - $118,500) and due to officers, mainly for salaries and
benefits accrued amounted to $782,145 (GBP 458,701) (December 31,
2019 - $464,320 - GBP 270,362), and is included with due to related
parties.
(c) As of December 31, 2020, Ross Beaty owns 3,744,747 common
shares of the Company or approximately 8.04% of the outstanding
common shares. Roland Phelps, Chief Executive Officer and director,
owns, directly and indirectly, 4,933,817 common shares of the
Company or approximately 10.60% of the outstanding common shares of
the Company. Premier Miton owns 4,848,243 common shares of the
Company or approximately 10.41%. Melquart owns, directly and
indirectly, 20,673,528 common shares of the Company or
approximately 44.4% of the outstanding common shares of the
Company. The remaining 26.55% 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.
21. 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, 2020 United Kingdom Canada Total
------------------- -------------- ------ ----------
Current assets $ 1,232,744 $55,479 $ 1,288,223
Non-current assets 22,373,581 56,793 22,430,374
------------------- -------------- ------ ----------
Revenues $ - $ - $ -
------------------- -------------- ------ ----------
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
------------------- -------------- --------- ----------
22. 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 $528,886 (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 is unable to make a reliable
estimate of the amount of the potential additional interest that
may be applied by HMRC.
23. Events After the Reporting Period
(i) On February 3, 2021, the Company announced that a formal
agreement regarding blasting was reached between the Company and
the PSNI. The PSNI have responsibilities regarding the supervision
of the use of blasting materials in Northern Ireland.
The agreement provides the potential for a materially improved
economic arrangement for an expansion of underground blasting,
required for full production, to take place at the Omagh Mine. The
agreement has followed a comprehensive review by the PSNI and
regulators.
(ii) On April 19, 2021, the Company announced a proposed private
placement that will provide for the financing to bring the Omagh
mine into full production. The private placements consist of a
minimum of 17 to 22 million units at $0.30 per unit, where each
unit comprises one common share and one warrant. The minim gross
proceeds expected to be raised are $5,100,000 with maximum gross
proceeds of $6,600,000. Each warrant will be exercisable into one
additional share at an exercise price of $0.40 for 24 months from
the closing date of the placement. There will be a four month hold
period on the trading of securities issued in connection with this
offering.
The net funds raised will be mainly used for bringing the Omagh
mine into full commercial production and for exploration to expand
the high grade gold resources.
Under the terms of the private placement, detailed within a non
binding Letter of Intent and completion of its conditions, Ocean
Partners UK Ltd ("Ocean Partners") will subscribe for a minimum of
1,666,667 units of the private placement, for a subscription of
$500,000, and to purchase any additional units up to a maximum of
$4,500,000 required to reach the minimum gross proceeds from the
private placement of $5,100,000, including Melquart's
subscription.
Following strong demand for the Private Placement, which was
detailed in a press release dated April 19, 2021, this has resulted
in a potential over-subscription. The Private Placement maximum
(previously a maximum of 22 million "Units" at C$0.30 per Unit (the
"Offering Price"), where each Unit comprises one common share and
one warrant, has been increased to a maximum of 26,666,667 Units.
The minimum gross proceeds expected to be raised remain as
C$5,100,000, with maximum gross proceeds of C$8,000,000 (previously
C$6,600,000). Each warrant will be exercisable into one additional
share at an exercise price of C$0.40 for 24 months from the closing
date of the placement. There will be a 4-month hold period on the
trading of securities issued in connection with this offering.
In regard to the commitment provided by Ocean Partners, it is
expected Ocean will receive fees of $112,500 as a commitment fee
equivalent to 2.5% of $4,500,000, and 2.5% of the gross proceeds
for the units to which it actually subscribes, in lieu of any
finder's fees that would have had to be otherwise paid; both of
which will be paid by the issuance of units at the offering price.
The Company will bear 75% of certain legal costs incurred by Ocean
Partners' legal counsel in the preparation of suitable
documentation.
Other than Units sold to Ocean Partners, the Company may pay
finder's fees up to 6.5% to other finders in cash or in Units.
On closing of the proposed private placing ("the Closing Date"),
Roland Phelps will retire as Galantas' Chief Executive Officer and
as a member of the Board of Directors. His role as Chief Executive
Officer will be assumed by Mario Stifano. It is expected that Mr
Stifano will be nominated as an Ocean Partners representative on
the Board of Directors following regulatory approval but it is
expected to act as an observer following the Closing Date.
On the Closing Date, the Board of Galantas will appoint an Ocean
Partners nominee, Brent Omland, as a Director, to replace Mr.
Phelps on the Board, following regulatory approval. He is currently
Chief Financial Officer of Ocean Partners.
It is expected that Mr. Phelps will enter into a formal
Consultation Agreement with the Company for one year for ongoing
Board of Directors and management support.
Offtake Agreement
The existing Offtake Agreement with Ocean Partners is expected
to be extended from a minimum total of 50,000 tonnes of concentrate
deliveries to a minimum total of 150,000 tonnes and marketed at
market rates.
Debt Matters
On the Closing Date, the maturity date of the Ocean Partners
loan due on December 31, 2021 will be extended to December 31,
2023. Interest may be deferred and added to the balance outstanding
until March 31, 2022, at which point interest will be paid monthly.
The 1,700,000 Ocean Partners warrants currently issued will be
extended by 24 months to December 31, 2023.
On the Closing Date, the maturity date of the G&F Phelps
loan due on June 30, 2021 will be extended to December 31, 2023.
Interest may be deferred and added to the balance outstanding until
March 31, 2022, at which point interest will be paid monthly. In
consideration for extending the loan and deferring interest,
G&F Phelps will receive 1,700,000 warrants exercisable into one
common share at an exercise price of $0.33, with said warrants
expiring on December 31, 2023.
Pursuant to an Intercreditor Agreement between Flintridge, Ocean
Partners and G&F Phelps, principal repayments will be repaid on
a pari passu basis proportionately to the size of the loans.
The transactions contemplated by the private placement are
subject to approval by the Galantas Board of Directors, Ocean
Partners Board of Directors, G&F Phelps Board of Directors, and
the TSXV, and may be subject to additional regulatory
approvals.
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END
FR UBURRAOUSUUR
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April 28, 2021 02:00 ET (06:00 GMT)
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