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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Yangzijiang Financial Holding Ltd (PK) | USOTC:YNGFF | OTCMarkets | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.0076 | 3.17% | 0.2476 | 0.1868 | 0.3163 | 0.2476 | 0.2476 | 0.2476 | 462 | 21:00:03 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE
13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of November, 2014
Commission File Number: 000-52699
VERIS GOLD CORP.
(Translation of registrant's name into English)
900 – 688 West Hastings Street
Vancouver, British Columbia
Canada V6B 1P1
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
S Form 20-F £ Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): _________
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): _________
FURNISHED HEREWITH
Exhibit Number |
Description | |
| 99.1 | MD&A for the Third Quarter Ended September 30, 2014 | |
| 99.2 | Financial Statements for the Third Quarter Ended September 30, 2014 | |
| 99.3 | Form 52-109F2 Certification of Interim Filings – Interim CEO dated September 30, 2014 | |
| 99.4 | Form 52-109F2 Certification of Interim Filings – Interim CFO dated September 30, 2014 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| VERIS GOLD CORP. | |
| Date: November 14, 2014 | /s/ Shaun Heinrichs |
| Shaun Heinrichs | |
| Chief Financial Officer |
Exhibit 99.1
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
The following management’s discussion and analysis (‘‘MD&A’’) is intended to supplement the condensed consolidated interim financial statements of Veris Gold Corp. (the “Company” or “Veris”) for the three month period ended September 30, 2014, and related notes thereto, which have been prepared in accordance with IAS 34 – Interim Financial Reporting of the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (”IASB”).
Readers are encouraged to consult the Company’s audited consolidated financial statements and corresponding notes to the financial statements for the year ended December 31, 2013 for additional details. Readers are cautioned that the MD&A contains forward-looking statements and that actual events may vary from management’s expectations. All figures are in United States dollars unless otherwise noted. The MD&A has been prepared as of November 14, 2014.
The Company’s shares were listed on the TSX and the Frankfurt Stock Exchange (trading symbol – “NG6A”) but were delisted from both exchanges on July 18, 2014 as a result of the Creditor Protection Proceedings (trading symbol – “VG”) and at November 14, 2014 the Company had 154,378,365 shares outstanding. The Company continues to be listed on the OTC under the trading symbol “YNGFF” however trading continues to be halted at this time.
RECENT DEVELOPMENTS
Creditor Protection Proceedings
On June 3, 2014, the Company received Notices of Early Termination Date from Deutsche Bank AG (“DB”) requiring the Company to make payments totaling $89.4 million under the terms of the Senior Secured Gold Forward Facility (“Gold Facility”). Failing to make payments by June 9, 2014 would allow DB to take such steps as necessary to enforce its rights against the Company. The Notices of Early Termination Date operated to terminate the Senior Secured Gold Facility.
On June 9, 2014, the Company commenced proceedings under the Companies’ Creditors Arrangement Act (“CCAA”), establishing an initial stay of proceedings until July 8, 2014, in the Supreme Court of British Columbia (the “Court”) and received a temporary restraining order under Chapter 15 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Nevada (“US Court”). The Company, Veris Gold Corp., and the wholly owned subsidiaries of the Company are parties to the CCAA and Chapter 15 proceedings (collectively, the “Creditor Protection Proceedings”). On July 23, 2014 the US Court granted provisional relief under Section 1519 of the Bankruptcy Code in the United States. This ruling recognizes the Canadian proceeding of Companies' Creditors Arrangement Act ("CCAA") and as a result protects the assets of the Company and the interests of the creditors until such time as a ruling on the Petition for Recognition and Chapter 15 Relief is granted. The Company received CCAA extension orders on July 4, August 1, September 12, and October 10, 2014 extending the stay of proceedings granted by the Court to February 2, 2015.
The Company’s decision to commence CCAA proceedings was made after extensively exploring alternatives following thorough consultation with the Company’s legal and financial advisors. As well, the Company has for some time been working diligently on the restructuring and refinancing efforts. The Company sought protection primarily to forestall actions that could have been taken subsequent to the demands for payment made by DB on June 3 but also to address near term liquidity issues arising from declining gold prices, higher than anticipated production costs, and unexpected shut downs including the January 2014 shutdown resulting from the December 2013 fire as well as the extended maintenance shutdown taken in March of 2014 while the Company waited for the approval of a new Class 1 (Title V) Air Quality Operating Permit.
| VERIS GOLD CORP. | 1 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
In these circumstances, the Company's Board of Directors determined that a CCAA proceeding would provide the most prudent and effective way to carry on business and maximize value for the Company's stakeholders. The Company has continued to pursue operational restructuring alternatives while under CCAA protection, including reducing or restructuring its obligations and reducing operating costs. During the Creditor Protection Proceedings, the Company has continued with day-to-day operations, and employee obligations and any trade payables incurred are expected to be paid or satisfied in the ordinary course. The Company will continue to incur significant costs associated with the restructuring and the Creditor Protection Proceedings. The amount of these expenses is expected to significantly affect the financial position and results of operations however the full amount of this impact cannot be estimated at this time. During the third quarter the Company continued to advance the restructuring plan as outlined further below.
On August 6, 2014, the Company retained William LeClair as a Chief Restructuring Officer (“CRO”) under the terms of an interim cash collateral agreement reached with DB on July 29, 2014, to assist in the restructuring efforts of the Company. This appointment was granted in an order by the Court on August 7, 2014. Under the terms of the interim agreement the Company also retained an independent technical advisor, SRK Consulting (U.S.), Inc. (“SRK” or also referred to as “technical advisor”), to review the Company’s existing mine plans and assist in the optimization of the operations. This engagement was intended to provide validation of the Company’s data and, if requested, alternative mining plans that could assist in increasing production and/or reducing costs on a per ounce basis. This work has largely been completed, providing significant support for the quality of the existing data as well as several alternative mining scenarios that the Company continues to evaluate in conjunction with their mining contractor.
On August 24, 2014 the Company finalized the terms for a Final Cash Collateral Order (CCO) with DB and this agreement was filed with the US Bankruptcy Court on August 25, 2014 and subsequently approved in a hearing in Reno, Nevada on August 29, 2014. The terms of the CCO required a number of milestones be met and agreed to by the Company in order to continue to use the cash collateral (as defined under the US Bankruptcy code but which would include cash on hand and gold inventories). The significant milestones were as follows:
| · | On or before August 31, 2014 – the Company retains an Investment Bank acceptable to DB to conduct a sale process for all or substantially all of the Company’s assets with a closing no later than January 30, 2015; |
| o | This work is to commence internally on September 1, 2014 however the sales process will not commence externally until November 1, 2014 unless written notice is provided by September 30, 2014 from the Monitor and the CRO that there are no reasonable prospects for the purchase of the DB Gold Facility at which point the sales process commences October 1, 2014; |
| · | On or before September 30, 2014 - Completion of Independent Technical Review by the technical advisor including a review of the underlying assumptions of the CCO budget; |
| VERIS GOLD CORP. | 2 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
| · | On or before October 31, 2014 – the Company must close a refinancing transaction sufficient to repay the indebtedness to DB at an agreed upon price or the Company commences the sales process as outlined above on November 1, 2014; |
| · | On or before November 10, 2014 – the Company is to file a motion seeking approval of the procedures for the sale process into the Court and the US Court; |
| o | The orders approving the sales process are to be received no later than December 10, 2014; |
| · | December 31, 2014 is the closing date for bid documents under the sales process; |
| o | Subsequently the agreement requires the commencement of an auction process by January 15, 2015 with Court and US Court approving the agreed sale by January 22, 2015 and expected closing by January 31, 2015. |
Pursuant to the CCO outlined above, the Company engaged Moelis & Co. as the investment banker for the purposes of conducting a sales process for the Company’s assets. In their role they will assist in identifying and evaluating candidates for a purchase transaction and contact potential acquirers commencing on November 1, 2014. This process does not preclude the Company from continuing to explore opportunities to refinance the senior and subordinated debts at the same time.
On September 3, 2014 the Court granted an order recognizing the CCO and giving full force and effect to the CCO in the Creditor Protection Proceedings.
In September the Company recognized that, in light of the current changes in the gold price and the ongoing costs of the Creditor Protection Proceedings as well as required capital spending required in the short term, additional financing may be required to ensure the Company had sufficient liquidity to operate through the next four months. In working with the Company’s financial advisors, Raymond James, a $12 million revolving Debtor-in-Possession facility (“DIP loan”) was secured from Whitebox Advisors which could be drawn on to fund cash requirements based on the 13 week cashflow forecast the Company had prepared for the Creditor Protection Proceedings. The Court granted an order approving the DIP loan on October 3, 2014 and the Company has drawn $7.5 million since that time, primarily to fund required capital spend and the ongoing professional fees as well as bonding requirements.
The Company did not exercise its option to purchase the DB Gold Facility by October 31, 2014 and, as of November 1, 2014, is in a formal sale process with respect to its assets. While restructuring efforts are ongoing, the sale process may result in the sale of some or all of the Company’s assets.
The Company continues to pursue a restructuring through a plan of compromise and arrangement (the “Plan”) under the CCAA, which will be subject to creditor and Court approval, and ancillary proceedings under Chapter 15 of the United States Bankruptcy Code for recognition of the CCAA proceedings. The Company is working under the timeline noted above which is expected to required several months to complete however the outcome and timing of the Creditor Protection Proceedings and the implementation of a successful restructuring plan, including obtaining a new and adequate secured credit facility to finance our business activities on an ongoing basis, is not assured or determinable at this time. The Plan that will be implemented as part of Creditor Protection Proceedings could materially alter the classifications and amounts reported in the consolidated financial statements, which do not give effect to any adjustments to the carrying values of assets or amounts of liabilities that might be necessary as a consequence of confirmation of such plan, or the effect of any operational changes that may be implemented
| VERIS GOLD CORP. | 3 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
Going Concern
The Company’s financial liquidity condition and the resulting commencement of the Creditor Protection Proceedings cast substantial doubt about the Company’s ability to continue as a going concern. Due to ongoing liquidity issues, the Company has failed to meet certain financial obligations and liabilities, including interest and principal payments on both Senior and subordinated debt obligations. The Company is dependent on the outcome of the Creditor Protection Proceedings and requires additional financing in order to complete the restructuring of the various debt obligations and fund required capital expenditures.
The accompanying condensed consolidated financial statements have been prepared on the assumption the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the 12-month period following the date of the consolidated financial statements. This is contingent upon the Company completing the necessary steps to restructure the existing debt obligations and obtain the Court’s approval of a plan of compromise and arrangement as well as the management’s ability to successfully implement such plan and obtain exit financing, among other things. As a result of the Creditor Protection Proceedings, the realization of assets and the satisfaction of liabilities are subject to uncertainty. As of November 1, 2014 the Company has engaged in a formal sale process with respect to its assets. While restructuring efforts are ongoing, the sale process may result in a sale of some or all of the assets.
Further, the plan of compromise and arrangement could materially change the amounts and classifications of assets and liabilities reported in the historical consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of certain liabilities that may result should the Company be unable to continue as a going concern or as a consequence of the Creditor Protection Proceedings.
Ketza River Status
On September 25, 2014, the Company received a letter from the Yukon Government Department of Energy, Mines and Resources (“Yukon Government”) notifying the Company that it intended to begin undertaking the contracting of maintenance work on access road bridges and seepage control and stabilization of surface water diversion structures at the Ketza River Project property. On September 29, 2014, the Yukon Government withdrew the $2.7 million of restricted funds on deposit with Toronto Dominion Bank to fund this maintenance work. The Company, having already completed initial scoping for some of the work utilizing local resources, is now continuing to work with the Yukon Government to ensure the most efficient and cost effective completion of the works.
| VERIS GOLD CORP. | 4 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
2014 THIRD QUARTER OPERATING HIGHLIGHTS
| · | The Jerritt Canyon operations produced 44,319 payable ounces in the three month period ending September 30, 2014 (“Q3-14”), representing an 18% increase from the 37,544 ounces produced in the three month period ending September 30, 2013 (“Q3-13”). |
| · | Total mine production for Q3-14 was 319,513 tons containing an estimated 51,678 ounces of gold, a 16% increase from the 275,825 tons mined in Q3-13 and a 11% increase in contained ounces of gold compared with 46,637 ounces mined in Q3-13. The primary contributor to the increase in tons as well as contained ounces arose from the significant increase in mined ore produced from the Starvation Canyon mine, approximately 32,478 tons (57%) higher than Q3-13. With the transition to contract mining in the SSX-Steer the Company focused primarily on placing the necessary backfill during the quarter to recover from the deficit built up however this mine continued to produce at levels comparable to the 2013 quarter. |
| · | In Q3-14, the Jerritt Canyon roaster facility achieved total average throughput of 3,590 tons per day (“TPD”), 5% more than the 3,419 TPD achieved in Q3-13 which included a 10 day shutdown. |
| · | The Company continued the development of Saval 4, the fourth underground mine at Jerritt Canyon, throughout the third quarter of 2014, completing the primary access portal and substantially completing the secondary access to allow for the commencement of production. The Company will mine the Saval 4 using existing equipment and crews at a scheduled mining rate between 250 and 350 tons per day grading approximately 0.22 opt. Commercial production, determined based on the mine achieving these planned tonnage rates on a consistent basis, is expected to be achieved late in the fourth quarter of 2014. |
Key financial information
| · | The Company sold 45,216 ounces in Q3-14, a 6% increase from the 42,760 ounces sold in Q3-13 primarily due to the improvement in mining at Starvation Canyon and improved overall mill recoveries. |
| · | The Company recorded a net loss of $6.5 million, during Q3-14, which represented a $11.7 million decreased loss from the $18.2 million net loss recorded in Q3-13. Gold sales revenue in Q3-14 was $57.3 million compared to $57.0 million in Q3-13, driven by an 6% increase in gold ounces sold offset by a 4% decrease in the price-per-ounce of gold sold in Q3-14 compared to Q3-13. |
OVERVIEW
Veris Gold Corp. (“Veris” or the “Company”) is engaged in gold mining and related activities, including exploration and acquisition of gold-bearing properties, extraction, processing and reclamation. The Company’s gold production and exploration activities are carried out in the United States and Canada. Gold is produced in the form of doré, which is shipped to refineries for final processing. The profitability and operating cash flow of Veris is affected by various factors, including the amount of gold produced, the market price of gold, operating costs, interest rates, regulatory and environmental compliance, the extent of exploration activity and capital expenditures, general and administrative costs, and other discretionary costs. Veris is also exposed to fluctuations in foreign currency exchange rates and varying levels of taxation that can impact profitability and cash flow. The Company seeks to manage the risks associated with its business operations; however, many of the factors affecting these risks are beyond the Company’s control.
| VERIS GOLD CORP. | 5 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
Veris receives its revenues through the sale of gold in U.S. dollars, while costs are incurred in both U.S. and Canadian currencies. Therefore, movements in the exchange rate between the Canadian and the U.S. dollars have an impact on profitability.
Jerritt Canyon
The Jerritt Canyon operation consists of a roaster milling facility and three underground mines, Starvation Canyon, Smith and SSX-Steer, and is located in Nevada, U.S.
Jerritt Canyon Operating Highlights
(dollars in thousands except for per ounce amounts)
| Q3 2014 | Q2 2014 | Q1 2014 | Q4 2013 | |||||||||||||
| Gold (troy ounces) | ||||||||||||||||
| Payable Ounces Produced | 44,319 | 44,295 | 26,434 | 33,533 | ||||||||||||
| Gold Ounces Sold | 45,216 | 40,795 | 27,597 | 31,557 | ||||||||||||
| Gold sales (2) | $ | 57,252 | $ | 52,528 | $ | 35,631 | $ | 40,622 | ||||||||
| Cost of gold sold | $ | 48,491 | $ | 49,304 | $ | 35,418 | $ | 46,023 | ||||||||
| Average gold price per ounce | $ | 1,279 | $ | 1,288 | $ | 1,291 | $ | 1,281 | ||||||||
| Q3 2013 | Amended Q2 2013 (2) | Q1 2013 | Q4 2012 | |||||||||||||
| Gold (troy ounces) | ||||||||||||||||
| Payable Ounces Produced | 37,544 | 38,018 | 30,461 | 31,754 | ||||||||||||
| Gold Ounces Sold | 42,760 | 36,590 | 29,776 | 32,198 | ||||||||||||
| Gold sales (2) | $ | 56,993 | $ | 44,936 | $ | 45,360 | $ | 51,799 | ||||||||
| Cost of gold sold | $ | 49,095 | $ | 42,141 | $ | 44,944 | $ | 36,265 | ||||||||
| Average gold price per ounce (1) | $ | 1,331 | $ | 1,388 | $ | 1,625 | $ | 1,703 | ||||||||
| (1) | From Q3-2011 to Q2-2013 the calculated average gold price per ounce includes an adjustment for the amount of consideration ($850 per ounce) that is withheld by DB as repayment of the forward gold purchase agreement. With the change in accounting in Q3-2013 this adjustment is no longer required. |
| (2) | Gold Sales amount does not include either (a) toll milling revenue, which commenced in Q2-2013 (Q3-2014: $nil, Q2-2014: $0.8 million, Q1-14: $nil, Q4-2013: $3.1 million, Q3-2013: $3.3 million, Q2-2013: $1.7 million); nor (b) gold produced from mines treated as development stage assets for accounting purposes which includes gold produced and sold from Starvation Canyon during Q2-2013 (2,453 ounces or $3.5 million gold sales) and gold produced and sold from Saval during Q3-2014 (458 ounces or $0.6 million gold sales). |
Mining
The Company mined a total of 319,513 tons, including 5,075 Saval development tons and 9,975 tons from remote stockpiles, in Q3-14, containing an estimated 51,678 ounces. This mining production represents a 16% increase from 275,825 tons of mine production in Q3-13; and is a 11% increase from the estimated 46,637 ounces mined in Q3-13. The majority of this increased mine production in Q3-14, compared to Q3-13, resulted primarily from increased tonnage from Starvation Canyon as the production rate in the comparative 2013 quarter continued to ramp up to current levels as well as improved tonnage from the SSX-Steer with the transition to contract mining.
| VERIS GOLD CORP. | 6 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
In Q3-14 Small Mine Development, LLC (“SMD”) delivered approximately 134,127 tons of ore containing an estimated 22,202 ounces of gold from the Smith mine. This represents mine production of 1,458 tons-per-day (“TPD”) in Q3-14, above the targeted 1,200 TPD. This is a decrease of mined ore from the Smith mine from Q3-13, which was 141,369 tons mined, containing an estimated 22,518 ounces, an average of 1,537 TPD for that quarter. The estimated average blended grade achieved at the Smith mine was 0.17 ounces-per-ton (“OPT”) in Q3-14, an increase from the 0.16 OPT achieved in Q3-13.
In Q3-14 SMD delivered approximately 89,158 tons of ore from the Starvation Canyon mine containing an estimated 17,108 ounces, an average grade of 0.19 OPT. This mining rate translates to 969 TPD for the quarter, well above the 700 TPD that was targeted. This is also an increase of mined ore from the 56,680 tons, or 616 TPD, mined in Q3-13 containing an estimated 12,234 ounces, the first full quarter of operations at Starvation Canyon, an average grade of 0.22 OPT.
Mine production at the SSX-Steer mine was 81,178 tons for Q3-14, containing and estimated 10,903 ounces. This is approximately 882 TPD in Q3-14, slightly less than the 1,000 TPD targeted but greater than the 845 TPD achieved in Q3-13. This is a 4% increase from the 77,776 tons mined from the SSX-Steer mine in Q3-13 but an 8% decrease in contained ounces with an estimated 11,885 ounces delivered. This improvement in production was achieved despite SMD’s efforts to improve backfill and development to further improve mining rates going forward however the lower overall grade (0.13 OPT in Q3-14 versus 0.15 OPT in Q3-13) was a result of this focus.
Mining production rates continue to improve since the transition to contract mining at SSX-Steer mine in Q2-14. The Company is in a good position to achieve the 2014 production targets as it expects continued improvement in mining production which will be supplemented by mining at Saval mine upon the commencement of production. The Company exited the third quarter of 2014 with a stockpile of 70,624 wet tons containing approximately 7,969 ounces. Mine production from Starvation Canyon continues to exceed targets and Smith mine is above expected tonnage rates as well. The backfill and development deficit that has been built up at the SSX-Steer will be completely caught up by Q1-15, however, production rates will continue to improve throughout that time period.
Processing
The Jerritt Canyon roaster facility processed approximately 330,300 tons in Q3-14, a 5% increase from the approximately 314,506 tons processed through the roasters in Q3-13. The Company continued to optimize mill throughput and took minimal scheduled down periods during the quarter which accounted for the improvement in Q3-14 compared to Q3-13.
| VERIS GOLD CORP. | 7 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
Exploration
Underground Definition Drilling (Contractor and Veris) – Smith, SSX-Steer, Starvation Canyon, and Saval 4 Mines
For the Q3-14 a total of 205 cubex reverse circulation definition drill holes totaling 26,310 feet were completed at the Smith, SSX-Steer, Starvation Canyon (“Starv”), and Saval 4 underground mines by Veris and SMD. SMD continued drilling underground definition drill holes using their own cubex (RC) drill in the Smith mine, focusing on Zones 4, 7, and 8 where a total of 11,135 feet in 117 drill holes were completed. SMD drilled a total of 9,680 feet in 58 cubex drill holes in the SSX-Steer mine at Zone 7. Included in the SSX-Steer drill hole total are 28 exploration drill holes totaling 5,380 feet. At Starvation Canyon mine, SMD completed 23 exploration cubex drill holes totaling 4,665 feet at the following headings: 7110 xc24, 7110xcC, 7110N decline, and 7000 xc18. No delineation drilling occurred at Starvation during Q3-14. Underground RC cubex drilling commenced at the Saval 4 mine in September where a total of 7 definition drill holes totaling 830 feet were completed by the Company in heading 7225 xc5.
Underground Diamond Drilling (Contractor)
No underground contract diamond drilling was done during Q3-14. Two drill stations have been developed in the SSX-Steer Zone 1 exploration drift in preparation for recommencement of these core drilling operations once the Company restructuring is completed and the required funds become available. The underground diamond drilling ceased in late November to conserve cash and focus on other mine development priorities. Five diamond drill hole assays were received in Q3-14 from the Jerritt Canyon assay lab. Nineteen of the SSX-Steer diamond drill holes completed in 2013 have assays still in progress at the ALS commercial lab. The goal of the 2013 underground diamond drilling program was to convert resources to reserves and to explore for additional resources in order to extend the current 6 year Life of Mine plan (as identified in the current December 31, 2012 NI 43-101 Technical Report).
During Q3-14, there was no additional excavation on the planned 1,000+ foot long SSX-Steer exploration drift from Zone 1 to Zone 9. Since the exploration drift excavation work started on March 31, 2013 the drift face has advanced a total of 310 feet from the initial base point. Additional excavation of this drift is planned in the future and will eventually become a development drift. This drift is critical in order to help convert resources to reserves at the northeastern Zone 9 West Mahala inferred resource pod and to allow additional near-mine exploration from several new drill stations as well as expand access for mining in Zone 1. Drilling will start from the drift once the Company restructuring is completed and the monies are secured and approved by Management.
| VERIS GOLD CORP. | 8 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
Surface Exploration
The Company did not conduct any surface exploration drilling at Jerritt Canyon during Q3-14. The 2014 Exploration budget has not been implemented due to the present condition of the Company. Detailed planning continues for the future 2015 surface exploration program. Drilling targets are being prioritized and will focus on near-mine underground resource conversion. SSX-Steer (including West Mahala), and Smith will be the primary areas for the resource conversion drilling. If money and time allows, some surface drilling will also focus on priority stand-alone targets including West Starvation Canyon, Mahala Basin, the ND Fault Zone (Bidart), and Warm Creek.
Modeling
Geological modelling and updated block models were completed at the three active underground mines in Q3-2014 to support the mining operations. Current drill hole databases in each mine area were used to generate these model updates.
Environmental
During Q4-13 the Company and the NDEP negotiated and executed a second modified consent decree (the “Second Modified CD”), removing many of the completed requirements included in the previous modified Consent Decree. The primary focus in Q2-14 was on compliance and completion of key components of the Second Modified CD. During Q1-14 submittal and subsequent approval of the engineering design changes (EDCs) for treatment at the Snow Canyon and Gracie RDAs along with plans to rejuvenate the existing treatment at Marlboro Canyon RDA was completed. The Company received approval on all EDCs, a significant step towards the extinguishment of the Second Modified Consent Decree. A Bid Request was submitted to multiple contractors and the Company was able to accept a bid that was on target with the original engineer’s estimate. With a contractor chosen and approval from both the NDEP and Forest Service during Q3-14, the Company began and has nearly completed the rejuvenation of the Marlboro Canyon RDA. Rejuvenation of the RDA included removing an approximately 180 foot section of the initial trench and installing new media. The media is comprised of wood chips, sawdust, straw, limestone, and manure that formed part of the original trench.
The Company has continued operation of the DASH water treatment plant. The treatment plant addresses multiple methods for sulfate and TDS removal from various water streams including reverse osmosis (RO) membrane treatments and an active method that involves lime and barium carbonate addition. RO was not tested at bench scale, so operation of the pilot system will yield initial results for RO as a water treatment option.
Testing of the active lime and barium addition process was further evaluated during Q3-14 at the DASH water treatment plant. The main problem currently is feeding the chemicals into the system. The Company’s staff is in the process of refining the chemical addition process before results of the effectiveness can be evaluated.
| VERIS GOLD CORP. | 9 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
The Company made additional efforts to extinguish the CD by ensuring all required operating permits are in place. In addition to receiving the Air Quality Permit on March 31, 2014, The Company successfully completed and submitted the renewal application for the Water Pollution Control Permit (WPCP). The WPCP is still under review, but the Company did receive notification that the application was deemed complete and review is underway.
The Q3-14 bathymetric survey that was conducted on September 22, 2014 calculated approximately 195,000 gallons of solution in Tailings Storage Facility 1 (TSF1). This survey confirmed that The Company had met the Second Modified CD requirement to be below 10 million gallons by September 30, 2014. Since this survey, The Company has continued to see a reduction and at current, there is no standing water in TSF1. Further, The Company has also begun closure of TSF1 which involves moving material from the Heap Leach Pad to TSF1 to act as cover. Closure of TSF1 also addresses closure of the Heap Leach Pad.
Additional items included in the Company’s Schedule of Compliance (SOC) have been addressed as well. Testing of the Corrective Action Plan relating to mill-site groundwater contamination began in Q2-14. During Q3-14, the well addressed in the Corrective Action Plan dried out and pumping could not continue. Because of the lack of water, the Company has been unable to complete the testing of the Pump and Treat system however the Company will continue to monitor the water levels and restart pumping if the situation arises. The results gathered from the pilot system will determine if a full-scale carbon treatment system is appropriate.
The Company also completed the SOC item to install eight piezometers surrounding Tailings Storage Facility 2 (TSF2). The installation of these wells is due to the high volume of water removal in between the primary liner and the secondary liner. The eight piezometers were installed to verify the integrity of the secondary liner of TSF2. Of the eight piezometers, seven were dry. One well had and continues to have water but the water is clean water with characteristics of meteoric water.
Another SOC work was conducted on the East Water Storage Reservoir (EWSR). The Company was required to complete repairs on the EWSR prior to continuing use of the pond. The liner repairs have been completed. The Company is currently in the process of verifying the liner repairs by monitoring the pumping rates from between the primary and secondary liners. The Company completed transfer of the water from the West Water Storage Reservoir (WWSR) to the EWSR and is currently working on the liner repairs for the WWSR.
Other work completed by the Company included the submission of an EDC for replacement of the CIL Courtyard as the containment is compromised. The EDC was approved by the NDEP during Q3-14 and the Company will begin construction after winter due to the fact that the cold temperatures can compromise the integrity of the concrete. The Company also upgraded and replaced several process pond fences. The Nevada Division of Wildlife (NDOW) has requirements set forth regarding fence regulations surrounding process ponds. The Company had noted some deficiencies. These deficiencies were corrected in Q3-14 and NDOW were pleased with the work the Company had completed.
| VERIS GOLD CORP. | 10 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
The Company also completed the Title V Air Quality Operating Permit testing requirements during Q3-14. The testing was completed in two separate trips and some of the results are pending.
The Company has continued discussions with both the NDEP and the USFS regarding the incremental bonding requirements arising from the 2014 Annual Work Plan (“AWP”) submitted in June 2014. In the AWP the Company provided engineering estimates for the cost of reclamation for the rock disposal areas, the last remaining item for completion under the 2009 Consent Decree, totalling $5,047,888 which was accepted and acknowledged by the NDEP. This bonding along with a number of other items identified by the NDEP as residing on public lands were transferred to the jurisdiction of the USFS in their bond determination letter. The total proposed bonding from the NDEP required an increase to the existing private lands bonding of $4,073,464 however a number of items (such as the removal of Calomel which is substantially complete) were negotiated out of this and the final private lands bonding requirement for 2014 settled at $1,086,497 and a payment plan established and accepted to fulfill this requirement by June 30, 2015. The NDEP has requested the Company provide further details in support of the use of the seepage remediation trenches (“SRT’s”) to be used for the remediation of the water runoff from the RDA’s and the Company has supplied significant supporting documentation in recent letters with further details to be provided in upcoming weeks.
The public lands bonding requirement under the USFS requires a total of $10,040,627 of bonding, $6,802,496 of which pertains to the original estimate for the reclamation of the RDA’s with a 35% indirect cost provision top up. The remaining increase is a result of the application of the indirect costs to other bonding that had been transferred to the USFS from the NDEP. The Company has proposed to the USFS that the bonding for the RDA be reduced by the $3,185,916 estimated construction cost included as this work is to be carried out in 2015, leaving just the $2,513,662 for 20 years of operating and maintenance of the SRT’s and also the construction of the East Dash SRT which is currently not scheduled while the Company continues testing a the existing water treatment facility. The Company requested deferral of this bonding requirement until further work was carried out in 2015 to refine the estimates. The remaining bonding requirement was proposed to be paid in 4 installments commencing on March 31, 2015. The Company has yet to hear from the USFS but has had ongoing conversations to date that have been largely supportive of this arrangement.
Subsequent to September 30, 2014, $22.9 million of the Company’s funds on deposit with Chartis, which were restricted for reclamation and mine closure obligations with the NDEP and the US Forestry Service, were transferred to the NDEP.
| VERIS GOLD CORP. | 11 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
Ketza River
The Company did not conduct any exploration drilling in Q3-14 at Ketza River. During the quarter, the Company continued to collect additional environmental baseline data to support the company’s permitting activities, including water quality and flow data. The Company is still pursuing a water license for the existing tailings pond. Maintenance activities and environmental monitoring associated with the existing tailings pond is ongoing with some activities mandated by regulatory authorities. In light of the current Creditor Protection Proceedings the Company has curtailed any significant expenditures at Ketza River except for those focused on maintaining the facilities and ensure ongoing environmental compliance obligations are maintained.
SUMMARY OF QUARTERLY RESULTS
(in thousands of dollars, except for share and per share amounts)
| Q3 2014 | Q2 2014 | Q1 2014 | Q4 2013 | Q3 2013 | Amended Q2 2013 | Q1 2013 | ||||||||||||||||||||||
| Statement of Operations | ||||||||||||||||||||||||||||
| Gold Sales | $ | 57,252 | $ | 52,528 | $ | 35,631 | $ | 40,622 | $ | 56,993 | $ | 44,936 | $ | 45,360 | ||||||||||||||
| Toll Milling | - | 826 | - | 3,054 | 3,304 | 1,710 | - | |||||||||||||||||||||
| Revenue | $ | 57,252 | $ | 53,354 | $ | 35,631 | $ | 43,676 | $ | 60,297 | $ | 46,646 | $ | 45,360 | ||||||||||||||
| Cost of gold sold | 48,491 | 49,304 | 35,418 | 44,705 | 49,095 | 42,141 | 44,944 | |||||||||||||||||||||
| Gross margin before D&D (1) | 8,761 | 4,050 | 213 | (1,029 | ) | 11,202 | 4,505 | 416 | ||||||||||||||||||||
| (Loss) income from operations | (1,817 | ) | (4,824 | ) | (7,085 | ) | (41,336 | ) | 4,504 | (2,733 | ) | (5,528 | ) | |||||||||||||||
| (Loss) income before taxes | (6,529 | ) | (8,092 | ) | (13,448 | ) | (57,536 | ) | (18,178 | ) | 5,848 | (5,436 | ) | |||||||||||||||
| Net (loss) income | (6,529 | ) | (8,092 | ) | (13,819 | ) | (47,797 | ) | (18,170 | ) | 5,856 | (6,542 | ) | |||||||||||||||
| Basic net (loss) income per share | (0.04 | ) | (0.05 | ) | (0.09 | ) | (0.31 | ) | (0.15 | ) | 0.05 | (0.06 | ) | |||||||||||||||
| Weighted average # of shares outstanding (000's) | 154,378 | 154,378 | 154,378 | 154,265 | 117,609 | 107,641 | 107,641 | |||||||||||||||||||||
| Statement of Financial Position | ||||||||||||||||||||||||||||
| Cash and cash equivalents | 3,740 | 2,793 | 1,503 | 1,161 | 643 | 5,241 | 7,103 | |||||||||||||||||||||
| Total assets | $ | 302,556 | $ | 307,163 | $ | 315,113 | $ | 312,951 | $ | 347,283 | $ | 339,908 | $ | 341,215 | ||||||||||||||
| (1) | Gross margin before depreciation & depletion (“D&D”) is a non-GAAP measure that the Company considers to be a good indicator of the Company’s achieved operating results before being adjusted for non-cash D&D to arrive at mine operating earnings. |
RESULTS OF OPERATIONS
The Company had a net loss of $6.5 million during the quarter ended September 30, 2014 (“Q3-14”), an $11.7 million decreased loss from the net loss of $18.2 million in the third quarter of 2013 (“Q3-13”). The reduced loss in 2014 is primarily the result of the following:
| · | $6.3 million reduced income from operations due primarily to a $2.4 million decreased gross margin before D&D resulting from lower gold prices despite increased gold sales; a $2.3 million increase in depreciation and depletion driven by the commissioning and improved mining of the Starvation Canyon mine and the commissioning second tailing facility in mid-2013; and a $1.6 million increase in G&A from increased professional fees and directors fees incurred since the Company entered creditor protection, on June 9, 2014, under the Companies’ Creditors Arrangement Act (“CCAA”), offset by a lower realized exchange rate on the Canadian dollar, reduced salaries and benefits as well as business development costs; |
| VERIS GOLD CORP. | 12 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
| · | $2.9 million in decreased interest expense due primarily to a $2.4 million reduction in interest from the decreased time to maturity of the Senior Secured Gold Facility (“SSG”), $0.3 million decrease in interest on the convertible debt from the reduced time to maturity, $0.1 million reduction in interest on forward contracts which are currently included in the Creditor Protection Proceedings, and $0.1 million reduction in accretion from a reduction in short term interest rates. |
The decline in gross-margin before D&D in Q3-14 compared to Q3-13 is primarily attributable to the reduction in toll milling revenue from $3.3 million in Q3-14 to $nil Q3-14. The average price of gold realized declined from $1,331 per ounce, in Q3-13, to $1,279 per ounce in Q3-14. This diminished gold price resulted in the equivalent loss of Q3-14 gold revenues of approximately $2.3 million.
Revenue:
For Q3-14, the Company realized gold sales of $57.3 million on the sale of approximately 45,216 ounces of gold, this compares to $57.0 million on sales of approximately 42,760 ounces of gold sold in Q3-13. The primary driver of the increased revenue in Q3-14 versus Q3-13 was a 6% increase in the number of gold ounces sold offset by a 4% decline in the market price for gold.
The Company had $nil in toll milling revenue in Q3-14 compared with $3.3 million in toll milling in Q3-13 as the Company maintained a focus on allocating the majority of available milling capacity to process the Company’s increased high grade ore stockpiles.
Gross-margin before D&D:
In Q3-14, the Company had a Gross Margin of $8.8 million before depreciation and depletion compared to $11.2 million in Q3-13. As previously discussed, this $2.4 million decline was primarily driven by reduction in toll milling revenue from $3.3 million in Q3-14 to $nil Q3-14. The Company was able to offset the 4% reduction in gold revenue per ounce with a 6% increase in gold ounces sold. The successes of the Company’s cost reduction programs were evidenced by a 7% reduction in cash costs per ounce from $1,148 per ounces in Q3-13 to $1,072 per ounce in Q3-14.
The most significant contributor to this decreased mining cost resulted from a continued improvement in production rates at Starvation Canyon as the current quarter benefited from a year of production compared to Q3-13 which was the first quarter of production since the mine had been commissioned.
Depreciation and depletion (“D&D”):
The Company had $7.8 million in depreciation and depletion in Q3-14 compared to $5.5 million in Q3-13. The increase in D&D resulted from an increase in the depreciable and depletable asset base, primarily from the commissioning of the Second Tailing Facility midway through Q3-13 as well as increased depletion from the improved mining results at the Company’s Starvation Canyon mine.
| VERIS GOLD CORP. | 13 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
G&A expense:
In Q3-14 the Company incurred G&A expense of $2.8 million compared to the $1.2 million incurred in Q3-13. Share based payment expenses included in G&A fell from $0.1 million in Q3-13 to $nil in Q3-14. These expenses are for corporate head office and transactions costs and are primarily comprised of salary and benefit costs as well as professional and consulting fees, predominantly incurred in Canadian dollars. The $1.6 million increase in Q3-14 from Q3-13 is primarily from increased professional fees incurred since the Company entered creditor protection, on June 9, 2014, under the Companies’ Creditors Arrangement Act (“CCAA”) combined with increased directors fees, offset by a lower realized exchange rate on the Canadian dollar as well as reduced salaries and business development costs.
Interest expense:
Interest expense is comprised of:
| Three months ended September 30, | ||||||||
| 2014 | 2013 | |||||||
| Interest on senior secured gold facility | $ | (2,254 | ) | $ | (4,631 | ) | ||
| Interest on convertible debt | (1,473 | ) | (1,768 | ) | ||||
| Accretion of decommissioning and rehabilitation provisions | (416 | ) | (471 | ) | ||||
| Interest on finance leases | (89 | ) | (105 | ) | ||||
| Interest on forward contracts | - | (127 | ) | |||||
| Interest on net smelter returns royalty facility | (144 | ) | - | |||||
| Other interest (expense) income | (51 | ) | (205 | ) | ||||
| $ | (4,427 | ) | $ | (7,307 | ) | |||
Interest expense in Q3-14 was $4.4 million compared to $7.3 million in Q3-13. The $2.9 million decrease in interest expense is primarily from a $2.4 million reduction in interest due to the decreased time to maturity of the Senior Secured Gold Facility and a $0.3 million reduction in interest on convertible debt from the reduced time to maturity, $0.1 million reduction in interest on forward contracts which are currently included in the Creditor Protection Proceedings, and $0.1 million reduction in accretion from a reduction in short term interest rates.
Finance and transaction costs:
Finance and transaction costs in Q3-14 were $0.1 million compared to the $0.8 million in Q3-13. As described above, these costs are comprised of the expensed portion of costs incurred on financing activities undertaken in the period; as well as the amortization of previously deferred transactions costs, incurred on financing activities. The most significant decrease in these costs was due to an absence of financing activities in Q3-14 compared to a public offering and private placement completed, with associated transaction costs, in Q3-13.
| VERIS GOLD CORP. | 14 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
Derivative gain (loss):
Derivative gains (losses) are comprised of:
| Three months ended September 30, | ||||||||
| 2014 | 2013 | |||||||
| Gain (loss) on warrants | $ | 191 | $ | (2,356 | ) | |||
| Gain (loss) on convertible debt embedded derivatives | 6 | (222 | ) | |||||
| Gain on senior secured gold embedded derivatives | 47 | 201 | ||||||
| Loss on net smelter returns royalty embedded derivatives | 31 | - | ||||||
| Loss on recognition of senior secured gold facility | - | (12,119 | ) | |||||
| $ | 275 | $ | (14,496 | ) | ||||
Non-cash derivative gains in Q3-14 were $0.3 million compared with losses of $14.5 million in Q3-13. Warrants denominated in Canadian dollars are revalued at each reporting period with change in fair value recorded to net income. Warrants accounted for gains of $0.2 million in Q3-14 compared to losses of $2.4 million in Q3-13. The gains in Q3-14 were driven by a reduction in the time to maturity, while the losses in Q3-13 were the result of an appreciation in the Company’s share price during that period.
There was a non-cash loss of $12.1 million in Q3-13 which resulted from the revaluation of the Senior Secured Gold Facility The Senior Secured Gold Facility represents a debt-host contract which was recorded at fair value as of July, 2013 and subsequently measured at amortized cost using the effective interest rate method. There was no such revaluation with resulting loss recognized in Q3-14.
Environmental costs:
Environmental rehabilitation costs are those required to complete reclamation of historic environmental disturbance that was determined and incurred during the current year. Environmental rehabilitation costs of $0.8 million in Q3-14 were elevated from the $0.2 million incurred in Q3-13 as a result of the removal of calomel waste from prior year’s production as well as the commencement of construction of the SRT at Marlboro Canyon.
LIQUIDITY
Cash and cash equivalents increased from $1.2 million at December 31, 2013 to $3.7 million at September 30, 2014. As at September 30, 2014 the Company had a working capital deficiency of $187.0 million compared to a working capital deficiency of $167.1 million at December 31, 2013. This decrease in working capital is primarily the result of: a $3.1 million decrease in inventory due to reductions in supply and gold inventory; a $2.8 million increase in accounts payable; a $8.1 million increase in the revalued Senior Secured Gold Facility using the effective interest method; a $0.3 million increase in forward contracts from interest on outstanding balances; a $9.2 million increase in current convertible debt resulting primarily from reclassification of the long term portion given all convertible debt is due immediately as a result of the Creditor Protection Proceedings; a $1.2 million increase in current obligations from the issuance of the NSR; offset by a $2.6 million increase in cash from the issuance of the NSR and improved cash flow from operations; a $1.2 million increase in accounts receivable and other due to an increase in prepayments made to continue supplier relationships through the Creditor Protection Proceedings; a $0.8 million reduction in finance lease obligations from payments made during the year; and a $0.3 million decrease in embedded derivative liabilities as a result of the decline in the Company’s share price.
| VERIS GOLD CORP. | 15 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
Operating:
During the quarter ended September 30, 2014 the Company recorded a net loss of $6.5 million, which, after adjusting for non-cash items and positive changes in working capital of $0.4 million, resulted in operating cash inflows of $5.4 million.
This compares to the quarter ended September 30, 2013 where the Company generated a net loss of $18.2 million, which, after subtracting non-cash items; and negative changes in working capital of $1.7 million, resulted in operating cash inflows of $4.9 million.
The $0.4 million positive change in non-cash working capital in Q3-14 is the result of a $3.7 million decrease in inventories; offset by a $2.6 million increase in accounts receivable; and a $0.7 million decrease in accounts payable. The $1.7 million negative change in non-cash working capital in Q3-13 was the result of a $4.0 million increase in accounts receivable; a $5.3 million increase in inventories; offset by a $7.6 million increase in accounts payable.
Investing:
Capital cash expenditures
| Three months ended September 30, 2014 | ||||||||||||||||
| (in thousands) | Jerritt Canyon | Ketza River | Corporate | Total | ||||||||||||
| Mineral Properties | $ | 3,092 | $ | 350 | $ | - | $ | 3,442 | ||||||||
| Property, plant and equipment | 1,463 | - | - | 1,463 | ||||||||||||
| $ | 4,555 | $ | 350 | $ | - | $ | 4,905 | |||||||||
| Three months ended September 30, 2013 | ||||||||||||||||
| (in thousands) | Jerritt Canyon | Ketza River | Corporate | Total | ||||||||||||
| Mineral Properties | $ | 6,707 | $ | 681 | $ | - | $ | 7,388 | ||||||||
| Property, plant and equipment | 3,984 | - | 3,984 | |||||||||||||
| $ | 10,691 | $ | 681 | $ | - | $ | 11,372 | |||||||||
Significant property, plant and equipment capital expenditures in Q3 2014 include the following:
| · | Mill facilities and equipment ($1.5 million) |
Significant property, plant and equipment capital expenditures in Q3 2013 include the following:
| · | Various mill related equipment ($3.1 million) |
| · | Capital lease payments on mobile and other mining equipment ($0.7 million); |
| · | Environmental and new tailings facility infrastructure ($0.2 million) |
Nevada mineral property expenditures during Q3-14 included the approximate amounts: Smith mine development ($0.9 million); Starvation Canyon mine development, ($0.2 million); SSX-Steer mine development, ($0.8 million) and $1.5 million for the development of Saval, including the completion of the primary access and substantial completion of the secondary egress as well.
| VERIS GOLD CORP. | 16 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
Exploration at Ketza River remained minimal and consistent with prior quarters as the Company continued existing monitoring and remediation programs while continuing to compile available data for the preparation of responses regarding the YESAB proposal.
Financing:
During the second quarter of 2014 the Company closed financing in the form of the sale of a 0.5% Net Smelter Returns royalty for proceeds of $7.5 million. Proceeds were delivered to Veris Gold at the date of closing, April 10, 2014. The royalty relates to the production of gold and silver from the Company’s Jerritt Canyon mines and processing plant, operated by Veris Gold USA Inc. The royalty is applied, at a fixed rate of 0.5%, against proceeds from gold and silver products after deducting treatment, refining, transportation, insurance, and taxes as well as levies charges.
In Q1-14 the Company entered into a gold sales contract which specified that 3,500 troy ounces of refined gold would be sold to the counterparty by April 30, 2014. The Company received 90% of the purchase price, or $4.0 million cash, in Q1-14 and the remaining $0.4 million was received upon final gold delivery in Q2-14. The Company settled the contract and delivered 3,500 troy ounces in Q2-14.
During the second quarter of 2013 the Company closed a financing in the form of an eight-month senior unsecured promissory note (the "Note") with a principal sum of $10.0 million. In connection with the Note, the Company issued 3.4 million common share purchase warrants with an exercise price of US$1.80 per warrant, which have a 5 year life. The Note originally had a maturity date of April 12, 2013 but the Company entered into an agreement to extend the maturity date of the Note to January 12, 2014. Up to the date of maturity the Note had an interest rate of 9% however subsequent to the maturity on the Note (which was extended in Q4-13 to January 12, 2014) the interest rate increased to 21% per annum.
Liquidity risk:
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the preparation of annual budgets along with quarterly updates to identify funding requirements, if any, as well as daily forecasting of its cash flows from operations as well as investing and financing activities to anticipate pending treasury requirements.
The Company had a loss from operations of $1.8 million for the three months ended September 30, 2014 (2013 – income of $4.5 million), and a $5.4 million inflow of cash from operations for the same period (2013 – $4.9 million inflow). At September 30, 2014 the Company had a working capital deficiency of $187.0 million (December 31, 2013 – $167.1 million) and an accumulated deficit of $474.0 million (December 31, 2013 – $445.6 million). On December 31, 2014 the Company missed a gold delivery payment and on January 28, 2014, unable to correct this gold delivery shortfall, either through the delivery of 4,980 ounces or through payment of the cash equivalent, the Company went into default on the DB Senior Secured Gold Facility (“Senior Facility”). As noted previously on June 3, 2014 DB set an early termination date of June 9, 2014 for the Senior Facility requiring payment of $89.4 million on that date. In order to prevent DB from possibly realizing on security on June 9, 2014 the Company has applied and been granted creditor protection from the Court under CCAA and under ancillary proceedings in the US Court under Chapter 15. The Company expects this process to last several months however during this period ongoing discussions with the creditors is occurring as well as possible new sources of financing to provide for the plan of arrangement needed for exiting CCAA.
| VERIS GOLD CORP. | 17 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
Throughout the year senior management is actively involved in the review and approval of planned expenditures and typically ensures that it has sufficient cash on hand to meet expected operating expenses for 60 days. During the creditor protection proceedings the Company prepares and submits to the Monitor and DB a weekly operational and capital budget which forms the basis of the monthly Cash Collateral budget agreed to in the CCO. This weekly forecast is used to identify potential funding shortfalls within a 3 to 4 month period and allow time to pursue financing or make adjustments to the existing plans.
The unexpected shutdown in December 2013 and January 2014 as well as the 21 day shutdown which occurred in March of 2014 significantly increased liquidity issues facing the Company and ultimately resulted in the early termination notice received from DB and the Company’s entry into CCAA protection. The Company is continuing to pursue financing needed to restructure the existing senior and subordinated debts as well as finance future capital requirements to ensure continuity of operations. The Company intends to restructure the debts on the balance sheet through the Plan as discussed previously and continues to work towards achieving that objective.
There can be no assurance that the Company will successfully complete and implement a plan of compromise and arrangement or that the Plan will be approved by the Court and possibly the creditors of the Company. Also, if the Company is unable to maintain stable operations and generate positive cash flows and if the existing DIP financing proves inadequate to support these activities, the Company will need to curtail operations activities.
The following are the contractual maturities of the undiscounted cash flows of financial liabilities at September 30, 2014:
| Less than 3 months | 4 to 12 months | 1 to 2 years | Greater than 2 years | Total | ||||||||||||||||
| Accounts payable and accrued liabilities | $ | 87,174 | $ | - | $ | - | $ | - | $ | 87,174 | ||||||||||
| Finance lease obligations | 823 | 1,730 | 553 | - | 3,106 | |||||||||||||||
| Convertible debt | 19,168 | - | - | - | 19,168 | |||||||||||||||
| Forward contracts | 24,428 | - | - | - | 24,428 | |||||||||||||||
| Senior secured debt facility | 85,421 | - | - | - | 85,421 | |||||||||||||||
| At September 30, 2014 | 217,014 | 1,730 | 553 | - | 219,297 | |||||||||||||||
CAPITAL RESOURCES:
The Company had a cash balance of $3.7 million as of September 30, 2014. The Company has a total of $56.3 million of cash classified as restricted at September 30, 2014 (December 31, 2013 - $56.4 million), primarily related to cash restricted under the existing bonding requirements for the future reclamation at the Jerritt Canyon property.
| VERIS GOLD CORP. | 18 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
The Company invested the funds from the December 2013 public offering to assist with payments to the Senior Secured Gold Facility, to upgrade and refurbish the dry mill equipment at its Jerritt Canyon mill operations, and to fund general working capital. The Company invested the funds from the August 2013 public offering and September 2013 private placement into the refurbishment of its Jerritt Canyon mill operations; continued development of the underground mine facilities at the existing mines as well as at the Saval 4 Gold Mine; to fund bonding required for future reclamation obligations; to ensure that debt payments are met; and for general working capital purposes. Proceeds from the Flow-Through Units have been used to fund exploration activities at the Company's Ketza River property in the Yukon however the Company has utilized the proceeds as well to support working capital requirements. Proceeds from the NSR were used for working capital purposes to support the restart activities subsequent to the 21 day shutdown in March 2014. These activities required significant payments to vendors to ensure continuity of supply of both services and supplies, with a primary focus on providing funding to the mining contractor on site.
The Company invested the funds from the December 2012 public offering primarily into the development of the Starvation Canyon mine but also for funding required bonding obligations and general working capital purposes. The Company further funded the commencement of development on Saval 4 and completed the development of Starvation Canyon with $8 million drawn from the performance reserve funds relating to the August 2011 Forward Gold Purchase Agreement in February 2013; along with $10 million in proceeds obtained from an eight-month senior unsecured promissory note received in April, 2013, described in detail below in the Commitments section of the MD&A. With development work completed, and the full ramp up of the mine’s operations, it is expected that sufficient funds will be generated to support the ongoing sustaining capital requirements.
Throughout 2013 the Company pursued opportunities to restructure the existing debt commitments, primarily focusing on increasing the duration of the existing facilities, either by extending the existing terms or through the buyout of the debt under new terms, enabling it to invest further funds into existing operations or pursue further improvements to the capital structure. Due to the events of December and the resulting shutdown and default on the Senior Facility, the Company accelerated the need for a complete refinancing of the capital structure, including a Company led buyout of the Senior Facility. In February 0f 2014 the Board of Directors of the Company appointed a Special Committee, comprised of two independent and one non-independent Director, to review the current options and work with the appointed advisor to develop and explore restructuring alternatives. Although the Company is currently in CCAA these efforts are ongoing and negotiations with the senior lender, DB, as well as the subordinated lenders are ongoing as the Company works to develop the Plan to allow for an exit from the Creditor Protection Proceedings by early 2015.
| VERIS GOLD CORP. | 19 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
COMMITMENTS
On August 12, 2011, the Company entered into a Forward Gold Purchase Agreement (the “Agreement”) with Deutsche Bank, AG, London Branch, which holds more than 10% of the Company’s issued and outstanding common shares. Under the Agreement the Company received a gross prepayment of $120 million (the “Prepayment”), of which net cash proceeds of $73.5 million were received on August 12, 2011. Under the terms of the Agreement, the Company has sold to DB, a Contract Quantity of Gold in the amount of 173,880 ounces to be delivered to DB over a forty-eight month term commencing September 2011. The scheduled future gold deliveries to DB are: (i) 1,000 ounces per month during the first nine months of the term; (ii) 2,000 ounces per month for the following nine months of the term; and, (iii) 4,330 ounces per month for the final thirty-nine months of the term. On February 7, 2012, the Company entered into a Second Forward Gold Purchase Agreement with DB (the “Second Agreement”). Under this agreement, the Company received a gross prepayment of $20 million, of which net cash proceeds of $18.9 million were received on February 8, 2012, in exchange for the future delivery of 650 ounces of gold per month, over a forty-three month term commencing March 31, 2012, representing total future delivery of 27,950 ounces of gold.
As previously discussed, on January 28, 2014, the Company received a notice of default from Deutsche, with respect to payment defaults under the forward gold purchase Agreements. The Notice of Default relates to the failure to make the monthly December gold delivery, or pay the cash equivalent of the gold delivery shortfall, for December, 2013, under each of the Agreements. As noted above, the Senior Facility has now been terminated as of June 9, 2014 and the entire $89.4 million is due effective immediately. As the Company is currently under a Court ordered stay this debt, along with all other debts incurred prior to June 9, 2014, are stayed from further payment until a plan of compromise and arrangement is approved by the Court.
On January 12, 2012, the Company entered into a forward sales contract with a related party (Note 10) which required delivery of 3,665 ounces of gold by June 12, 2012 or a cash payment of $6.0 million at the option of the related party. In June 2012 the Company and the counterparty agreed that the gold delivery required to settle the contract would be extended to August 30, 2012, resulting in an agreed upon late-settlement charge of 2.25% per month on the outstanding balance being imposed on the Company. This resulted in an additional charge of $0.4 million, or an estimated 165 ounces being due on August 30, 2012. During the second quarter of 2013, the Company and the counterparty agreed to extend settlement of the contract to June 30, 2013. Under the terms of the extension, the counterparty received the option to receive an amount of $6.6 million, or alternatively the right to receive 3,839 troy ounces of refined gold. No settlement was made on either June 30, 2013, or since. As part of the ongoing extension and renegotiation discussions since June 30, 2013, the Company made a payment of $0.5 million to the counterparty in September, 2013, this payment being almost entirely accrued interest. The fair value of the January 2012 forward contract as at September 30, 2014 was $7.1 million (December 31, 2013 - $6.8 million). The Company incurs certain contractor and lease expenses which are charged to the related party, and to date these charges remain unpaid ($1.0 million as at September 30, 2014). The Company is evaluating the legal alternatives with respect to such non-payment however believes that these charges may ultimately form the basis for the final settlement under the current Creditor Protection Proceedings.
| VERIS GOLD CORP. | 20 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
On November 25, 2010, the Company entered into a gold sales contract which specifies that 6,255 troy ounces of refined gold would be sold to the counterparty by May 30, 2011. In return, the Company received an upfront payment of $7.0 million cash. No refined gold was delivered to the counterparty by May 30, 2011, and several extensions of the delivery date have been accepted by the counterparty since that date. As at June 30, 2014, the contract had not been settled. Since May, 2011, the Company has been accruing a late payment penalty of 2.25% per month until the last known maturity date, and has been considering a possible cash payment in lieu of a delivery of physical gold. The Company does not acknowledge any liability to pay interest at the accrued rate. The recorded value based on a mark-to-market valuation of the November 2010 forward contract as at September 30, 2014 was $17.3 million (December 31, 2013 - $17.3 million) however the Company believes that, based on the underlying legal documentation in place, this value is a reflection of the maximum potential liability and that the reasonable amount of the liability is approximately $10.5 million. As at September 30, 2014, no payments have been made for this forward agreement and the repayment of the gold forward is stayed under the current Creditor Protection Proceedings.
The Company issued unsecured convertible debentures on June 15, 2012, July 19, 2012, and October 11, 2012 for gross proceeds of C$6.0 million, C$4.0 million, and C$2.0 million, respectively (collectively, the "Debentures"). The Debentures bear interest at a rate of 11% per annum and have December 15, 2015, January 19, 2016, and April 11, 2016 maturity dates (the "Maturity Date"), respectively. At the option of the holder, the principal amount of the Debentures, and all interest accrued thereon, will be convertible into common shares of the Company (the "Shares") at any time after expiry of the four month hold period of the Debentures and prior to the close of business on the Maturity Date, based on a conversion price equal to the greater of: (a) $1.50; and, (b) the market price of the Shares, as defined in the TSX Company Manual, discounted by 5% per Share. The convertible debentures became payable immediately upon the Company entering Creditor Protection Proceedings but is stayed under those same proceedings.
On April 12, 2013, the Company entered into a senior unsecured promissory note, which was amended on May 15, 2013 (the “Note”) with a principal sum of US$10.0 million. The Note bears an interest at a rate of 9% per annum and will mature on December 12, 2013, then January 12, 2014. In connection with the Note, the Company issued to the counterparty (the “Lender”) 3.4 million five-year common share purchase warrants with an exercise price of $1.80 per warrant. In connection with the Note transaction, the Company also paid a finder’s fee equal to 4% of the aggregate gross proceeds to Casimir Capital Ltd. (“Casimir”) and also issued Casimir 100,000 common share purchase warrants with an exercise price of $1.85 and a term of two years from the Closing Date. The Note provides that from and after the maturity date or at the election of the Lender an Event of Default (as defined in the Note), the principal may be converted, in minimum increments of $500,000 and no more than 20% of the original principal of the amended Note in any one 30-day period, into common shares of the Company based on a conversion price equal to the greater of: (a) US$0.50, provided that if the US$0.50 floor price would cause the Lender’s ownership interest in the Company to be greater than 19.9% of the Company’s issued and outstanding common shares, the floor price shall be the price that would cause the Lender’s ownership interest in the Company to be equal to 19.9% of the Company issued and outstanding common shares; and (b) the Market Price (as defined in the TSX Company Manual) of the Company’s common shares discounted by 10% per share. The ability of the Lender to exercise its option to convert the principal into common shares remains subject to TSX approval at the time of the conversion. In addition, pursuant to the terms of the Note, the Company issued to the Lender an additional 500,000 common share purchase warrants with an exercise price of US$1.80 and an expiry date of April 12, 2018. The Company used the proceeds of the Note to complete development of the Starvation Canyon Mine, which commenced preproduction on April 6, 2013. As of December 31, 2013 the US $10 million principal, and accrued interest of $0.5 million, had not been paid and remained outstanding. Subsequent to December 31, 2013 the Company entered into an agreement with the Lender to extend the maturity date of the Note to January 12, 2014, and to amend the exercise price of the related warrants from US$1.80 to CAD$0.50. The amendment to the exercise price of the warrants became effective as of February 14, 2014. The principal amount was not settled on the extended January 12, 2014 maturity date, this resulted in the Company incurring interest on the outstanding balance at a rate of 21% per annum, payable monthly. As at September 30, 2014, no further payments have been made for principal or interest due under this note and any further payments are stayed under the current Creditor Protection Proceedings.
| VERIS GOLD CORP. | 21 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
On April 9, 2014, the Company closed financing in the form of the sale of a 0.5% Net Smelter Returns royalty for proceeds of $7.5 million. Proceeds were delivered to Veris Gold at the date of closing, April 10, 2014. The royalty relates to the production of gold and silver from the Company’s Jerritt Canyon mines and processing plant, operated by Veris Gold USA Inc. The royalty is applied, at a fixed rate of 0.5%, against proceeds from gold and silver products after deducting charges for treatment, refining, transportation, insurance, taxes and levies. The Company retains the right to buy-back the royalty until June 30, 2015 for the purchase price plus a premium based on the price of gold or alternatively if the Company enters into another royalty with an arms-length third party the buyback is calculated based on the sale price of the new royalty.
OUTLOOK:
As a result of the events leading up to, and including, the initiation of the Creditor Protection Proceedings, the Company has significantly curtailed non-essential capital expenditures. As discussed below, due to the lack of liquidity available to fund these expenditures during the Creditor Protection Proceedings the Company has not performed any drilling other than development related activities and has deferred any significant non-essential expenditures although the Company has commenced dewatering activities as options requiring minimal capital have been identified. However, this curtailment of capital expenditures, if continued, will eventually result in a decline in production levels although the Company believes it can maintain current production levels for an extended period of time. To support this level of production the Company is evaluating areas within Jerritt Canyon where reserves can be accessed in the near term, to supplement production from the existing underground mines. The Company is also in discussions with third parties for toll treatment of their ores and has recently signed an agreement with Anova Metals USA, LLC, for potential ore deliveries commencing in mid-2015. The Company is having continued discussions with Newmont USA Ltd. and continues to believe that will be the primary source of third party ore.
| VERIS GOLD CORP. | 22 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
Despite the operational setbacks and lack of available liquidity the Company believes it can sustain a production level of between approximately 145,000 an 155,000 ounces from its three existing underground mines (including Starvation Canyon mine) with increases coming from the fourth new mine, Saval 4, recently permitted for production in October 2014 with the completion of the secondary access portal.
The Company has substantially completed all items under the Consent Decree, including extensive air emissions control equipment for mercury and other particulates at a number of emission sources at the roaster facility. With the signing of a second modified Consent Decree with the NDEP, the timelines have been revised for completing the remaining items (primarily the RDA seepage treatment) and ongoing requirements have been clearly defined. Testing of treatment methods for RDA seepage commenced in 2013 but will require several seasons to determine the most effective solution and also determine what potential bonding would be needed to secure the completion of that work. At Marlboro Canyon the Company substantially completed the construction of one of the three SRT’s approved by the NDEP and required for the water treatment from historical RDA’s resurfaced by the Company in 2012 and 2013.
The Company was unable to post the required $10 million of bonding in lieu of possible penalties (totaling $10.6 million) by May 31, 2014 related to the establishment of the RDA seepage treatment system, hence the penalties became due and payable to the State under the second modified CD. This penalty now forms part of the unsecured creditor class of obligations recorded in the Creditor Protection Proceedings. The Company prepared and submitted the final Annual Work Plan to the State and the US Forest Service in June 2014 and has received preliminary notification related to the updated bonding requirements. The amounts required, totally approximately $11 million currently and detailed previously, are subject to further refinement and discussion, primarily with the USFS as the bonding pertains to the proposed SRT’s on the 3 RDA sites, and the Company has proposed installment plans for providing the required bonding.
The consolidated financial statements are prepared on the basis that the Company will continue as a going concern. The Company’s ability to continue as a going concern and recover its investment in property, plant, and equipment and mineral properties is dependent on its ability to obtain additional financing in order to meet its planned business objectives, primarily for executing the Plan required to exit CCAA and fund expected capital requirements, and generate positive cash flows. However, there can be no assurance that the Company will be able to obtain additional financial resources or achieve profitability or positive cash flows. Failure to continue as a going concern would require that the Company's assets and liabilities be restated on a liquidation basis, which values could differ significantly from the going concern basis.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements as of September 30, 2014.
SUBSEQUENT EVENTS
Subsequent to September 30, 2014, the Company entered into a debtor-in-possession financing agreement ("DIP Agreement") pursuant to which an aggregate amount of up to USD$12 million will be available to support the continued operations during the CCAA proceedings. As of the date of filing, November 14, 2014, the Company had drawn USD$7.5 million pursuant to the terms of the DIP Agreement.
| VERIS GOLD CORP. | 23 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
RELATED PARTY TRANSACTIONS
During the three months ended September 30, 2014, the Company was charged a total of $0.1 million (2013 - $0.1 million) in legal fees by a law firm in which the corporate secretary of the Company is a partner. The amount owing at September 30, 2014 is $0.1 million (as at December 31, 2013 – $0.1 million).
In January 2012 the Company entered into a gold forward contract with a company related by common directors. The fair value of this liability was $7.1 million as at September 30, 2014 (December 31, 2013 - $6.8 million). For the three months ended September 30, 2014, there were no revaluation gains or losses or interest expense recognized (2013 – $nil and $0.1 million interest expense). The Company also charged a total of $0.1 million (2013 - $0.2 million) for contractor and lease expenses to the same company during the three months ended September 30, 2014. The amount receivable at September 30, 2014 is $1.0 million (December 31, 2013 - $0.7 million)
In July 2011 the Company entered into a royalty agreement with a company owned by a director of the Company. The royalty agreement, based on tons processed through the roaster facility, arose in connection with the use of proprietary mercury emissions technology, owned by the related party, at Jerritt Canyon. During the three months ended September 30, 2014, a total of $0.1 million was charged to the Company under this agreement (2013 – $nil). The amount owing at September 30, 2014 is $0.4 million (December 31, 2013 – $0.2 million).
The amounts outstanding are unsecured and will be settled in cash. No expense has been recognized for bad or doubtful debts in respect of the amounts owed by related parties.
Compensation of key management personnel:
The remuneration of directors and other members of key management personnel during the periods were as follows:
| Three months ended September 30, | ||||||||
| 2014 | 2013 | |||||||
| Salaries and short-term benefits | $ | 243 | $ | 388 | ||||
| Directors fees | 60 | 88 | ||||||
| Special committee fees¹ | 240 | - | ||||||
| Share-based payments | - | 163 | ||||||
| $ | 543 | $ | 639 | |||||
1 Remuneration (including accrued) of the Directors and CEO for their services on the special committee, during the three months ended September 30, 2014, were as follows: (a) Directors: $120 thousand and (b) CEO: $120 thousand, and includes some charges related to their activity in the prior quarter as well.
The remuneration of directors and key executives is determined by the compensation committee and is dependent upon the performance of individuals, the performance of the Company, and external market trends.
| VERIS GOLD CORP. | 24 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and judgments that affect the amounts reported in the financial statements. By their nature, these estimates and judgments are subject to management uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant.
Critical accounting estimates that have the most significant effect on the amounts recognized in the financial statements are:
Capitalization of long-term mine development costs
The Company capitalizes mining and drilling expenditures that are deemed to have economic value beyond a one-year period. The magnitude of this capitalization involves a certain amount of judgment and estimation by the mine engineers. The magnitude of this capitalization makes this a critical accounting estimate.
Impairment testing of long-lived assets
At each reporting date, the Company reviews the carrying amounts of its long-lived assets to determine whether there is any indication that those assets are impaired. If such impairment exists, the recoverable amount of the asset is estimated in order to determine the extent, if any, of the impairment. Where the asset does not generate cash inflows that are independent from other assets, the Company estimates the recoverable amount of the cash generating unit (“CGU”) to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell 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 for which estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment is recognized immediately as an expense.
All capitalized exploration and evaluation expenditures are monitored for indications of impairment. Where a potential impairment is indicated, assessments are performed for each area of interest.
Where an impairment subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable value, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment been recognized for the asset (or CGU) in prior years. A reversal of an impairment is recognized as income immediately.
A National Instrument 43-101 compliant estimate of proven and probable reserves and measured, indicated & inferred resources for each mineral property is a critical estimate in evaluating long-lived assets for impairment. In addition, estimates such as the future price of gold and certain capital and operating cost estimates are critical estimates in the evaluation of potential impairment of long-lived assets.
| VERIS GOLD CORP. | 25 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
Decommissioning and rehabilitation provisions
Reclamation costs are estimated at their fair value based on the estimated timing of reclamation activities and management’s interpretation of the current regulatory requirements in the jurisdiction in which the Company operates. Changes in regulatory requirements and new information may result in revisions to these estimates. The estimated asset retirement obligations on both the Jerritt Canyon property and the Ketza River property are fully funded at this date.
Income taxes
Deferred taxation is recognized using the liability method, on unused tax losses, unused tax credits, and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. However, the deferred taxation is not recognized for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred taxation is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred taxation asset is realized or the deferred taxation liability is settled.
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, or on different tax entities, 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 to the extent that it is probable that future taxable profits will be available against which the on unused tax losses, unused tax credits, and temporary difference 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.
Share based payments and valuation of warrants
The fair value of stock options granted, measured using the Black-Scholes option pricing model, is used to measure share-based compensation expense. The Black-Scholes option pricing model requires the usage of certain estimates, which includes the estimated outstanding life of stock options granted.
When the Company issues Units that are comprised of a combination of common shares and warrants, the value is assigned to common shares and warrants based on their relative fair values. The fair value of the common shares is determined by the closing price on the date of the transaction and the fair value of the warrants is determined based on a Black-Scholes option pricing model. Those warrants which are denominated in a currency other than the Company’s functional currency are recognized on the statement of financial position as derivative instruments.
Derivative Instruments
All financial instruments that meet the definition of a derivative are recorded on the statement of financial position at fair value. Changes in the fair value of derivatives are recorded in the statement of operations. Management applies significant judgment in estimating the fair value of those derivatives linked to the price of gold.
| VERIS GOLD CORP. | 26 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements issued are as follows:
Accounting standards adopted January 1, 2014
| i) | IFRIC 21 - Levies (“IFRIC 21”) |
In May 2013, the IASB issued IFRIC 21 – Levies (“IFRIC 21”), an interpretation of IAS 37 – Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”), on the accounting for levies imposed by governments. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past activity or event (“obligating event”) described in the relevant legislation that triggers the payment of the levy. IFRIC 21 was effective January 1, 2014 and was applied retrospectively. The adoption of this interpretation did not have a significant impact on the Company’s condensed interim consolidated financial statements.
Accounting standards effective January 1, 2015 or later
| ii) | IFRS 9 - Financial Instruments (“IFRS 9”) |
The IASB intends to replace IAS 39 – Financial Instruments: Recognition and Measurement in its entirety with IFRS 9 – Financial Instruments (“IFRS 9”) which is intended to reduce the complexity in the classification and measurement of financial instruments. In February 2014, the IASB tentatively determined that the revised effective date for IFRS 9 would be January 1, 2018. The Company is currently evaluating the impact the final standard is expected to have on its consolidated financial statements.
Outlook on Future Earnings
Future net earnings will be primarily impacted by gold production. For 2014, the Company has targeted revised production of 145,000 to 155,000 ounces of gold. The Company is forecasting mining production at its mines to increase in 2014 to over 3,500 tons per day once targeted production levels are reached the new Saval 4 underground mine, scheduled to commence operations late in the third quarter of 2014.
Items also impacting net earnings include the market price of gold price, and changes in fair values of the Company’s share purchase warrants with an exercise price denominated in Canadian dollars. Changes in the fair value of the share purchase warrants are primarily influenced by the Company’s share price as well as the Canadian to USD exchange rate. Generally, if either the share price or the volatility increase, or the Canadian dollar strengthens against the USD, with other factors remaining constant, the fair value of the warrant liability will increase and the Company will record an expense in its future earnings.
The IASB has a work plan in effect which continues to amend and add to current IFRS standards. The Company will monitor the progress of this work plan and assess the impact of the changes on the Company on a timely basis.
| VERIS GOLD CORP. | 27 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash and cash equivalents, receivables, restricted funds, accounts payable and accrued liabilities, borrowings, and derivative liabilities. The Company’s derivative liabilities include forward contracts, the embedded gold derivative component of borrowings, and warrants.
The Company’s financial assets and liabilities are classified as FVTPL and therefore are carried at fair value with changes in fair value recorded in income. Interest income and expense are both recorded in income. The Company’s financial assets and liabilities include cash and cash equivalents, restricted funds, and derivative assets and liabilities. The Company’s derivative liabilities are comprised of: (a) Warrants (considered derivatives due to being denominated in Canadian dollars, a different currency than the Company’s U.S. dollar functional currency); (b) derivative Forward Contracts; and, (c) the gold derivative embedded within the convertible debentures (the “Embedded Derivative”). The fair value of derivative forward contracts are made by reference to the gold spot price at period end. The fair value of the company’s share purchase warrants and embedded derivatives is determined using option pricing models.
Accounts receivables are classified as loans and receivables. Accounts payable and accrued liabilities, as well as the debt component of borrowings are classified as other liabilities and are measured at amortized cost, using the effective interest method. The fair values of accounts receivables, accounts payable and accrued liabilities approximate the carrying value because of the short term nature of these instruments.
RISK ASSESSMENT
There are numerous risks involved with gold mining and exploration companies and the Company is subject to these risks. The Company’s major risks and the strategy for managing these risks are as follows:
Gold price volatility
The price of gold has been historically volatile and this volatility will likely continue both near-term and long-term. Management’s strategy in dealing with this volatility is to expose gold produced by Jerritt Canyon to this volatility (i.e. sell gold at market rates as produced), thus participating in upward movements in price of gold, while also being exposed to downward movements in the price of gold. The Company has currently entered into two derivative forward contracts whereby future settlement will be determined by the future market price of gold. As repayment of these obligations is referenced to the gold spot price, increases in the price of gold will increase the cost of payment.
Further, the Senior Secured Gold Facility with DB, entered into on August 12, 2011 and February 7, 2012 includes the obligation to deliver gold, and/or make net-cash settlements that are a derivative of the market price of gold on the date of the scheduled delivery amount.
Estimates of reserves and resources
Resource estimates involve a certain level of interpretation and professional judgment. In the past the Company opted to utilize the services of Practical Mining LLC and other experienced Independent Consultantsin the National Instrument 43-101 work for both the Jerritt Canyon mine and the Ketza River project. This ensures a consistent methodology is utilized from property to property.
| VERIS GOLD CORP. | 28 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
Environmental risk
Environmental factors must be taken into account at all stages of project development and during mining operations. The Company understands that it is critical to long-term success to operate in an environmentally conscious manner. The operations in Nevada are subject to close environmental regulation from the NDEP and the Company is currently operating under the terms of a Consent Decree signed in October 2009. The Company must continue to comply with the terms and deadlines of the Consent Decree or be subject to further fines until it returns to compliance.
Safety risk
The mining business can present some significant safety risks during all phases of project/mine life. The Company has undertaken several safety related capital improvements to the Jerritt Canyon facilities since acquiring the property in 2007 to mitigate the impact of these risks. These safety related improvements continue to be a component of the capital budget.
Liquidity risk (ability to raise capital)
The availability of capital is dependent on both macroeconomic factors and the Company’s track record in utilizing capital. The industry continues to go through a period of credit tightening, with heightened security requirements and lowered funding expectations, which present significant challenges to companies attempting to obtain financing. The ability to obtain regular debt financing continued to prove difficult for companies without a sufficient history of sustainable earnings.
The Company was able to obtain funds financing in 2013 and 2012 through both debt and equity markets. The Company was able to raise equity financing with both a public offering and a private placement during 2013. Debt financing in 2013 was done by way of issuing the $10 million Note. 2013 experienced downward pressures on market metal prices, with significant declines in precious metal prices. The fall in the gold price resulted in the exodus of capital in gold equities, and as with most gold-mining companies directly impacted the Company’s market capitalization thus increasing the difficulty to do any significant forms of equity financing without incurring significant dilution. Management attempts to use capital resources as efficiently as possible, while being aware of the need to invest money in the finding and developing future gold-bearing ore bodies. The Company’s previously discussed default status with certain creditors has increased the risk relating to the ability to raise capital.
Exploration for future gold resources and reserves
Exploration can be a very capital intensive undertaking for the Company. Management understands this risk and attempts to use available resources as efficiently as possible. The Company determines an appropriate level of exploration expenditures during the budgeting process and the results of these programs are assessed to determine future level of exploration activity.
| VERIS GOLD CORP. | 29 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
OUTSTANDING SHARE DATA
The following is the outstanding share information for Veris as of November 14, 2014:
| # Outstanding (000') | ||||||||||||
| Common shares issued and outstanding | 154,378 | |||||||||||
| Weighted average | Weighted average | |||||||||||
| Outstanding equity instruments | # Outstanding (000') | Exercise price | Years to expiration | |||||||||
| Warrants | 44,550 | $ | 1.50 | 1.6 | ||||||||
| Stock options | 2,964 | $ | 3.34 | 1.1 | ||||||||
DISCLOSURE CONTROLS AND PROCEDURES
Based upon the evaluation of the effectiveness of the disclosure controls and procedures regarding the Company’s consolidated financial statements for the year ended December 31, 2013 and this MD&A, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective to ensure that material information relating to the Company was made known to others within the Company particularly during the period in which this report and accounts were being prepared, and such controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under regulatory rules and securities laws is recorded, processed, summarized and reported, within the time periods specified. Refer below to Internal Control Over Financial Reporting. Management of the Company recognizes that any controls and procedures can only provide reasonable assurance, and not absolute assurance, of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management, including the Chief Executive Officers and Chief Financial Officer, has assessed:
| (i) | the design and evaluated the effectiveness of the Company’s disclosure controls and procedures and |
| (ii) | the design of the company’s internal control over financial reporting as of December 31, 2013 pursuant to the certification requirements of National Instrument 52-109. Management has satisfied itself that no material misstatements exist in the Company’s financial reporting at September, 2013. |
ADDITIONAL INFORMATION
Additional information may be examined or obtained through the internet by accessing the Company’s website at www.verisgold.com or by accessing the Canadian System for Electronic Data Analysis and Retrieval (SEDAR) website at www.sedar.com.
| VERIS GOLD CORP. | 30 |
VERIS GOLD CORP.
Management’s Discussion and Analysis
For the three month period ended September 30, 2014
FORWARD LOOKING STATEMENTS
This report contains “forward-looking statements”, including all statements that are not historical facts, and forward looking information within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian Securities legislation. Forward-looking statements include, but are not limited to, statements with respect to the future price of gold, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, costs and timing of the development of deposits, success of exploration activities, permitting time lines, currency exchange rate fluctuations, requirements for additional capital, government regulation of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”.
With respect to forward-looking statements and the information included in this MD&A, we have made numerous assumptions, including, among other things, assumptions about the price of gold, anticipated costs and expenditures and our ability to achieve our goals, even though our management believes that the assumptions made and the expectations represented by such statements or information will prove to be accurate. By their nature, forward-looking statements and information are based on assumptions and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from future results, performance or achievements expressed or implied by such forward-looking information. Such risks, uncertainties and other factors include among other things the following: gold price volatility; discrepancies between actual and estimated production and mineral reserves and resources; the speculative nature of gold exploration; mining operational and development risk; and regulatory risks. See our Annual Information Form for additional information on risks, uncertainties and other factors related.
Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking statements that are incorporated by reference herein, except in accordance with applicable securities laws.
| VERIS GOLD CORP. | 31 |
Exhibit 99.2
Condensed Interim Consolidated Financial Statements
(Expressed in United States Dollars)
VERIS GOLD CORP.
For the three and nine months ended September 30, 2014 and 2013
| Condensed Interim Consolidated Statements of Financial Position |
| (In thousands of US dollars - Unaudited) |
| September 30, | December 31, | |||||||||||
| ASSETS | Note | 2014 | 2013 | |||||||||
| Current assets: | ||||||||||||
| Cash | $ | 3,740 | $ | 1,161 | ||||||||
| Accounts receivable and other | 7,557 | 6,407 | ||||||||||
| Inventories | 7 | 21,505 | 24,643 | |||||||||
| 32,802 | 32,211 | |||||||||||
| Restricted funds | 8 | 56,299 | 56,369 | |||||||||
| Mineral property, plant and equipment | 9 | 212,803 | 223,600 | |||||||||
| Other assets | 652 | 652 | ||||||||||
| Total Assets | $ | 302,556 | $ | 312,832 | ||||||||
| LIABILITIES | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable and accrued liabilities | $ | 87,174 | $ | 84,373 | ||||||||
| Senior secured gold facility | 13 | 85,421 | 77,309 | |||||||||
| Forward contracts | 11 | 24,428 | 24,086 | |||||||||
| Convertible debt | 14 | 19,168 | 10,000 | |||||||||
| Finance lease obligations | 17 | 2,396 | 3,174 | |||||||||
| Net smelter returns royalty facility | 15 | 1,165 | - | |||||||||
| Embedded derivative liabilities | 13,14,15 | - | 393 | |||||||||
| 219,752 | 199,335 | |||||||||||
| Warrants | 12 | 1,264 | 3,322 | |||||||||
| Convertible debt | 14 | - | 5,521 | |||||||||
| Net smelter returns royalty facility | 15 | 6,599 | - | |||||||||
| Deferred tax liabilities | 745 | 785 | ||||||||||
| Decommisioning and rehabilitation provisions | 16 | 56,109 | 54,970 | |||||||||
| Finance lease obligations | 17 | 649 | 2,414 | |||||||||
| 285,118 | 266,347 | |||||||||||
| EQUITY | ||||||||||||
| Share capital | 18 | 453,534 | 453,534 | |||||||||
| Share based payments reserve | 18 | 37,510 | 37,510 | |||||||||
| Accumulated other comprehensive income | 443 | 1,050 | ||||||||||
| Deficit | (474,049 | ) | (445,609 | ) | ||||||||
| 17,438 | 46,485 | |||||||||||
| Total Liabilities and Equity | $ | 302,556 | $ | 312,832 | ||||||||
See accompanying notes to consolidated financial statements.
Nature of operations and going concern – Note 1
Commitments and contingencies – Note 23
Subsequent events – Note 25
Approved on behalf of the Board on November 14, 2014:
| “Gerald Ruth” | Director | ”Francois Marland” | Director |
| VERIS GOLD CORP. | 2 |
| Condensed Interim Consolidated Statements of Operations and Comprehensive Loss |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (In thousands of US dollars, except for share and per share amounts - Unaudited) |
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||
| Note | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||
| Revenue | 20 | $ | 57,252 | $ | 60,297 | $ | 146,237 | $ | 152,303 | |||||||||||
| Cost of sales | 48,491 | 49,095 | 133,213 | 136,180 | ||||||||||||||||
| Gross margin before depreciation and depletion | 8,761 | 11,202 | 13,024 | 16,123 | ||||||||||||||||
| Depreciation and depletion | 7,791 | 5,502 | 20,383 | 14,591 | ||||||||||||||||
| Income (loss) from mine operations | 970 | 5,700 | (7,359 | ) | 1,532 | |||||||||||||||
| General and administrative expenses | 2,787 | 1,196 | 6,367 | 5,289 | ||||||||||||||||
| (Loss) income from operations | (1,817 | ) | 4,504 | (13,726 | ) | (3,757 | ) | |||||||||||||
| Other (expense) income: | ||||||||||||||||||||
| Interest expense | 4 | (4,427 | ) | (7,307 | ) | (15,013 | ) | (10,289 | ) | |||||||||||
| Finance and transaction costs | 5 | (100 | ) | (824 | ) | (404 | ) | (2,426 | ) | |||||||||||
| Derivative gain (loss) | 6 | 275 | (14,496 | ) | 2,417 | (179 | ) | |||||||||||||
| Environmental costs | (810 | ) | (174 | ) | (1,771 | ) | (1,129 | ) | ||||||||||||
| Other income | 91 | 95 | 159 | 77 | ||||||||||||||||
| Foreign exchange income (loss) | 259 | 24 | 269 | (63 | ) | |||||||||||||||
| (4,712 | ) | (22,682 | ) | (14,343 | ) | (14,009 | ) | |||||||||||||
| Loss before income taxes | (6,529 | ) | (18,178 | ) | (28,069 | ) | (17,766 | ) | ||||||||||||
| Income tax (expense) recovery | ||||||||||||||||||||
| Current | - | - | (371 | ) | - | |||||||||||||||
| Deferred | - | 8 | - | (1,090 | ) | |||||||||||||||
| Loss for the period | (6,529 | ) | (18,170 | ) | (28,440 | ) | (18,856 | ) | ||||||||||||
| Other Comprehensive Loss, net of tax: | ||||||||||||||||||||
| Items that may be reclassified subsequently to loss: | ||||||||||||||||||||
| Foreign currency translation adjustments | (553 | ) | 483 | (607 | ) | (808 | ) | |||||||||||||
| Total Comprehensive Loss | $ | (7,082 | ) | $ | (17,687 | ) | $ | (29,047 | ) | $ | (19,664 | ) | ||||||||
| Loss per share – basic | 22 | (0.04 | ) | (0.15 | ) | (0.18 | ) | (0.17 | ) | |||||||||||
| Loss per share – diluted | 22 | (0.04 | ) | (0.15 | ) | (0.18 | ) | (0.17 | ) | |||||||||||
| Weighted average number of shares outstanding | ||||||||||||||||||||
| Basic | 154,378,365 | 117,609,351 | 154,378,365 | 110,976,229 | ||||||||||||||||
| Diluted | 154,378,365 | 117,609,351 | 154,378,365 | 110,976,229 | ||||||||||||||||
See accompanying notes to consolidated financial statements.
| VERIS GOLD CORP. | 3 |
| Condensed Interim Consolidated Statements of Shareholders’ Equity |
| For The Nine Months Ended September 30, 2014 and 2013 |
| (In thousands of US dollars and thousands of common shares - Unaudited) |
| Share Capital, Note 18 | ||||||||||||||||||||||||||
| Share | Accumulated | |||||||||||||||||||||||||
| based | other | |||||||||||||||||||||||||
| payments | comprehensive | |||||||||||||||||||||||||
| Note | Number | Amount | reserve | (loss) income | Deficit | Total | ||||||||||||||||||||
| Balance at January 1, 2013 | 107,641 | $ | 438,313 | $ | 36,663 | $ | 2,642 | $ | (378,957 | ) | $ | 98,661 | ||||||||||||||
| Total comprehensive loss | ||||||||||||||||||||||||||
| Net loss | - | - | - | - | (18,856 | ) | (18,856 | ) | ||||||||||||||||||
| Other comprehensive loss | - | - | - | (808 | ) | - | (808 | ) | ||||||||||||||||||
| - | - | - | (808 | ) | (18,856 | ) | (19,664 | ) | ||||||||||||||||||
| Share based payment expense | 18(d) | - | - | 567 | - | - | 567 | |||||||||||||||||||
| Issued on public offering | 18(c)(ii) | 16,058 | 5,381 | 137 | - | - | 5,518 | |||||||||||||||||||
| Issued on private placement | 18(c)(iii) | 15,375 | 5,646 | 180 | - | - | 5,826 | |||||||||||||||||||
| Issued with convertible debt | 18(c)(i) | - | - | 58 | - | - | 58 | |||||||||||||||||||
| Balance at September 30, 2013 | 139,074 | $ | 449,340 | $ | 37,605 | $ | 1,834 | $ | (397,813 | ) | $ | 90,966 | ||||||||||||||
| Balance at January 1, 2014 | 154,378 | $ | 453,534 | $ | 37,510 | $ | 1,050 | $ | (445,609 | ) | $ | 46,485 | ||||||||||||||
| Total comprehensive loss | ||||||||||||||||||||||||||
| Net loss | - | - | - | - | (28,440 | ) | (28,440 | ) | ||||||||||||||||||
| Other comprehensive loss | - | - | - | (607 | ) | - | (607 | ) | ||||||||||||||||||
| - | - | - | (607 | ) | (28,440 | ) | (29,047 | ) | ||||||||||||||||||
| Balance at September 30, 2014 | 154,378 | $ | 453,534 | $ | 37,510 | $ | 443 | $ | (474,049 | ) | $ | 17,438 | ||||||||||||||
See accompanying notes to consolidated financial statements.
| VERIS GOLD CORP. | 4 |
| Condensed Interim Consolidated Statements of Cash Flows |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (In thousands of US dollars - Unaudited) |
| Amended (Note 24) | Amended (Note 24) | |||||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||
| Note | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||
| Operating activities | ||||||||||||||||||||
| Net loss for the period | $ | (6,529 | ) | $ | (18,170 | ) | $ | (28,440 | ) | $ | (18,856 | ) | ||||||||
| Items not affecting cash: | ||||||||||||||||||||
| Depreciation and depletion | 7,791 | 5,502 | 20,383 | 14,591 | ||||||||||||||||
| Recognition of deferred revenue | - | - | - | (14,831 | ) | |||||||||||||||
| Loss on recognition of senior secured | ||||||||||||||||||||
| Gold Facility | 13 | - | 12,119 | - | 12,119 | |||||||||||||||
| Finance cost (income) | 1,946 | 5,209 | 4,411 | (4,023 | ) | |||||||||||||||
| Interest on senior secured gold facility | 13 | 2,254 | 1,671 | 8,112 | 1,671 | |||||||||||||||
| Deferred tax (recovery) expense | - | (8 | ) | - | 1,090 | |||||||||||||||
| Mark to market on embedded derivatives | (84 | ) | (201 | ) | (388 | ) | (201 | ) | ||||||||||||
| Loss on disposal of assets | - | 163 | - | 163 | ||||||||||||||||
| Share based payments | - | 162 | - | 567 | ||||||||||||||||
| Unrealized foreign exchange (loss) gain | (404 | ) | 212 | (446 | ) | 150 | ||||||||||||||
| Change in non cash working capital | 19 | 386 | (1,735 | ) | 5,391 | 10,963 | ||||||||||||||
| Cash settlement of deferred revenue | - | - | - | (4,233 | ) | |||||||||||||||
| 5,360 | 4,924 | 9,023 | (830 | ) | ||||||||||||||||
| Investing activities | ||||||||||||||||||||
| Development stage gold sales | 587 | - | 587 | 3,517 | ||||||||||||||||
| Property, plant and equipment expenditures | (1,463 | ) | (3,984 | ) | (4,810 | ) | (9,151 | ) | ||||||||||||
| Proceeds from sale of property, plant and equipment | - | 225 | - | 225 | ||||||||||||||||
| Restricted funds | (92 | ) | (6,673 | ) | (110 | ) | (291 | ) | ||||||||||||
| Mineral property expenditures | (3,442 | ) | (7,388 | ) | (9,468 | ) | (19,832 | ) | ||||||||||||
| (4,410 | ) | (17,820 | ) | (13,801 | ) | (25,532 | ) | |||||||||||||
| Financing activities | ||||||||||||||||||||
| Proceeds from net smelter returns royalty facility | 15 | - | - | 7,500 | - | |||||||||||||||
| Proceeds from derivative gold forward contracts | 11 | - | - | 4,445 | - | |||||||||||||||
| Settlement of derivative gold forward contracts | 11 | - | (450 | ) | (4,591 | ) | (450 | ) | ||||||||||||
| Proceeds from units issued on public offering, net of transaction costs | - | 7,251 | - | 7,251 | ||||||||||||||||
| Proceeds from units issued on private placement, net of transaction costs | - | 7,319 | - | 7,319 | ||||||||||||||||
| Proceeds from issuance of convertible debentures, net of transactions costs | 14 | - | - | - | 9,555 | |||||||||||||||
| Repayment of senior secured gold facility | - | (5,781 | ) | - | (5,781 | ) | ||||||||||||||
| - | 8,339 | 7,354 | 17,894 | |||||||||||||||||
| Effect of exchange rate changes on cash | (3 | ) | (41 | ) | 3 | (184 | ) | |||||||||||||
| Increase (decrease) in cash | 947 | (4,598 | ) | 2,579 | (8,652 | ) | ||||||||||||||
| Cash, beginning of period | 2,793 | 5,241 | 1,161 | 9,295 | ||||||||||||||||
| Cash, end of period | $ | 3,740 | $ | 643 | $ | 3,740 | $ | 643 | ||||||||||||
Supplemental cash flow information (Note 19)
See accompanying notes to consolidated financial statements.
| VERIS GOLD CORP. | 5 |
| Notes to Condensed Interim Consolidated Financial Statements |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited) |
| 1. | Nature of operations and going concern |
Veris Gold Corp (the “Company” or “Veris”) is a gold metal producer engaged in the mining, exploration and development of mineral properties located in Canada and the United States. The Company is incorporated under the laws of the Province of British Columbia, Canada and its shares were listed on the Toronto Stock Exchange and the Frankfurt Exchange prior to the Filing Date, as described below.
The Company’s registered address is 999 West Hastings Street, Suite 1040, Vancouver, British Columbia, Canada V6C 2W2.
The condensed interim consolidated financial statements of the Company as at September 30, 2014, and December 31, 2013, and for the three and nine months ended September 30, 2014 and 2013, comprise the Company and its wholly owned subsidiaries (Note 2(c)).
On January 28, 2014, the Company received a Notice of Default under the terms of the Senior Secured Gold Facility held with Deutsche Bank AG, London Branch (“Deutsche Bank”). The Notice of Default arose from the failure of the Company to deliver the required gold as at December 31, 2013 or pay the cash equivalent of the gold delivery shortfall as required under the Forward Gold Purchase Agreements dated August 12, 2011 and February 7, 2012 (the “Senior Secured Gold Forward Facility”) (Note 13). The Company has not delivered any gold or made cash payments to Deutsche Bank at any time since the Notice of Default.
On June 3, 2014, the Company received Notices of Early Termination Date from Deutsche Bank requiring the Company to make payments totaling $89.4 million under the terms of the Senior Secured Gold Forward Facility. Failing to make payments by June 9, 2014 would allow Deutsche Bank to take such steps as necessary to enforce its rights against the Company.
On June 9, 2014, the Company sought creditor protection under the Companies’ Creditors Arrangement Act (the “CCAA”) and the British Columbia Supreme Court (the “Court”) issued an order granting the Company’s application for creditor protection. The CCAA proceedings cover the Company and its wholly-owned subsidiaries, Queenstake Resources Ltd., Ketza River Holdings Ltd., and Veris Gold USA, Inc.. Ernst & Young Inc. (the “Monitor”) has been appointed by the Court as monitor in the CCAA proceedings and will be responsible for reviewing Veris’ ongoing operations, liaising with creditors and other stakeholders and reporting to the Court. On June 9, 2014, the Company also filed a Chapter 15 case in the United States Bankruptcy Court for the District of Nevada (the “US Court”). The Company, Veris Gold Corp., and the wholly owned subsidiaries of the Company are parties to the CCAA and Chapter 15 proceedings (collectively, the “Creditor Protection Proceedings”). The US Court agreed to a temporary restraining order and the Company had been granted provisional relief under Section 1519 of the US Bankruptcy Code as of June 9, 2014 and the US Court entered a formal order on July 23, 2014. On August 29, 2014, the US Court held a hearing and granted an order recognizing the CCAA proceedings as the foreign main proceedings pursuant to Chapter 15 of the US Bankruptcy Code and also extended the provisional relief. As a result, the United States creditors are restrained from taking action against the Company and the other CCAA Petitioners, including Veris Gold USA, Inc.
On July 4, 2014, the Company obtained an order from the Court extending the period of the Court-ordered stay of proceedings against Veris and its subsidiaries under CCAA up to and including July 31, 2014. The Company obtained further extensions of the stay period, with the last order dated October 9, 2014, in which the Company obtained an extension of the period of the Court-ordered stay of proceedings up to and including February 2, 2015.
| VERIS GOLD CORP. | 6 |
| Notes to Condensed Interim Consolidated Financial Statements |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited) |
Trading in the Company’s common stock on the Toronto Stock Exchange (“TSX”) was halted on June 9, 2014, and the Company’s common stock was subsequently delisted on July 18, 2014. The delisting was a direct result of the Creditor Protection Proceedings the Company commenced on June 9, 2014 and the Company is currently not exploring alternative listings at this time as the listed securities would likely continue to be suspended under the new listing. Upon completion of the Creditor Protection Proceedings, the Company will evaluate options to relist on the TSX or other possible exchanges.
While under CCAA protection, Veris will continue attempting to restructure its financial affairs under the supervision of the Monitor. The Company will seek input from its creditors and other stakeholders, with a view to developing a comprehensive restructuring plan (the “Restructuring Plan”) to return the Company to viability or to maximize value for all stakeholders. Any such restructuring will be undertaken for the purpose of further enhancing the Company’s long term financial health, liquidity and competitiveness. The Restructuring Plan will likely include strategic, operation, financial, and corporate elements.
The successful emergence of the Company from the Creditor Protection Proceedings and full implementation of any Restructuring Plan are expected to be subject to numerous conditions and approvals from key creditors, stakeholders, the Court and the US Court. There can be no assurance that all required conditions will be met and all required approvals obtained nor that the Company will ultimately emerge from the Creditor Protection Proceedings. If the Company fails to implement the Restructuring Plan within the time granted by the Court, substantially all of the debt obligations become immediately due and payable, potentially leading to the liquidation of the Company’s assets.
The condensed interim consolidated financial statements for the three and nine months ended September 30, 2014 have been prepared using International Financial Reporting Standards (“IFRS”), as applied by the Company prior to the Creditor Protection Proceedings. While the Company and its subsidiaries have filed for and been granted creditor protection under the Creditor Protection Proceedings, these condensed interim consolidated financial statements do not purport to reflect or provide for any of the consequences of the Creditor Protection Proceedings and have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. However, it is not possible to predict the outcome of the Creditor Protection Proceedings and, as such, there is substantial doubt regarding the realization of the assets and discharge of liabilities.
The Creditor Protection Proceedings provide the Company with a period of time to stabilize its operations and financial condition and develop a comprehensive Restructuring Plan. Management believes that these actions make the going concern basis appropriate. However, it is not possible to predict the outcome of the Creditor Protection Proceedings and accordingly substantial doubt exists as to whether the actions taken in any restructuring will result in improvements to the financial condition of the Company sufficient to allow it to continue as a going concern. If a Restructuring Plan is not approved and the Company fails to emerge from the Creditor Protection Proceedings, the Company could be forced into bankruptcy resulting in the liquidation of the Company’s and its subsidiaries’ assets. Under a liquidation scenario, adjustments would be necessary to the carrying amounts and/or classification of assets and liabilities in these condensed interim consolidated financial statements. If the going concern assumption were not appropriate for such financial statements, then significant adjustments would be necessary in the carrying amounts and/or classification of assets and liabilities. As of November 1, 2014 the Company has engaged in a formal sale process with respect to its assets. While restructuring efforts are ongoing, the sale process may result in a sale of some or all of the assets.
| VERIS GOLD CORP. | 7 |
| Notes to Condensed Interim Consolidated Financial Statements |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited) |
For properties other than the producing mine at Jerritt Canyon, Nevada, the Company is in the process of mineral exploration and has yet to determine whether these properties contain reserves that are economically recoverable. The recoverability of the amount shown for these mineral properties is dependent upon the existence of economically recoverable reserves, confirmation of the Company's ownership interest in the mining claims, the ability of the Company to obtain necessary financing to complete the development, and upon future profitable production or proceeds from the disposition of the mineral properties.
The Company had a loss from operations of $13.7 million for the nine months ended September 30, 2014 (2013 – $3.8 million loss), and a $9.0 million inflow of cash from operating activities for the same period (2013 – outflow of $0.8 million (Amended, Note 24)). At September 30, 2014 the Company had a working capital deficiency of $187.0 million (December 31, 2013 – $167.1 million) and an accumulated deficit of $474.0 million (December 31, 2013 – $445.6 million). The factors discussed above reflect the existence of material uncertainties that cast significant doubt about the Company’s ability to continue as a going concern. The Company will be required to raise funds through the issuance of equity or debt and successfully develop and implement a Restructuring Plan in the CCAA proceedings. Realization values may be substantially different from carrying values as shown and the Company’s condensed interim consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. Further, a Court-approved Restructuring Plan in the CCAA proceedings could materially change the carrying amounts and classifications reported in the condensed interim consolidated financial statements.
| 2. | Basis of preparation |
| (a) | Statement of compliance |
These condensed interim consolidated financial statements have been prepared in accordance with IAS 34 – Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”). Accordingly, certain disclosures included in annual financial statements prepared in accordance with the International Financial Reporting Standards (“IFRSs”) as issued by the IASB have been condensed or omitted and these unaudited condensed interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2013.
The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates and judgments when applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 2(d).
| VERIS GOLD CORP. | 8 |
| Notes to Condensed Interim Consolidated Financial Statements |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited) |
| (b) | Comparative information |
During the nine months ended September 30, 2014, the Company changed the presentation of its financial statements in order to provide financial statement users with more relevant information. Prior period comparative figures have been amended to conform to the current period’s presentation. In prior periods, included in finance and transactions costs, as presented on the condensed interim consolidated statement of operations and comprehensive income, were the following items: interest expense, including accretion of decommissioning and rehabilitation provisions; environmental costs; finance and transaction costs; and, other expenses. These items are all now separately presented on the condensed interim consolidated statement of operations and comprehensive loss. Similarly, in prior periods derivative gains and losses, including those on derivative warrant liabilities, were included in interest and other income as was presented on the condensed interim consolidated statement of operations and comprehensive loss, these derivative gains and losses are now presented separately on the condensed interim consolidated statement of operations and comprehensive loss. Further, in prior periods the current portion of finance lease obligations was included in accounts payable and accrued liabilities as was presented on the condensed interim consolidated statements of financial position and this item is now separately presented. There was no impact on total loss before income taxes in periods presented.
| (c) | Basis of consolidation |
These condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries. Subsidiaries are entities controlled by the Company. Control exists when the Company has power over an investee, when the Company is exposed, or has rights, to variable returns from the investee and when the Company has the ability to affect those returns through its power over the investee. Subsidiaries are included in the consolidated financial results of the Company from the effective date of acquisition up to the effective date of disposition or loss of control. The principal subsidiaries of the Company and their geographic locations at September 30, 2014 were as follows:
| Property | Location | Ownership | ||||
| Ketza River Holdings Ltd. | Yukon | 100 | % | |||
| Veris Gold U.S.A. Inc. | Nevada | 100 | % | |||
| (d) | Significant judgments and estimates |
IFRS requires management to make estimates and judgments that affect the amounts reported in the financial statements. By their nature, these estimates and judgments are subject to measurement uncertainty and the effect on the financial statements of changes in such estimates in future periods could be significant. Estimates are reviewed continually and adjusted as needed based on historical experience and other factors. Revisions to estimates and the resulting impacts on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively. The critical judgments and estimates applied in the preparation of the Company’s condensed interim consolidated financial statements for the three and nine months ended September 30, 2014 are consistent with those applied and disclosed in notes 3 and 4 of the Company’s audited consolidated financial statements for the year ended December 31, 2013.
| VERIS GOLD CORP. | 9 |
| Notes to Condensed Interim Consolidated Financial Statements |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited) |
| 3. | Changes in accounting standards |
Accounting standards adopted January 1, 2014
| i) | IFRIC 21 - Levies (“IFRIC 21”) |
In May 2013, the IASB issued IFRIC 21 – Levies (“IFRIC 21”), an interpretation of IAS 37 – Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”), on the accounting for levies imposed by governments. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past activity or event (“obligating event”) described in the relevant legislation that triggers the payment of the levy. IFRIC 21 was effective January 1, 2014 and was applied retrospectively. The adoption of this interpretation did not have a significant impact on the Company’s condensed interim consolidated financial statements.
Accounting standards effective January 1, 2015 or later
| ii) | IFRS 9 - Financial Instruments (“IFRS 9”) |
The IASB intends to replace IAS 39 – Financial Instruments: Recognition and Measurement in its entirety with IFRS 9 – Financial Instruments (“IFRS 9”) which is intended to reduce the complexity in the classification and measurement of financial instruments. In February 2014, the IASB tentatively determined that the revised effective date for IFRS 9 would be January 1, 2018. The Company is currently evaluating the impact the final standard is expected to have on its consolidated financial statements.
| 4. | Interest expense |
Interest expense is comprised of:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||
| Note | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||
| Interest on senior secured gold facility | 13 | $ | (2,254 | ) | $ | (4,631 | ) | $ | (8,112 | ) | $ | (4,631 | ) | |||||||
| Interest on convertible debt | 14 | (1,473 | ) | (1,768 | ) | (3,977 | ) | (3,739 | ) | |||||||||||
| Interest on trade payables | - | - | (477 | ) | - | |||||||||||||||
| Accretion of decommissioning and rehabilitation provisions | 16 | (416 | ) | (471 | ) | (1,319 | ) | (1,224 | ) | |||||||||||
| Interest on finance leases | 17 | (89 | ) | (105 | ) | (288 | ) | (334 | ) | |||||||||||
| Interest on forward contracts | 11 | - | (127 | ) | (342 | ) | (127 | ) | ||||||||||||
| Interest on net smelter returns royalty facility | 15 | (144 | ) | - | (264 | ) | - | |||||||||||||
| Other interest expense | (51 | ) | (205 | ) | (234 | ) | (234 | ) | ||||||||||||
| $ | (4,427 | ) | $ | (7,307 | ) | $ | (15,013 | ) | $ | (10,289 | ) | |||||||||
| VERIS GOLD CORP. | 10 |
| Notes to Condensed Interim Consolidated Financial Statements |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited) |
| 5. | Finance and transaction costs |
Finance and transaction costs are comprised of:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||
| Note | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||
| Finance and transaction costs | $ | (100 | ) | $ | (824 | ) | $ | (404 | ) | $ | (1,459 | ) | ||||||||
| Transaction costs recognized on senior secured gold facility senior secured gold facility | 13 | - | - | - | (967 | ) | ||||||||||||||
| $ | (100 | ) | $ | (824 | ) | $ | (404 | ) | $ | (2,426 | ) | |||||||||
| 6. | Derivative gain (loss) |
Derivative gain (loss) is comprised of:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||
| Note | 2014 | 2013 | 2014 | 2013 | ||||||||||||||
| Gain (loss) on warrants | (i) | $ | 191 | $ | (2,356 | ) | $ | 2,175 | $ | 7,214 | ||||||||
| (Loss) gain on revaluation of gold forwards | (ii)(a) | - | - | (146 | ) | 4,004 | ||||||||||||
| Gain (loss) on convertible debt embedded derivatives | (ii)(b) | 6 | (222 | ) | 159 | 521 | ||||||||||||
| Gain on senior secured gold embedded derivatives | (ii)(c) | 47 | 201 | 229 | 201 | |||||||||||||
| Gain on net smelter returns royalty embedded derivatives | (ii)(d) | 31 | - | - | - | |||||||||||||
| Loss on recognition of senior secured gold facility | 13 | - | (12,119 | ) | - | (12,119 | ) | |||||||||||
| $ | 275 | $ | (14,496 | ) | $ | 2,417 | $ | (179 | ) | |||||||||
| (i) | The warrants denominated in Canadian dollars are revalued at each reporting period and the change in fair value recorded in net income (Note 12). |
| (ii) | Gain (loss) on derivatives is comprised of: |
| a. | Three gold forward contracts entered into in November 2010, January 2012, and March 2014 are accounted for as derivatives. |
The fair value of the November 2010 forward contract as at September 30, 2014 was $17.3 million (December 31, 2013 - $17.3 million) with no resulting revaluation gains or losses being recognized in the three and nine months ended September 30, 2014 (2013 – $nil and $4.2 million revaluation gain, respectively) (Note 11).
| VERIS GOLD CORP. | 11 |
| Notes to Condensed Interim Consolidated Financial Statements |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited) |
The fair value of the January 2012 forward contract as at September 30, 2014 was $7.1 million (December 31, 2013 - $6.8 million) with $nil and $342 thousand in interest expense and no resulting revaluation gains or losses being recognized, respectively, in the three and nine months ended September 30, 2014 (2013 – $127 thousand and $127 thousand interest expense and $nil and $152 thousand revaluation loss, respectively). As at September 30, 2014, the Company and the counterparty were in ongoing negotiations to extend the settlement date of this forward contract.
The March 2014 forward contract was settled upon delivery of 3,500 troy ounces of gold in April 2014, with $nil and $146 thousand resulting revaluation losses being recognized, respectively, in the three and nine months ended September 30, 2014 (Note 11).
| b. | The share conversion option within the convertible debts issued on June 15, 2012, July 19, 2012, October 11, 2012, and April 12, 2013 (Note 14) represents an embedded derivative liability for accounting purposes. These embedded derivatives are bifurcated from the convertible debenture contracts and are recorded at fair value both at inception and at each reporting period based on quoted market prices for the common stock of the Company, with changes in fair value being recognized through other income or loss. On September 30, 2014 the fair value of the embedded derivatives was $nil (December 31, 2013 - $164 thousand) with revaluation gains of $6 thousand and $159 thousand being recognized, respectively, in the three and nine months ended September 30, 2014 (2013 - $223 thousand revaluation loss and $521 thousand revaluation gain, respectively). |
| c. | The variable nature of gold payments, represented by the minimum and maximum prices on future gold deliveries (the “Collars”) relating to the Senior Secured Gold Facility, were determined to be embedded derivatives (Note 13). The fair value of the Collars was $nil at September 30, 2014 (December 31, 2013 - $229 thousand) resulting in a gain of $47 thousand and $229 thousand being recognized, respectively, in the three and nine months ended September 30, 2014 (2013 - $201 thousand gain for the three and nine months ended September 30, 2013) (Note 13). |
| d. | The Buy-Back option within the Net Smelter Return Royalty represents an embedded derivative liability for accounting purposes due to the variable nature of the gold price used to determine the buy-back option premium. The fair value of the Buy-Back option was $nil at inception and $nil as at September 30, 2014, resulting in a gain of $31 thousand and $nil being recognized, respectively, in the three and nine months ended September 30, 2014 (Note 15). |
| 7. | Inventories |
| September 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Finished goods | $ | 3,557 | $ | 1,696 | ||||
| Stockpiled ore | 5,683 | 9,178 | ||||||
| Work in progress | 5,267 | 5,229 | ||||||
| Materials and supplies | 6,998 | 8,540 | ||||||
| $ | 21,505 | $ | 24,643 | |||||
All of the Company’s inventories on hand are located at the Jerritt Canyon mine in Nevada, USA. As at September 30, 2014 there is a net realizable value provision recorded against materials and supplies inventory of $0.7 million (December 31, 2013 - $0.7 million).
| VERIS GOLD CORP. | 12 |
| Notes to Condensed Interim Consolidated Financial Statements |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited) |
| 8. | Restricted funds |
| September 30, | December 31, | |||||||||
| Note | 2014 | 2013 | ||||||||
| Chartis commutation account | (a) | $ | 25,563 | $ | 25,538 | |||||
| Chartis money market account | (a) | 25,273 | 25,272 | |||||||
| Gold forward sale performance reserve | (c) | 2,000 | 2,000 | |||||||
| Water use license letter of credit | (b) | 2,748 | 2,895 | |||||||
| Cash pledged as security for letters of credit | 715 | 664 | ||||||||
| $ | 56,299 | $ | 56,369 | |||||||
| (a) | The Company purchased from American Insurance Group (AIG), now known as Chartis, an environmental risk transfer program (the “ERTP”). As part of the ERTP, $25.6 million is on deposit in an interest-bearing account with AIG (the Commutation Account). The Commutation Account principal plus interest earned on the principal is used to fund Jerritt Canyon mine’s ongoing reclamation and mine closure obligations (Note 16). |
During 2010 the Company was required to provide further surety to the Nevada Division of Environmental Protection (“NDEP”) and the US Forestry Service to fund the ongoing reclamation and mine closure obligations. To meet this additional surety requirement, as at September 30th, 2014, the Company had on deposit $23.6 million in money market accounts with Chartis. Subsequent to September 30, 2014, $22.9 million of the deposit was transferred to the NDEP.
During the year ended December 31, 2013, the Company made a payment of $1.7 million to fund obligations with the ERTP and a payment of $1.7 million to fund additional surety bond requirements with the NDEP.
During the three and nine months ended September 30, 2014, the Company earned interest in the amount of $nil from the commutation and money market accounts (2013 - $nil and $0.1 million).
| (b) | As required by The Yukon Territorial Government (“Yukon”), the Company has $2.7 million of funds on deposit in an interest-bearing account with Toronto Dominion Bank reserved for future exploration work in the Yukon related to the Ketza River project. On September 25, 2014, Yukon issued a demand letter to the Toronto Dominion Bank for the deposit to be transferred to the Yukon account. This demand was issued pursuant to the letter of credit issued under the Water Act. |
On September 25, 2014, the Company received a letter from the Yukon Government Department of Energy, Mines and Resources (“Yukon Government”) notifying the Company that it intended to begin undertaking the contracting of maintenance work on access road bridges and seepage control and stabilization of surface water diversion structures at the Ketza River Project property. On September 29, 2014, the Yukon Government withdrew the $2.7 million of restricted funds on deposit with Toronto Dominion Bank to fund this maintenance work.
| (c) | As part of the Senior Secured Gold Facility agreement dated August 12, 2011, the Company was required to deposit $10 million in an escrow account held in the Company’s name. These funds were to be made available when defined production targets were met (Note 13). The Company met the defined production targets and $8 million of the funds held in escrow were received in February, 2013, the final $2 million originally to be released upon settlement of the final scheduled monthly gold delivery. With the early termination date of the facility on June 9, 2014 the use of the final $2 million will be dealt with in connection with the Restructuring Plan. |
| VERIS GOLD CORP. | 13 |
| Notes to Condensed Interim Consolidated Financial Statements |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited) |
| 9. | Mineral property, plant and equipment |
Mineral property, plant and equipment comprise:
| Mineral Properties | ||||||||||||||||||||||||||||
| Non- | Land and | Plant and | Construction | |||||||||||||||||||||||||
| depletable | Depletable | Buildings | Equipment | in Progress | Other | Total | ||||||||||||||||||||||
| Cost | ||||||||||||||||||||||||||||
| December 31, 2012 | $ | 91,881 | $ | 21,719 | $ | 52,214 | $ | 116,547 | $ | 35,062 | $ | 1,805 | $ | 319,228 | ||||||||||||||
| Additions | 16,837 | 11,920 | - | 4,285 | 8,247 | 14 | 41,303 | |||||||||||||||||||||
| Disposals | - | - | - | (460 | ) | - | - | (460 | ) | |||||||||||||||||||
| Commenced Use (d) | - | - | - | 34,357 | (34,357 | ) | - | - | ||||||||||||||||||||
| Development stage gold sales (c)(i) | (3,517 | ) | - | - | - | - | - | (3,517 | ) | |||||||||||||||||||
| Production commencement, (c) | (12,890 | ) | 12,890 | - | - | - | - | - | ||||||||||||||||||||
| Foreign exchange | (5,219 | ) | - | (117 | ) | (93 | ) | - | (31 | ) | (5,460 | ) | ||||||||||||||||
| December 31, 2013 | 87,092 | 46,529 | 52,097 | 154,636 | 8,952 | 1,788 | 351,094 | |||||||||||||||||||||
| Additions | 3,640 | 5,700 | - | 232 | 1,553 | - | 11,125 | |||||||||||||||||||||
| Disposals | - | - | - | (47 | ) | - | - | (47 | ) | |||||||||||||||||||
| Development stage gold sales (c)(ii) | (587 | ) | - | - | - | - | - | (587 | ) | |||||||||||||||||||
| Foreign exchange | (4,037 | ) | - | (87 | ) | (56 | ) | - | (4 | ) | (4,184 | ) | ||||||||||||||||
| September 30, 2014 | $ | 86,108 | $ | 52,229 | $ | 52,010 | $ | 154,765 | $ | 10,505 | $ | 1,784 | $ | 357,401 | ||||||||||||||
| Accumulated depreciation & Impairment | ||||||||||||||||||||||||||||
| December 31, 2012 | $ | 31,763 | $ | 2,008 | $ | 12,201 | $ | 28,375 | $ | - | $ | 1,279 | $ | 75,626 | ||||||||||||||
| Depreciation & depletion | - | 7,859 | 646 | 13,031 | - | 272 | 21,808 | |||||||||||||||||||||
| Disposals | - | - | - | (72 | ) | - | - | (72 | ) | |||||||||||||||||||
| Impairment (b) | 31,708 | - | 1,564 | 23 | - | 5 | 33,300 | |||||||||||||||||||||
| Foreign exchange | (3,060 | ) | - | (3 | ) | (89 | ) | - | (16 | ) | (3,168 | ) | ||||||||||||||||
| December 31, 2013 | 60,411 | 9,867 | 14,408 | 41,268 | - | 1,540 | 127,494 | |||||||||||||||||||||
| Depreciation & depletion | - | 7,758 | 1,322 | 11,194 | - | 108 | 20,382 | |||||||||||||||||||||
| Disposals | - | - | - | (47 | ) | - | (47 | ) | ||||||||||||||||||||
| Foreign exchange | (3,084 | ) | - | (87 | ) | (56 | ) | - | (4 | ) | (3,231 | ) | ||||||||||||||||
| September 30, 2014 | 57,327 | 17,625 | 15,643 | 52,359 | - | 1,644 | 144,598 | |||||||||||||||||||||
| Carrying Value | ||||||||||||||||||||||||||||
| December 31, 2012 | $ | 60,118 | $ | 19,711 | $ | 40,013 | $ | 88,172 | $ | 35,062 | $ | 526 | $ | 243,602 | ||||||||||||||
| December 31, 2013 | $ | 26,681 | $ | 36,662 | $ | 37,689 | $ | 113,368 | $ | 8,952 | $ | 248 | $ | 223,600 | ||||||||||||||
| September 30, 2014 | $ | 28,781 | $ | 34,604 | $ | 36,367 | $ | 102,406 | $ | 10,505 | $ | 140 | $ | 212,803 | ||||||||||||||
| VERIS GOLD CORP. | 14 |
| Notes to Condensed Interim Consolidated Financial Statements |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited) |
| Jerritt Canyon | Ketza River | Other | Total | |||||||||||||
| (c)/(d)/(e) | (a) | |||||||||||||||
| Net book value | ||||||||||||||||
| December 31, 2012 | $ | 191,546 | $ | 51,841 | $ | 215 | $ | 243,602 | ||||||||
| Additions | 38,760 | 2,529 | 14 | 41,303 | ||||||||||||
| Disposals | (388 | ) | - | - | (388 | ) | ||||||||||
| Development stage gold sales (c)(i) | (3,517 | ) | - | - | (3,517 | ) | ||||||||||
| Depletion/depreciation | (21,593 | ) | (120 | ) | (95 | ) | (21,808 | ) | ||||||||
| Impairment (b) | - | (33,300 | ) | - | (33,300 | ) | ||||||||||
| Foreign exchange | - | (2,277 | ) | (15 | ) | (2,292 | ) | |||||||||
| December 31, 2013 | $ | 204,808 | $ | 18,673 | $ | 119 | $ | 223,600 | ||||||||
| Additions | 9,144 | 1,981 | - | 11,125 | ||||||||||||
| Development stage gold sales (c)(ii) | (587 | ) | - | - | (587 | ) | ||||||||||
| Depletion/depreciation | (20,361 | ) | - | (21 | ) | (20,382 | ) | |||||||||
| Foreign exchange | - | (953 | ) | - | (953 | ) | ||||||||||
| September 30, 2014 | $ | 193,004 | $ | 19,701 | $ | 98 | $ | 212,803 | ||||||||
| (a) | Ketza River property, Yukon: |
The Company has a 100% interest in the Ketza River property including 802 mining claims and leases, a mill and all associated equipment.
| (b) | During the three and nine months ended September 30, 2014 and year ended December 31, 2013 the Company assessed the carrying values of its mineral properties for indications of impairment. During the three and nine months ended September 30, 2014 the Company did not record any impairment charge as there were no indications of impairment. During the year ended December 31, 2013 the Company believed that certain indicators such as the recent downturn in the resource industry, specifically in relation to exploration and development phase mining projects and the volatility in the global economy, which had negatively affected precious metals prices, have contributed to the decrease in the Company’s share price. As a result, the Company determined that the carrying value of its Yukon exploration properties exceeded the expected net present value of its future cash flows. The Company recorded an impairment charge of $33.3 million as at December 31, 2013. For the purposes of the impairment assessment, the Company projected a long term gold price per ounce of $1,300 and assessed the recoverable amount at fair value less cost of disposal. |
| VERIS GOLD CORP. | 15 |
| Notes to Condensed Interim Consolidated Financial Statements |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited) |
| (c) | Jerritt Canyon properties: |
| (i). | Starvation Canyon, Nevada: |
In June 2013 it was determined that the Starvation Canyon mine was producing at a level intended by management, and as such became a production stage asset for accounting purposes. Various factors were considered in making this determination including: 1. major mine infrastructure had been completed; 2. designed and targeted production levels had been achieved; and 3. indicators were observed that suggested operating results would continue at levels designed and targeted. Prior to this determination the Starvation Canyon mine produced an estimated 3,003 ounces of gold, approximately 2,453 of which were recovered and sold. Prior to the attainment of commercial production, an estimated $3.5 million was generated from the sale of these ounces, the proceeds from which were credited to the carrying value of the Starvation Canyon mineral property asset.
| (ii). | Saval, Nevada: |
The Saval mine is a development stage asset in accordance with the Company’s mineral properties accounting policy. For the three and nine months ended September 30, 2014, the Saval mine produced an estimated 526 ounces of gold, approximately 458 of which were recovered and sold. An estimated $0.6 million was generated from the sale of these ounces for the three and nine months ended September 30, 2014 (2013 - $nil), the proceeds from which were credited to the carrying value of the Saval mineral property asset.
| (d) | In September 2013 various assets, the most significant being the second tailings facility and water storage reservoir, were commissioned and put into use. |
| (e) | The Senior Secured Gold Facility (Note 13) is guaranteed by the Company and involves the registration of various charges to secure a direct and indirect interest in the Jerritt Canyon properties in Nevada. |
| 10. | Related party transactions |
During the three and nine months ended September 30, 2014, the Company was charged a total of $0.1 million and $0.4 million, respectively (2013 - $0.1 million and $0.3 million, respectively) in legal fees by a law firm in which the corporate secretary of the Company is a partner. The amount owing at September 30, 2014 is $0.1 million (as at December 31, 2013 – $0.1 million).
In January 2012 the Company entered into a gold forward contract with a company related by common directors. The fair value of this liability was $7.1 million as at September 30, 2014 (December 31, 2013 - $6.8 million). For the three and nine months ended September 30, 2014, there were no revaluation gains or losses and interest expense of $nil and $342 thousand was recognized, respectively (2013 – $nil and $0.2 million revaluation loss and $0.1 million and $0.1 million interest expense, respectively) (Note 11).
| VERIS GOLD CORP. | 16 |
| Notes to Condensed Interim Consolidated Financial Statements |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited) |
During the three and nine months ended September 30, 2014, the Company charged a total of $0.1 million and $0.4 million, respectively (2013 - $0.2 million and $0.5 million, respectively), for contractor and lease expenses to a company with common directors and management. The amount receivable at September 30, 2014 is $1.0 million (December 31, 2013 - $0.7 million).
In July 2011 the Company entered into a royalty agreement with a company owned by a director of the Company. The royalty agreement arose in connection with the use of proprietary mercury emissions technology, owned by the related party, at Jerritt Canyon. During the three and nine months ended September 30, 2014, a total of $0.1 million and $0.3 million, respectively, was charged to the Company under this agreement (2013 – $nil and $0.3 million, respectively). The amount owing at September 30, 2014 is $0.4 million (December 31, 2013 – $0.2 million).
The amounts outstanding are unsecured and will be settled in cash. No expense has been recognized for bad or doubtful debts in respect of the amounts owed by related parties.
| a) | Compensation of key management personnel |
The remuneration of directors and other members of key management personnel during the periods were as follows:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Salaries and short-term benefits | $ | 243 | $ | 388 | $ | 886 | $ | 1,142 | ||||||||
| Directors fees | 60 | 88 | 225 | 377 | ||||||||||||
| Special committee fees¹ | 240 | - | 360 | - | ||||||||||||
| Share-based payments | - | 163 | - | 462 | ||||||||||||
| $ | 543 | $ | 639 | $ | 1,471 | $ | 1,981 | |||||||||
1 Remuneration (including accrued) of the Directors and CEO for their services on the special committee, during the three and nine months ended September 30, 2014, were as follows: (a) Directors: $120 thousand and $240 thousand, respectively and (b) CEO: $120 thousand and $120 thousand, respectively.
The remuneration of directors and key executives is determined by the compensation committee and is dependent upon the performance of individuals, the performance of the Company, and external market trends.
| VERIS GOLD CORP. | 17 |
| Notes to Condensed Interim Consolidated Financial Statements |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited) |
| 11. | Forward contracts |
On January 12, 2012, the Company entered into a forward sales contract with a related party (Note 10) which required delivery of 3,665 ounces of gold by June 12, 2012 or a cash payment of $6.0 million at the option of the related party. In June 2012 the Company and the counterparty agreed that the gold delivery required to settle the contract would be extended to August 30, 2012, resulting in an agreed upon late-settlement charge of 2.25% per month on the outstanding balance being imposed on the Company. This resulted in an additional charge of $0.4 million, or an estimated 165 ounces being due on August 30, 2012. During the second quarter of 2013, the Company and the counterparty agreed to extend settlement of the contract to June 30, 2013. Under the terms of the extension, the counterparty received the option to receive an amount of $6.6 million, or alternatively the right to receive 3,839 troy ounces of refined gold. No settlement was made on either June 30, 2013, or since. As part of the ongoing extension and renegotiation discussions since June 30, 2013, the Company made a payment of $0.5 million to the counterparty in September, 2013, this payment being almost entirely comprised of accrued interest. The fair value of the January 2012 forward contract as at September 30, 2014 was $7.1 million (December 31, 2013 - $6.8 million) with $nil and $342 thousand in interest expense and no resulting revaluation gains or losses being recognized in the three and nine months ended September 30, 2014 (2013 – $0.1 million and $0.1 million interest expense and $nil and $0.2 million revaluation losses, respectively). As at September 30, 2014, the contract had not been settled and the Company and the counterparty were in ongoing negotiations to extend the settlement date of this forward contract (Note 6(ii)(a)). The Company incurs certain contractor and lease expenses which are charged to the related party and the ultimate settlement of those unpaid charges ($1.0 million as at September 30, 2014) will be deducted from the final settlement amounts.
On November 25, 2010, the Company entered into a gold sales contract which specifies that 6,255 troy ounces of refined gold would be sold to the counterparty by May 30, 2011. In return, the Company received an upfront payment of $7.0 million cash. No refined gold was delivered to the counterparty by May 30, 2011, and several extensions of the delivery date have been accepted by the counterparty since that date. As at September 30, 2014, the contract had not been settled. Since May, 2011, the Company has been accruing a late payment penalty of 2.25% per month until the last known maturity date, and has been considering a possible cash payment in lieu of a delivery of physical gold. The Company does not acknowledge any liability to pay interest at the accrued rate or to make any cash payment in lieu of physical gold. The forward contract has been assessed to be a derivative liability and the value is adjusted to market price at each reporting date. The value of the November 2010 forward contract as at September 30, 2014 was $17.3 million (December 31, 2013 - $17.3 million) with no resulting revaluation gains or losses being recognized in the three and nine months ended September 30, 2014 (2013 – gain of $nil and $4.2 million, respectively) (Note 6(ii)(a)). As at September 30, 2014, the Company and the counterparty were in ongoing negotiations to determine the settlement amount and the amount payable in the event that there is a final outcome of those negotiations could differ significantly from the amount recorded.
On March 27, 2014, the Company entered into a gold sales contract which specifies that 3,500 troy ounces of refined gold would be sold to the counterparty by April 30, 2014. The Company received 90% of the purchase price, or $4.0 million cash, upfront with $0.4 million received upon final gold delivery in April 2014. The Company settled the contract and delivered 3,500 troy ounces in April 2014 reducing the liability to $nil with $nil and $146 thousand resulting revaluation losses being recognized, respectively, in the three and nine months ended September 30, 2014.
| VERIS GOLD CORP. | 18 |
| Notes to Condensed Interim Consolidated Financial Statements |
| For The Three and Nine Months Ended September 30, 2014 and 2013 |
| (Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited) |
| 12. | Warrants |
| (a) | Equity Warrants |
Equity warrants issued to brokers as compensation related to debt and equity financings are considered to be share-based payments and are thus included as a component of equity (“Equity Warrants”) and are not classified as derivative instruments.
| (b) | Derivative Liability Warrants |
As the Company’s functional currency is the US dollar, and the issued and outstanding warrants have an exercise price denominated in Canadian dollars, the warrants are therefore classified as derivative instruments. The warrants have been recognized as a liability in the statement of financial position with the movement in fair value recorded in net income (loss) at each reporting date.
As at September 30, 2014 the following warrants were outstanding:
| Derivative liability warrants | In thousands | |||||||||||||||||||||||||||||
| Expiry date | Note | Exercise price (C$) | December 31, 2013 | Warrants issued | Warrants exercised/ expired | September 30, 2014 | Fair Value as at December 31, 2013 | Fair Value as at September 30, 2014 | ||||||||||||||||||||||
| February 8, 2015 | 13 | 4.40 | 4,000 | - | - | 4,000 | 8 | - | ||||||||||||||||||||||
| May 23, 2015 | 4.00 | 3,908 | - | - | 3,908 | 15 | 3 | |||||||||||||||||||||||
| June 15, 2015¹ | 14(a) | 1.95 | 2,010 | - | - | 2,010 | 32 | 8 | ||||||||||||||||||||||
| July 19, 2015² | 14(a) | 1.95 | 1,333 | - | - | 1,333 | 23 | 8 | ||||||||||||||||||||||
| October 11, 2015² | 14(a) | 1.95 | 670 | - | - | 670 | 15 | 6 | ||||||||||||||||||||||
| December 18, 2016 | 2.35 | 3,600 | - | - | 3,600 | 148 | 56 | |||||||||||||||||||||||
| April 12, 2018 | 14(b) | 0.50³ | 3,400 | - | - | 3,400 | 329 | 201 | ||||||||||||||||||||||
| July 5, 2018 | 14(b) | 0.50³ | 500 | - | - | 500 | 53 | 31 | ||||||||||||||||||||||
| August 16, 2016 | 18(c)(ii) | 0.60 | 4,675 | - | - | 4,675 | 516 | 181 | ||||||||||||||||||||||
| August 16, 2016 | 18(c)(ii) | 0.65 | 3,197 | - | - | 3,197 | 336 | 118 | ||||||||||||||||||||||
| September 18, 2016 | 18(c)(iii) | 0.60 | 7,500 | - | - | 7,500 | 869 | 300 | ||||||||||||||||||||||
| December 2, 2016 | 18(c)(iv) | 0.50 | 7,502 | - | - | 7,502 | 978 | 352 | ||||||||||||||||||||||
| Derivative liability warrant total | 42,295 | - | - | 42,295 | $ | 3,322 | $ | 1,264 | ||||||||||||||||||||||
| Equity warrants | ||||||||||||||||||||||||||||||
| Expiry date | Note | Exercise price (C$) | December 31, 2013 | Warrants issued | Warrants exercised/ expired | September 30, 2014 | Equity Value as at December 31, 2013 | Equity Value as at September 30, 2014 | ||||||||||||||||||||||
| Dec 18, 2014 | 2.10 | 432 | - | - | 432 | $ | 171 | $ | 171 | |||||||||||||||||||||
| Dec 18, 2016 | 2.35 | 152 | - | - | 152 | 81 | 81 | |||||||||||||||||||||||
| April 12, 2015 | 14(b) | 1.85 | 100 | - | - | 100 | 58 | 58 | ||||||||||||||||||||||
| August 16, 2015 | 18(c)(ii) | 0.60 | 708 | - | - | 708 | 137 | 137 | ||||||||||||||||||||||
| September 18, 2016 | 18(c)(iii) | 0.60 | 188 | - | - | 188 | 40 | 40 | ||||||||||||||||||||||
| September 18, 2016 | 18(c)(iii) | 0.65 | 675 | - | - | 675 | 140 | 140 | ||||||||||||||||||||||
| Equity warrant total | 2,255 | - | - | 2,255 | $ | 627 | $ | 627 | ||||||||||||||||||||||
| Warrant total | 44,550 | - | - | 44,550 | ||||||||||||||||||||||||||
| VERIS GOLD CORP. | 19 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
1 Warrant holders exercised their option to amend the exercise price from $3.00 to $1.95 on January 14, 2013.
2 Warrant holders exercised their option to amend the exercise price from $3.00 to $1.95 on February 14, 2013.
3 On January 31, 2014 the Company entered into an extension agreement in which the exercise price was amended from US$1.80 to CAD$0.50 (Note 14(b)).
The fair value of the liability warrants was $1.3 million as at September 30, 2014 (December 31, 2013 - $3.3 million) and all warrants were long-term in nature. During the three and nine months ended September 30, 2014, a $0.2 million and $2.2 million gain, respectively was recognized in the consolidated statement of operations and comprehensive loss as a result of changes in the fair value of the warrants (2013 - $2.4 million loss and $7.2 million gain, respectively), and $nil was recognized in share capital as a result of the fair value of warrants exercised during the period (2013 - $nil).
The warrants were fair valued using an option pricing model with the following assumptions: no dividends are paid, weighted average volatilities of the Company’s share price of 126%, weighted average expected lives of the warrants of 1.8 years, and weighted average annual risk-free rates of 1.11%.
| 13. | Senior secured gold facility |
On August 12, 2011, the Company entered into a Forward Gold Purchase Agreement (the “First Agreement”) with Deutsche Bank. Under the First Agreement the Company received a gross prepayment of $120 million (the “Prepayment”), of which net cash proceeds of $73.5 million were received on August 12, 2011. The net cash proceeds represent the $120 million Prepayment net of: (i) $10 million deposited into an escrow account in the Company’s name to be made available upon the Company achieving defined production targets (Note 8(c)); (ii) the $29.9 million settlement of the outstanding senior secured notes; and, (iii) $6.6 million in transaction and legal costs. The February 2013 obligations under the Agreements were net cash settled contemporaneously with the release of $8 million of previously restricted performance reserve funds (Note 8(c)). The First Agreement is guaranteed by the Company and involves the registration of various charges against certain assets of the Company in favour of Deutsche Bank.
On February 7, 2012, the Company entered into a second Forward Gold Purchase Agreement (the “Second Agreement”) with Deutsche Bank. Under the Second Agreement the Company received a gross prepayment of $20 million (the “Second Prepayment”), of which net cash proceeds of $18.9 million were received on February 8, 2012. The net cash proceeds represent the $20 million Second Prepayment net of $1.1 million in transaction and legal costs. The Second Agreement is guaranteed by the Company and involves the registration of various charges against certain assets of the Company in favour of Deutsche Bank.
Under the terms of the First and Second Agreements (together, the “Agreements”), the Company has sold to Deutsche Bank, a Contract Quantity of Gold. As at September 30, 2014, the Company is obligated to make settlements equivalent to gold deliveries of 4,980 ounces per month (the “Future Gold Deliveries”). As of September 30, 2014, the Company has made the following settlements and has the following obligations for future deliveries:
| September 30, 2014 | December 31, 2013 | |||||||||||||||
| Au oz's | Au oz's | Au oz's | Au oz's | |||||||||||||
| Settled | Future Delivery | Settled | Future Delivery | |||||||||||||
| Senior Secured Gold Facility | 96,600 | 105,230 | 96,600 | 105,230 | ||||||||||||
| VERIS GOLD CORP. | 20 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
Pursuant to the terms of the Agreements, in July and August of 2013 the Company elected to net-cash settle the two $4.23 million obligations due for those two months. These cash payments represented the $850 per ounce due on the monthly 4,980 ounce gold delivery scheduled for those months. The election to cash settle was indicative that the Agreements were no longer held for the purpose of delivering gold in accordance with the Company’s expected requirements. As such, the cash-settlement election (the “Triggering Event”) triggered the need to reassess the deferred revenue accounting treatment originally adopted for the Agreements. Under the original deferred revenue treatment the initial proceeds received by the Company from the Agreements, less the $9.9 million attributable warrants issued along with the Second Agreement, were being recognized from deferred revenue liabilities into revenue on a per-ounce basis, as the ounces were delivered.
The reassessment of the Agreements required by the Triggering Event resulted in the Company concluding that as of July 1, 2013 the Agreements were financial liabilities. Further, the variable pricing used for the additional gold payments, represented by the minimum and maximum prices on future gold deliveries, the Collars were determined to be derivatives embedded within the Agreements, thus making the Agreements financial liabilities. It was determined that for accounting purposes upon the Triggering Event, the embedded derivative Collars be initially recognized at fair value and then subsequently measured at fair value through profit or loss.
The initial and subsequent fair value of the Collars is determined by reference to the aggregated value of certain gold calls with pricing and settlement dates similar to (i) the Collars’ pricing; and (ii) the Agreements’ scheduled future gold delivery obligation dates. The initial fair value of these embedded derivative liabilities was determined to be $0.9 million. The fair value of this embedded derivative as of September 30, 2014 was $nil (December 31, 2013 - $229 thousand), resulting in a $47 thousand and $229 thousand gain, respectively, (2013 - $201 thousand and $201 thousand, respectively) from derivatives being recognized in the three and nine months ended September 30, 2014 (Note 6(ii)(c)).
The Senior Secured Gold Facility, which represents the debt-host contract of the Agreements, excluding the separately valued and accounted for embedded derivative liabilities, is a financial liability that was also recorded initially at fair value as of July, 2013; and, has been subsequently measured at amortized cost using the effective interest method. The initial fair-value of this financial liability was $92.0 million, which was determined by using an effective interest rate of 18% applied to the anticipated monthly cash-flows attributable to the scheduled monthly gold delivery obligations of the Agreements. A $12.1 million loss was recognized in the three and nine months ended September 30, 2013 as a result of recording the Senior Secured Gold Facility (Note 6) at fair value as of July 1, 2013. Interest expense of $2.3 million and $8.1 million was recognized, respectively, for the three and nine months ended September 30, 2014 (2013 - $4.6 million and $4.6 million, respectively) (Note 4).
As of September 30, 2014, the Senior Secured Gold Facility had the following carrying values:
| September 30, 2014 | December 31, 2013 | |||||||||||||||
| Current | Long Term | Current | Long Term | |||||||||||||
| Senior Secured Gold Facility | $ | 85,421 | $ | - | $ | 77,309 | $ | - | ||||||||
The Company incurred $8.7 million of fees to parties involved in the Agreements, of which $1.7 million was expensed as transaction costs and the balance of $7.0 million paid to Deutsche Bank was originally deferred based on the direct relationship the fees have with the revenue expected to be recognized in future periods.
| VERIS GOLD CORP. | 21 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
These previously deferred transaction costs were contemplated as part of the revaluation of the Senior Secured Gold Facility and, as of the July 2013 revaluation date, are no longer separately presented and amortized.
On June 3, 2014, the Company received a notice of early termination date from Deutsche Bank for failure to make the full scheduled delivery as of December 31, 2013 or any amount in cash corresponding to the gold delivery shortfall. On June 9, 2014, the Company commenced Creditor Protection Proceedings (Note 1) in order to seek protection to address near term liquidity issues and demands from payments under the existing Deutsche Bank senior secured gold facility.
| 14. | Convertible debt |
| (a) | Convertible debentures |
The Company issued unsecured convertible debentures on June 15, 2012 (the “June Debentures”), July 19, 2012 (the “July Debenture”), October 11, 2012 (the “October Debenture”), for gross proceeds of C$6.0 million, C$4.0 million, and C$2.0 million, respectively (collectively, the "Debentures"). The June, July, and October Debentures bear interest at a rate of 11% per annum and have December 15, 2015, January 19, 2016, and April 11, 2016 maturity dates (the "Maturity Date"), respectively.
At the option of the holder, the principal amount of the Debentures, and all interest accrued thereon, will be convertible into common shares of the Company (the "Shares") at any time prior to the close of business on the Maturity Date, based on a conversion price equal to the greater of: (a) $1.50; and, (b) the market price of the Shares, as defined in the TSX Company Manual (the “Market Price”), discounted by 5% per Share (the "Conversion Option").
Upon the Maturity Date, the Debentures and all interest accrued thereon may, at the Company's discretion, be paid in cash, Shares (up to a maximum of 75%), or any combination of cash and Shares (up to a maximum of 75% Shares). The Company may only elect to convert all or any part of the Debentures outstanding in Shares if the market price for the Shares is greater than $2.00 for at least five out of the ten trading days preceding the date in which the Company delivers the Shares to the holder (such date not to be less than twenty days prior to the Maturity Date). The holder will have the option to require early repayment in the event of default by the Company.
For the June, July, and October Debentures, the Company also issued 201,011; 133,332; and, 66,956 common shares, respectively of the Company (the "Structuring Shares"), and 2,010,125; 1,333,333; and, 669,568 common share purchase warrants (the "Warrants"), respectively, to the Debenture holders. Each Warrant entitles the holder to purchase one Share at an exercise price of $3.00 and will expire three years following the Closing Date. On January 14, 2013 the holders of the June Debentures exercised their option to amend the exercise price of the June Warrants from $3.00 to $1.95. On February 14, 2013 the holders of the July and October Debentures exercised their option to amend the exercise price of the July and October Warrants from $3.00 to $1.95.
Upon commencement of the Creditor Protection Proceedings (Note 1), the Company defaulted on the Debentures in accordance with the bankruptcy provisions within the agreement. As a result, the long-term portion of the convertible debenture balances has been reclassified to current liabilities as the principal and interest on the Debentures are due immediately upon default.
| VERIS GOLD CORP. | 22 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
| (b) | Convertible note |
On April 12, 2013, the Company entered into a senior unsecured promissory note, which was amended on May 15, 2013 (the “Note”) with a principal sum of US$10.0 million. The Note bears an interest at a rate of 9% per annum and matured on December 12, 2013.
In connection with the Note, the Company also issued to the lender 3,400,000 five-year common share purchase warrants with an exercise price of US$1.80 per warrant. In connection with the Note transaction, the Company also paid a finder’s fee equal to 4% of the aggregate gross proceeds to Casimir Capital Ltd. (“Casimir”), and also issued Casimir 100,000 common share purchase warrants with an exercise price of C$1.85 and a term of two years from the Closing Date.
The Note provides that from and after the maturity date or at the election of the Lender in an Event of Default (as defined in the Note), the principal may be converted, in minimum increments of $500,000 and no more than 20% of the original principal of the amended Note in any one 30-day period, into common shares of the Company based on a conversion price equal to the greater of: (a) US$0.50, provided that if the US$0.50 floor price would cause the Lender’s ownership interest in the Company to be greater than 19.9% of the Company’s issued and outstanding common shares, the floor price shall be the price that would cause the Lender’s ownership interest in the Company to be equal to 19.9% of the Company issued and outstanding common shares; and (b) the Market Price (as defined in the TSX Company Manual) of the Company’s common shares discounted by 10% per share. The ability of the Lender to exercise its option to convert the principal into common shares remains subject to TSX approval at the time of the conversion. In addition, pursuant to the terms of the Note, on July 5, 2013, the Company issued the Lender an additional 500,000 common share purchase warrants with an exercise price of US$1.80 and an expiry date of July 5, 2018.
As a result of the conversion option features in the Debentures and the Note, both convertible debt instruments are recorded as compound financial liabilities. For accounting purposes the conversion options are embedded derivative liabilities which are initially bifurcated from the debt host contracts (the Debentures and the Note), are measured separately at fair value, and subsequently re-measured at fair value through other (expense) income (Note 6) at each reporting date. The debt component of the Debentures and the Note are measured at amortized cost, and is accreted over the expected term to maturity using the effective interest method.
As of September 30, 2014 the US $10 million principal had not been paid and remained outstanding. In January 2014 the Company entered into an agreement with the Lender to extend the maturity date of the Note to January 12, 2014, and to amend the exercise price of the related warrants from US$1.80 to CAD$0.50. The amendment to the exercise price of the warrants became effective as of February 14, 2014. The principal amount was not settled on the extended January 12, 2014 maturity date, this resulted in the Company incurring interest on the outstanding balance at a rate of 21% per annum, payable monthly.
| VERIS GOLD CORP. | 23 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
The table below provides a summary of the allocation on the initial recognition of the issued convertible debt:
| Initial value | Components | |||||||||||||||||||
| Debt | Embedded | Equity | Warrant Liability | Total | ||||||||||||||||
| Derivative | Note 12 | |||||||||||||||||||
| CAD | ||||||||||||||||||||
| June 15, 2012 | $ | 1,947 | $ | 152 | $ | 584 | $ | 3,317 | $ | 6,000 | ||||||||||
| July 20, 2012 | 846 | 141 | 453 | 2,560 | 4,000 | |||||||||||||||
| October 11, 2012 | 569 | 71 | 213 | 1,147 | 2,000 | |||||||||||||||
| April 12, 2013 | 7,344 | 459 | - | 2,331 | 10,134 | |||||||||||||||
| 10,706 | 823 | 1,250 | 9,355 | 22,134 | ||||||||||||||||
| USD | ||||||||||||||||||||
| June 15, 2012 | 1,901 | 148 | 570 | 3,238 | 5,857 | |||||||||||||||
| July 20, 2012 | 840 | 140 | 450 | 2,539 | 3,969 | |||||||||||||||
| October 11, 2012 | 578 | 69 | 214 | 1,169 | 2,030 | |||||||||||||||
| April 12, 2013 | 7,247 | 453 | - | 2,300 | 10,000 | |||||||||||||||
| $ | 10,566 | $ | 810 | $ | 1,234 | $ | 9,246 | $ | 21,856 | |||||||||||
The Debentures had a total of $1.3 million of transactions costs incurred with the issuance which were allocated to the components noted above on a pro-rata basis. The Debentures had a $0.6 million portion attributed to the debt components which have been deferred and will be amortized over the term of the Debentures; $0.1 million portion attributed to the Structuring shares which was recorded in equity net of the allocated proceeds; and the remainder was included in expensed transaction costs (Note 5).
As at September 30, 2014 the carrying value of the embedded derivative and debt components of the convertible debt instruments was as follows:
| Carrying value | Embedded Derivative | Debt | ||||||||||||||
| September 30, | December 31, | September 30, | December 31, | |||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| June 15, 2012 | $ | - | $ | 148 | $ | 3,708 | $ | 2,830 | ||||||||
| July 20, 2012 | - | 9 | 2,583 | 1,763 | ||||||||||||
| October 11, 2012 | - | 5 | 1,271 | 928 | ||||||||||||
| April 12, 2013 | - | 1 | 11,606 | 10,000 | ||||||||||||
| - | 163 | 19,168 | 15,521 | |||||||||||||
| Current portion | - | - | (19,168 | ) | (10,000 | ) | ||||||||||
| $ | - | $ | 163 | $ | - | $ | 5,521 | |||||||||
| 15. | Net smelter returns royalty facility |
On April 9, 2014, the Company closed financing in the form of the sale of a 0.5% Net Smelter Returns Royalty for proceeds of $7.5 million. Proceeds were delivered to Veris at the date of closing, April 10, 2014. The royalty relates to the production of gold and silver from the Company’s Jerritt Canyon mines and processing plant, operated by Veris Gold USA Inc.. The royalty is applied, at a fixed rate of 0.5%, against proceeds from gold and silver products after deducting treatment, refining, transportation, insurance, and taxes and levies charges.
| VERIS GOLD CORP. | 24 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
The Company retains the right to buy-back the royalty until June 30, 2015 for the purchase price plus a premium based on the price of gold or alternatively if the Company enters into another royalty with an arms-length third party the buyback is calculated based on the sale price of the new royalty. The variable pricing used in calculating the buy-back premium was determined to be an embedded derivative, and is initially bifurcated from the debt host contract (the “Net Smelter Return Royalty Facility” or “NSR”), measured separately at fair value, and subsequently re-measured at fair value through other (expense) income (Note 6). The fair value of this embedded derivative as of September 30, 2014 was $nil, resulting in a $31 thousand and $nil mark-to-market gain being recognized for the three and nine months ended September 30, 2014, respectively (Note 6 (ii)(d)).
The NSR, which represents the debt component of the financing agreement, is a financial liability that was also recorded initially at fair value as of April 2014. The NSR has been subsequently measured at amortized cost using the effective interest rate method. The fair value at inception was equal to $7.5 million, which was determined by using an effective interest rate of 9.14% applied to the anticipated monthly cash-flows attributable to the NSR royalty payments of the agreement. Interest expense of $0.1 million and $0.3 million was recognized for the three and nine months ended September, 30, 2014 (Note 4). As at September 30, 2014, the amortized cost of the NSR was $7.8 million, of which $1.2 million was short-term in nature and included in current liabilities.
| 16. | Decommissioning and rehabilitation provisions |
Changes in reclamation obligations:
| September 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Balance, beginning of period | $ | 54,970 | $ | 54,629 | ||||
| Accretion expense | 1,319 | 1,707 | ||||||
| Foreign exchange | (180 | ) | (238 | ) | ||||
| Reclamation spending | - | - | ||||||
| Revisions in estimates of liabilities and additional obligations | - | (1,128 | ) | |||||
| $ | 56,109 | $ | 54,970 | |||||
As at September 30, 2014 and December 31, 2013, all of the decommissioning and rehabilitation provisions were long-term in nature.
The Company’s decommissioning and rehabilitation provisions consist of reclamation and closure costs for both active mines and exploration activities. The present value of obligations relating to active mines is currently estimated at $52.7 million (2013 - $51.5 million) reflecting payments for approximately the next 24 years. The present value of obligations relating to exploration activity are currently estimated at $3.4 million (2013 - $3.5 million) reflecting payments for approximately the next 10 years. Significant reclamation and closure activities include land and water rehabilitation, demolition of buildings and mine facilities, ongoing care and maintenance, and other costs.
The undiscounted value of this liability is $74.0 million (2013 - $74.2 million). Inflation rate assumptions of 1.7% and discount rates of 2.5% – 3.6% have been used to determine the present value of the obligation. The 2013 revision in estimates of liabilities and reduction in obligations is primarily due to the recognition of additional future reclamation obligations offset by increased discount rates (2012 increased due to recognition of additional future reclamation obligations). The majority of future estimated decommissioning and rehabilitation work has been funded through cash deposits held at various financial and government institutions (Note 8).
| VERIS GOLD CORP. | 25 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
| 17. | Finance lease obligations |
The Company has finance lease obligations at the Queenstake Resources U.S.A., Inc. subsidiary for equipment used for the Jerritt Canyon operations. The net carrying amount of the leased equipment included in mobile plant and equipment was $7.8 million at September 30, 2014 (December 31, 2013 - $8.7 million) (Note 9).
| September 30, | December 31, | |||||||
| Maturity analysis of finance leases: | 2014 | 2013 | ||||||
| Current | $ | 2,396 | $ | 3,174 | ||||
| Non-current | 649 | 2,414 | ||||||
| $ | 3,045 | $ | 5,588 | |||||
| September 30, | December 31, | |||||||
| Reconciliation of minimum lease payments | 2014 | 2013 | ||||||
| Less than a year | $ | 2,553 | $ | 3,660 | ||||
| 2 years | 553 | 1,945 | ||||||
| 3 years | - | 340 | ||||||
| 3,106 | 5,945 | |||||||
| Less: future finance charges | (61 | ) | (357 | ) | ||||
| Present value of minimum lease payments | $ | 3,045 | $ | 5,588 | ||||
| 18. | Share capital and share based payments |
| (a) | Authorized share capital consists of an unlimited number of common shares |
| (b) | On October 9, 2012, the Company completed a ten for one consolidation (the “Consolidation”) of the Company's common shares. On October 9, 2012, the 996,901,669 common shares issued and outstanding were consolidated to approximately 99,689,930 common shares. The Company's outstanding stock options and listed warrants were adjusted on the same basis with proportionate adjustments being made to the stock option exercise prices and warrant exercise prices respectively. All comparative period information has been adjusted to reflect this Consolidation. |
| (c) | Common shares issued and outstanding |
| (i) | On April 12, 2013, the Company issued 100,000 broker compensation warrants concurrently with the issuance of convertible note (Note 14). The broker compensation warrants had a fair value of $0.1 million at issuance which was recorded in equity (Note 12). |
| (ii) | On August 16, 2013, the Company closed a public offering of 9,349,362 Units at a price of C$0.52 per Unit and 6,393,310 Flow-Through Units at a price of C$0.55 per Unit for gross proceeds of $8.1 million. Each Unit and Flow-Through Unit is comprised of one common share of the Company and one half of one common share purchase warrant. Each Unit Warrant has an exercise price of C$0.60 and entitles the holder thereof to acquire one common share of the Company until August 16, 2016. Each whole Flow-Through Unit warrant has an exercise price of C$0.65 and entitles the holder thereof to acquire one common share of the Company until August 16, 2016. Of the gross proceeds $6.1 million was attributed to common shares and recorded in equity, $0.2 million was attributed to the flow-through share premium and recorded in deferred tax liabilities, and $1.8 million was attributed to the warrants and recorded in warrant liability. |
| VERIS GOLD CORP. | 26 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
The Company paid agents fees equivalent to 7% ($0.9 million) of the public offering. The agents’ fees were satisfied with $0.6 million in cash, and 314,853 common shares of the Company. The shares had a value of $0.2 million. 78% of the agents fees were recorded in equity and 22% were recorded in transaction costs and finance fees (Note 5).
The Company also issued agents 708,420 broker compensation warrants with a fair value of $0.1 million. 78% of the broker compensation warrants were recorded in equity and 22% were recorded in transaction costs and finance fees (Note 5). Each broker compensation warrant consisted of one common share purchase option exercisable to purchase one additional common share in the Company at a price of C$0.60 per share until August 16, 2015.
| (iii) | On September 18, 2013, the Company closed a private placement for gross proceeds of $7.6 million, from the issuance of an aggregate of 15,000,000 units at price of C$0.52 per unit. Each unit consisted of one common share and one half of one share purchase warrant exercisable to purchase one additional common share at a price of C$0.60 per share until September 18, 2016. Of the gross proceeds, $6.0 million was attributed to common shares and recorded in equity, and $1.6 million was attributed to the warrants and recorded in warrant liability. |
The Company paid agents fees equivalent to 5% ($0.4 million) of the private placement. The agents fees were satisfied with $0.2 million in cash, and 375,000 units under the same terms as the private placement. 79% of the agents fees were recorded in equity and 21% were recorded in transaction costs and finance fees (Note 5).
The Company also issued agents 675,000 broker compensation warrants with a fair value of $0.1 million. 79% of the broker compensation warrants were recorded in equity and 21% were recorded in transaction costs and finance fees (Note 5). Each broker compensation warrant consisted of one common share purchase option exercisable to purchase one additional common share in the Company at a price of C$0.65 per share until September 18, 2016.
| (iv) | On December 2, 2013, the Company closed a public offering of 8,488,780 Units at a price of C$0.405 per Unit and 6,515,628 Flow-Through Units at a price of C$0.43 per Unit for gross proceeds of $5.9 million. Each Unit and Flow-Through Unit is comprised of one common share of the Company and one half of one common share purchase warrant. Each whole Unit and whole Flow-Through Unit Warrant has an exercise price of C$0.50 and entitles the holder thereof to acquire one common share of the Company until December 2, 2016. Of the gross proceeds $4.6 million was attributed to common shares and recorded in equity, $0.2 million was attributed to the flow-through share premium and recorded in deferred tax liabilities, and $1.1 million was attributed to the warrants and recorded in warrant liability. |
The Company paid agents fees equivalent to 6% ($0.5 million) of the public offering. The agents fees were satisfied with $0.4 million in cash, and 300,088 common shares of the Company. The shares had a value of $0.1 million. 81% of the agents fees were recorded in equity and 19% were recorded in transaction costs and finance fees (Note 5).
| VERIS GOLD CORP. | 27 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
| (d) | Stock options |
The Company has a stock option plan (the “Plan”) in place under which the Board of Directors may grant options to acquire common shares of the Company to directors, employees and service providers. Under the terms of the Plan, the number of securities issuable to insiders cannot exceed 10% of the issued and outstanding securities. The options vest over a variable period of time up to three years dependent upon the individual’s role and any specified performance criteria. The company is currently restricted from issuing new stock options pending the completion of regulatory compliance matters pertaining to the Company’s most recently approved Stock Option Plan.
The total fair value of the stock based compensation recognized during the three and nine months ended September 30, 2014 was $nil and $nil, respectively (2013 - $0.2 million and $0.6 million, respectively). The fair value of stock options granted during the three and nine months ended September 30, 2014 was calculated using the Black-Scholes option pricing model with the following weighted average assumptions:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Weighted average fair value at grant date ($) | $ | - | $ | - | $ | - | $ | 1.22 | ||||||||
| Expected dividend yield (%) | - | - | - | 0 | % | |||||||||||
| Average risk-free interest rate (%) | - | - | - | 1.2 | % | |||||||||||
| Expected life (years) | - | - | - | 5.0 | ||||||||||||
| Expected volatility (%) | - | - | - | 128 | % | |||||||||||
| Forfeiture rate (%) | - | - | - | 0 | % | |||||||||||
Continuity of stock options outstanding is as follows:
| Options outstanding (000's) | Weighted average exercise price (C$/option) | |||||||
| At December 31, 2012 | 6,246 | $ | 2.97 | |||||
| Granted | 515 | 1.44 | ||||||
| Expired | (1,043 | ) | 3.42 | |||||
| Forfeited | (198 | ) | 1.84 | |||||
| At December 31, 2013 | 5,520 | 2.78 | ||||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Expired | (2,551 | ) | 2.13 | |||||
| Forfeited | (5 | ) | 3.00 | |||||
| At September 30, 2014 | 2,964 | $ | 3.34 | |||||
| VERIS GOLD CORP. | 28 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
The following information pertains to the options outstanding at September 30, 2014:
| Options Outstanding | Vested | |||||||||||||||||||||||
| Exercise Price (C$) | Options outstanding (000's) | Weighted average exercise price (C$/option) | Weighted average remaining contractual life (years) | Options outstanding (000's) | Weighted average exercise price (C$/option) | Weighted average remaining contractual life (years) | ||||||||||||||||||
| 1.42 - 2.50 | 100 | $ | 2.20 | 2.62 | 100 | $ | 2.20 | 2.62 | ||||||||||||||||
| 2.51 - 3.50 | 2,403 | 3.09 | 1.01 | 2,403 | 3.09 | 1.01 | ||||||||||||||||||
| 3.51 - 4.50 | 161 | 4.50 | 1.95 | 161 | 4.50 | 1.95 | ||||||||||||||||||
| 4.51 - 7.40 | 300 | 5.12 | 1.64 | 300 | 5.12 | 1.64 | ||||||||||||||||||
| 2,964 | $ | 3.34 | 1.18 | 2,964 | $ | 3.34 | 1.18 | |||||||||||||||||
| 19. | Supplemental cash flow information |
| Amended (Note 24) | Amended (Note 24) | |||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Change in operating working capital | ||||||||||||||||
| Accounts receivable and other | $ | (2,670 | ) | $ | (4,012 | ) | $ | (1,216 | ) | $ | (717 | ) | ||||
| Inventories | 3,740 | (5,287 | ) | 3,137 | (4,238 | ) | ||||||||||
| Accounts payable and accrued liabilities | (684 | ) | 7,564 | 3,470 | 15,918 | |||||||||||
| $ | 386 | $ | (1,735 | ) | $ | 5,391 | $ | 10,963 | ||||||||
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Operating activities include the following cash paid: | ||||||||||||||||
| Interest paid | $ | - | $ | 2,685 | $ | 75 | $ | 2,685 | ||||||||
| Income taxes paid | 113 | 113 | 394 | 233 | ||||||||||||
| $ | 113 | $ | 2,798 | $ | 469 | $ | 2,918 | |||||||||
| 20. | Segmented information |
All of the Company’s operations, involve the acquisition, exploration and production of gold (within the mining sector), in North America. As of September 30, 2014, the Company had one producing gold property located in Nevada, USA and exploration properties in Canada (Yukon) and the USA. For the three and nine months ended September 30, 2014 and 2013, the Company’s gold production was sold through more than one broker.
The Company’s operating segments reflect the Company’s geographical operations and are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, the Chief Operating Officer.
| VERIS GOLD CORP. | 29 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
| September 30, 2014 | Canada | USA | Consolidated | |||||||||
| Current assets | $ | 2,490 | $ | 30,312 | $ | 32,802 | ||||||
| Non current assets | 23,249 | 246,505 | 269,754 | |||||||||
| Total assets | 25,739 | 276,817 | 302,556 | |||||||||
| Current liabilities | 26,627 | 193,125 | 219,752 | |||||||||
| Non current liabilities | 5,400 | 59,966 | 65,366 | |||||||||
| Total liabilities | $ | 32,027 | $ | 253,091 | $ | 285,118 | ||||||
| December 31, 2013 | Canada | USA | Consolidated | |||||||||
| Current assets | $ | 1,594 | $ | 30,617 | $ | 32,211 | ||||||
| Non current assets | 22,340 | 258,281 | 280,621 | |||||||||
| Total assets | 23,934 | 288,898 | 312,832 | |||||||||
| Current liabilities | 16,205 | 183,130 | 199,335 | |||||||||
| Non current liabilities | 13,126 | 53,886 | 67,012 | |||||||||
| Total liabilities | $ | 29,331 | $ | 237,016 | $ | 266,347 | ||||||
| Nine months ended September 30, 2014 | Canada | USA | Consolidated | |||||||||
| Mining sales | $ | - | $ | 145,411 | $ | 145,411 | ||||||
| Toll milling sales | - | 826 | 826 | |||||||||
| Cost of sales (excluding depreciation & depletion) | - | 133,213 | 133,213 | |||||||||
| Depreciation & depletion | 21 | 20,362 | 20,383 | |||||||||
| Income tax expense (recovery) | - | 371 | 371 | |||||||||
| Net income (loss) | (2,060 | ) | (26,380 | ) | (28,440 | ) | ||||||
| Capital expenditures | $ | 1,981 | $ | 9,144 | $ | 11,125 | ||||||
| Nine months ended September 30, 2013 | Canada | USA | Consolidated | |||||||||
| Mining sales | $ | - | $ | 147,288 | $ | 147,288 | ||||||
| Toll milling sales | - | 5,015 | 5,015 | |||||||||
| Cost of sales (excluding depreciation & depletion) | - | 136,180 | 136,180 | |||||||||
| Depreciation & depletion | 71 | 14,520 | 14,591 | |||||||||
| Income tax expense (recovery) | 1,090 | - | 1,090 | |||||||||
| Net income (loss) | 2,187 | (21,043 | ) | (18,856 | ) | |||||||
| Capital expenditures | $ | 2,032 | $ | 32,382 | $ | 34,414 | ||||||
| Three months ended September 30, 2014 | Canada | USA | Consolidated | |||||||||
| Mining sales | $ | - | $ | 57,252 | $ | 57,252 | ||||||
| Toll milling sales | - | - | - | |||||||||
| Cost of sales (excluding depreciation & depletion) | - | 48,491 | 48,491 | |||||||||
| Depreciation & depletion | 4 | 7,787 | 7,791 | |||||||||
| Income tax expense (recovery) | - | - | - | |||||||||
| Net income (loss) | (1,869 | ) | (4,660 | ) | (6,529 | ) | ||||||
| Capital expenditures | $ | 1,047 | $ | 3,868 | $ | 4,915 | ||||||
| VERIS GOLD CORP. | 30 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
| Three months ended September 30, 2013 | Canada | USA | Consolidated | |||||||||
| Mining sales | $ | - | $ | 56,993 | $ | 56,993 | ||||||
| Toll milling sales | - | 3,304 | 3,304 | |||||||||
| Cost of sales (excluding depreciation & depletion) | - | 49,095 | 49,095 | |||||||||
| Depreciation & depletion | 25 | 5,477 | 5,502 | |||||||||
| Income tax expense (recovery) | (8 | ) | - | (8 | ) | |||||||
| Net income (loss) | (4,343 | ) | (13,827 | ) | (18,170 | ) | ||||||
| Capital expenditures | $ | 668 | $ | 10,782 | $ | 11,450 | ||||||
| 21. | Financial Instruments |
The Company’s financial instruments consist of cash and cash equivalents, receivables, restricted funds, accounts payable and accrued liabilities, borrowings, and derivative liabilities. The Company’s derivative liabilities include forward contracts, the embedded gold derivative component of borrowings, and warrants.
| a) | Financial assets and liabilities classified as Fair Value Through Profit or Loss (FVTPL) |
The Company’s financial assets and liabilities classified as FVTPL are carried at fair value with changes in fair value recorded in income. Interest income and expense are both recorded in income.
The Company’s derivative financial assets and liabilities classified as FVTPL are as follows:
| September 30, | December 31, | |||||||||||
| Notes | 2014 | 2013 | ||||||||||
| Current derivative liabilities | ||||||||||||
| Derivatives embedded in convertible debt | 14 | $ | - | $ | - | |||||||
| Derivatives embedded in senior secured gold facility | 13 | - | 164 | |||||||||
| Derivatives embedded in net smelter return royalty | 15 | - | 229 | |||||||||
| Forward contracts | 11 | 24,428 | 24,086 | |||||||||
| 24,428 | 24,479 | |||||||||||
| Non-current derivative liabilities | ||||||||||||
| Warrants | 12 | 1,264 | 3,322 | |||||||||
| $ | 1,264 | $ | 3,322 | |||||||||
| b) | Other categories of financial instruments |
Accounts receivables are classified as loans and receivables. Accounts payable and accrued liabilities, as well as the debt component of borrowings are classified as other liabilities and are measured at amortized cost, using the effective interest method. The fair values of accounts receivables, accounts payable and accrued liabilities approximate the carrying value because of the short term nature of these instruments.
The fair value of borrowings was determined using discounted cash flows at prevailing market rates and the fair value is approximately equal to the carrying value of the debt.
| VERIS GOLD CORP. | 31 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
| c) | Fair value measurements of financial assets and liabilities |
The categories of fair value hierarchy that reflect the significance of inputs used in making fair value measurements are as follows:
| · | Level 1 – quoted prices in active markets for identical assets or liabilities; |
| · | Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and |
| · | Level 3 – inputs for the asset or liability that are not based on observable market data. |
There have been no transfers between fair value levels during the reporting period.
An assessment of the Company’s financial instruments carried at fair value is set out below:
| September 30, 2014 | December 31, 2013 | |||||||||||||||
| Level 1 | Level 2 | Level 1 | Level 2 | |||||||||||||
| Financial Assets | ||||||||||||||||
| Cash and cash equivalents | $ | 3,740 | $ | - | $ | 1,161 | $ | - | ||||||||
| Restricted funds | 56,299 | - | 56,369 | - | ||||||||||||
| 60,039 | - | 57,530 | - | |||||||||||||
| Financial Liabilities | ||||||||||||||||
| Derivatives embedded in convertible debt | - | - | - | 164 | ||||||||||||
| Derivatives embedded in net smelter returns royalty | - | - | - | - | ||||||||||||
| Derivatives embedded in senior gold facility | - | - | - | 229 | ||||||||||||
| Warrants | - | 1,264 | - | 3,322 | ||||||||||||
| Forward contracts | - | 24,428 | - | 24,086 | ||||||||||||
| $ | - | $ | 25,692 | $ | - | $ | 27,801 | |||||||||
The fair value measurement methodologies used for the level 2 inputs were as follows:
The fair value of the derivative liability forward contracts (Note 11) are calculated using quoted forward gold curve prices applied to the amount of ounces the Company is obligated to deliver under the terms of the forward contract liability;
The fair value of derivative liability warrants (Note 12) is calculated using an option pricing model with the following assumptions: no dividends are paid, weighted average volatilities of the Company’s share price of 126%, weighted average expected lives of the warrants of 1.8 years, and weighted average annual risk-free rates of 1.11%;
The fair value of the embedded derivative liabilities represented by the equity conversion options included in the convertible debt instruments (Note 14) is determined through forecasted conversion option values determined through Monte Carlo simulation analysis;
The fair value of the embedded derivative liabilities arising from the Collars included in the Deutsche Bank Agreements (Note 13) is determined by reference to the aggregated value of certain gold calls with pricing and settlement dates similar to (i) the Collars’ pricing; and (ii) the Agreements’ scheduled future gold delivery obligation dates; and,
| VERIS GOLD CORP. | 32 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
The fair value of the embedded derivative liability arising from the Net Smelter Return Royalty buy-back option (Note 15) is determined by reference to market gold prices applied against the initial proceeds received.
At September 30, 2014 there were no financial assets or financial liabilities recognized at fair value on a non-recurring basis.
| d) | Financial Risk Management |
The Company is exposed to the certain risks through its use of financial instruments, including market risk (currency risk, interest rate risk and commodity price risk), credit risk, and liquidity risk.
The Company manages its exposure to risk through the identification and analysis of risks faced by the Company, setting appropriate risk limits and controls, and monitoring those risks and adherence to the limits and controls that are established. Risk management is carried out by senior management under the approval of the Board of Directors. Risk management practices are reviewed regularly by senior management and the Audit Committee to reflect changes in market conditions and the Company’s activities.
Market risk
Market risk is the risk that changes in market factors, such as foreign exchange rates, interest rates or commodity prices which will affect the fair values or future cash flows of the Company.
| (i) | Currency risk |
Results are reported in US dollars. The majority of the Company’s operating and capital expenditures are denominated and settled in US dollars. The largest single exposure the Company has is to the Canadian dollar through cash holdings and corporate administration costs. Consequently, fluctuations in the US dollar exchange rate against the Canadian dollar increases the volatility of corporate administration costs and overall net earnings, when translated into US dollars. The Company manages this risk by maintaining funds in Canadian dollars to support the cash requirements of those operations. The Company does not use any foreign exchange contracts to hedge these currency risks.
The Company is exposed to currency risk through the following financial assets and liabilities denominated in Canadian dollars:
| In thousands of CAD | September 30, | December 31, | ||||||
| 2014 | 2013 | |||||||
| Cash and cash equivalents | $ | 76 | $ | - | ||||
| Accounts receivable | 1,774 | 1,144 | ||||||
| Restricted funds | 3,880 | 3,786 | ||||||
| Accounts payable and accrued liabilities | (8,359 | ) | (6,428 | ) | ||||
Based on the above net exposures as at September 30, 2014, a 10% appreciation or depreciation in the Canadian dollar against the US dollar, assuming all other variables remain constant, would result in $240 thousand (2013 - $146 thousand) increase or decrease, respectively, in operating results and shareholders’ equity.
| VERIS GOLD CORP. | 33 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
| (ii) | Interest rate risk |
Interest rate risk is the risk that the fair values and future cash flows of the Company will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its cash and cash equivalents. The Company’s cash and cash equivalents contain highly liquid investments that earn interest at market rates. Fluctuations in market interest rates do not have a significant impact on the Company’s results from operations due to the short term to maturity of the investments held.
The Company is not exposed to interest rate risk on any borrowings because they are all held at fixed interest rates.
| (iii) | Commodity price risk |
The Company sells its gold production in the world market. The market prices of gold are the primary drivers of the Company’s profitability and ability to generate free cash flow. All of the future gold production is unhedged in order to provide shareholders with full exposure to changes in the market gold price.
The Company is also exposed to fluctuations in the market prices of gold through the Company’s derivative and non-derivative forward gold contracts as increases in the market prices of gold will increase the value of gold used for settlement of these contracts.
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises from cash and cash equivalents, restricted funds, and trade and other receivables. For cash and cash equivalents, restricted funds, and trade and accounts receivable, credit risk exposure equals the carrying amount on the statement of financial position.
| (i) | Cash and cash equivalents |
The Company manages its credit risk on cash and cash equivalent balances by maintaining balances with Tier 1 Canadian banks with a Standard & Poor’s rating of AA.
| (ii) | Restricted funds |
The Company has funds of $50.8 million included in restricted funds (Note 8) with a third party insurer with a Standard & Poor’s rating of A+ to fund future reclamation costs at Jerritt Canyon. The Company maintains title to these funds should the third party be in default of its obligations or enters into bankruptcy protection.
Also included in restricted funds is $2.0 million in an escrow account held in the Company’s name at a European bank with a Standard & Poor’s rating of A (Note 8). These funds relate to the senior secured gold facility (Note 13), and will be made available to the Company when defined production targets are achieved.
The Company has $2.7 million in restricted funds at September 30, 2014, which relate to a water use license letter of credit and cash pledged as security for letters of credit (Note 8), are held as short term deposits with a Tier 1 Canadian bank with a Standard & Poor’s rating of AA-.
| VERIS GOLD CORP. | 34 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
Liquidity risk
Liquidity risk is the risk of loss from not having sufficient funds to meet financial obligations as they fall due. The Company manages liquidity risk through forecasting its cash flows from operations and anticipating investing and financing activities. Senior management is actively involved in the review and approval of planned expenditures and typically ensures that it has sufficient cash on demand to meet expected operating expenses.
The following are the contractual maturities of the undiscounted cash flows of derivative and non-derivative liabilities:
| Less than 3 months | 4 to 12 months | 1 to 2 years | Greater than 2 years | Total | ||||||||||||||||
| Accounts payable and accrued liabilities | $ | 87,174 | $ | - | $ | - | $ | - | $ | 87,174 | ||||||||||
| Finance lease obligations | 823 | 1,730 | 553 | - | 3,106 | |||||||||||||||
| Convertible debt | 19,168 | - | - | - | 19,168 | |||||||||||||||
| Forward contracts | 24,428 | - | - | - | 24,428 | |||||||||||||||
| Senior secured debt facility | 85,421 | - | - | - | 85,421 | |||||||||||||||
| At September 30, 2014 | 217,014 | 1,730 | 553 | - | 219,297 | |||||||||||||||
| Accounts payable and accrued liabilities | 84,373 | - | - | - | 84,373 | |||||||||||||||
| Finance lease obligations | 1,043 | 2,617 | 1,945 | 340 | 5,945 | |||||||||||||||
| Convertible debt | 10,000 | - | 6,511 | 7,813 | 24,324 | |||||||||||||||
| Forward contracts | 24,086 | - | - | - | 24,086 | |||||||||||||||
| Senior secured debt facility | 89,446 | - | - | - | 89,446 | |||||||||||||||
| At December 31, 2013 | $ | 208,948 | $ | 2,617 | $ | 8,456 | $ | 8,153 | 228,174 | |||||||||||
| e) | Managing Capital |
The Company manages capital so as to support the capital required for the ongoing operations, and for development of the Company’s mineral properties. The capital of the Company consists of shareholders’ equity; debt and convertible debt instruments; and, cash.
The capital structure of the Company is evaluated by management on an ongoing basis and is adjusted as changes occur in both the economic conditions of the industry in which the Company operates, and the capital markets available to the Company. A component of managing capital includes planning, budgeting and forecasting processes to determine the Company’s capital requirements. As part of the management of capital, subsequent to December 31, 2013, the Company appointed a Restructuring Special Committee (the "Special Committee") to investigate strategic refinancing alternatives, and to plan the financial restructuring of the Company. The Special Committee, which is comprised of two independent Directors and one non-independent Director, has engaged, Raymond James Inc. as its sole investment banking advisor to assist with identifying and evaluating refinancing alternatives.
| VERIS GOLD CORP. | 35 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
| 22. | Earnings per share |
As a result of the net loss incurred during the three and nine months ended September 30, 2014, the effect of the convertible debt and convertible note (Note 14), 44,550,000 warrants (2013 – 37,047,502 warrants) (Note 12), and 2,964,000 options (2013 – 5,975,551 options) (Note 18) outstanding was anti-dilutive, and therefore excluded from the computation of diluted net loss per share.
| 23. | Commitments and contingencies |
The complex nature of the Company’s operations, as well as the regulatory environment in which it operates can result in occasional claims; investigatory matters; and, legal and tax proceedings that arise from time to time. Each of these matters is subject to various uncertainties and may ultimately be resolved with terms unfavorable to the Company. This being the case, certain conditions may exist as of the date the financial statements are issued, which could result in a loss to the Company. In the opinion of management none of these matters are expected to have a material effect on the results of operations, or the financial condition, of the Company. In the event of a change in management’s estimate of the future resolution of such matters, the Company will recognize the effects of the change in its consolidated financial statements at that time.
| a) | On April 22, 2009, the Company received a notice of complaint from the U.S. Department of Justice (“DOJ”) representing the Environmental Protection Agency (“EPA”), alleging the Company had violated specific provisions of the Resource Conservation and Recovery Act relating to the generation, storage, handling, and disposal of hazardous wastes at the Jerritt Canyon facility. The Company responded to the allegations and had numerous discussions with the EPA on the matter in order to determine the nature of the violations. In December of 2013 the Company negotiated a tentative settlement with the DOJ and the EPA which involves entering into a Consent Decree (“CD”) outlining the ongoing reporting requirements of the Company and, once this CD is ultimately and duly entered by a court of competent jurisdiction, a settlement payment of $1.1 million will be due within 60 days thereof. No admission of fault has been made with respect to these matters. Based on numerous factors, including economic considerations such as the ultimate cost and time required to prepare a defense of this matter, the Company made the decision that it would be better served with a settlement arrangement in this manner. A provision of $1.1 million relating to these matters has been made as of September 30, 2014. |
| b) | On September 30, 2013, the EPA filed an administrative complaint in EPA Region IX against the Company alleging violations of the Emergency Planning and Community Right-to-Know Act for the alleged failure to properly file Toxic Release Inventory Form Rs. The Company responded to the EPA and had been engaged in ongoing discussions with the EPA in order to determine the nature of the alleged violations. In October 2014, the Company negotiated a settlement with the EPA in the form of a Consent Agreement and Final Order (“CAFO”). Once the final order in the CAFO is filed, a settlement payment of $0.2 million will be included as an allowed general unsecured claim in any plan of reorganization submitted in the CCAA proceedings. No admission of fault has been made with respect to these matters. Based on numerous factors, including economic considerations such as the ultimate cost and time required to prepare a defense of this matter, the Company made the decision that it would be better served with a settlement arrangement in this manner. A provision of $0.2 million relating to these matters has been made as of September 30, 2014. |
| VERIS GOLD CORP. | 36 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
| c) | During the fourth quarter of 2013 the Company and the NDEP negotiated and executed a second modified consent decree (the “Second Modified CD”), modifications were made to remove all the completed items included in the previous consent decree; and, to refine the timelines for the remaining restoration projects, primarily the engineering, design and implementation of facilities for the treatment of water seepage from the resurfaced RDA sites. In conjunction with these revised timelines for the water treatment plans, the Second Modified CD includes an agreement by the Company to secure $10 million of bonding before May 30, 2014 to provide surety for the potential solutions that will be put in place. By securing this bonding the Company can avoid all outstanding penalties and interest amounts potentially due to the NDEP, which could total as much as $10.5 million. Subsequent to year end, the Company was unable to fund the bonding necessary and the NDEP has assessed the Company with $10.6 million for penalties, pursuant to the Second Modified CD. |
| d) | The Company is required to incur $2.7 million on exploration in Canada before January 1, 2015 in order to be able to satisfy its obligations to renounce the related tax benefit as required by flow-through share financings closed in the three months ended March 31, 2014. The Company would record a provision after January 1, 2015, of $1.6 million, to satisfy flow-through share obligations in the event that the Company did not incur and renounce further exploration expenditures in Canada after March 31, 2014. |
| e) | Lease Commitments |
The Company is committed under various operating leases to the following annual minimum payments:
| September 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| 2014 | $ | 72 | $ | 316 | ||||
| 2015 | 193 | 210 | ||||||
| $ | 265 | $ | 526 | |||||
| 24. | Reclassification of prior period |
Subsequent to the November 13, 2013 filing of the Company’s Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2013, the Company discovered a misclassification in the mineral properties and property, plant and equipment held in accounts payable which resulted in no change to overall cash flow but understated mineral property cash expenditures offset by an overstatement of property, plant and equipment cash expenditures and operating cash expenditures for the three months ended September 30, 2013. For the nine months ended September 30, 2013, the misclassification resulted in understated mineral property and property, plant and equipment cash expenditures offset by overstatement of operating cash expenditures for the three and nine months ended September 30, 2013. The correction of this misclassification resulted in the following changes to the consolidated statement of operations for the three and nine months ended September 30, 2013:
| VERIS GOLD CORP. | 37 |
Notes to Condensed Interim Consolidated Financial Statements
For The Three and Nine Months Ended September 30, 2014 and 2013
(Tabular amounts in thousands of US dollars unless otherwise noted - Unaudited)
| Condensed Interim Consolidated Statements of Cash Flows | ||||||||||||
| (in thousands of US dollars, except for per share amounts) | Three months ended September 30, 2013 | |||||||||||
| As initially reported | Amendment | As Amended | ||||||||||
| Operating activities | ||||||||||||
| Change in non cash working capital | $ | (4,503 | ) | $ | 2,768 | $ | (1,735 | ) | ||||
| Investing activities | ||||||||||||
| Property, plant and equipment expenditures | (5,591 | ) | 1,607 | (3,984 | ) | |||||||
| Mineral property expenditures | (3,013 | ) | (4,375 | ) | (7,388 | ) | ||||||
| Condensed Interim Consolidated Statements of Cash Flows | ||||||||||||
| (in thousands of US dollars, except for per share amounts) | Nine months ended September 30, 2013 | |||||||||||
| As initially reported | Amendment | As Amended | ||||||||||
| Operating activities | ||||||||||||
| Change in non cash working capital | $ | 2,596 | $ | 8,367 | $ | 10,963 | ||||||
| Investing activities | ||||||||||||
| Property, plant and equipment expenditures | (8,048 | ) | (1,103 | ) | (9,151 | ) | ||||||
| Mineral property expenditures | (12,568 | ) | (7,264 | ) | (19,832 | ) | ||||||
| 25. | Subsequent events |
Subsequent to September 30, 2014, the Company entered into a debtor-in-possession financing agreement ("DIP Agreement") pursuant to which an aggregate amount of up to USD$12 million will be available to support the continued operations during the CCAA proceedings. As of the date of filing, November 14, 2014, the Company had received USD$7.5 million pursuant to the terms of the DIP Agreement.
| VERIS GOLD CORP. | 38 |
Exhibit 99.3
Form 52-109F2
Certification of Interim Filings - Full Certificate
I, François Marland, Chief Executive Officer of Veris Gold Corp., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Veris Gold Corp. (the “issuer”) for the interim period ended September 30, 2014. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| i. | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| ii. | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is COSO Financial Controls Framework. |
| 5.2 | ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period |
| (a) | a description of the material weakness; |
| (b) | the impact of the material weakness on the issuer’s financial reporting and its ICFR; and |
| (c) | the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness. |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2014 and ended on September 30, 2014 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: November 14, 2014
| /s/ François Marland | |
| François Marland, Chief Executive Officer |
| 2 |
Exhibit 99.4
Form 52-109F2
Certification of Interim Filings - Full Certificate
I, Shaun Heinrichs, Chief Financial Officer of Veris Gold Corp., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Veris Gold Corp. (the “issuer”) for the interim period ended September 30, 2014. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| i. | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| ii. | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is COSO Financial Controls Framework. |
| 5.2 | ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period |
| (a) | a description of the material weakness; |
| (b) | the impact of the material weakness on the issuer’s financial reporting and its ICFR; and |
| (c) | the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness. |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2014 and ended on September 30, 2014 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: November 14, 2014
| /s/ Shaun Heinrichs | |
| Shaun Heinrichs, Chief Financial Officer |
| 2 |
1 Year Yangzijiang Financial (PK) Chart |
1 Month Yangzijiang Financial (PK) Chart |
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