GUYANA GOLDFIELDS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2015
Prepared by:
GUYANA GOLDFIELDS INC.
141 Adelaide Street West, Suite 1608
Toronto, Ontario M5H 3L5
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Table of Contents
Company Business ..................................................................................................................................................................... 4
Highlights and Milestones ......................................................................................................................................................... 5
Aurora Project............................................................................................................................................................................... 8
Mining Activities – Pre-Commercial Production ....................................................................................................8
EPC Contract – Update ............................................................................................................................................8
Development Cost Update .......................................................................................................................................9
Quarterly Development Activities ......................................................................................................................... 12
Outlook .................................................................................................................................................................... 13
Exploration Activities................................................................................................................................................................ 13
Aranka Properties................................................................................................................................................... 13
Other Properties ..................................................................................................................................................... 13
Outlook .................................................................................................................................................................... 14
Technical Disclosure ................................................................................................................................................................ 14
Summary of Quarterly Results ............................................................................................................................................... 14
Trends ........................................................................................................................................................................................... 16
Liquidity, Capital Resources and Business Prospects .................................................................................................... 17
Off-Balance-Sheet Arrangements .......................................................................................................................................... 20
Commitments & Contingencies ............................................................................................................................................. 20
Proposed Transactions ............................................................................................................................................................ 21
Related party transactions ...................................................................................................................................................... 21
Change in Year End................................................................................................................................................................... 22
Re-Statement of Comparative Figures ................................................................................................................................. 23
Future Accounting Pronouncements.................................................................................................................................... 24
Future Accounting Policy- Definition of Commercial Production ................................................................................. 25
Critical Accounting Estimates ................................................................................................................................................ 25
Capital Management.................................................................................................................................................................. 27
Property and Financial Risk Factors..................................................................................................................................... 28
National Instrument 52-109 Disclosure ................................................................................................................................ 30
Outstanding Share Data ........................................................................................................................................................... 30
Risk Factors ................................................................................................................................................................................ 31
Forward-Looking Statements and Additional Information .............................................................................................. 32
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GUYANA GOLDFIELDS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED September 30, 2015
(Amounts are expressed in thousands of US dollars, unless otherwise noted)
The following management’s discussion and analysis (“MD&A”) of the financial condition and results of
operations of Guyana Goldfields Inc. (“Guyana Goldfields” or the “Company”) constitutes management’s
review of the factors that affected the Company’s financial and operating performance for the three and
nine months ended September 30, 2015. References to “Guyana Goldfields” in this MD&A refer to the
Company and its subsidiaries taken as a whole.
Effective in 2014, the Company changed its financial year-end from October 31st to December 31st and
reported a one-time, fourteen month transition year covering the months of November 2013 to December
2014. Subsequently, the Company's first full financial year after the transition will cover the period
January 1, 2015 to December 31, 2015. Accordingly, this MD&A presents the results of operations and
comprehensive loss and cash flows for the three and nine months ended September 30, 2015 with
comparatives for the three and nine months ended October 31, 2014. Unless stated otherwise, any
reference in this document to the financial year ended December 31, 2014 is for the fourteen month
period ended December 31, 2014.
This MD&A has been prepared in compliance with the requirements of National Instrument 51-102 –
Continuous Disclosure Obligations. This discussion should be read in conjunction with the unaudited
condensed consolidated interim financial statements and the related notes for the three and nine months
ended September 30, 2015 with comparatives for the three and nine months ended October 31, 2014,
which have been prepared in condensed format in accordance with International Financial Reporting
Standards (“IFRS”) as applicable to the preparation of interim financial statements, including International
Accounting Standard IAS 34 Interim Reporting. The condensed consolidated interim financial statements
should also be read in conjunction with the audited consolidated financial statements and the related
notes for the fourteen months ended December 31, 2014 (with comparatives for the twelve months ended
October 31, 2013), together with the notes thereto which have also been prepared in accordance with
IFRS. Results are reported in thousands of United States dollars, unless otherwise noted. In the opinion
of management, all adjustments (which consist only of normal recurring adjustments) considered
necessary for a fair presentation have been included. Information contained herein is presented as at
November 13, 2015 unless otherwise indicated.
For the purposes of preparing this MD&A, management, in conjunction with the Board of Directors,
considers the materiality of information. Information is considered material if: (i) such information results
in, or would reasonably be expected to result in, a significant change in the market price or value of the
Company’s common shares (“Common Shares”); or (ii) there is a substantial likelihood that a reasonable
investor would consider it important in making an investment decision; or (iii) it would significantly alter the
total mix of information available to investors. Management, in conjunction with the Board of Directors,
evaluates materiality with reference to all relevant circumstances, including potential market sensitivity.
Further information about the Company and its operations is available on the Company’s website at
www.guygold.com or on SEDAR at www.sedar.com.
The Company is a reporting issuer under applicable securities legislation in each of the provinces of
Canada and its outstanding Common Shares are listed on the Toronto Stock Exchange under the symbol
“GUY”.
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COMPANY BUSINESS
The Company is a Canadian-based mineral development and exploration company primarily focused on
the acquisition, exploration and development of gold deposits in Guyana, South America. The Company’s
primary focus is the development of the Aurora Project (the “Project’) and has finalized mechanical
completion of all facilities, with commercial production expected in early 2016. The Company owns a
100% interest in the Aurora Project. See also the “Aurora Project”, “Exploration Activities”, “Liquidity,
Capital Resources and Business Prospects”, “Commitments” and “Risk Factors” sections below.
On November 18, 2011, the Company signed a Mineral Agreement with the Government of Guyana and
received the Mining Licence for the Aurora Project. The Mineral Agreement and Mining Licence detail all
fiscal, property, import-export procedures, taxation provisions and other related conditions for the
continued exploration, mine development and operation of the Aurora Project.
Significant terms include:
• Net smelter return (“NSR”) royalty of 5% on gold sales at a price of gold of $1,000 per ounce or
less;
• NSR royalty of 8% on gold sales at a price of gold over $1,000 per ounce;
• Corporate income tax rate of 30% and no withholding tax on interest payments to lenders; and
• Duty and value added tax exemptions on all imports of equipment and materials for all continuing
operations at the Aurora Project, including the construction and operation of the Buckhall Port
facility, road and power improvements and the construction and operation of the mine.
The Mining Licence is the Company's permit to build and operate mining facilities at the Aurora Project
and is valid for an initial 20-year term with provisions for extension on application by the Company.
During January 2013, the Company filed on SEDAR its Aurora Project NI 43-101 Technical Report,
Updated Feasibility Study (the “Updated Feasibility Study”), which was an update to its NI 43-101
Technical Report, Feasibility Study filed on April 9, 2012 (the “April 2012 Feasibility Study”). Based on
the key findings of the Updated Feasibility Study and board approval, the Company advanced with the
development of the Aurora Project. The Project economics were subsequently updated in December
2013 based on the current capital cost estimates. With an average life of mine gold grade of 2.74 grams
per tonne (“gpt”) of ore milled, the improved mine plan is expected to produce 3.29 million ounces of gold
over a 17 year mine life at an operating cash cost of $423 per ounce (excluding royalty). The Updated
Feasibility Study estimated that average annual gold production over the life of mine is 194,000 ounces,
and averages 231,000 ounces per year over the first ten years. Under the Updated Feasibility Study, as
adjusted, at a gold price of $1,300 per ounce and a discount rate of 5%, the Aurora Project is expected to
generate a net present value of $735 million and an internal rate of return of 31% on an after-tax basis,
with a payback of approximately 4.4 years.
The Company’s current mine plan for the Aurora Gold Project has evolved and is different from the plan
contemplated in the above Updated Feasibility Study. The Updated Feasibility Study envisioned a
phased mining and milling approach, production from both open pit and underground mining, and selfperformance with an anticipated capital investment of $205 million. In December 2013, the Company
announced an updated timeline to Commercial Production and a projected $44 million increase in preproduction capital investment over the Updated Feasibility Study. The increase was due to improved
estimates as a result of further detailed engineering, transitioning to an engineering, procurement and
construction development approach which assumes a lower project execution risk for the Company,
additional funds for operational readiness, and increased estimates. See “Aurora Project” below.
In May 2014, Guyana Goldfields’ wholly owned subsidiary AGM Inc. (“AGM”) owner and operator of the
Aurora Project, formalized its existing contractual arrangements with Sedgman Limited and
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Graña y Montero (the “GSJV”), and signed the engineering, procurement and construction (the “EPC
Contract”) valued at $134 million with the GSJV for the Aurora process plant and power plant, with the
novation of responsibilities and payments made under the previous contractual arrangements. The date
for mechanical completion of the 5,000 tonnes per day (“tpd”) processing plant and the diesel power plant
was originally set for May 31, 2015.
On September 2, 2014, the Company and its wholly owned subsidiary AGM, announced the signing of a
common terms agreement (the “Common Terms Agreement”) with International Finance Corporation,
Export Development Canada, ING Capital LLC, Caterpillar Financial Services Corporation, and The Bank
of Nova Scotia (collectively the “Senior Lenders”) and other definitive documentation with respect to the
$185 million project loan facility (the “Project Loan Facility” or the “Facility”), to fund the development and
construction of, and general matters relating to the Project. With the completion of the Facility, the
development of the Project has been financed, subject to the terms and conditions of the Facility.
Included in this financing is $28 million for anticipated financing costs, pre-operating costs and working
capital. See “Liquidity, Capital Resources and Business Prospects” for further details.
Under the terms of the Project Loan Facility, underground mine development requires various terms and
conditions being met, including the pre-funding of underground capital costs/commitments from operating
cash flows generated from the open pit mine or from other financing sources. Consequently, the current
mine plan includes only open pit mining, with deferral of the underground development.
As a condition of first disbursement under the Facility, the Company was obligated to fund an additional
$33 million for deposit into restricted bank accounts. On June 27, 2014 the Company raised the $33
million in equity by completing a non-brokered private placement (the “Placement”) pursuant to which it
issued an aggregate of 24,000,000 Common Shares at a price of Cdn$1.85 per Common Share for
aggregate gross proceeds of approximately $42 million (or Cdn$44 million). See “Liquidity, Capital
Resources and Business Prospects” for further details relating to financing activities.
On October 17, 2014 the Company satisfied all condition to first disbursement under the Project Loan
Facility and commenced to draw on Facility funds.
The Company also holds a contiguous 216,888 acre land package located in the Aranka district of
Guyana approximately thirty kilometres northeast of the Aurora Project, known as the “Aranka Properties”
which consist of a number of separate properties including Sulphur Rose.
HIGHLIGHTS AND MILESTONES
Aurora Project
•
With the conclusion of construction activities at September 30, 2015, total construction costs incurred
at September 30, 2015 are approximately $280 million, or $3 million above the Company
construction and development budget of $277 million (that includes initial development costs of $249
million, and $28 million in financing costs, pre-operating costs and working capital investment).
•
First ore processed by the mill using the gravity circuit occurred on July 21, 2015, with full
mechanical completion of the saprolite and fresh rock circuits being achieved by September 21,
2015.
•
Mining activities continued at the Rory’s Knoll pit during the third quarter of fiscal 2015 with 156,681
tonnes of ore at 2.41 gpt of gold and 660,445 tonnes of waste being mined. At September 30, 2015
the Company had 62,227 tonnes of ore on the Run-of-mine (“ROM”) pad ready for processing with
an average grade of 1.94 gpt of gold.
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•
The month of September 2015 represented the final month of construction and development
activities and the commencement of pre-Commercial Production operations. Extended plant
commissioning and minor normal start-up conditions resulted in lower than expected gold production
during the quarter.
•
As of September 30, 2015, a total of 311 ounces of gold doré was poured, with approximately 2,056
ounces of gold contained within the processing circuit.
•
From October 1, 2015 to November 13, 2015 the Company continued to increase the amount of ore
processed by the mill, averaging 3,400 tpd in October and 4,300 tpd in November, and at times
reaching beyond design capacity of 5,000 tpd. During this same subsequent period ended
November 13, 2015, the Company produced 11,088 ounces of gold doré of which 3,913 ounces
were sold at a realized price of $1,122 per ounce. The Company expects its pre-Commercial
Production mining operations to be cash flow positive in the month of November 2015 and thereafter.
The Company anticipates achieving Commercial Production in early 2016.
•
The Company now expects to produce towards the lower end of previous guidance of 30,000 ounces
to 50,000 ounces of gold in 2015 while it is in pre-commercial production. First full year of production
will be 2016 with a greater amount of gold production than previously announced. The Company
now anticipates 130,000 to 150,000 ounces of gold being produced in 2016.
•
For the three and nine months ended September 30, 2015 the Company incurred development
expenditures on a cash basis for the Aurora Project of approximately $28 million and $107 million,
respectively. For the three and nine month comparative period ended October 31, 2014,
development expenditures were approximately $40 million and $90 million, respectively.
•
The Company expects to issue an updated National Instrument (“NI”) 43-101 Technical Report
Feasibility Study for the Aurora Project early in 2016 which will reflect an extended open pit mining
scenario while deferring the underground production until later in the mine life, as well as, updated
cost parameters and reserves based on revised gold prices.
•
Subsequent to September 30, 2015, the Company received an unfounded notification of a possible
legal claim from the Government of Venezuela that relates to recent developments regarding the
Venezuela-Guyana border dispute. The Venezuela-Guyana border dispute was resolved and
agreed upon by all parties under the 1899 Arbitration Agreement and any claims made outside of
such agreement violate international law. The matter is currently before the United Nations, however
Venezuela’s border claim is widely viewed by the international community to be without merit.
Exploration Properties
•
During the three and nine months ended September 30, 2015, the Company incurred exploration
and evaluation expenditures on all its exploration properties of $0.4 million and $1.4 million,
respectively. While in the comparative three and nine month period ended October 31, 2014,
exploration and evaluation expenditures were $0.5 million and $1.4 million, respectively.
Board and Senior Officer Level Changes
•
On May 26, 2015, Ms. Wendy Kei, CPA, CA was appointed as a director of the Company.
•
On October 5, 2015, Mr. Lello Galassi, Chief Operating Officer responsible for the development of
the Aurora Project announced his previously scheduled departure with the completion of construction
activities at the Aurora Project.
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Financial
•
During the third quarter of fiscal 2015, the Company received advances under the Facility amounting
to $20.8 million bringing the Company’s long term debt under the Facility at September 30, 2015 to
$160 million (fully drawn).
•
On September 30, 2015, the Company made its scheduled $3 million payment for interest expense
and other finance costs relating to the Project Loan Facility. These finance costs were not part of the
construction and development budget or the related funding by the Facility.
•
On May 7, 2015 the Company’s Senior Lenders approved the release of $6 million of funds held in
AGM’s restricted completion bank account back to Guyana Goldfields Inc. The remaining $4 will be
released to the Company after November 30, 2015 if certain development capital and operating
parameters are met by AGM. As of September 30, 2015, AGM Inc. also had $23 million in funds
available in its Owner’s cost overrun equity restricted bank account. Along with the undrawn
Tranche 2 facility of $25 million, as of September 30, 2015 and November 13, 2015, AGM Inc. had
$52 million in overfunding facilities available for any cost overruns on the Aurora Project. See
“Liquidity, Capital Resources and Business Prospects” for further details.
•
At September 30, 2015, the Company on a consolidated basis had cash of approximately $18.5
million (December 31, 2014 - $17 million) to settle consolidated current liabilities of approximately
$53 million (December 31, 2014 - $39 million).
•
Included in the Company’s consolidated cash position and current liabilities at September 30, 2015 is
$9.5 million and $51 million, respectively, attributable to the Aurora Project. The $9.5 million cash
position represents cash drawn under the Facility that the Company is contractually obligated to
spend on the development of the Aurora Project. The $51 million in Project’s current liabilities
includes approximately $27 million in accounts payable and accrued liabilities and approximately $24
million in current portion of long-term debt (for the next twelve months). Included in the above $27
million in accounts payable and accrued liabilities is approximately $15 million due to the GSJV for
EPC Contract contractual payments and recent approved contract variations. At September 30,
2015, the Project’s working capital deficiency was approximately $42 million
•
During the pre-Commercial Production period, the Company expects to fund the Project’s working
capital deficiency at September 30, 2015 and subsequent pre-Commercial Production operating
costs through a combination of cash from ongoing sales of gold production and from draws against
its Owner’s cost overrun equity restricted bank account. Once Commercial Production is achieved in
early 2016, the Company expects that quarterly principal repayments and interest for the Facility will
be funded from operating cash flows.
•
As of November 13, 2015, the Company has purchased diesel forward contracts for approximately
18 million litres of diesel at an average rate of $0.44/litre, which will settles on a net basis. These
commodity swaps covers the period October 2015 through to August 2017 and represents
approximately sixty percent of the Aurora Project’s expected diesel purchases over the next twenty
three months.
•
As of November 13, 2015, the Company has received various extension of time claims from the
GSJV relating to the recovery of additional costs incurred beyond the fixed price EPC Contract. The
Company’s view is that the majority of these extension of time claims are without merit, and the
Company does not expect the resolution of these claims and claims for achieving mechanical
completion bonuses to have a material impact on the Aurora Gold Project. The Company and the
GSJV are engaged in discussions and may need to utilize dispute resolution options available under
the ECP Contract to resolve the settlement of all claims.
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AURORA PROJECT
Mining Activities – Pre-Commercial Production
Mining activities continued at the Rory’s Knoll pit during the third quarter of fiscal 2015 with 156,681
tonnes of ore at 2.41 gpt of gold and 660,445 tonnes or waste being mined. At September 30, 2015, the
Company had 62,227 tonnes of ore on the ROM pad ready for processing with an average grade of 1.94
gpt of gold.
The Company’s efforts in the third quarter focused on the commissioning of the saprolite circuit and full
plant mechanical completion. The processing plant continued to operate with the gravity circuit
configuration up until early August with partial shutdown thereafter to allow the GSJV to complete
construction and wet commissioning of the carbon-in-leach (“CIL”) circuit. Introduction of reagents into
the CIL circuit began in August 2015 with full plant mechanical completion for both saprolite and fresh
rock circuits being achieved by September 21, 2015. Final commissioning of the primary crusher will
occur once mining reaches fresh rock, expected in the fourth quarter of 2015.
As of September 30, 2015, a total of 311 ounces of gold doré was produced and poured, with
approximately 2,056 ounces of gold contained within the processing circuit.
The month of September 2015 represented the final month of construction and development activities
and the commencement of pre-Commercial Production operations. The Company’s pre-Commercial
Production operations effectively commenced September 2015 with the mechanical completion of the
processing facility and hand over from the GSJV. As a result, the Company is separately tracking its
activities in these two areas (see “Aurora Project – Development Cost Update” chart below). Ramp up of
production through the saprolite circuit has lagged behind plan due to longer than planned commissioning
efforts. The Company expects its pre-Commercial Production mining operations to be cash flow positive
in the month of November 2015 and thereafter.
Pre-Commercial Production mining, milling and general and administrative costs for the month of
September 2015 were $6 million. In addition, on September 30, 2015 approximately $3 million in interest
and other finance costs were incurred relating to the Project Loan Facility. These pre-production
operating and finance costs were not part of the development budget or the related funding by the
Facility.
From October 1, 2015 to November 13, 2015 the Company continued to increase the amount of ore
processed by the mill, averaging 3,400 tpd in October and 4,300 tpd in November, and at times reaching
beyond design capacity of 5,000 tpd. During this same subsequent period ended November 13, 2015,
the Company produced 11,088 ounces of gold doré of which 3,913 ounces were sold at a realized price
of $1,122 per ounce. The Company expects its pre-Commercial Production mining operations to be cash
flow positive in the month of November 2015 and thereafter. The Company anticipates achieving
Commercial Production in early 2016.
EPC Contract – Update
During the third quarter of fiscal 2015, the Company approved contract variations of approximately $2
million, bringing the EPC Contract for the Aurora Project process plant and power plant to $139 million.
The variations represent additional works performed by the GSJV on the Company’s behalf and amounts
allowed under the Contract.
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With construction and development of the process plant and power facility completed as of September
30, 2015, the Company’s liability to the GSJV at this date is composed of approximately $5 million in
installment payments and approved contract variations, and $10 million in holdback. GSJV personnel
have been demobilized from the Aurora Project site with less than 25 personnel remaining as of
September 30, 2015, and less than 5 personnel as of November 13, 2015.
The fixed price EPC Contract value is subject to adjustments for:
• fluctuation in foreign exchange rates on contract portions denominated in currencies other than
the United States dollar;
• changes in laws of Guyana that affect the scope of work; and
• extension of time to mechanical completion date for a variety of events and causes attributable to
the GSJV and AGM, alike.
If the GSJV reaches mechanical completion within certain time parameters around the dates of the
established three milestones, bonuses are payable to the GSJV, up to a maximum of 5% of the contract
value.
With the Aurora Project achieving early gold production through the commissioning and start-up of the
gold gravity, saprolite production circuit, and full mechanical completion of the plant, the Company views
the dates of these achievements as lagging behind those dates contemplated in the fixed price EPC
Contract with the GSJV.
As of November 13, 2015, the Company has received various extension of time claims from the GSJV
relating to the recovery of additional costs incurred beyond the fixed price EPC Contract. The Company’s
view is that the majority of these extension of time claims are without merit, and the Company does not
expect the resolution of these claims to have a material impact on the Aurora Gold Project. The
Company in turn has certain claims against the GSJV for additional costs incurred by the Company.
The maximum value of the completion bonus amounts is 5% of the total contract price, or $6.9 million.
The bonus amounts are reduced for each day the GSJV does not achieve the various construction
milestone dates. The resolution of the above extension of time claims, has a direct relationship as to
whether the GSJV is entitled to any or all mechanical completion bonuses, and cannot be determined at
this time. As a result, the Company has not accrued nor does it expect to pay the $6.9 million in
contingent bonuses relating to the EPC contract.
The Company and the GSJV are engaged in discussions and may need to utilize dispute resolution
options available under the ECP Contract to resolve all EPC Contract claims. If earned, funding for
allowed extension of time claims and contingent bonuses will be made from the Owner’s cost overrun
equity account or from operating cash flows once in commercial production. See “Liquidity, Capital
Resources and Business Prospects” for further details.
Development Cost Update
With the conclusion of construction activities at September 30, 2015, the total development costs incurred
on an accrual basis at September 30, 2015 are approximately $280 million, or $3 million above budget,
computed since inception of the Aurora Project. Details of the actual capital spend for the Aurora Project
as of September 30, 2015 are as follows:
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Aurora Project Capital
Expenditures
(in Millions of US$)
GSJV:
Fixed Price Process and
Power Plant EPC Contract
Incurred:
January
11, 2013 to
October 31,
2013
F13
Incurred:
November
1, 2013 to
December
31, 2014
F14
(Note A)
Incurred:
January
1, 2015 to
March
31, 2015
Q1 F15
Incurred:
April 1,
2015 to
June 30,
2015
Q2 F15
Incurred:
July 1, 2015
to
September 30,
2015
Q3 F15
TOTAL
ACTUAL
CAPITAL
COSTS
INCURRED
at
September
30, 2015
(Note B)
December
2013
Budget Capital
Costs to
Commercial
Production
(Note C)
Notes
-
$102
$18
$14
$8
$142
$134
-
-
1
-
-
1
2
-
4
-
1
-
5
6
-
-
-
-
-
-
1
Tailings Dam
1
2
1
-
-
4
6
(2)
Water Dams and Dykes
Site Services Water &
Power
-
-
1
-
-
1
4
(2)
-
-
1
1
-
2
9
(2)
Logistics
-
2
(2)
-
-
-
8
(3)
Owner’s Cost – Balance of
Scope
Plant Infrastructure
Buildings
Plant Earthworks and
Roads
Mine Infrastructure
Buildings
(1)
sub-total
Owner’s Cost Infrastructure &
Other
Owner’s G&A
Owner’s Costs - Operational
Readiness
1
8
2
2
-
13
36
3
26
3
2
1
35
46
(4)
7
25
10
7
4
53
25
(5)
-
-
-
4
2
6
8
(6)
Total Owner’s Cost
11
59
15
15
7
107
115
$11
$161
$33
$29
$15
249
$249
-
16
2
5
8
31
28
$11
$177
$35
$34
$23
$280
$277
Operating costs
$6
$6
(8)
Interest & Finance Costs
3
3
(9)
$9
$9
Total Initial Development
Capital
Financing costs, preoperating costs and working
capital
TOTAL DEVELOPMENT
COSTS (A)
(7)
PRE-COMMERCIAL
PRODUCTION OPERATIONS
TOTAL PRE-COMMERCIAL
PRODUCTION OPERATING
COSTS (B)
Total Development Costs and
Pre-Commercial Production
Operating Costs (A) + (B)
$289
All costs incurred above are computed on an accrual basis. Aurora Project development costs above include both development costs, additions
to fixed assets and deferred financing costs.
Note A: The period ended December 31, 2014 covers a fourteen month period, due to the change in the Company’s year-end
that was effective in 2014.
Note B: Grand total development costs and pre-Commercial Production operating costs of $289 million above is reconciled to
the unaudited consolidated interim financial statements as of September 30, 2015 as follows:
Total development costs including fixed asset addition – before accumulated depreciation (Note 9)
Remove pre-development, exploration and corporate fixed asset additions
Remove non-cash items capitalized: amortization, ARO asset, SBC and accretion expense
Add deferred financing costs separately capitalized, considered development in above chart
Grand Total Aurora Project Development & Pre- Commercial Production
Costs Incurred - September 30, 2015:
-10-
$304 million
(12) million
(13) million
10 million
$289 million
Note C: These costs compiled December 2013, represent the initial development costs of $205 million as reflected in the
Updated Feasibility Study, plus the projected $44 million increase in initial capital investment as described in the
Company’s MD&A for first quarter ended January 31, 2014. The $44 million estimated increase in development costs
was due to costs associated with transitioning to an EPC development approach which assumes a lower project
execution risk for the Company, additional funds for operational readiness, increased estimates and schedule delay.
Note 1: During the third quarter of fiscal 2015, the Company approved an additional $2 million in contract variations with the
GSJV, which together with the $3 million add on during the first quarter of this year, brings the EPC Contract to
approximately $139 million. The balance of $3 million in costs for the process and power plant development represent
owner supplied resources.
Note 2: Total expected capital costs for the tailings dam, water dam and dykes, and site service water and power are lower
than initially estimated, resulting from the change in execution strategy relating to the balance of scope work, which is
now self-performed.
Note 3: Logistics costs have been included in Owner’s G&A due to the change in execution strategy for the balance of scope
work.
Note 4: Owner’s costs infrastructure and other costs are lower than expected due to the reduction in scope on non-critical
infrastructure.
Note 5: Included in Owner’s G&A quarterly spend are equipment maintenance, logistics and operational readiness costs
attributable to Balance of Scope projects. Owner’s G&A is approximately $28 million above budget due to the shift in
scope from external contractors to self-performance by the Owner’s team. Increased scope responsibility has led to
an expansion of the work force and indirect supporting costs such as camp services, transportation costs and
equipment maintenance beyond initial expectations.
Note 6: Owner’s costs - operational readiness are less than expected due to the change in execution strategy and to more
refined estimates.
Note 7: Finance pre-operating and working capital costs are higher than budget due to longer than anticipated production
ramp up activities, resulting in additional costs being incurred.
Project Economics:
The following table provides updated project economics at variable gold price assumptions representing
an initial capital investment of $249 million (reflecting the assumptions and related capital costs estimates
of $205 million in the Updated Feasibility Study along with the $44 million projected increase in preproduction capital investment announced December 2013):
Gold Price Per Ounce in US$
Financials @ 5% Discount Rate
Units
Pre-Tax NPV
$8501
$1,0001
$1,150
$1,3002
US$M
236
533
759
1,046
After-Tax NPV
US$M
162
374
533
735
IRR (After-Tax)
%
12
20
25
31
Payback (After-tax)
Years
6.8
5.6
5.0
4.4
2015 EBITDA (1st year of partial production)
US$M
18
26
32
39
2016 EBITDA (1st year of full production)
US$M
60
80
95
115
2021 EBITDA (Peak year)
US$M
145
192
227
272
US$M
506
975
1,330
1,784
3
Cumulative Cash Flow
1.
2.
3.
Royalty rate of 5% at a price of gold of US$1,000 per ounce or less
Base Case
Cumulative cash flow defined as revenue less operating costs less capital expenditures.
The Company’s current mine plan for the Aurora Gold Project has evolved and is different from the plan
contemplated in the above Updated Feasibility Study.
-11-
The Company expects to issue an updated NI 43-101 Technical Report Feasibility Study for the Aurora
Project early in 2016 which will reflect an extended open pit mining scenario while deferring the
underground production until later in the mine life, as well as, current operating cost parameters and
reserves based on updated metal prices.
Under the September 2, 2014 Common Terms Agreement with its Senior Lenders, underground mine
development requires various terms and conditions being met, including the pre-funding of underground
capital costs/commitments from operating cash flows generated from the open pit mine or from other
financing sources. See “Liquidity, Capital Resources and Business Prospects” for further details.
Key Milestone Dates – Aurora Project:
Key Milestones (Note 1)
Contractor access to site
450 Man Camp Installation
SAG Mill Delivery
CIL Tank Installation
Power Generator Installation
First Gold Pour
Commercial Production
Start & End Dates (Note 1)
Update as of November 13, 2015
Early calendar Q1 2014
Early calendar Q2 2014
Late calendar Q4 2014
Calendar Q4 2014 – calendar
Q1 2015
Calendar Q2 2015
Mid calendar 2015
Calendar Q3 2015
Actual achieved – Jan 2014
Actual achieved – May 2014
Actual achieved – December 2014
Actual achieved – March 2015
Actual achieved – March 2015
Actual achieved – August 2015
Expected early Calendar 2016
Note 1: The key milestones and dates above reflect the Company’s current estimate, and are revisions to the key milestones
and dates contained in the Updated Feasibility Study. See “Forward Looking Statements and Additional Information”
section below.
Quarterly Development Activities
During the third quarter ended September 30, 2015, AGM incurred development expenditures on an
accrual basis (including additions to fixed assets) for the Aurora Project of approximately $15 million.
AGM continued direct works with the GSJV under a fixed-price, lump sum EPC Contract. Total
development costs of $8 million were incurred in the third quarter relating to the EPC Contract. These
development cost figures exclude pre-Commercial Production operating costs incurred (see “Aurora
Project - Mining Activities Pre-Commercial Production” section above for further details). Specific
construction achieved during this quarter was as follows:
•
•
•
•
•
•
•
•
•
•
Completed mechanical and electrical installation for all components of the gold process plant.
Completed electrical distribution to supporting infrastructure for the process plant, warehouse,
workshops and offices.
Commissioned the fresh rock crusher and intermediate ore stockpile circuit.
Started ore processing for gold production through the gold room.
Continued to mine ore at Rory’s Knoll pit, primarily saprolite ore for mill processing.
Completed the non-hazardous waste land fill.
Continue final grading, drainage, road & pad improvements in the process plant area and
surrounding infrastructure (shops, warehouse, offices and fuel storage and distribution areas
Completed major demobilization of the EPC contractor.
Transferred development construction team to operations and demobilized all remaining
personnel, equipment and assets.
Continued Aurora airstrip and roadwork maintenance activities.
-12-
Outlook
Mining Activities - Pre-Commercial Production
Pre-Commercial Production mining operations are expected to continue into the fourth quarter of fiscal
2015, concentrating on the Rory’s Knoll pit. Anticipated fresh rock mining to begin in late Q4 2015. The
Company will continue to stockpile ore on the ROM pad for subsequent processing.
During this period, the mill is expected to ramp up to a design capacity of 5,000 tpd with a blend of
saprolite and fresh rock, with Commercial Production expected to be achieved early in 2016.
The Company now expects to produce towards the lower end of previous guidance of 30,000 ounces to
50,000 ounces of gold in 2015 while it is in pre-commercial production. First full year of production will be
2016 with a greater amount of gold production than previously announced. The Company now
anticipates 130,000 to 150,000 ounces of gold being produced in 2016.
The Company’s main asset is the Aurora Project. As such, the outlook for the Company is strongly tied to
the successful achievement of Commercial Production and continued operation of the Aurora Project into
an operating mine. See “Risk Factors” below.
EXPLORATION ACTIVITIES
During the three months ended September 30, 2015, the Company incurred on an accrual basis
exploration and evaluation expenditures of $0.4 million, versus $0.5 million in the comparative three
month period ended October 31, 2014 on all its exploration properties. For the nine months ended
September 30, 2015 and October 31, 2014, exploration and evaluation expenditures were $1.4 million in
each period.
Aranka Properties
The Company completed its current exploration program activities at Aranka. The properties are now
under care and maintenance and exploration work will be continued at a later date. The Company will
continue to retain its licenses in these areas.
The Company has a 100% interest in the Aranka Properties. At the option of the Company, the permit
holders remain entitled to NSR royalties that vary from 1.5% to 2% or a fixed payment amount in lieu
thereof.
Other Properties
Within an area located northeast from the Aurora Project, exploration work consisting of stream sediment
sampling, soil sampling, and shallow saprolite drilling program were completed. Results of these
extensive exploration work delineated gold anomalous zones associated with altered intermediate
intrusives and coincident with a regional northwest trending shear zone. The main gold anomaly zone is
approximately 8.5 kilometers long and less than 500 meters wide. Results of shallow drill testing in the
saprolite has confirmed discrete zones of significant gold mineralisation hosted in altered intrusives.
Follow-up work consisting of drill testing in the bedrock, baseline exploration work farther north of the
properties, and ground geophysics may be considered. These properties have now been placed under
care and maintenance.
-13-
Other Properties represent exploration expenditures at exploration targets near the vicinity of the Aurora
Project. The Company has a 100% interest in these Other Properties. At the option of the Company, the
permit holder remains entitled to a NSR royalty of 1.5% or a fixed payment amount in lieu thereof.
Outlook
The Company completed its exploration activities at its Aranka and its Other Properties. The Company
will continue to retain its licenses in these areas and return for future follow up exploration work.
Exploration activities will focus on assessment of other prospects/properties in Guyana that are not
currently part of the Company’s land package.
TECHNICAL DISCLOSURE
The scientific and technical data contained under the headings “Company Business” and “Aurora Project
– Development Cost Update” have been reviewed, approved and verified by Daniel Noone who is a
“Qualified Person” under NI 43-101 and is a member of the Australian Institute of Geoscientists.
Chief Geologist Augusto Flores IV, (P.Geo), a “Qualified Person” within the meaning of NI 43-101, has
supervised the preparation of the disclosure under the heading “Exploration Activities”.
SUMMARY OF QUARTERLY RESULTS
Condensed Consolidated Financial Results
The following is a summary of the Company’s consolidated quarterly results for the eight quarters ended
September 30, 2015 following the basis of presentation utilized in its IFRS condensed consolidated
interim financial statements:
(Expressed in thousands of United States dollars except per share amounts and where otherwise noted). (Quarterly results are unaudited)
Q3
Sept 30,
2015
Operating expenses
General and administrative
expenses
Exploration and evaluation
expenses
Stock-based compensation
$
Q2
June 30,
2015
Q1
Mar 31,
2015
Q5
Dec 31,
2014 A
1,032 $
1,123 $
1,132 $
387
571
427
448
779 $
Q4
Oct 31,
2014B
Q3
July 31,
2014B
Q2
Apr 30,
2014B
Q1
Jan 31,
2014B
1,608 $
1,290 $
1,666 $
1,331
510
412
525
567
288
294
283
231
88
178
309
458
Amortization
27
25
31
20
34
37
39
42
Operating loss
(1,734)
(2,013)
(1,873)
(1,478)
(2,240)
(1,917)
(2,539)
(2,398)
-
-
-
-
-
(3)
(13)
(8)
Other income (expense)
Realized and unrealized loss on
short-term investments
Foreign exchange gain (loss)
250
193
(45)
(211)
(124)
435
752
(3,568)
Capital and other taxes
-
-
-
-
-
-
-
-
Interest income
3
5
4
3
55
91
173
183
Net loss and comprehensive loss
for the period
A
B
$
(1,481) $
(1,815) $
(1,914) $
(1,686) $
(2,309) $
(1,394) $
(1,627) $
The fifth quarter of the year ended December 31, 2014 covers a two month period, due to the change in the Company’s yearend that was effective in 2014.
The above figures have been re-stated to reflect the Company’s voluntary change in accounting principle on E&E expenditures.
See “Changes in Accounting Policies” below.
-14-
(5,791)
Q3
Sept 30,
2015
Q2
June 30,
2015
Q1
Mar 31,
2015
Q5
Dec 31,
2014 A
Q4
Oct 31,
2014B
Q3
July 31,
2014B
Q2
Apr 30,
2014B
Q1
Jan 31,
2014B
Net loss per share
Basic and fully diluted
Weighted average number of share
outstanding
Basic and fully diluted
$
(0.01) $
151,687,544
(0.01) $
150,846,271
(0.01) $
150,584,691
(0.01) $
150,331,399
(0.02) $
150,306,399
(0.01) $
135,404,293
(0.01) $
126,187,986
(0.05)
126,147,337
Total assets
$
338,426 $
312,651 $
280,033 $
253,925 $
232,609 $
189,933 $
135,550 $
127,201
Total liabilities
$
180,458 $
156,314 $
123,700 $
96,578 $
74,262 $
29,388 $
15,256 $
5,842
A
B
The fifth quarter of the year ended December 31, 2014 covers a two month period, due to the change in the Company’s year
end that was effective in 2014.
The above figures have been re-stated to reflect the Company’s voluntary change in accounting principle on “E&E”
expenditures. See “Changes in Accounting Policies” below.
The Company is engaged in the acquisition, exploration, evaluation and development of gold resource
properties in Guyana, South America. Its main project, the Aurora Project, has achieved mechanical
completion of the facility, and is expected to be in Commercial Production in early 2016. The Company
currently expenses exploration and evaluation expenditures incurred, and capitalizes expenditures related
to the development and construction of the Aurora Project as part of assets under development, a
component of development costs, property and equipment. Pre-Commercial Production revenues and
operating results are also capitalized as part of assets under development.
With the expected commencement of Commercial Production early next year, gold price market
fluctuations will have a direct impact on the Company’s operating results. The market price of gold
continues to exhibit significant volatility. The noon spot gold price was approximately $1,084 at
November 13, 2015.
Results of Operations
Results for the three month period ended September 30, 2015, compared to the three month period
ended October 31, 2014
The Company’s reported a net loss for the three months ended September 30, 2015 of $1,481 (basic and
diluted loss per share of $0.01). This compares with a loss for the three months ended October 31, 2014
of $2,309 (basic and diluted loss per share of $0.02). The $828 decrease in the net loss was mainly
attributable to:
• A reduction in G&A expense of $576 primarily due to corporate advisory professional fees
incurred only last year, and due to lower salaries and related benefits in the current quarter
resulting from a higher proportion of management time being devoted to the Aurora Project build
and therefore being included in capitalized development costs.
• The foreign exchange gain increase of $374 this quarter over the comparative quarter last year.
The current quarter’s foreign exchange gain of $250 substantially accounts for the quarter over
quarter foreign exchange movement, and reflects a weakening of the Canadian dollar relative to
the United States dollar during the quarter, applied primarily against the Company’s Canadian
dollar net monetary liability position.
-15-
Results for the nine month period ended September 30, 2015, compared to the nine month period ended
October 31, 2014
The Company’s reported a net loss for the nine months ended September 30, 2015 of $5,210 (basic and
diluted loss per share of $0.03). This compares with a loss for the nine months ended October 31, 2014
of $5,330 (basic and diluted loss per share of $0.04). The $120 decrease in the net loss was mainly
attributable to a number of offsetting factors:
• The $1,277 reduction in G&A expense is mainly due to lower salaries and related benefits for the
year to date resulting from a higher proportion of management time being devoted to the Aurora
Project build and therefore being included in capitalized development costs, as well as a
reduction in corporate advisory professional fees incurred last year.
• The foreign exchange gain decreased by $665 in the current nine month period over the
comparable period last year. The foreign exchange gain of $398 in the current nine month period
was mainly due to a weakening Canadian dollar against the United States dollar, applied against
a net monetary liability balance denominated in Canadian dollars. The prior year’s nine month
foreign exchange gain of $1,063 was mainly due to improvements in the weaker Canadian dollar
relative to the United States dollar, applied against the Company’s Canadian dollar denominated
net monetary asset position.
• The $307 reduction in interest income. In the comparable nine month period last year, the
Company’s cash and cash equivalent balances were significant larger benefiting from a private
placement equity raise of approximately $42 million. The Company’s current cash balances are
not as significant as it has operated under the Project Loan Facility funding arrangements to build
the Aurora Gold Project.
• The increase in stock based compensation expense of $290 is due to option grants issued after
October 31, 2014, the effect of which was partial offset by a greater amount of compensation fair
value capitalized to assets under development relating to the Aurora Project.
TRENDS
The Company is a Canadian-based mineral exploration and development company primarily focused on
the acquisition, exploration and development of gold deposits in Guyana, South America. The Company
attempts to acquire properties in Guyana, should such acquisitions be consistent with the objectives and
acquisition criteria of the Company. The Company’s future financial success will be dependent upon
achieving Commercial Production and continued future profitable production at its Aurora Project, and
adherence to the Project Loan Facility requirements while in production. In addition, both the price of,
and the market for, gold is volatile, difficult to predict and subject to changes in domestic and international
political, social and economic environments.
Currently, access to capital to fund exploration,
development and operating mining companies is challenging.
The Company is aware that governments around the world are looking to the resource sector as a
possible source of additional revenue, be it taxes or royalties. The Company has negotiated a long-term
agreement with the Government of Guyana it considers to be fair which should benefit all stakeholders.
Apart from these and the risk factors noted under the heading “Risk Factors”, management is not aware
of any other trends, commitments, events or uncertainties that would have a material effect on the
Company’s business, financial condition or results of operations.
-16-
LIQUIDITY, CAPITAL RESOURCES AND BUSINESS PROSPECTS
Working Capital
During the quarter ended September 30, 2015, the Company’s primary focus was on the commissioning
of the saprolite circuit and full plant mechanical completion at its Aurora Project, and therefore did not
generate cash from pre-Commercial Production operations.
At September 30, 2015, the Company on a consolidated basis had cash of approximately $18.5 million
(December 31, 2014 - $17 million) to settle consolidated current liabilities of approximately $53 million
(December 31, 2014 - $39 million).
Included in the Company’s consolidated cash position and current liabilities at September 30, 2015 is
approximately $9.5 million and $51 million, respectively, attributable to the Aurora Project. The $9.5
million cash position represents cash drawn under the Facility that the Company is contractually obligated
to spend on the development of the Aurora Project. The $51 million in Project’s current liabilities includes
approximately $27 million in accounts payable and accrued liabilities and approximately $24 million in
current portion of long-term debt (for the next twelve months). Included in the above $27 million in
accounts payable and accrued liabilities is approximately $15 million due to the GSJV for EPC Contract
contractual payments and recent approved contract variations. At September 30, 2015, the Project’s
working capital deficiency was approximately $42 million.
With construction and development of the process plant and power facility completed as of September
30, 2015, the Company’s liability to the GSJV at this date is composed of approximately $5 million is
installment payments and approved contract variations, and $10 million in holdback.
During the pre-Commercial Production period, the Company expects to fund the Project’s working capital
deficiency at September 30, 2015 and subsequent pre-Commercial Production operating costs through a
combination of cash from ongoing sales of gold production and from draws against its Owner’s cost
overrun equity restricted bank account. Once Commercial Production is achieved in early 2016, the
Company expects that quarterly principal repayments and interest for the Facility will be funded from
operating cash flows.
The overall reduction in the consolidated accounts payable and accrued liabilities balance from $34
million at December 31, 2014 to $28 million at September 30, 2015 is substantially due to a reduction in
the amounts owed to the GSJV under the EPC contract.
From October 1, 2015 to November 13, 2015 the Company produced 11,088 ounces of gold doré of
which 3,913 ounces were sold at a realized price of $1,122 per ounce. The Company expects to achieve
Commercial Production in early 2016.
As of June 30, 2015, all contract advances were repaid to AGM by the GSJV.
At September 30, 2015 the Company’s available cash to support its corporate general and administrative
expenses and its exploration program was approximately $9 million. This cash balance incorporates the
Senior Lenders approved release on May 7, 2015 of $6 million of funds held in AGM’s project completion
bank account back to GGI, and approximately $4 million in proceeds from the exercise of options. See
“Financing Activities & Liquidity” section below for further details.
Financing Activities & Liquidity
The Project Loan Facility for the Aurora Project signed September 2, 2014 consists of two tranches; a
Tranche 1 facility of $160 million and a Tranche 2 cost overrun facility of $25 million. With construction of
the Aurora project now complete, the full $160 million Tranche 1 facility has been drawn as of
-17-
September 30, 2015. The Company’s construction and development costs at September 30, 2015 on an
accrual basis since inception of the Aurora Project are approximately $280 million, or $3 million above
budget. Aurora Project costs incurred of $277 million have been financed by $117 million in previous
equity contributions by the Company and the $160 million Tranche 1 facility. See “Aurora Project –
Development Cost Update” section for details. The excess of $3 million has been financed by
subsequent sales of gold doré from pre-Commercial Production activities.
As of November 13, 2015, AGM Inc. has $52 million in additional financing available for any potential
costs overruns on the Aurora Project, comprised of and to be disbursed in the sequence shown as
follows:
•
•
•
Owner’s cost overrun equity restricted account $23 million
Tranche 2 facility – cost overrun $25 million
Owner’s project completion restricted account $4 million
The restricted funds within the Owner’s cost overrun equity account will be used to supplement any cash
operating requirements of the Aurora Project while in pre-Commercial Production operations, and any
remaining funds released at project completion, to be applied against debt service reserve and mine
closure reserve accounts, as required under the Project Loan Facility.
On May 7, 2015, the Company’s Senior Lenders approved the release of $6 million of restricted funds
held in the Owner’s project completion bank account back to Guyana Goldfields Inc. The remaining $4
million, remains in the restricted bank account, and will be released to the Company after November 30,
2015 if certain development capital and operating parameters are met by AGM. In addition, prior to
receiving any advances under the Tranche 2 facility, the Company is required to have the Owner’s project
completion account fully funded with a balance of $10 million.
The Company has undertaken to provide additional funds, if required, for the Aurora Project to achieve
project completion and to supplement any shortfall of funds needed to meet the Aurora Project’s financial
obligations.
The maximum term of the Facility is eight years and advances under the Facility bear a weighted average
interest rate of 3-month LIBOR plus 5.11% for the Tranche 1 facility, and advances under the Tranche 2
facility would bear interest at the same average rate plus 0.5% (if drawn). There is no required gold
hedging or other required similar provisions associated with the Facility. The use of proceeds drawn
under the Facility is limited to development and construction of the open pit mine and related process
plant facilities.
During the third quarter of fiscal 2015, the Company received advances under the Facility amounting to
$20.8 million bringing the Company’s long term debt under the Facility at September 30, 2015 to $160
million. The Company was in compliance with all key covenants under the Common Terms Agreement
as of November 13, 2015.
Principal debt repayments under the Facility are expected to commence December 31, 2015 and
continue quarterly thereafter over the tenor of the Facility, with repayments over the next twelve months
of $4,340, $6,800, $5,490 and $7,720 occurring on December 31, 2015, March 31, 2016, June 30, 2016,
and September 30, 2016, respectively. Interest payments are also required on a quarterly basis with
approximately $3 million in interest and Senior Lenders’ fees being paid on September 30, 2015, which
were not part of the construction and development budget or the related funding by the Facility.
At and subsequent to completion of project development, AGM will be required to maintain specified
financial and non-financial covenants/conditions and reporting requirements, including adherence to
environmental and social standards, and funding of a debt service reserve account and mine closure
reserve account. The Facility also provides for a partial cash sweep mechanism for the benefit
-18-
of the Senior Lenders and the acceleration of principal repayment in the event of a change in control.
Under the terms of the Facility, commencement of underground mine development requires various terms
and conditions being met, including the pre-funding of underground capital costs/commitments from
operating cash flows generated from the open pit mine or from other financing sources.
The Company is expected to generate revenues and incur operating costs from gold production before it
achieves commercial production, expected early in 2016 (see “Aurora Project – Mining Activities PreCommercial Production” section). The revenue from this gold production will be capitalized/credited to
the Aurora Project’s development costs until such time as Commercial Production is attained. Similarly,
pre-Commercial Production operating costs will also be charged to the Aurora Project’s development cost
account. As of September 30, 2015, the Company incurred $280 million in construction and development
costs and has completed all construction activities. With the commencement of pre-Commercial
Production operations in September 2015, the Company incurred $6 million in pre-Commercial
Production operating costs and $3 million in interest and other finance costs attributable to the Facility.
There were no sales of gold production during the third quarter of fiscal 2015.
The Company is reliant on the Project Loan Facility to complete the final stages of activities leading up to
Commercial Production for the Aurora Project, and thereafter is required to be in compliance with all the
terms and conditions of the Facility while in operations. There can be no assurance that the Company
will meet all ongoing conditions necessary for future compliance under the Facility. In these
circumstances, this could result in a default under the Facility and require repayment of all loan advances.
And if debt and or equity capital markets are not available, or the cost of capital is excessive, the
Company may have to delay the final activities leading up to Commercial Production at the Aurora
Project. See “Risk Factors” below.
The Company recognized a liability and corresponding asset for the estimated future cost of mine
reclamation and closure at the Aurora Project, including the dismantling and demolition of infrastructure,
removal of residual materials and remediation of disturbed areas, discounted to net present value. The
asset retirement obligation at September 30, 2015 was $4,005 after unwinding of the discount. The
majority of the asset retirement expenditures are expected to be incurred towards the end of the current
mine plan between 2028 and 2032. Under the Project Loan Facility, the Company is required to fund a
mine closure reserve account for the estimated mine closure remediation costs to be incurred, with $4.9
million expected to be contributed upon project completion early in calendar 2016, followed by quarterly
funding payment of approximately $0.4 million commencing in 2017. To the extent that funds are not
present in the Owner’s cost overrun equity restricted account, funding of the debt service and mine
closure reserve accounts will be from ongoing operating cash flows when in commercial production.
As of September 30, 2015, the Company held approximately $15 million of its consolidated cash in United
States denominated currency, with the remaining predominantly in Canadian funds. The Company
maintains substantially all of its cash in interest bearing bank accounts at select Canadian chartered
banks.
Investing Activities
The Company’s most significant expenditure is on its development of the Aurora Project.
For the three and nine months ended September 30, 2015, the Company incurred development
expenditures on a cash basis for the Aurora Project of approximately $28 million and $107 million,
respectively. For the three and nine month comparative period ended October 31, 2014, development
expenditures were approximately $40 million and $90 million, respectively. See “Aurora Project” above
which describes the nature and composition of development costs on an accrual basis.
-19-
As at December 31, 2014, the Company had approximately $10.4 million in contract advances due from
the GSJV. These advances were fully repaid to the Company prior to commencement of the third fiscal
quarter this year.
On August 25, 2015 and on October 2, 2015, the Company purchased diesel forward contracts for its
Aurora Project, for a combined total of approximately 18 million litres of diesel at an average rate of
$0.44/litre, which will settles on a net basis. These commodity swaps cover the period October 2015
through to August 2017 and represents approximately sixty percent of the Project’s expected diesel
purchases over the next twenty-three months.
OFF-BALANCE-SHEET ARRANGEMENTS
As of the date of this filing, the Company does not have any off-balance-sheet arrangements that have, or
are reasonably likely to have, a current or future effect on the results of operations or financial condition of
the Company, including, and without limitation, such considerations as liquidity and capital resources.
COMMITMENTS & CONTINGENCIES
The Mineral Agreement and Mining Licence for the Aurora Project require the Company to undertake
various obligations and commitments over the twenty-year life of the agreements. As of September 30,
2015, the Company has completed its construction activities and is in compliance in all material respects
with all terms and conditions of the Mining Licence and Mineral Agreement for the Aurora Project. The
government of Guyana has the right to terminate the agreements in the event of default by written notice
to the Company, subject to a dispute resolution process involving arbitration.
As of November 13, 2015 the Company is committed to $24,804 for obligations under the EPC Contract,
other Aurora Gold Project contractual commitments, purchases of equipment goods and services, and
operating leases.
(in thousands of US$)
EPC Contract
Total
2015
2016
- $
There-after
Other contractual commitments
4,165
1,274
1,357
699
232
232
371
Purchase Obligations
5,295
5,295
-
-
-
-
-
Operating leases
2,325
280
413
431
413
413
375
24,804 $
19,868 $
1,770 $
1,130 $
645 $
645 $
746
$
- $
2019
13,019 $
Total Contractual Obligations
At November 13, 2015
- $
2018
13,019 $
$
- $
2017
-
During the third quarter of fiscal 2015, the Company approved contract variations of approximately $2
million, bringing the EPC Contract for the Aurora Project process plant and power plant to approximately
$139 million. The variations represent additional works performed by the GSJV on the Company’s behalf
and amounts allowed under the Contract. With construction and development of the process plant and
power facility completed as of September 30, 2015, the Company’s liability to the GSJV at this date is
composed of approximately $5 million is installment payments and approved contract variations, and $10
million in holdback.
If the GSJV reached mechanical completion within certain time parameters around the dates of the
established three milestones, bonuses are payable to the GSJV, up to a maximum of 5% of the contract
value. With the Aurora Project achieving early gold production through the commissioning and start-up of
the gold gravity, saprolite production circuit, and full mechanical completion of the plant, the Company
-20-
views the dates of these achievements as beyond those dates contemplated in the fixed price EPC
Contract with the GSJV.
As of November 13, 2015, the Company has received various extension of time claims from the GSJV
relating to the recovery of additional costs incurred beyond the fixed price EPC Contract. The Company’s
view is that the majority of these extension of time claims are without merit, and the Company does not
expect the resolution of these claims to have a material impact on the Aurora Gold Project.
The maximum value of the GSJV completion bonus amounts is $6.9 million. The bonus amounts are
reduced for each day the GSJV does not complete the various construction milestone dates. The
resolution of the above extension of time claims, has a direct relationship as to whether the GSJV is
entitled to any or all mechanical completion bonuses, and cannot be determined at this time. As a result,
the Company has not accrued for the $6.9 million nor does it expect to pay contingent bonuses relating to
the EPC contract.
The Company and the GSJV are engaged in discussions and may need to utilize dispute resolution
options available under the ECP Contract to resolve the settlement of all claims. If earned, funding for
allowed extension of time claims and contingent bonuses will be made from the Owner’s cost overrun
equity account or from operating cash flows once in commercial production. See “Liquidity, Capital
Resources and Business Prospects” for further details.
The Company’s mineral exploration rights to the Aurora Gold Property were acquired from Alfro Alphonso
nd
and are subject to an annual fee of $100, payable on January 2 each year, up to a maximum of $1,500.
Such payments are due and payable for such period that the Company maintains an interest in the
property. As at September 30, 2015 total payments since the acquisition of $1,100 have been made
(December 31, 2014 - $1,100). This remaining commitment has not been included in the above
contractual commitment table.
The Company is also party to certain management and consulting contracts. These contracts contain
clauses requiring additional payments to be made upon the occurrence of certain events such as contract
termination or change of control by the Company. As the likelihood of these events taking place is not
determinable, the contingent payments have not been reflected in the consolidated financial statements.
PROPOSED TRANSACTIONS
The Company evaluates various opportunities and transactions as they arise. There are no material
transactions pending at the date of this MD&A.
RELATED PARTY TRANSACTIONS
(a) Compensation to directors for director’s fees and salaries and benefits for key management personnel
were as follows:
(in thousands of US$s)
Key management
Three months
ended
September 30,
2015
$
Directors
560
Three months Nine months
ended
ended
October 31, September 30,
2015
2014
$
$
623
-21-
533 $
73
63
$
606 $
1,576
Nine months
ended
October 31,
2014
$
1,771
1,605
209
195
$
1,814
Key management compensation in the current quarter when denominated in Canadian dollars is
approximately 25% higher versus the comparable quarter last year due to certain salaries or a portion
thereof being denominated in United States dollars, along with the impact of a one-time retroactive
adjustment for compensation paid to an executive in the quarter. The conversion of all key
management compensation for the quarter into United States dollars results in an approximate 5%
increase in quarterly compensation, with the lowering impact of a significantly weaker Canadian dollar
being offset by this quarter’s compensation pay adjustment.
For the nine months to date this year, key management compensation when denominated in Canadian
dollars is approximately 13% higher versus the comparable period last year mainly due to certain
salaries or a portion thereof being denominated in United States dollars, along with the impact of the
one-time retroactive adjustment to executive compensation. The conversion of key management
compensation for the nine month periods into United States dollars results in an approximate 2%
reduction period over period, due primarily to the weaker Canadian dollar this year versus last year.
Director compensation for the quarter, when denominated in Canadian dollars, is marginally higher
than the comparable quarter last year, due to the addition of a new Director this year. Quarterly
compensation, when denominated in United States dollars reflects a quarter over quarter reduction in
compensation due to the impact of weaker Canadian dollar this quarter versus last year. For the nine
months ended September 30, 2015, Director compensation when denominated in Canadian dollars
was 7% percent higher this year than last year due to the additional Director on the Board. When
compensation is reported in United States dollars, the weaker Canadian dollar this year also
accounted for the drop in Director compensation over the nine month periods.
(b) Included in accounts payable are the following amounts due to related parties:
September 30,
2015
(in thousands of US$s)
To Officers of the Company
$
October 31,
2014
61 $
To Directors of the Company
2
21
$
23
61 $
The balances above are non-interest bearing and are payable on demand.
All the above related party transactions are in the normal course of operations and are measured at the
exchange amount, which is the amount of consideration established and agreed to by the related parties.
CHANGE IN YEAR END
st
st
Effective in 2014, the Company changed its financial year-end from October 31 to December 31 and
reported a one-time, fourteen month transition year covering the months of November 2013 through to
December 2014. Subsequently, the Company's first full financial year after the transition will cover the
period January 1, 2015 to December 31, 2015. Accordingly, the accompanying unaudited condensed
consolidated interim financial statements present the financial position as at September 30, 2015,
December 31, 2014, and January 31, 2014, as well as the results of operations and comprehensive loss,
and cash flows for the nine months ended September 30, 2015 with comparatives for the nine months
ended October 31, 2014.
Annual statements will be filed for the new financial year ending December 31, 2015 with comparative
statements from the previous fourteen month financial year ending December 31, 2014.
-22-
RE-STATEMENT OF COMPARATIVE FIGURES
Effective December 31, 2014, the Company adopted a voluntary change in accounting principle on
exploration and evaluation expenditures that is also generally accepted under IFRS 6. The Company’s
new policy on accounting for exploration and evaluation expenditures is to expense these costs until such
time as the work completed supports the future development of the property through the issuance of a NI
43-101 technical report or definitive bankable feasibility study, and such development receives
appropriate Board approvals. All subsequent expenditures on the property are then capitalized and
classified as assets under construction, a component of property, plant and equipment. At December 31,
2014, the change in accounting policy had been made retrospectively and the comparatives were
restated accordingly to all periods presented, as if the policy had always been applied.
Consequently, certain comparative figures for the three and nine month periods ended October 31, 2014
have been re-stated to reflect the above change in accounting policy.
A statement of financial position as at January 31, 2014 has been disclosed representing the beginning of
the earliest comparative period presented. The following tables summarize the impact of the above
voluntary change in accounting principle on affected line items within the Company’s financial position,
operations and comprehensive loss, and cash flows:
January 31, 2014
Selected Balance Sheet Items
As
previously
reported
Cumulative
Change1
As restated
Exploration and evaluation assets:
Aranka Gold Property
$
30,569 $
(30,569)
4,163
(4,163)
-
34,732
(34,732)
-
171,957
(138,430)
33,527
$
206,689 $
(173,162)
$
33,527
$
(74,147) $
(173,162)
$
(247,309)
Other Properties
Development costs, property and equipment
Accumulated deficit
1
$
-
During fiscal 2013, costs of $138,430 were reclassified from exploration and evaluation assets to development costs under the previous
accounting policy. The cumulative change to development costs of $138,430 above represents these same exploration costs that were
incurred on the Aurora Project from inception to January 11, 2013 (the date of issuance of the NI 43-101 feasibility study and Board approval
to commence with development on the Project towards commercial production).
-23-
Three months ended
October 31, 2014
Selected Items from Statement of Operations and
Comprehensive Loss
As previously
reported
Stock based compensation
$
Amortization
Exploration and evaluation expenditures
Change
3 $
85 $
Nine months ended
October 31, 2014
As
restated
88
As previously
reported
$
546 $
29
7
27
34
23
87
-
510
510
-
1,447
$
92 $
540 $
632
$
569 $
Net loss and comprehensive loss for the period
$
(1,769) $
(540) $
(2,309)
$
Net loss per share - Basic and fully diluted
$
(0.01) $
(0.01) $
(0.02)
$
As
restated
Change
$
575
110
1,447
1,563
$
2,132
(3,767) $
(1,563)
$
(5,330)
(0.03) $
(0.01)
$
(0.04)
Nine months ended
October 31, 2014
Selected Items from Statement of Cash Flows
As
previously
reported
Net Loss
$
(3,767) $
Change
(1,563) $
As restated
(5,330)
Items not involving cash:
Stock based compensation
Amortization
546
29
575
23
87
110
610
26
636
(1,421)
1,421
Change in non-cash operating working capital:
Accounts payable and accrued liabilities
Investing
Expenditures on exploration and evaluation assets
Total Cash Flows, or the like
$
(4,009) $
- $
(4,009)
FUTURE ACCOUNTING PRONOUNCEMENTS
The following are new pronouncements approved by the IASB. The standards are not yet effective and
have not been applied in preparing these interim financial statements; however, they may impact future
periods.
(i) IFRS 9 Financial Instruments (Revised) was issued by the IASB in October 2010. It incorporates
revised requirements for the classification and measurement of financial liabilities, and carrying over
the existing derecognition requirements from IAS 39 Financial Instruments: Recognition and
Measurement. The revised financial liability provisions maintain the existing amortised cost
measurement basis for most liabilities. New requirements apply where an entity chooses to measure
a liability at fair value through profit or loss – in these cases, the portion of the change in fair value
related to changes in the entity's own credit risk is presented in other comprehensive income rather
than within profit or loss. On July 24, 2014, the IASB issued the final version of IFRS 9 with an
effective adoption date of January 1, 2018, with early adoption permitted. The impact of IFRS 9 has
not yet been determined.
(ii) IFRS 15 Revenue from Contracts with Customers was issued by the IASB In May 2014. This
-24-
standard covers principles that an entity shall apply to report useful information to users of financial
statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from
a contract with a customer. In July 2015, the IASB deferred the effective date of the standard to
annual reporting periods beginning on or after January 1, 2018, with earlier application permitted.
The Company has not evaluated the impact of adopting this standard.
FUTURE ACCOUNTING POLICY- DEFINITION OF COMMERCIAL PRODUCTION
The Company expects to achieve Commercial Production for its Aurora Project in early 2016, and will
recognize this achievement under the following circumstances.
The development phase ends and the production phase begins when the mine is in the condition
necessary for it to be capable of operating in the manner intended by management. Various relevant
criteria are considered to assess when the mine is substantially complete and ready for its intended use
and moved into the production phase. Some of the criteria considered include, but are not limited to:
•
•
•
•
Completion of operational commissioning of each major mine and plant component.
Demonstrated ability to mine and mill consistently and without significant interruption at a predetermined average rate of design capacity of 75%, composed of both soft and fresh rock.
The passage of a reasonable period of time for testing of all major mine and plant components
Gold recoveries are at or near expected production levels.
Commercial Production will be declared on the first day of the calendar month following achievement of
the above milestones. Upon achieving commercial production, costs will be transferred from assets
under construction into the appropriate categories of mineral, property, plant and equipment.
Once in Commercial Production gold sales will be recognized as revenue and production costs as a
component of cost of sales.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with IFRS requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amount of expenses and
other income during the year.
Judgments, estimates and assumptions are periodically evaluated and are based on management's
experience and other factors, including expectations of future events that are believed to be reasonable
under the circumstances. However, actual outcomes can differ from these estimates. Areas of judgment,
estimate and assumptions that have the most significant effect on the amounts recognized in the financial
statements are as follows:
Impairment of assets:
The Company assesses its cash-generating units annually to determine whether any indication of
impairment exists. Where an indicator of impairment exists, an estimate of the recoverable amount is
made, which is the higher of the fair value less costs to sell and value in use. The determination of the
recoverable amount requires the use of estimates and assumptions such as long-term commodity prices,
discount rates, future capital requirements, exploration potential and future operating performance. Fair
value is determined as the amount that would be obtained from the sale of the asset in an arm’s
-25-
length transaction between knowledgeable and willing parties. Recoverable amount is generally
determined as the present value of estimated future cash flows arising from the continued use of the
asset, which includes estimates such as the cost of future expansion plans and eventual disposal, using
assumptions that an independent market participant may take into account. Cash flows are discounted by
an appropriate discount rate to determine the net present value. Changes in any of the assumptions or
estimates used in determining the fair value could impact the impairment analysis.
The estimation of mineral resources as proven or probable ore reserves is complex and requires
significant subjective assumptions, which are valid at the time of estimation. These assumptions may
change significantly over time when new information becomes available and may cause the mineral
resources and reserves estimates to change. Changes in the forecast prices of commodities, exchange
rates, production costs or recovery rates may have a significant impact on the economic assessment of
the mineral resources and reserves and may result in their restatement, affecting the recoverability of
mineral property interests capitalized.
Fair value of share-based payments:
Determining the fair value of certain share-based payments involves estimates of interest rates, expected
life of options, expected forfeiture rate, share price volatility and the application of the Black-Scholes option
pricing model. The Black-Scholes option pricing model requires the input of highly subjective assumptions
that can materially affect the fair value estimate. Stock options granted vest in accordance with the stock
option plan. The valuation of stock-based compensation is subjective and can impact profit and loss
significantly.
The Company has applied a forfeiture rate in arriving at the fair value of stock based compensation to be
recognized, reflecting historical experience. Historical experience may not be representative of actual
forfeiture rates incurred. Several other variables are used when determining the value of stock options
using the Black-Scholes valuation model:
•
•
•
Volatility: the Company uses historical information on the market price of its common shares to
determine the degree of volatility at the date the stock options were granted. Therefore,
depending on when the stock options were granted and the period of historical information
examined, the degree of volatility can be different when calculating the value of different stock
options.
Risk-free interest rate: the Company used the interest rate available for government securities of
an equivalent expected term as at the date of the grant of the stock options. The risk-free interest
rate will vary depending on the date of the grant of the stock options and their expected term.
Dividend yield: the Company has not paid dividends in the past because it is in the exploration
and development stage and has not yet earned any significant income. Also, the Company does
not expect to pay dividends in the foreseeable future. Therefore, a dividend rate of 0% was used
for the purposes of the valuation of the stock options.
Depreciation:
Earth moving, construction, field equipment and buildings used in exploration and development activities
are depreciated, net of residual value, on a declining basis, over the useful life of the equipment.
Significant judgment is involved in the determination of useful life and residual values for the computation
of depreciation, and no assurance can be given that actual useful lives and residual values will not differ
significantly from current assumptions.
-26-
Asset Retirement Obligations (“ARO”)
The Company has an obligation to reclaim its mining properties after the minerals have been mined from
the site, and have estimated the costs necessary to comply with existing reclamation standards. The
Company recognizes the fair value of a liability for ARO and a corresponding asset for the estimated future
cost of mine reclamation and closure at the Aurora Project when reasonably determinable. Key
assumptions in determining the amount of the liability include: total undiscounted cash outflows, expected
timing of payment of the cash outflows and appropriate discount rates to apply to the timing of cash
outflows.
As the liability is recorded on a discounted basis, the increase in the provision due to the passage of time
is capitalized as development costs, and will be recognized in profit and loss when the Aurora Project
achieves commercial production. The Company calculated its estimated mine site closure costs based on
a mine closure and reclamation plan prepared by an independent third party. The majority of the
expenditures associated with reclamation and mine closure will be incurred at the end of the mine life,
based on expected proven and probable mineral reserves and the anticipated future rate of production.
However, actual outcomes can differ from these estimates. The above assumptions and related estimates
will have a significant effect on the reclamation liability recognized.
CAPITAL MANAGEMENT
The Company manages its capital with the following objectives:
• to ensure sufficient financial flexibility to achieve the ongoing business objectives including
funding of future growth opportunities, and pursuit of accretive acquisitions; and
• to maximize shareholder return through enhancing share value.
The Company monitors its capital structure and makes adjustments according to market conditions in an
effort to meet its objectives given the current outlook of the business and industry in general. The
Company may manage its capital structure by issuing new shares, repurchasing outstanding shares,
taking on debt, adjusting capital spending, or disposing of assets. The capital structure is reviewed by
management and the Board of Directors on an ongoing basis.
The properties in which the Company currently has an interest are in the exploration and advanced
development stage. As such the Company is dependent on external financing to fund its activities. In
order to carry out its planned exploration and development programs and pay for administrative costs, the
Company will attempt to spend its existing working capital and raise additional amounts as needed.
In light of the above, the Company will continue to assess new properties and seek to acquire an interest
in additional properties if it believes there is sufficient potential and if it has adequate financial resources
to do so.
The Company considers its capital to be (1) equity, comprising share capital, stock options, contributed
surplus and accumulated deficit, which at September 30, 2015 totalled $157,968 (December 31, 2014 $157,347), and (2) long-term debt, which at September 30, 2015 was $123,692 net of unamortized debt
issuance costs (December 31, 2014 – $58,077). The Company manages capital through its financial and
operational forecasting processes. The Company reviews its working capital and forecasts its future cash
flows based on operating expenditures, and other investing and financing activities. The forecast is
regularly updated based on exploration and development activities, as well as anticipated future gold
production plans. Selected information is frequently provided to the Board of Directors of the Company.
The Board of Directors does not establish quantitative return on capital criteria for management but rather
relies on the expertise of the Company's management team to sustain the future development of the
business. The Company’s capital management objectives, policies and processes have remained
-27-
unchanged during the nine months ended September 30, 2015.
PROPERTY AND FINANCIAL RISK FACTORS
The Company’s activities expose it to a variety of financial risks: liquidity risk, market risk (including
interest rate, currency rate and price risk) and credit risk.
Risk management is carried out by the Company's management team with guidance from the Board of
Directors. The Board of Directors also provides regular guidance for overall risk management.
(a) Liquidity risk:
Liquidity risk is the risk that the Company will not have sufficient cash resources to meet its financial
obligations as they come due. The timeline to build the Aurora Project into a producing mine is dependent
on continuing to satisfy all required financial and non-financial covenants under the Project Loan Facility
and successfully achieving commercial production. There can be no assurances that commissioning of
the final stages of the Project’s facilities will proceed as planned or that future results from operations will
be profitable, or that other supplemental financing activities will not be required, if available.
The Company’s liquidity and operating results may be adversely affected if its access to the capital
market is hindered, whether as a result of a downturn in stock market conditions generally or as a result
of conditions specific to the Company. The Company generates cash flow primarily from its financing
activities and interest income earned on its cash. At September 30, 2015, the Company on a
consolidated basis had cash of approximately $18.5 million (December 31, 2014 - $17 million) to settle
consolidated current liabilities of approximately $53 million (December 31, 2014 - $39 million).
Included in the Company’s consolidated cash position and current liabilities at September 30, 2015 is
approximately $9.5 million and $51 million, respectively, attributable to the Aurora Project. The $9.5
million cash position represents cash drawn under the Facility that the Company is contractually obligated
to spend on the development of the Aurora Project. The $51 million in Project’s current liabilities includes
approximately $27 million in accounts payable and accrued liabilities and approximately $24 million in
current portion of long-term debt (for the next twelve months). Included in the above $27 million in
accounts payable and accrued liabilities is approximately $15 million due to the GSJV for EPC Contract
contractual payments and recent approved contract variations. At September 30, 2015, the Project’s
working capital deficiency was approximately $42 million.
With construction and development of the process plant and power facility completed as of September
30, 2015, the Company’s liability to the GSJV at this date is composed of approximately $5 million is
installment payments and approved contract variations, and $10 million in holdback.
During the pre-Commercial Production period, the Company expects to fund the Project’s working capital
deficiency at September 30, 2015 and subsequent pre-Commercial Production operating costs through a
combination of cash from ongoing sales of gold production and from draws against its Owner’s cost
overrun equity restricted bank account. Once Commercial Production is achieved in early 2016, the
Company expects that quarterly Facility principal repayments will be funded from operating cash flows.
As of November 13, 2015, the Company has $52 million in additional financing available for any potential
costs overruns on the Aurora Project.
The Company regularly evaluates its overall cash position and forecasted cash flows to ensure
preservation and security of capital as well as maintenance of liquidity. All of the Company's financial
liabilities are subject to normal trade terms.
-28-
(b) Market risk:
Market risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments
will significantly fluctuate due to changes in market prices. The value of the financial instruments can be
affected by changes in foreign exchange rates, interest rates, commodity and equity prices.
Currency risk is the risk that the fair value of, or future cash flows from, the Company’s financial
instruments will fluctuate because of changes in foreign exchange rates. The Company's functional
currency is the United States dollar and major purchases are transacted in United States dollars.
The Company is subject to gains and losses due to fluctuations in the Canadian and Guyanese dollar
against the United States dollar. Sensitivity to a plus or minus 10% change in all foreign currencies
(Guyanese and Canadian dollars) against the United States dollar with all other variables held constant
as at September 30, 2015, would affect the statement of operations and comprehensive loss by
approximately $221 (December 31, 2014 - $58).
The Aurora Project has been funded by the Project Loan Facility that is denominated in United States
currency, and for disbursement purposes is supported by maintaining bank accounts denominated in
United States, Canadian, and Guyanese dollars. The Project’s exposure to fluctuations in the Canadian
and Guyanese dollar against the United States dollar is not significant as substantially most development
costs are incurred in United States dollars, and the exchange rate between the Guyanese and United
States dollar has remained relatively constant.
The Company funds its exploration activities in Guyana on a cash call basis using United States dollars
converted from its Canadian dollar bank accounts held in Canada. The Company maintains Canadian
and United States dollar bank accounts in Canada, and Guyanese and United States dollar bank
accounts in Guyana. Similarly, the Company foreign exchange exposure is not significant as its annual
exploration expenditures and Canadian dollar cash balances are relatively small.
Interest rate risk is the impact that changes in interest rates could have on the Company’s earnings and
assets. In the normal course of business, the Company is exposed to interest rate fluctuations as a result
its long-term debt, and its cash being invested in interest-bearing instruments. The Project Loan Facility
bears interest at a variable rate (3-month LIBOR plus 5.11% for the Tranche 1 facility).
Excluding cash balances and long-term debt attributable to the Aurora Project, sensitivity to a plus or
minus 1% interest rate change with all other variables held constant as at September 30, 2015, would
affect the statement of operations and comprehensive loss by approximately $90 (December 31, 2014 $32). Prior to Commercial Production of the Project, related interest earned on cash balances and
interest incurred on long-term debt are being credited to/charged to Aurora Project assets under
development. Sensitivity to a plus or minus 1% interest rate change on the Project’s cash balances and
long-term debt with all other variables held constant as at September 30, 2015, would affect assets under
development by approximately $1,504 (December 31, 2014 – $216). The Company evaluates on an
ongoing basis opportunities to hedge its interest rate exposure on its long-term debt.
Fluctuation in the price for gold may adversely affect the Company’s ability to obtain additional financing,
influence the course of action taken in developing the Project, and affect the Company’s ability to meet
the Facility’s financial and non-financial covenants. As at September 30, 2015, although the Company
was not a gold producer, gold price risk may also affect the Company’s liquidity and its ability to meet
ongoing obligations.
The Company may enter into derivative contracts in order to manage its exposure to fluctuations in the
market value of diesel. At September 30, 2015, the Company had a total of approximately nine million
litres of diesel forward contracts at an average rate of $0.43/litre, which will settle on a net basis, covering
-29-
the subsequent twenty-three months. This commodity swap represents approximately thirty percent of
the Company’s expected diesel consumption over this time period. It is the Company’s view that there is
greater risk of an eventual return to higher diesel prices than further downward price pressure. At
September 30, 2015, the Company recorded an unrealized gain of $59 on the above diesel forward
contract reflecting the mark-to-market position of the contract in the Company’s favour. The impact of a
10% increase or decrease in rate used in the fair value diesel instrument with all other variables
remaining constant is $399. Subsequent to the end of the quarter, the Company hedged an additional
thirty percent of its future diesel consumption with the purchase of a diesel forward contract at an average
rate of $0.45/litre, settling on a net basis, and covering the same twenty-three month period. In total,
approximately 18 million barrels of diesel has been subject to the swap, representing approximately sixty
percent of expected future diesel consumption over the twenty-three month period.
(c) Credit risk:
Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The
Company's credit risk is primarily attributable to its cash, restricted cash, and accounts receivable. The
maximum credit exposure at September 30, 2015 is approximately $795 (December 31, 2014 approximately $11,156). The Company previously had a significant concentration of credit risk arising
from its advances to the GSJV, which have been repaid to AGM as at June 30, 2015. The Company
maintains substantially all of its cash in interest bearing bank accounts at select Canadian chartered
banks.
NATIONAL INSTRUMENT 52-109 DISCLOSURE
The Company’s CEO and CFO are responsible for establishing and maintaining disclosure controls and
procedures (“DC&P”) and internal controls over financial reporting (“ICFR”), as those terms are defined in
National Instrument 52-109 for the Company. The Company’s controls are based on the COSO
framework.
The Company’s CEO and the CFO certify that the Company’s DC&P have been designed to provide
reasonable assurance that material information relating to the Company is made known to them by
others, particularly during the period in which interim filings are being prepared; and information required
to be disclosed by the Company 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. They also certify that the Company’s ICFR have been designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with IFRS.
During the current period there have been no changes in the Company’s DC&P or ICFR that materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
The Company’s management, including the CEO and CFO, believe that any disclosure controls and
procedures and internal controls over financial reporting, no matter how well designed, can have inherent
limitations. Therefore, even those systems determined to be effective can provide only reasonable
assurance that the objectives of the control system are met.
OUTSTANDING SHARE DATA
At the date of this MD&A, the issued and outstanding Common Shares totalled 152,415,649. Options
-30-
outstanding amounted to 9,390,000 at the date of this MD&A, each of which is exercisable to acquire one
Common Share in accordance with the terms thereof.
RISK FACTORS
The following list details existing and future material risks to the business of the Company. The risks
described below are not listed in any particular order and are not exhaustive. Additional risks and
uncertainties not currently known to the Company, or those that it currently deems to be immaterial, may
become material and adversely affect the Company’s business. The realization of any of these risks may
materially and adversely affect the Company’s business, financial condition, results of operations and/or
the market price of the Company’s securities.
Each of these risk factors is discussed in more detail in the Company’s most recent amended and
restated Annual Information Form, which is listed for public inspection on www.sedar.com.
• Exploration, Development and Operating Risks
• Licencing Matters
• Geotechnical Risks
• Open Pit Mine Risks
• Underground Mine Risks
• Mineral Processing
• Infrastructure Risk
• Insurance and Uninsured Risks
• Environmental Risks and Hazards
• Infrastructure
• Uncertainty Relating to Mineral Resources
• Reliability of Resource Estimates
• Uncertainty of Feasibility Study Results & Revisions to Estimates
• No History of Mineral Production
• Land Title
• Global Financial Conditions
• Competition May Hinder Corporate Growth
• Additional Capital
• Dilution
• Commodity Prices
• Exchange Rate Fluctuations
• Government Regulation
• Political Risks
• Labour and Employment Matters
• Subsidiaries
• Market Price of Common Shares
• Future Sales of Common Shares by Existing Shareholders
• Dependence on Management and Key Personnel
• Competition
• Conflicts of Interest
• Cyber Security Threats
• Compliance with Anti-Corruption Laws
-31-
FORWARD-LOOKING STATEMENTS AND ADDITIONAL INFORMATION
Except for statements of historical fact relating to Guyana Goldfields, certain information contained in this
MD&A constitutes “forward-looking information” under Canadian securities legislation. Forward-looking
information includes, but is not limited to, statements with respect to the potential of the Company’s
properties; ability to continue to satisfy all conditions and covenants under the Project Loan Facility; the
future price of gold; expected capital costs and project milestones to achieve Commercial Production for
the Aurora Project; success of exploration and development activities; cost and timing of future
exploration and development; the estimation of mineral resources; conclusions of economic evaluations;
successful startup and operations of the Aurora Project; requirements for additional capital and other
statements relating to the financial and business prospects of Guyana Goldfields. Generally, forwardlooking information 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 statements that certain
actions, events or results “may”, “could”, ”would”, “likely”, “might” or “will be taken”, “occur” or “be
achieved”. Forward-looking information is based on the reasonable assumptions, estimates, analysis and
opinions of management made in light of its experience and its perception of trends, current conditions
and expected developments, as well as other factors that management believes to be relevant and
reasonable in the circumstances at the date that such statements are made, and are inherently subject to
known and unknown risks, uncertainties and other factors that may cause the actual results, level of
activity, performance or achievements of the Company to be materially different from those expressed or
implied by such forward-looking information, including but not limited to risks related to:
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the Company’s ability to successfully satisfy all conditions under the Project Loan Facility to
enable continued future disbursements, if required;
the Company’s failure to adhere to representations, warranties, affirmative and negative
covenants under the Project Loan Facility, which could give rise to an event of default under the
Facility;
Guyana Goldfields’ ability to meet the anticipated total capital costs to Commercial Production for
the Aurora Project, including amounts of capital expenditures under the EPC Contract;
going concern status of the GSJV and its partners;
the timing of achieving sustained level of gold production for the Aurora Project to develop the
Project into a producing mine;
the timing and amounts of expected cash outflows relating to contractual commitments and any
claims to the GSJV for the EPC Contract for the processing and power plant;
the timing and amounts of expected cash outflows, and expected sales of gold, relating to preCommercial Production operations of the Aurora Project;
successful profitable operation of the Aurora Project once in commercial production;
conducting mining operations, any of which could result in damage to, or destruction of, mines
and other producing facilities, damage to life or property, environmental damage and possible
legal liability, including the adverse impact on the Company’s cash flows and ability to repay
amounts due under the Project Loan Facility;
unusual or unexpected geological formations encountered during development and/or mining
operations;
adherence to the terms and condition of the Mineral Agreement and Mining Licence;
uncertain political and economic environments;
unionization of its work force in Guyana;
governmental regulation and environmental liability;
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fluctuation in the price for gold may adversely affect the Company’s ability to obtain additional
financing, influence the course of action taken in developing and operating the Project, and affect
the Company’s ability to meet the Facility’s financial and non-financial covenants;
the Company’s goal of creating shareholder value by concentrating on the acquisition and
development of properties that have the potential to contain economic gold deposits;
ability to source new, additional or replacement financing through other share or debt issuances
in support of the Aurora Project, corporate general and administrative expenses, and exploration
activities;
future plans for the Aurora Project and other property interests held by the Company or which
may be acquired on a going forward basis, if at all;
management’s outlook regarding future trends, outlook and activities;
the Company’s ability to meet its working capital needs to finance the final stages of activities
leading up to Commercial Production of the Aurora Project, and to finance its exploration and
corporate activities; and
Forward-looking information is also subject to the risks further described in the Company’s most recent
amended and restated Annual Information Form. Although management of the Company has attempted
to identify important factors that could cause actual results to differ materially from those contained in
forward-looking information, 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 information. The Company does
not undertake to update any forward-looking information, except in accordance with applicable securities
laws. Accordingly, readers should not place undue reliance on forward-looking information.
ADDITIONAL INFORMATION
Additional information relating to the Company, including its recent amended and restated Annual
Information Form for the most recently completed fiscal year, is available on SEDAR at www.sedar.com.
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