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Our principal projects are located in Canada. Our objective is to grow resource and reserve ownership per share. Our risk-reducing strategy: acquire North American deposits; expand them through exploration; move them to reserves through engineering; and sell or joint venture them to established producers for mine construction and operation.
SEABRIDGE GOLD’S RESOURCE BASE OF GOLD, COPPER AND SILVER IS ONE OF THE WORLD’S LARGEST
CONTENTS
02 CEO’sReporttoShareholders
14 MineralReservesandResources
16 Management’sDiscussionandAnalysis
26 Management’sResponsibilityforFinancialStatements
27 IndependentAuditors’ReportofRegisteredPublic AccountingFirm
28 ReportofIndependentRegisteredPublicAccountingFirm onInternalControloverFinancialReporting
29 ConsolidatedStatementsofFinancialPosition
30 ConsolidatedStatementsofOperationsandComprehensive Loss
31 ConsolidatedStatementsofChangesinShareholders’Equity
32 ConsolidatedStatementsofCashFlows
33 NotestotheConsolidatedFinancialStatements
54 CorporateInformation
STOCK EXCHANGE TRADING SYMBOLS
“SEA”onTorontoStockExchange“SA”onNewYorkStockExchange
Annual General Meeting of Shareholders
Wednesday,June29,20164:30p.m.EDTTheAlbanyClub91KingStreetEastToronto,OntarioM5C1G3Canada
Forward-Looking Statements
Wearemakingstatementsandprovidinginformationaboutourexpectationsforthefuturewhichareconsideredtobeforward-lookinginformationorforward-lookingstatementsunderCanadianandUnitedStatessecuritieslaws.Theseincludestatementsregardingtheproposedproductionscenariosinrespectofourprincipalprojectsandourviewofthegoldmarket.Wearepresentingthisinformationtohelpyouunderstandmanagement’scurrentviewsofourfutureprospects,anditmaynotbeappropriateforotherpurposes.Wewillnotnecessarilyupdatethisinformationunlesswearerequiredtobysecuritieslaws.Thisinformationisbasedonanumberofmaterialassumptions,andissubjecttoanumberofmaterialrisks,whicharediscussedinourannualMD&Acontainedinthisdocumentundertheheadings“Forward-LookingStatements”and“RisksandUncertainties”.Wealsorefershareholderstothemorecomprehensivediscussionofforward-lookinginformationinourAnnualInformationFormfiledonSEDARatwww.sedar.comandour
AnnualReportonForm40-FfiledonEDGARatwww.sec.gov/edgar.shtml.
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Chief Executive Officer’s REport to Shareholders2015wasanotherdifficultyearforourindustry.Multi-yearsharepricelowsweresetfornearlyeverygoldandbasemetalcompanyincludingSeabridge.Nonetheless,inanticipationofaneventualturninmetalsmarkets,Seabridgecontinuedwithitsuniquestrategyofimprovingshareholderleveragetogoldbycontinuingtogrowitsgoldresourcebasefasterthansharesoutstanding.Asillustratedinthefollowinggraph,thiscorporatedisciplineoverthepast17yearshasallowedustodeveloponeoftheworld’slargestinventoriesofgoldreservesandresourceswithremarkablylittlesharedilution.
Gold Reserves and Resources Continue to Grow Faster than Shares Outstanding
ProvenandProbableGoldReserves
Measured+IndicatedGoldResources
InferredGoldResources
SharesOutstanding
Note:Intheabovegraph,theshareinformationfor2015doesnotincludethe1.8millioncommonsharefinancingcompletedinQ42015astheproceedsfromthisdilutionwillbespentduring2016onfurtherresourceandreserveexpansions.
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2003 2004 2005 2006 2007 2008 2010 2011 2012 2013 2014 20152009
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Inlastyear’sannualreport,wetookadifferentapproachfrompreviousyears.Ourexploration,engineeringandpermittingteamsspokedirectlyoftheirworkandtheircriticalaccomplishmentsduringtheyear.Weheardfrommanyshareholderswhoappreciatedgettingreportsfromthepeopleonthefrontlines.Inthisyear’sreport,wehaveonceagaintakenadifferentapproach,highlightingourunderstandingoftheuniquerolegoldplaysinourfinancialsystemandtheimpactthisunderstandinghashadonourcorporatestrategy,astrategythathasmadeusdifferentfromothergoldcompanies.Thethemeofthisyear’sreportisTurningCashintoGold.Ihopeyoufindmyinterviewthatfollowsthisbriefreporttobeuseful,aswellasthearticlesonthegoldmarket.
Report Card on 2015 Objectives: Asalways,westarttheyearwithasetofclear,publishedobjectivesdesignedtoenhanceshareholdervalue.Atyear-end,ourboardevaluateshowweperformedagainsttheseobjectives.Lastyear’sannualreportsetoutsixobjectives:
• Complete a joint venture agreement on the KSM project with a suitable partner on terms advantageous to Seabridge
Asofnow,thiskeycorporateobjectivehasnotbeenmet.2015provedtobeaproductiveyearassixmoremajorcompaniesexecutedconfidentialityagreementsonKSMandconductedduediligenceontheproject.Weweresuccessfulinsatisfyingeachofthesecompaniesonthetechnicalmeritsofourproject.TheimpressivenewdevelopmentsatDeepKerrwereespeciallyrelevantinthisprocess.However,astheyearprogresseditbecamecleartousthatincreasinglychallengingmarketconditionsforgoldandcopperwouldmakeitdifficulttoachievejointventuretermsacceptabletoSeabridge,sowedidnotcommenceformalnegotiations.Forus,termsaremoreimportantthantiming.Weonlygettodothisonce.
Withtechnicalevaluationsoutoftheway,webelievethestagehasbeensetforasuccessfultransactionwhenmarketconditionsimprove.Inthemeantime,wewillcontinuetoimprovethequalityofKSMthroughadditionalengineeringandexplorationfocusedonthehighergradematerialwehavefoundoverthepastseveralyears.
• Test for a potential high-grade core zone underneath Mitchell, KSM’s largest deposit
Thisobjectivewasmet.Duringthe2015KSMdrillprogram,threecoreholes(including1daughterhole)totaling3,972metersweredrilledtotestforapotentialhigh-gradecorezoneunderneathMitchell.ThesizeandorientationofthedrillinterceptssupportthepotentialforanexpansionoftheblockcaveoperationplannedforMitchell.SelectedMitchelldrillresultsfromthe2015programincludeholeM-15-130’s174metersof0.55g/tgoldand0.28%copperandM-15-131’s167metersof0.81g/tgoldand0.25%copper.Themineralogyandtexturesfromthisdrillcoresuggestthatweareapproachingazoneofhigher-temperatureandfluidflowthatmayofferevenbettergradesthanthoseencountered,butthereisevidenceoffaultingwhichneedstobeanalyzedbeforeweundertakefurtherdrillingonthistarget.
• Continue to expand resources at both Deep Kerr and the Iron Cap Lower Zone, focusing on grades that are significantly higher than KSM’s reserve grade
Thisobjectivewasmet.Atotalof6,344metersin5coreholes(including3daughterholes)successfullyexpandedtheknowndimensionsofDeepKerr.DuetothesuccessachievedatDeepKerr,Seabridgeelectedtofocusthereandnotundertakeadditionaldrillingin2015attheIronCapLowerZone.
ThefivedrillholescompletedintothewestpartoftheDeepKerrdepositweredesignedtoestablishdipcontinuityofthehigh-gradewestlimbofDeepKerr.SelectedDeepKerrdrillresultsfromthe2015programincludedholeM-15-49’s483metersof0.43g/tgoldand0.56%copperandM-15-49A’s340metersof0.53g/tgoldand0.60%copper.Resultsshowthatthemineralizedenvelopeofthewestlimbextendsmorethan450metersalongstrike.Downdip,thezoneshowscontinuityofanadditional
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400meterswithgradesandwidthsimprovingatdepth.Theshapeofthiszonecontinuestobehighlyfavorabletoundergroundbulkminingasitgrowsinsize.Thezoneremainsopenalongstrikeandatdepth.Afurtherdrillprogramisunderconsideration.
• Undertake additional engineering studies at Deep Kerr and the Iron Cap Lower zone to define the preliminary economics of bringing these higher grade deposits into KSM’s production profile
Thisobjectivehasbeenachieved.During2015,furtherengineeringstudieswereconductedontheDeepKerrandIronCapLowerZonetoascertainthepreliminaryeconomicsthatcouldbeachievedbybringingthesenewzonesintoKSM’sproductionplan.SubstitutinghighergradeundergroundblockcaveproductionfromtheDeepKerrandIronCapLowerZoneforotherlower-gradeorhigher-costorecouldsubstantiallyimproveKSM’s2012PreliminaryFeasibilityStudy(“PFS”)productionscenario.Potentialeconomicgainscouldberealizedfrommoreefficientandhighergradeproductionandenvironmentalbenefitscouldincludeareductioninsurfacedisturbance,wasterock,watermanagementandtreatmentrequirements.Theseadvantagesmaybepossiblewithoutsignificantlychanging,andpossiblyreducing,theprojectinfrastructurealreadyapprovedintheenvironmentalassessmentprocess.Preliminaryworksuggestsasignificantreductioninwasterockandimprovementsincapitalefficiency,IRRs,NPVsandcapitalpayback.
• Update the 2012 KSM Preliminary Feasibility Study by incorporating current metal prices and revised capital and operating costs
Thisobjectivewasnotmet.Withthesuccessofthe2015drillprogramatDeepKerr,coupledwiththerequirementsofNI-43-101,weelectedtodelaycompletionoftheupdatedPFStoallowustoincorporatePreliminaryEconomicAssessment(“PEA”)levelanalysisforDeepKerrandtheIronCapLowerZoneintotheupdatedPFS.Workisnowunderwayonthisupdateanditshouldbecompletedinmid-2016.
• Increase gold ownership per common share with expanded resource estimates for KSMThisobjectivewasrealized.InApril2015,weissued1.6millionflow-throughshares($16.4millioninproceedspricedata27%premiumtothethenmarketpriceofourshares)tofundthe2015explorationprogramatKSM.Asaresultofthe2015drillprogram,inferredresourcesatDeepKerrincreasedby3.2millionouncesofgoldand2.1billionpoundsofcopper,morethanoffsettingtheequitydilutionsufferedtofundthe2015program.ResourcesatDeepKerrnowstandat1.01billiontonnesgrading0.35g/tgold(11.3millionouncesofgold)and0.53%copper(11.8billionpoundsofcopper).
And for 2016…OurprimaryobjectivecontinuestobetocompleteajointventureagreementontheKSMprojectwithasuitablepartnerontermsadvantageoustoSeabridge.Thisobjectiveismostlynotunderourcontrol.DuetothesizeandcomplexityoftheKSMproject,wethinkthelandscapeofpotentialpartnersislimitedtonomorethan10majorgoldandbasemetalcompanies,manyofwhichhavesufferedseriousbalancesheetandsharepriceweakness.Marketconditionsandindustryconfidencearekeyfactorsaffectingtheachievementofthisobjective.
Industrycashflowsnowappeartobeontheriseandbalancesheetsarebeingrepaired,inpartbyassetsales.Capitalcostsfinallyappeartobetrendingdownward.Commitmentstomajornewprojectsarenotyetbeingmadebutseveralprospectivepartnershaverecentlyannouncedtheirintentiontoconsidernewopportunitiesastheirreserveandresourcebasesshrink.Webelieveprioritywillbegiventopermittedprojectsinsafejurisdictionswithlonglives.TherearefewifanyprojectsthatmeetthesekeycriteriabetterthanKSM.
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Wehaveestablishedsixadditionalvalue-enhancingobjectivesfor2016whicharenotdependentonmarketconditionsincluding:
1. ContinuetostrengthenoursociallicensebyenteringintofurtheragreementswithTreatyandFirst Nationsandlocalcommunitiesinresponsetotheirneedsandconcerns;
2. CompleteanupdatedPreliminaryFeasibilityStudyforKSMincorporatingcurrentmetalpricesand revisedcapitalandoperatingcosts;
3. WithintheupdatedKSMPreliminaryFeasibilityStudy,developaPreliminaryEconomicAssessmentfor DeepKerrandLowerIronCaptoshowthepotentialofbringingthesehighergradedepositsintoKSM’s productionprofile;
4. ObtainpermitstoconstructanexplorationaditintotheDeepKerrdepositfromthevalleyfloor.This wouldsignificantlydecreasethecostsassociatedwithtransformingDeepKerr’sinferredresourcesto provenandprobablereserves;
5. TakeadvantageofthecurrentdepressedmarketforjuniorexplorationcompaniestoacquirenewNorth AmericanprojectsthatwouldbeimmediatelyaccretivetoSeabridgeintermsofouncesofgoldresources persharewhilealsoprovidingsubstantialnewexplorationupside;and
6. Increasegoldownershippercommonsharebywayofaccretiveresourceadditionsfromacquisitions and/orcontinuedexplorationatKSM.
Weapproacheveryyearwithoptimism,knowingthereisworkaheadofusthatcanenhancethevalueofourassets.Thisyearisnoexception.Whatisdifferentthisyearisthatwethinkwehavethewindatourbacks.Webelievethebearmarketingoldisfinallyover.Ifweareright,thisshouldprovetobeaverygoodyearforourshareholders.
OnBehalfoftheBoardofDirectors,
RudiP.FronkChairmanandChiefExecutiveOfficerApril15,2016
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Q: Thethemeforthisyear’sannualreportis“TurningCashintoGold”.Isn’tthisessentiallySeabridge’scorporatestrategy?
Fronk: Itis.WhenwefoundedtheCompany17yearsago,itwastogiveourshareholdersmaximumexposuretothegoldprice.Thatmeanttakingadifferentapproachtothebusiness.Ifyoulookatwhatthegoldminingindustryisdoing,theyareturningwhatwebelievetobeasuperiorformofmoney—gold—intoaninferiorone—thedollar.
AtSeabridge,weliketothinkofourselvesasmodernalchemiststurningcashintogold.Overthelast17years,wehaveusedcashfromourshareholderstofundacquisitionsandexplorationofgoldprojectsinCanadawiththeaimofincreasinggoldownershippershareasmeasuredbyourouncesofgoldresourcesandreservesinthegroundrelativetooursharesoutstanding.Wethinkthereisaplaceforthisstrategyamongthoseshareholderswhovaluegoldownershipovercashflow.
Q: Younowhavemorethan59millionouncesofgoldresourcesinthemeasuredandindicatedcategoriesandnearly35millionouncesofgoldresourcesclassifiedasinferred.
Fronk: That’sright.And45millionofthoseouncesarereserves,withmuchmoretocome.Meanwhile,weonlyhave52millionsharesoutstanding.Goldownershippersharehasgrowneveryyearsinceourinception.Ithinkyouwillfindthateveryotherpublicgoldcompanyhasreduceditsgoldownershiponapersharebasisoverthesameperiod.
Q: Whydoestherestofthegoldindustrydoeverythinginreverse?
Fronk: Well,firstofall,becausetheyarefocusedontheirnextincomestatement.Thereisaninstantmarketforgoldatthequotedworldpriceandtheycanalwayssellit.That’sarealluxury.Notallmineralsandmetalshavethatmarketability.
Second,seniorgoldminingexecutivesarealmostalwaysengineersoraccountants.Theyunderstandthehardfactsofquantifyingproductionandmanagingcosts—estimatingoregrades,recoveryrates,reagentconsumptionandfuelprices—andallthatstuffisultimatelyexpressedindollars.Youreallycan’tshutinproductionwhenthegoldpricefallssoyouhavetobecomeveryadeptatmanagingcosts,whichisatremendousskill.Asaresult,theyarerequiredtoliveinadollarworld.
SeabridgeGold’sCEORudi Fronk:CorporateStrategyandtheRoleofGold
AN INTERVIEW WITH
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Iwastrainedasanengineerandthat’showIwastaught.Engineersareverygoodattakingbigissuesandreducingthemtodetailsthatcanbemeasuredandcontrolled.Big“soft”economicissuesthatarehardertoquantifyandcontrolcaneludethem.
AssoonasIcompletedmydegreeinminingengineering,Istartedstudyingeconomicsandfinancebecausethat’sthearenawherethingsarevalued.Torunagoldmine,youneedtheengineeringmindsetbuttounderstanditsvalue,youneedtounderstandmoney.Becauseinthegoldbusiness,ourproductisanalternativeformofmoney.Manypeopleinourbusinessgrewupinthebasemetalsindustrywhichismuchlargerandgenerallymoretechnicallyadvancedthangoldmining.Basemetalsarecommoditiesandthat’sthewaymostgoldminingexecutivesthinkofgold.Theydon’tthinkofgoldasmoney.
Q:Howdidyouarriveatyourstrategyofgrowinggoldownershippershare?
Fronk: Ourstrategycamefromtwofundamentalinsights.Thefirstinsightwasthatthevaluationoffinancialassetssuchasstocksandbondsrelativetogoldwasunreasonablyhighduetoinflationarymonetarypolicies.Thesethingsgoincycles.Inthe1970s,hardassetswereovervaluedagainstfinancialassets.Then,overthenext23yearswegotthereverse.
WeformedSeabridgeattheheightofenthusiasmforfinancialassets.Thedaywelaunched,inlate1999,ittook44ouncesofgoldtobuytheDow…thehighestever.Sincethentheratiohasgoneaslowas6.It’snowabout15butwewouldnotbesurprisedifitgetstoaratioof1to1yetagain,asithasdonetwiceinthelasthundredyears,thelasttimein1980whentheDowandgoldcrossedwithgoldat$850.Webelievewenowareinatimewhengoldisincreasinglyneededtoprotectwealth.
Second,itisextremelydifficulttofindgoldthatiseconomictodevelop.Goldisastoreofwealth,thebestthereis,becauseofthatscarcity.Cashyoucangetanywhere,youcanevenprintit,butnotgold.Wedecidedtomakethisscarcityvalueourcompetitiveadvantagebyfocusingongoldownership.
Asgoldpotentiallybecomesmoreimportantasaninvestment,ourindustryisstruggling.Reservesareonthedecline.Discoveryratesarefalling.Newprojectsaresmallerandlowergradethantheonesthatarebeingdepleted.Someproducershavebeenhigh-gradingtheirdepositstostayinbusinessandmeettheirdebtobligations,astrategythatdestroysreserves.Thesefactorssupportthefuturevalueofourstrategy.
We formed Seabridge at the height of enthusiasm for financial assets
Ifgoldownershippershareisyourchosenmetric,thenyouprobablycan’tbuildandoperatemines,whichwasadecisionwemadeattheverybeginning.Producershavetoselltheirgoldtopayforitsextraction.Then,theyhavetogooutandspendenormousdollarstoacquire,engineerandpermitnewprojectstostayinbusiness.Theresultisthattheequityanddebtdilutionoftheirshareholdershasbeenextraordinary.Studiesshowthatoverthepasttenyears,commonsharesoutstandingofthe10largestgoldminingcompanieshavemorethandoubled,whiletheirnetdebthasincreasedbyabout40fold.Ourlargestshareholderlikestosaythatthebiggestriskinowninggoldstocksisdilution.That’sthedifficultyofbeingaminer.Sowedecidedtomaximizegoldownershippershareratherthanbeaminer.
Q:Butyouarepreparingyourprojectstobecomeproducingmines.Won’tyouthenfacethesamedilutionissuesastherestoftheindustry?
Fronk: Wewillfacethesamechallengesbutwehavehad17yearstodevelopstrategiestoavoidexcessivedilutionofourgoldownership.
It’sclearthatgoldintheground,whichiswhatwehavenow,isworthmuchlessthangoldinthehand.Torealizethefullvalueofourreserves,theywillhavetobeminedandthecostsofbuildingandoperatingaminewillreduceourgoldownership.Weexpecttoenterintojointventureswithlarge,experiencedproducerswhowilltakeonmostofthecostsoffinancingtoproductioninreturnforashareoftheproject.Thisapproachisdesignedtolimitequityanddebtdilutionbutitwillcostusasignificantportionofourreserves.
Wethinkthelossofleveragetothegoldpricefromtakingonapartnerwillbemorethanoffsetbythesubstantiallyhighervaluegiventoouncesthathavebecomereservesofaproducingmineandthishigherperouncevalueshouldbereflectedinourshareprice.Productionshouldalsogenerateareturningold,whichcanbedistributedtoshareholdersasadividendinphysicalform.
Thetwokeystomaintainingourexceptionalgoldownershippershareovertimeareexplorationandacquisitions.Mostminersgiveverylittleprioritytoexplorationandtheygenerallyaren’tverygoodatit.Producersaretypicallynotentrepreneurialenterprises
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INTERVIEW WITH SEABRIDGE GOLD’S CEO RUDI FRONK: CORPORATE STRATEGY AND THE ROLE OF GOLD
wherecreativeexplorationisencouraged.Wehaveareallygoodengineeringandpermittingteamthathasaddedenormousvaluetoourassetbasebutourcorecompetencyremainsexploration.Whenweacquiredourcurrentprojects,explorationupsidewasalwaysthekeycriterion.
asourceofanxietyforcorporateearnings,commercialtradeandinvestment.Theproblemistheothertwo,becauseovertimethedollarcontinuallylosesvalueagainstrealthings.SincetheformingoftheFederalReserve,thecentralbankoffiat,thedollar’spurchasingpowerhasdroppedbyabout97%.
Furthermore,theU.S.authoritieshavepoliticizedthedollar—itisbeingusedtopropupborrowersattheexpenseofsavers,toaidthebanksandWallStreet.ItisbeingprintedtofundabloatedFederalGovernmentwhich,therefore,doesnotneedtolivewithinitsmeans.Below-marketratesofinterestelevatefinancialassetsbyencouragingspeculation,butattheexpenseofrealinvestmentandrealeconomicgrowth.
Asapoliticaltoolofgovernment,Ithinkthedollarcannotbetrustedtopreservewealth.Thatistheroleofgold.Youcankeepthedollarforitsusefulnessasamediumofexchangeandmeanwhileyoucangoonyourowngoldstandardtoprotectyourwealth.Seabridgerepresentsaleveragedwayofpursuingthatstrategy.
Now,Iknowthatmostpeoplethinkthathistorydoesn’tmeananythinganymore.Wearetoldthatweareinanewerawheretheoldrulesnolongerapply.ButweshouldallnotethatattheendofWorldWarII,nearlyhalfoftheworld’scurrencieswenttozero.Golddidnot.
I’mnotpredictinganewworldwar.ButInotethattheglobaldebtmarketnowhasabout$225trillionoutstandingwhileequitiestotalabout$75trillion.So,wehaveabout$300trillioninfinancialclaimsagainstaglobalGDPofabout$75trillion.Howisthatgoingtoworkout?Lotsofpeoplearegoingtolosevalue.Meanwhile,thereisabout$7trillioninabovegroundgoldtobacktheseclaims,whicharereallyliabilities,notassets.Astheonlyassetthatbacksitself,Ithinkgoldisgoingmuchhigher.
Q: Thisisnotthecommonview.
Fronk: No,mostofusareabsorbedintheminutiaeofdailylife.Youneedtolookupandseehowtheworldworks.Youneedtolookbehindthegovernmentdataandtheeasyanswers.Peopledon’twanttofaceunpleasanttruths.Mostinvestorshavebeenmakingmoney,measuredindollars,andifyouhavebeenholdingfinancialliabilitiesasiftheyareassets,youhavebeenrewardedindollars.Whowantstoknowthattheseprofitsmayprovetobelessthanreal?Thereisatonofpropagandathatyouhavetofightyourwaythroughandmostpeoplearejusttoobusydoingtheirday-to-daystuff.
We have demonstrated the discipline to buy assets at the right time, when most of our industry is being forced to reduce debt by selling the projects they have overpaid for at the top of the market
Webelievewecanreplacetheouncesminedatourprojectsfromlow-costexploration.Wehaveproventhatoverthelast17years.Andwehavecarefullyfocusedoureffortsonacquiringandexploringdistrictscaleprojectswherethereisanoutstandingopportunitytogrow.AtKSM,webelievethatthereisenormousremainingexplorationpotentialtobesharedwithourpartner.YoucanalsoseethisupsideatourCourageousLakeprojectwhichconsistsofanentire53kilometerlonggreenstonebelt.
Whilevaluationsremainathistoricallylowlevels,youcanalsoexpectustoacquiremoreprojectsbasedonourconfidencethatwecanfindeconomicouncesatalowcost.Wehavedemonstratedthedisciplinetobuyassetsattherighttime,whenmostofourindustryisbeingforcedtoreducedebtbysellingtheprojectstheyhaveacquirednearthetopofthemarket.Weboughtourexistingprojectsnearthebottomofthelastgoldcycleandweexpecttodothesameinthecurrentdepressedmarket.
Q: Whatisyoursenseofthecurrentmonetarysystemandwhereitisheaded?
Fronk: Asyouknow,moneyhasthreefunctions—amediumofexchange,aunitofaccountandastoreofvalue.Thedollardoesagreatjobofactingasamediumofexchangeworldwide,althoughitsvolatilityiscertainly
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2016 ASSET CLASS PERFORMANCE
AsofFeb29,2016
Gold
Silver
TotalBondsMarket
Commodity(CRB)
USDollar
S&PInded
MSCIEmergingMarket
Oil
7.60%
16.70%
2.00%
0.10%
-1%
-5.40%
-5.80%
-14%
GOLD OUTPERFORMED EVERY OTHER ASSET CLASShighin2011.Goldoutperformedeveryotherassetclass.Goldstockswentup1,575%frombottomtotop,whichisprettyniceleveragetothegoldprice.Seabridgebeatthegoldstockaveragesbyrising3,500%.
Industryvaluationsrightnowarebasedonthecashflowfromproducingreserves.Theoptionvalueimputedtogoldinthegroundisnexttonothing.That’swhathappensatthebottomofthecycle.Ibelievegoldisnowonthewayup.Inouropinion,thenextbullmarketingoldhasbegun,andifthat’sthecase,IbelieveyouwillbewellrewardedbyowningsharesofSeabridge.
ThebearargumentongolddependsonastrongU.S.economicrecovery,acredibleFedandrisingshort-terminterestrates.Themarketislosingconfidenceinallthree.WhereistherecoverytheFedhaspromised?AndwhathashappenedtothenormalizationininterestratesthattheFedkeepstellingusisjustaroundthecorner?JimGrantmakesthepointthatthegoldpriceistheinverseofconfidenceincentralbankers.Fromthatperspective,theFedisgold’sbestfriendbecausetheyaredoingafinejobofdemonstratingthattheyhavenoideawhattheyaredoing.
Q: Inthemeantime,yoursharepriceiswellbelowitshighsof2011despitesuccessgrowingresourcesandreserves.
Fronk: It’sallaboutinvestorsentiment.Goldisnotyetinfavor.Financialassetsstillare.Thegoldpriceisateeter-totterwiththestockmarketontheotherendfromgold.Aslongasperceivedrisksarelow,stockswillgoupattheexpenseofgold.Whenitgoestheotherway,Ibelievegoldinthegroundwillrapidlyincreaseinvalue.Asagoldinvestor,youhavetobepatientandwaitfortheshiftinsentiment.Whenitcomes,Ithinkyouwillberewarded.WeareverypatienthereatSeabridge.
Seabridgeisaleveragedplayongoldsowetendtoexceedtheindustryaveragesbothtotheupsideandtothedownside,justasyouwouldexpect.Asyouknow,goldwentupnearly650%fromthelowin1999tothe
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No Way to run a Country
Itisgenerallyacceptedbypoliticiansandeconomiststhatyoucan’tcomparegovernmentfinanceswithhouseholdbudgeting.Weask,whynot?Botharefinancialunitsthathaverevenues,billstopayandconvenientplacestoborrowmoney.Themaindifferenceiseightzeros.Theconsequenceofthatdifferenceinzerosisthattheordinarypersoncannolongerassimilatethenumbers,theyaretoobigtomakesenseof,whichisjustwhatthepoliticiansandeconomistswant.Ifyoureyesglazeover,theyhavewon.
Here are the current numbers for the U.S. Federal Government:
AnnualFederalTaxRevenue: $3,309,149,000,000
AnnualFederalExpenditures: $3,798,706,000,000
CurrentYearDeficit: $489,566,000,000
NationalDebt: $19,155,214,000,000
Now let’s remove those eight zeros and pretend it’s a household budget:AnnualFamilyIncome: $33,091
AnnualFamilySpending: $37,798
NewDebtontheCreditCard: $4,896
OutstandingBankDebt: $191,552
Giventhesenumbers,whydoyouhaveconfidenceinthevalueoftheUSdollar?Because,youmightsay,it’sbackedbytheUSGovernment,themostpowerfulinstitutiononearth,withthebiggestmilitaryandthemostpowerfuleconomy.
Asahousehold,youhavetobeabletobackyourcurrentliabilitieswithcurrentassets.Showmethecurrentassetsbackingthedollar.Showmethemoney,astheysay.Let’slookattheU.S.FederalGovernment’sfinancialassets,ascalculatedbyDougShortofAdvisor Perspectives,seepiechartentitled,“Federal Government Total Financial Assets.”
YourdollarisnotprimarilybackedbyU.S.OfficialReserveAssets(goldofficiallyvaluedonthebalancesheetat$11billionbutreallyworthabout$320billionatmarket)ortaxesreceivablefromtheworld’sbesteconomy.Thatdollarinyourwalletisforthemostpartbacked,incurrentassetterms,bystudentloansowedinlargepartbyunemployedkidslivingintheirparents’basements.
Now,youmaywanttoarguethispoint.Afterall,taxrevenuescomeineveryday,yearafteryear.Considerthevalueofthisincomestream,youmightsay.Butthenyoumustalsoconsiderthenetpresentvalueofunfundedfutureliabilities,whichisatleast$80Trillion(withaT)ormoredependingonthediscountrateandotherassumptionsyouuse.BostonUniversity’sLaurenceKotlikoff,thereigningexpertonU.S.liabilities,recentlyestimatedthenetpresentvalueoftheseliabilitiesatabout$200Trillion.
Ofcourse,onebigdifferencebetweenahouseholdandtheU.S.TreasuryisthattheTreasuryessentiallyhasacaptivebank(theFederalReserve)withmonopolypowertocreatethecurrencyoftheland,whichmeansthatregularcreditcriteriadon’tapply.TheunfortunateendresultisthattheU.S.Treasurycangetintofarmoretroublethanahousehold.
TheU.S.dollariswhatwecallafaith-basedcurrency.Oddlyenough,youcanstilltradedollarsforgold,sowhywouldyounottaketheopportunitytodosomeofthat?
U.S.OfficialReserveAssets:4.1%CheckableDepositsandCurrency:16.1%OtherLoansandAdvances:9.4%TotalMortgages:5.5%Student Loans: 45.0%CorporateEquities:1.6%TradeReceivables:2.2%TaxesReceivable:7.6%TotalMiscellaneousAssets:8.5%
FEDERAL GOVERNMENT TOTAL FINANCIAL ASSETS
Student Loans: 45.0%
5.5%
9.4%
16.1%7.6%
1.6%
2.2%
4.1%8.5%
Sou
rce:
Fin
anci
al A
ccou
nts
of
the
Un
ited
Sta
tes
for
Q4
2015
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11
Peak Gold?Bad Idea
Recently,anumberofanalystsandseniorgoldcompanyexecutiveshaveadoptedtheideaofpeakgold.Bythistheyappeartomeanthatgoldproductioncapacitywillsoonpeakandthendecline,justasthemarketseemedtothinkwouldhappentooilacoupleofyearsago.
Theconceptofpeakgoldisanotherexampleoftheconventionalthinkingthatgoldisacommodity.Itisnot.Foracommoditysuchascopperoroil,peakproductionmayhavemeaning.Commoditieshavelimitedabove-groundsupplybecausetheyareconstantlybeingconsumed.Ifproductioncapacityfallswhiledemandremainsstrong,thereisnotmuchslackandthemarketwillsoonbegintoanticipateapossibleshortage,leadingtoahigherpricetoclearthemarket.
Goldhasanabovegroundsupplythatisvergingonsixbillionounces—almostallthegoldevermined.Itishighlyimprobablethattherewilleverbelessgoldavailableforsalethanthereistoday.Ifthegoldminingindustrysuddenlyweretostopproductionentirely,theimpactonthegoldpricewould,inourview,beminimalexceptperhapsforashort-termpsychologicalreaction,nevermindifannualproductionweretofallbyafewpercentagepointsfromsometheoreticalpeak.
Mineproductionincreasestheexistingabovegroundgoldsupplybyabout1.4%peryear.Bycomparison,theLondonmarkettradestheworld’stotalannualgoldproductionabouteveryfourdays.Therateofproductionisessentiallyirrelevant.
The best and highest use of gold is in a vault as real wealth
Norwillthereeverbeashortageofgold.Anyconceivabledemandforgoldcanandwillbemet,withpricebeingthemechanismbringingsupplyanddemandtogether.
Whileweareatthebusinessofdebunkingcommodityanalysis,itshouldbenotedthatgoldappearstobeaso-calledGiffenGood,namedaftertheeconomistRobertGiffen.Contrarytoeconomiclaw,demandforgoldriseswiththeprice,unlikeothergoods,onceagainbecausegoldisnotconsumed.Goldhasamarginalutilityofone.Thesecondgoldcoinbringsjustasmuchimmediatesatisfactionasthefirst,unlikeicecreamconesorsteakdinners.
Finally,thebestandhighestuseofgoldisinavaultasrealwealth.Ifgoldweretodevelopimportantalternativeuses,therewouldbelessofitand,inouropinion,thatwouldalsoresultinamuchlowerprice.Industrialuseswouldcommoditizegoldandsubjectittothelawsofeconomicsubstitutionsimilartosilver.Themarket’sgold-to-silverpriceratiohasbeendecliningforhundredsofyearspreciselybecausesilverhasindustrialuseswhichhavegrownovertime,partiallyeclipsingitsmonetaryvalue.
Afinalwordonpeakproduction:IthasbeenpredictedforanynumberofcommoditiessinceatleastthetimeofMalthusandithasn’tbeentrueyet.Thelongtermpricetrendforcommoditiesinrealtermshasbeendownforcenturiesbecausehumanskeepgettingmoreefficientatproducingthem.
S E A B R I D G E G O L D 2 0 1 5
12
WEIGHTS, MEASURES
WE ALL KNOW WHAT A METER OR A
YARD IS. A KILO (OR A POUND) IS ALSO
STANDARDIZED AND KNOWN. A MINUTE IS
THE SAME ANYWHERE ON EARTH.
Whydowenothaveastandardmeasureforvalue?Untilrecently,wedid—anounceofgold.Itwasthemeasureofwealthallovertheglobeforthousandsofyears.Remarkably,itisstillacceptedeverywhereanditstillhasthesamevalueworld-wide.Butgoldisnolongerusedasameasureofwealth,astandardofvalue,havingbeenpushedtothesideinfavourofpapermoneyissuedbythestateandmandatedasthecurrencyforalltransactions.
Should you store your wealth in a currency whose supply grows exponentially, like this?
& otherConstantsWehavenoproblemwiththestateissuingcurrency,suchasthedollar,forthesettlementoftransactions.Butsocietyhasunwiselydecidedtousethistransactionalcurrencytomeasureandstorewealth.WHY UNWISE? Becausedollarsareapoliticalcreationandthereisnoreliableconstraintoncreatingmoreofthem.Dollarsareusedbythestateandcentralbankstoachievetheirobjectives,suchasstimulatingtheeconomy,bailingoutfoolishdebtors,runningdeficits,influencingexchangeratesandencouragingcertainbehavioursoverothers,whichareincompatiblewiththepreservationofsavingsandwealth.
Source: Board of Governors of the Federal System (U.S.)research.stlouisfed.org
(Bill
ions
ofD
olla
rs)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1985 1990 1995 2000 2005 2010 2015
M2MoneyStock
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13
Source: U.S. Bureau of Labor Statisticsresearch.stlouisfed.org
(Inde
x19
82-1
984=
100)
Theproofthatdollarsarenotagoodstoragemediumforwealthistobefoundinthissimplethoughtexperiment.Oneofthemostimportantusesforwealthistoliveinretirement.Howmuchmoneydidyouneedtoretireonin1970?PerhapsU.S.$300,000?Ata7%risk-freeinterestrate,youwouldhavehadthethenprincelyannualincomeof$21,000.Today,youmayneedanincomeofU.S.$60,000toenjoythesamelifestyle.Howmuchwealthdoyouneedtogeneratethatincomeata2%risk-freeinterestrate?ThatwouldbeU.S.$3million.So,46yearslater,youneed10timesmorecapitaltoretireinthesamemanner.Oryoucantakealotmoreriskbyinvestinginhigher-yielddebt,whichmanyarenowforcedtodo.
Thislittleexerciseshowsyouhowpoordollarsareasapreserverofrealwealth.Adollarisnotadollarovertime.WebelievethattheamountofmoneyneededforretirementisabettermeasureofmonetarydebasementthanM2ortheCPI.Incidentally,ifyouhadboughtU.S.$300,000ofgoldin1970,youwouldhaveacquired8,571ounceswhichareworthtodaymorethanU.S.$10million.Hasgoldgoneuporhasthedollargonedown?Wethinkthelatter.
AtSeabridge,wemeasureourcorporateworthinouncesofgold,notdollars.Wemeasureourprogressonbehalfofshareholdersinouncesofgoldresourcesandreservespershare.Wesuggestgoldmayalsobetherightwaytomeasureyourownwealth.Inourview,werequireaconstantformeasuringwealthjustasweneedconstantweightsandmeasuresforthethingswebuy.Itkeepsushonest.
Do you think it is a good idea to store your savings in a currency that suffers ongoing loss of purchasing power like this (below)?
A DOLLAR IS NOT A DOLLAR OVER TIME
60
80
100
120
140
160
180
200
220
240
1985 1990 1995 2000 2005 2010 2015
ConsumerPriceIndexforAllUrbanConsumers:AllItems
S E A B R I D G E G O L D 2 0 1 5
14
* AsofDecember31,2015eachoftheRedMountain,QuartzMountainandCastle/BlackRockprojectsweresubjecttooptionsagreementsunderwhicha100%interestineachsuchprojectmaybeacquiredfromSeabridgebytheoptionee.
Note:UnitedStatesinvestorsarecautionedthattherequirementsandterminologyofNI43-101differsignificantlyfromtherequirementsoftheSEC,includingIndustryGuide7undertheU.S.SecuritiesActof1933.Accordingly,theIssuer’sdisclosuresregardingmineralizationmaynotbecomparabletosimilar informationdisclosedbycompaniessubjecttotheSEC’sIndustryGuide7. MineralResourceswhicharenotMineralReservesdonothavedemonstratedeconomicviability.Inferredresourcesarebasedonlimitedgeologicevidenceandsampling.Itisreasonablyexpectedthatthemajorityofinferredresourcescouldbeupgradedtoindicatedresourceswithcontinuedexploration.
Cut-Off Grade
(g/t)
MEASURED Resources
Gold Copper Silver Molybdenum
Tonnes (000)
Grade (g/t)
Ounces (000)
Grade (%)
Pounds (millions)
Grade (g/t)
Ounces (000)
Grade (ppm)
Pounds (millions)Project
KSM: 0.5Gold
Mitchell Equiv. 724,000 0.65 15,130 0.18 2,872 3.2 74,487 56 89.4CourageousLake 0.83 13,401 2.53 1,090 n/a n/a n/a n/a n/a n/aQuartzMountain* 0.34 3,480 0.98 110 n/a n/a n/a n/a n/a n/aRedMountain* 1.00 1,260 8.01 324 n/a n/a n/a n/a n/a n/aCastle/BlackRock* 0.25 4,120 0.57 75 n/a n/a n/a n/a n/a n/aTotal Measured Resources 16,729 2,872 74,487 89.4
MINERAL RESERVES AND RESOURCESThefollowingtablesprovideabreakdownofSeabridge’smostrecentNationalInstrument43-101compliantestimatesofmineralreservesandresourcesbyproject.Seabridgenotesthatmineralresourcesthatarenotmineralreservesdonothavedemonstratedeconomicviability.
Proven and Probable Mineral Reserves
Mineral Resources(IncludesMineralReservesasStatedAbove)
Project ZoneReserve
CategoryTonnes
(millions)
AVERAGE GRADES Contained Metal
Gold (g/t)
Copper (%)
Silver (g/t )
Moly (ppm)
Gold (million ounces)
Copper (million pounds)
Silver(million ounces)
Moly (million pounds)
KSM
Mitchell Proven 476 0.67 0.17 3.05 60.9 10.3 1,798 47 64Probable 935 0.57 0.16 3.11 50.7 17.2 3,296 93 104
IronCap Probable 193 0.45 0.20 5.32 21.5 2.8 834 33 9Sulphurets Probable 318 0.59 0.22 0.79 50.6 6.0 1,535 8 35Kerr Probable 242 0.24 0.45 1.2 0.0 1.9 2,425 9 0
KSM TotalsProven 476 0.67 0.17 3.05 60.9 10.3 1,798 47 64
Probable 1,688 0.51 0.22 2.65 40.1 27.9 8,090 144 149Total 2,164 0.55 0.21 2.74 44.7 38.2 9,888 191
Courageous LakeProven 12 2.41
n/a n/a n/a1.0
n/a n/a n/aProbable 79 2.17 5.5Total 91 2.20 6.5
Seabridge Totals 44.7 9,888 191 213
213
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Cut-Off Grade
(g/t)
INDICATED RESOURCES
Gold Copper Silver Molybdenum
Tonnes (000)
Grade (g/t)
Ounces (000)
Grade (%)
Pounds (millions)
Grade (g/t)
Ounces (000)
Grade (ppm)
Pounds (millions)Project
KSM: Mitchell 1,052,900 0.58 19,634 0.16 3,713 3.1 104,940 59 136.9Sulphurets 0.5 370,900 0.59 7,036 0.21 1,717 0.8 9,540 49 40.1Kerr Gold 270,400 0.24 2,086 0.46 2,741 1.1 9,563 n/a n/aIronCap Equiv 361,700 0.44 5,117 0.21 1,674 5.4 62,796 47 37.5KSMTotal 2,055,900 0.51 33,873 0.22 9,845 2.8 186,838 54 214.5CourageousLake 0.83 93,914 2.28 6,884 n/a n/a n/a n/a n/a n/aQuartzMountain* 0.34 54,330 0.91 1,591 n/a n/a n/a n/a n/a n/aRedMountain* 1.00 340 7.04 76 n/a n/a n/a n/a n/a n/aCastle/BlackRock* 0.25 8,260 0.53 140 n/a n/a n/a n/a n/a n/aTotal Indicated Resources 42,564 9,845 186,838 214.5
Cut-Off Grade
(g/t)
MEASURED PLUS INDICATED RESOURCES
Gold Copper Silver Molybdenum
Tonnes (000)
Grade (g/t)
Ounces (000)
Grade (%)
Pounds (millions)
Grade (g/t)
Ounces (000)
Grade (ppm)
Pounds (millions)Project
KSM: Mitchell 1,776,900 0.61 34,764 0.17 6,585 3.1 179,426 58 226.3Sulphurets 0.5 370,900 0.59 7,036 0.21 1,717 0.8 9,540 49 40.1Kerr Gold 270,400 0.24 2,086 0.46 2,741 1.1 9,563 n/a n/aIronCap Equiv 361,700 0.44 5,117 0.21 1,674 5.4 62,796 47 37.5KSMTotal 2,779,900 0.55 49,003 0.21 12,717 2.9 261,325 55 303.8CourageousLake 0.83 107,315 2.31 7,974 n/a n/a n/a n/a n/a n/aQuartzMountain* 0.34 57,810 0.92 1,701 n/a n/a n/a n/a n/a n/aRedMountain* 1.00 1,600 7.78 400 n/a n/a n/a n/a n/a n/aCastle/BlackRock* 0.25 12,380 0.54 215 n/a n/a n/a n/a n/a n/aTotal Measured Plus Indicated Resources 59,293 12,717 261,325 303.8
Cut-Off Grade
(g/t)
INFERRED RESOURCES
Gold Copper Silver Molybdenum
Tonnes (000)
Grade (g/t)
Ounces (000)
Grade (%)
Pounds (millions)
Grade (g/t)
Ounces (000)
Grade (ppm)
Pounds (millions)Project
KSM: Mitchell 567,800 0.44 8,032 0.14 1,752 3.4 62,068 51 63.8Sulphurets 0.5 177,100 0.50 2,847 0.15 585 1.2 6,833 30 11.7Kerr Gold 85,000 0.24 656 0.28 525 0.9 2,460 n/a n/aIronCap Equiv 297,300 0.36 3,441 0.20 1,310 3.9 37,278 60 39.3KSMTotal 1,127,200 0.41 14,976 0.17 4,172 3.0 108,638 50 114.8DeepKerr $24NSR 1,008,200 0.35 11,345 0.53 11,777 2.0 64,829 27 60.0IronCapLowerZone $20NSR 163,800 0.59 3,124 0.27 961 4.2 22,120 15 5.3CourageousLake:FATDepositWalshLake
0.830.60
48,9634,624
2.183.24
3,432482
n/an/a
n/an/a
n/an/a
n/an/a
n/an/a
n/an/a
QuartzMountain* 0.34 44,800 0.72 1,043 n/a n/a n/a n/a n/a n/aRedMountain* 1.00 2,079 3.71 248 n/a n/a n/a n/a n/a n/aCastle/BlackRock* 0.25 7,950 0.37 93 n/a n/a n/a n/a n/a n/aTotal Inferred Resources 31,577 14,457 177,624 167.2
U.S.C
S E A B R I D G E G O L D 2 0 1 5
16
MANAGEMENT’S DISCUSSION AND ANALYSISThefollowingisadiscussionoftheresultsofoperationsandfinancialconditionofSeabridgeGoldInc.anditssubsidiarycompaniesfortheyearsendedDecember31,2015and2014.ThisreportisdatedMarch24,2016andshouldbereadinconjunctionwiththeauditedconsolidatedfinancialstatementsfortheyearsendedDecember31,2015and2014,theCompany’sAnnualInformationFormfiledonSEDARatwww.sedar.com,andtheAnnualReportonForm40-FfiledonEDGARatwww.sec.gov/edgar.shtml.OthercorporatedocumentsarealsoavailableonSEDARandEDGARaswellastheCompany’swebsitewww.seabridgegold.net.AstheCompanyhasnooperatingprojectatthistime,itsabilitytocarryoutitsbusinessplanrestswithitsabilitytosellprojectsortosecureequityandotherfinancings.AllamountscontainedinthisdocumentarestatedinCanadiandollarsunlessotherwisedisclosed.
TheaccompanyingconsolidatedfinancialstatementsfortheyearendedDecember31,2015andthecomparativeyearendedDecember31,2014havebeenpreparedbytheCompanyinaccordancewithInternationalFinancialReportingStandards(“IFRS”)asissuedbytheInternationalAccountingStandardsBoard.
Company Overview
SeabridgeGoldInc.isadevelopmentstagecompanyengagedintheacquisitionandexplorationofgoldpropertieslocatedinNorthAmerica.TheCompany’sobjectiveistoprovideitsshareholderswithexceptionalleveragetoarisinggoldprice.TheCompany’sbusinessplanistoincreaseitsgoldouncesinthegroundbutnottogointoproductiononitsown.TheCompanywilleithersellprojectsorparticipateinjointventurestowardsproductionwithmajorminingcompanies.Duringtheperiod1999through2002,whenthepriceofgoldwaslowerthanitistoday,Seabridgeacquired100%interestsineightadvanced-stagegoldprojectssituatedinNorthAmerica.Seabridge’sprincipalprojectsincludetheKerr-Sulphurets-Mitchell(“KSM”)propertylocatedinBritishColumbiaandtheCourageousLakepropertylocatedintheNorthwestTerritories.Seabridge’scommonsharestradeinCanadaontheTorontoStockExchangeunderthesymbol“SEA”andintheUnitedStatesontheNewYorkStockExchangeunderthesymbol“SA”.
selected annual information
SUMMARY OPERATING RESULTS($000’s except per share amounts) 2015 2014 2013
Corporateandadministrativecosts (9,410) (14,091) (11,831)Otherincome-flow-throughshares 2,907 7,489 6,256Gainondispositionofmineralproperties 1,000 2,489 2,006Impairmentofmineralproperties (350) (2,437) –Impairmentofinvestments (891) (1,236) (4,579)Incometaxes (2,700) (5,899) (5,960)Other 378 662 459
Netloss (9,066) (13,023) (13,649)
Basiclosspershare (0.18) (0.27) (0.30)Dilutedlosspershare (0.18) (0.27) (0.30)
SUMMARY BALANCE SHEETS($000’s) 2015 2014 2013
Currentassets 20,134 16,282 33,390Non-currentassets 280,393 262,074 236,987
Totalassets 300,527 278,356 270,377
Currentliabilities 2,373 4,743 8,481Non-currentliabilities 16,170 13,779 8,141Equity 281,984 259,834 253,755
Totalliabilitiesandequity 300,527 278,356 270,377
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Results of Operations
ThenetlossfortheyearendedDecember31,2015was$9.1millionor$0.18persharecomparedtoanetlossof$13millionor$0.27persharefor2014.
Inboth2015and2014,themostsignificantexpensescontributingtonetlosswerecorporateandadministrativecosts,andinparticular,stock-basedcompensation.Impairmentofinvestmentsandmineralpropertiesandincometaxesalsocontributedtothelossbuttoalesserdegreein2015thaninthecomparativeyear.Offsettingsomeoftheseexpensesweretherecognitionofgainsonthedispositionofmineralpropertiesandotherincomerelatingtotheamortizationofflow-throughsharepremiums,obtainedinfinancingscompletedin2014andthecurrentyear.Theseitemsarediscussedfurther,below.
In2015,corporateandadministrativeexpensesdecreasedsignificantlyfrom$14.1millionin2014to$9.4millioninthecurrentyearrepresentinga33%decline.Themajorityofthedeclineresultedfroma$6.0million(62%)decreaseinnon-cash,stock-basedcompensation.Thefairvalueofstockoptions,grantedin2014,andrestrictedshareunits(RSU),grantedattheendof2013andin2014,wereamortizedoverashorterserviceperiodandthemajorityofthosecostswererecognizedin2014,priortothestartofthecurrentfiscalyear,resultinginahigherexpenseinthecomparativeyear.Cashcompensation,however,increasedfrom$2.5millionin2014,to$3.5millionor40%inthecurrentyear,reflectingtheawardofbonusestomanagementandtheimpactofastrengthenedU.S.versustheCanadiandollaronU.S.denominatedsalaries.OthercorporateandadministrativecostsincreasedmarginallyoverthecomparativeyearastheCompanycontinuedtosourceajointventurepartnerforKSM.Stock-basedcompensationisnotexpectedtoincreasein2016asthefairvalueofunamortizedstock-basedcompensationasatDecember31,2015is$2.5million.
ThefollowingtablesillustratetheCompany’sstockoptionandRSUgrantspositions:
OPTIONS GRANTED ($000’sexceptnumberofoptionsandexerciseprices)
Grant Expensed Remaining Number of Exercise date fair prior Expensed Expensed balance to be options price value to 2014 in 2014 in 2015 expensed
December20,2010 950,000 29.75 12,363 12,082 281 – –June29,2011 50,000 27.39 583 459 124 – –June27,2012 100,000 14.70 839 703 136 – –September11,2012 180,000 17.32 1,749 1,345 404 – –December12,2012 165,000 17.52 1,487 1,019 468 – –March3,2013 705,000 12.60 2,577 1,226 1,335 16 –June5,2013 100,000 12.91 724 257 361 106 –December19,2013 50,000 8.00 239 9 230 – –March24,2014 700,000 10.36 2,959 – 2,959 – –June24,2014 50,000 9.72 223 – 223 – –April27,2015 475,000 9.00 1,414 – – 895 519December21,2015 365,000 11.13 1,959 – – 803 1,156
6,521 1,820 1,675
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RSUs GRANTED
(000’sexceptnumberofRSUs) Remaining Number of Grant date Expensed Expensed Cancelled Expensed balance to RSUs fair value in 2013 in 2014 in 2015 in 2015 be expensed
December19,2013 235,000 2,267 84 2,059 (24) 100 –December9,2014 272,500 2,624 – 1,099 – 1,184 341December31,2015 94,000 1,046 – – – 542 504
5,937 84 3,158 (24) 1,826 845
TheCompanyimplementedtheRSUPlaninlate2013andhasgrantedatotalof601,500RSUstocertainnon-director,keymanagementpersonnel.PursuanttothatRSUPlan,theBoardofDirectorshastheauthoritytograntRSUs,andtoestablishtermsoftheRSUsincluding,thevestingcriteriaandthelifeoftheRSU,whichisnottoexceedtwoyears.TheRSUsareexchangedforsharesoftheCompanyuponthevestingcriteriabeingmet.Thefairvalueofthegrants,of$5.9million,wasestimatedaseachgrantdate.Theexpectedserviceperiodsvaryfromonetoeighteenmonthsdependingonthecorporateobjectivesthathaveoraretobemet.
TheCompanyenteredintoanagreementwithIDMMining(“IDM”)in2014tooptiontheCompany’sRedMountainProject.Aspartofthatagreement,IDMhaspaidtheCompany$2millionincashand4,955,500commonsharesofIDM,thefairvalueofwhichwas$2.5million.$1millionandtheshareswerereceivedin2014and$1millionwasreceivedin2015.Thereceiptofcashandshareshasbeenrecordedasagainonthedispositionofmineralpropertiesintheyearofreceipt,asallhistoricalacquisitionandexplorationcostsfortheprojecthadbeenfullyrecoveredthroughpreviousoptionpaymentsandotherrecoveries.Inadditiontotheinitialpaymentsofcashandshares,IDMisobligatedtospend$7.5millionontheRedMountainProjectbetween2014and2017.
In2015,theCompanyrecorded$2.9millionofotherincome(2014-$7.5million),relatedtotwoprivateplacementsofflow-throughsharesitcompletedin2014and2015.In2014theCompanyissued1,150,000flow-throughcommonshares,at$12.00pershare,raisinggrossproceedsof$13.8million.Thepurchasepricerepresenteda29%premiumoverthemarketpriceoftheCompany’ssharesonthatdate.Thepremiumcalculatedatthetimeofthefinancing,of$3.1million,wasrecognizedasaliabilityonthestatementoffinancialpositionandthebalancewasrecordedassharecapital.In2015,theCompanyissued1,610,000flow-throughcommonshares,at$10.17pershare,raisinggrossproceedsof$16.4millionata22%premiumoverthemarketprice.Thepremiumcalculatedatthetimeofthisfinancing,of$3million,wasrecognizedasaliabilityonthestatementoffinancialpositionandthebalancewasrecordedassharecapital.TheCompanycommittedtorenounceitsabilitytodeductqualifyingexplorationexpendituresfortheequivalentvalueofthegrossproceedsofthetwofinancingsandtransferthedeductibilityoftheexpensestothepurchasersoftheflow-throughshares.Theeffectivedateoftherenouncementforthe2014financingwasDecember31,2014andDecember31,2015forthefinancingcompletedin2015.Basedonqualifyingexpendituresmadein2015,$2.9millionofotherincomehasbeenrecognizedinthecurrentyear.Ofthe$2.9million,$0.9millionrelatedtotheremainingpremiumfromthe2014financingand$2millionrelatedtotheamortizationofthe2015premium.
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Thebalanceofthepremiumrelatedtothefinancingcompletedin2015,of$1million,recordedasaliabilityonthestatementoffinancialpositionasatDecember31,2015,willbeamortizedastheCompanyincursqualifyingexpendituresin2016.
In2015theCompanywasnotifiedthattheremainingoptionononeofitsprojectsinNevada,CastleBlackRock,wouldbeforegone.TheCompanydeterminedthattherecoverabilityofthecarryingcostswasimpairedandchargedthestatementofoperationswiththeremainingcarryingcostof$0.4million.TheCompanychargedthestatementofoperationswithanimpairmentof$2.4millionin2014,relatedtoitsNevadaProjects.AtDecember31,2015,theCompanynolongerhasanycapitalizedmineralpropertyvaluerelatedtotheseprojects.
TheCompanyholdsinvestmentsincommonsharesofseveralminingcompaniesthatwerereceivedasconsiderationforoptionedmineralproperties,andothershort-terminvestments,includingonegoldexchangetradedreceipt.Theseavailableforsalefinancialassetsarerecordedatfairvalueonthestatementsoffinancialposition.In2015,theCompanydeterminedthattherecoverabilityofsomeofitsavailableforsaleinvestmentswereimpairedandrecordeda$0.9million(2014-$1.2million)chargetothestatementofoperations.
DuetothesignificantinfluencetheCompanycanexert,throughrepresentationontheboardofdirectorsandshareownershipofoneinvestmenttheCompanyholds,itisclassifiedasanassociateandaccountedforusingtheequitymethod.In2015theCompanyrecognizeda$0.2milliongain(2014-$0.6millionloss)onthestatementofoperationsforitsproportionateshareofgainsoftheassociate.
In2015,theCompanyrecognizedincometaxexpenseof$2.7million(2014-$5.9million)primarilyrelatedtoadeferredtaxexpensearisingduetotherenouncementofexpendituresrelatedto2014and2015flow-throughshareswhicharecapitalizedforaccountingpurposes,offsetpartiallybyadeferredtaxrecoveryarisingfromthelossinthecurrentyear.
Quarterly Information
SelectedfinancialinformationforthelasteightquartersendingDecember31,2015isasfollows(unaudited):
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter ended ended ended endedQuarterly operating December 31, September 30, June 30, March 31,results ($000’s) 2015 2015 2015 2015Revenue – – – –Lossforperiod (2,373) (2,629) (1,590) (2,474)Basiclosspershare (0.05) (0.05) (0.03) (0.05)Dilutedlosspershare (0.05) (0.05) (0.03) (0.05)
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter ended ended ended endedQuarterly operating December 31, September 30, June 30, March 31,results ($000’s) 2014 2014 2014 2014Revenue – – – –Lossforperiod (3,972) (2,834) (3,775) (2,442)Basiclosspershare (0.08) (0.06) (0.08) (0.05)Dilutedlosspershare (0.08) (0.06) (0.08) (0.05)
Significantactivitiesin2015included:evaluatingtheresultsofthe2014explorationanddrillprogramatKSM;establishingandsupportinganindependentgeotechnicalreviewboard(“IGRB”)toreviewandconsidertheproject’stailingsmanagementfacilityandwaterstoragedam;completingapilotplantevaluationofanewprocessfortheremovalofseleniumfromwatersfromKSM;andcompletingthe2015explorationanddrillingprogramatKSM.
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Mineral Interest Activities
DuringtheyearendedDecember31,2015,theCompanyincurredanaggregateof$18.6millionofexpendituresrelatedtoitsmineralinterestscomparedto$31.7millionin2014.
Inboththecurrentandcomparativeyear,themajorityoftheexpenditureswereincurredontheKSMprojectwheretheCompanyincurred$18millionofcosts(2014-$30.9million).Currentyearspendingincludeddrilling,conductingwatertreatmentpilotplantstudiesandcoordinatingtheworkoftheIGRB.
Resultsfromthe2014KSMdrillprogram,analyzedinearly2015,andthe2015explorationprogramadvancedtheprojectsignificantly.The2015explorationprogramfocusedondrillingtoconfirmthecontinuityofthemineralizedzonebelowtheinferredresourcesatDeepKerrDepositandtodrilltesttheplungeprojectionofthehighergradecentralzoneoftheMitchellDeposit.Eightdrillholeswerecompletedtotalling10,741meters.
The2015drillresultsconfirmedamajorexpansionoftheDeepKerrDepositandculminatedinanupdatedindependentmineralresourceestimate,reportedsubsequenttoDecember31,2015.Theresourceestimatepointstoaninferredresourceof1.01billiontonnesgrading0.53%copperand0.35g/tgold(11.3millionouncesofgoldand11.8billionpoundsofcopper).Thelarge,continuouszoneappearstobeamenabletoblockcavemining.
Drillresultsfrom2015alsopointedtowardasizeableexpansionoftheMitchellDepositatdepth.Thesizeandorientationofthedrillinterceptssupportthepotentialforanexpansionofthecost-effectiveblockcaveoperationplannedforthereservesabovetheintercepts.Theresultsyieldedinterceptsof174maveraging0.55g/tgoldand0.28%coppermorethan200mtothesouthwestofanotherinterceptof167maveraging0.81g/tgoldand0.25%copper,whichappearstobeevidenceofanextensionoftheMitchellcentralzone.Themineralogyandtexturesfromdrillcoresuggestsazoneofhigher-temperatureandfluidflowwhichmightindicatethatbettergradesmaybeinthevicinitybutresultsalsoshowedevidenceoffaultingwhichrequiresfurtheranalysisbeforefurtherdrillingisundertaken.
AtCourageousLake,theCompanyincurred$0.6million(2014-$0.9million)ofcostscompletinganalysisofdrilltargetidentification,fromearliergroundmagneticandverylowfrequencyelectromagneticsurveys,aswellascoststomaintaintheprojectingoodstanding.Limitedworkisplannedfor2016atCourageousLakeastheCompanycontinuestofocusesonadvancingtheKSMProject.
Liquidity and Capital Resources
TheCompany’sworkingcapitalposition,atDecember31,2015,was$17.8million,upfrom$11.5millionatDecember31,2014.Excludingtheflow-throughsharepremium,workingcapitalamountedto$18.7millionatDecember31,2015and$12.5millionatDecember31,2014.Cashandshort-termdepositsatDecember31,2015totaled$15.5millionversus$6.3millionatDecember31,2014.In2015,theCompanyclosedtwofinancings.Aflow-throughprivateplacementfinancingwascompletedinthesecondquarterraisinggrossproceedsof$16.4millionandanon-brokeredprivateplacementfinancingraisinggrossproceedsof$14.6millionwascompletedinthefourthquarter.Bothfinancingssignificantlyincreasedcashandshort-termdepositsandtheCompany’soverallworkingcapital.
OnApril7,2015theCompanyissued1,610,000flow-throughcommonshares,at$10.17pershare,raisinggrossproceedsof$16.4million.Thepurchasepricerepresenteda22%premiumoverthemarketpriceoftheCompany’ssharesonthatdate.Shareissuancecostsof$1.0millionwereincurredinrelationtotheoffering.TheCompanyhascommittedtorenounceitsabilitytodeductqualifyingexplorationexpendituresfortheequivalentvalueofthegrossproceedsofthefinancingsandtransferthedeductibilitytothepurchasersoftheflow-throughshares.AsatDecember31,2015,theCompanyhasaremainingcommitmenttospend$5.5million,in2016,onqualifyingexpenditures.
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OnOctober30,2015,theCompanyissued1,800,000commonsharesoftheCompany,throughanon-brokeredprivateplacement,atapriceof$8.10pershareraisinggrossproceedsof$14.6million.
In2015,theCompanycollected$4.1millionofrefundableprovincialtaxcreditsrelatedtoexplorationexpendituresincurredin2011atKSM.
OnJuly22,2014theCompanyissued1,150,000flow-throughcommonshares,at$12.00pershare,raisinggrossproceedsof$13.8million.Thepurchasepricerepresenteda29%premiumoverthemarketpriceoftheCompany’ssharesonthatdate.TheCompanyhascommittedtorenounceitsabilitytodeductqualifyingexplorationexpendituresfortheequivalentvalueofthegrossproceedsofthefinancingsandtransferthedeductibilitytothepurchasersoftheflow-throughshares.During2014and2015theCompanyincurredthefull$13.8millionofqualifyingexpendituresagainstthecommitment.
DuringtheyearendedDecember31,2015,operatingactivities,includingworkingcapitaladjustments,used$7.4millioncomparedto$4.3millionusedbyoperatingactivitiesin2014.Operatingactivitiesinthenear-termarenotexpectedtodeviatesignificantlyfromcurrentlevels.Expendituresonmineralinterestsof$18.6millionexcludingrecoveriesaredownfromthe$31millionspentin2014whentheCompanycarriedoutanextensiveexplorationanddrillingprogram.Inboth2015and2014,$1.0millionwasreceivedincashaspartialconsiderationforoptionedmineralproperties.Alsoshowingayear-over-yearvariance,theCompanyraised$0.3milliononthedispositionofcertaininvestmentsversus$2.1millioninthecomparativeyear.
TheCompanywillcontinuetoadvanceitstwomajorgoldprojects,KSMandCourageousLake,inordertoeithersellthemorjointventurethemtowardsproductionwithmajorminingcompanies.
Contractual Obligations ($000’s) Payments due by years
Total 2016 2017-18 2019-20 After 2020
Mineralinterests 7,987 793 2,186 2,404 2,604Flow-throughexpenditures 5,451 5,451 – – –Businesspremisesoperatinglease 187 132 55 – –
13,625 6,376 2,241 2,404 2,604
AmountsshownformineralinterestsincludeoptionpaymentsandmineralleasepaymentsthatarerequiredtomaintaintheCompany’sinterestinthemineralprojects.
OutlookFor2016theCompanywillconductafurtherexplorationprogramatKSMthatwillentailanalysisofpreviousdrillingincludingre-loggingtoenhancethecurrentresourcemodelsandtosupporton-goingengineeringandenvironmentalstudies.Pendingfurtherstudyofexplorationresults,theCompanywillestablishwhethera2016drillprogramiswarrantedatKSM.TheCompanyalsoplanstoupdatethe2012pre-feasibilitystudyinmid-2016andtocontinuepermittingactivities.RecentdrillingresultsfromDeepKerrDepositandMitchellDepositandinparticularitscoppermineralizationhasenhancedthepotentialtoattracttheinterestofmajorminingcompaniestoenterintoajointventurearrangementthatwouldallowtheCompanytomovetheprojectclosertowardproduction.WhiletheCompanycontinuestofocusonKSMin2016,limitedexplorationisplannedfortheCourageousLakeproject.
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Internal Controls Over Financial Reporting
TheCompany’smanagementunderthesupervisionoftheChiefExecutiveOfficerandChiefFinancialOfficerareresponsiblefordesigninginternalcontrolsoverfinancialreportingorcausingthemtobedesignedundertheirsupervisioninordertoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithIFRS.Managementisresponsibleforestablishingandmaintainingadequateinternalcontrolsoverfinancialreporting.ManagementevaluatedtheeffectivenessoftheCompany’sinternalcontrolsoverfinancialreportingasofDecember31,2015usingtheCOSOInternalControlIntegratedFramework(2013).BasedonthatevaluationoftheinternalcontrolsatDecember31,2015,managementhasconcludedthattheCompany’sinternalcontrolsandproceduresareappropriatelydesignedandoperatingeffectively.TheregisteredpublicaccountingfirmthatauditedtheCompany’sconsolidatedfinancialstatementshaveissuedtheirattestationreportonmanagement’sassessmentoftheeffectivenessofinternalcontroloverfinancialreportingasofDecember31,2015.
Changes to Internal Controls Over Financial Reporting
TherewasnochangeintheCompany’sinternalcontrolsoverfinancialreportingthatoccurredbetweenOctober1toDecember31,2015thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theCompany’sinternalcontrolsoverfinancialreporting.
Disclosure Controls and Procedures
DisclosurecontrolsandprocedureshavebeendesignedtoprovidereasonableassurancethatallrelevantinformationrequiredtobedisclosedbytheCompanyisaccumulatedandcommunicatedtoseniormanagementasappropriatetoallowtimelydecisionsregardingrequireddisclosure.TheCompany’sChiefExecutiveOfficerandChiefFinancialOfficerhaveconcluded,basedontheirevaluationofthedesignandoperatingeffectivenessofthedisclosurecontrolsandproceduresasofDecember31,2015,areappropriatelydesignedandoperatingeffectively.ThesedisclosurecontrolsandproceduresprovidereasonableassurancethatmaterialinformationismadeknowntothembyotherswithintheCompany.
Limitations of controls and procedures
TheCompany’smanagement,includingthePresidentandChiefExecutiveOfficerandChiefFinancialOfficer,believethatanyinternalcontrolsoverfinancialreportinganddisclosurecontrolsandprocedures,nomatterhowwelldesigned,canhaveinherentlimitations.Therefore,eventhosesystemsdeterminedtobeeffectivecanprovideonlyreasonableassurancethattheobjectivesofthecontrolsystemaremet.
Shares Issued and Outstanding
AtMarch24,2016,theissuedandoutstandingcommonsharesoftheCompanytotaled52,139,626.Inaddition,therewere3,585,000stockoptionsgrantedand183,250RSUsoutstanding.AssumingtheexerciseofalloutstandingoptionsandRSUs,therewouldbe55,907,876commonsharesissuedandoutstanding.
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Related Party TransactionsThefollowingisalistingofcompensationtokeymanagementpersonneloftheCompany:
($000’s) 2015 2014
Compensationofdirectors: Directors’fees 363 316 Services 113 86 Stock-basedcompensation 283 2,375
759 2,777
Compensationofkeymanagementpersonnel:Salariesandconsultingfees 3,107 2,170Stock-basedcompensation 2,138 4,816
5,245 6,986
Totalremunerationofdirectorsandkeymanagementpersonnel 6,004 9,763
Changes in Accounting Standards Not Yet Adopted
NewstandardsandamendmentstostandardsandinterpretationsthatarerelevanttotheCompanyandeffectiveforannualperiodsbeginningonorafterJanuary1,2016,thathavenotbeenappliedinpreparingthesefinancialstatementsare:
IAS 1, Presentation of Financial Statements (“IAS 1”) introducesamendmentstoimprovepresentationanddisclosureinfinancialstatements.TheamendmentsareeffectiveforannualperiodsbeginningonorafterJanuary1,2016.TheCompanyintendstoadopttheseamendmentsinitsfinancialstatementsfortheannualperiodbeginningonJanuary1,2016.TheCompanydoesnotexpecttheamendmentstohaveamaterialimpactonthefinancialstatements.
IFRS 9, Financial Instruments (“IFRS 9”) introducesnewrequirementsforclassificationandmeasurementoffinancialassets,additionalchangestofinancialliabilitiesandanewgeneralhedgeaccountingstandard.ThemandatoryeffectivedateisforannualperiodsbeginningonorafterJanuary1,2018.Earlyadoptionispermittedandthenewstandardmustbeappliedretrospectively,withsomeexceptions.TheCompanydoesnotexpectthestandardwillhaveamaterialimpactonthefinancialstatementsuponadoption.
Amendments to IFRS 11, Joint Operations (“IFRS 11”) requiresbusinesscombinationaccountingtobeappliedtoacquisitionsofinterestsinajointoperationthatconstituteabusinessandapplyprospectivelyforannualperiodsbeginningonorafterJanuary1,2016.TheCompanywilladopttheamendmentstoIFRS11initsfinancialstatementsfortheannualperiodbeginningonJanuary1,2016.TheCompanydoesnotexpecttheamendmentstohaveamaterialimpactonthefinancialstatements.
IFRS 15, Revenue From Contracts with Customers (“IFRS 15”) willreplaceIAS18Revenue,IAS11Constructioncontracts,andsomerevenue-relatedinterpretations.ThenewstandardiseffectiveforannualperiodsbeginningonorafterJanuary1,2018.Earlierapplicationispermitted.Thestandardcontainsasinglemodelthatappliestocontractswithcustomersandtwoapproachestorecognizingrevenueateitherapointintimeorovertime.Themodelfeaturesafive-stepanalysisoftransactionstodeterminewhenandhowmuchrevenueshouldberecognized.Newestimatesandjudgmentalthresholdswereintroduced,which
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mayaffecttheamountand/ortimingofrevenuerecognized.TheCompanyintendstoadoptIFRS15initsfinancialstatementsfortheannualperiodbeginningonJanuary1,2018.TheCompanydoesnotexpectthestandardwillhaveamaterialimpactonthefinancialstatementsuponadoption.
Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assetsstatethatrevenue-basedmethodsofdepreciationcannotbeusedforproperty,plantandequipmentandtheamendmentsinIAS38introducethesuppositionthattheuseofrevenue-basedamortizationmethodsforintangibleassetsisinappropriate.TheCompanywilladopttheamendmentstoIAS16andIAS38initsfinancialstatementsfortheannualperiodbeginningonJanuary1,2016.TheCompanydoesnotexpecttheamendmentswillhaveamaterialimpactonthefinancialstatementsuponadoption.
Critical Accounting Estimates
CriticalaccountingestimatesusedinthepreparationoftheconsolidatedfinancialstatementsincludetheCompany’sestimateofrecoverablevalueofitsmineralpropertiesandrelateddeferredexplorationexpenditures,thevalueofstock-basedcompensation,assetretirementobligationsanddeferredincometax.Alloftheseestimatesinvolveconsiderablejudgmentandare,orcouldbe,affectedbysignificantfactorsthatareoutoftheCompany’scontrol.
Thefactorsaffectingstock-basedcompensationincludeestimatesofwhenstockoptionsandcompensationwarrantsmightbeexercisedandthestockpricevolatility.ThetimingforexerciseofoptionsisoutoftheCompany’scontrolandwilldependuponavarietyoffactors,includingthemarketvalueoftheCompany’ssharesandfinancialobjectivesofthestock-basedinstrumentholders.TheCompanyusedhistoricaldatatodeterminevolatility.However,thefuturevolatilityisuncertain.
Therecoverabilityofthecarryingvalueofmineralpropertiesandassociateddeferredexplorationexpensesisbasedonmarketconditionsforminerals,underlyingmineralresourcesassociatedwiththepropertiesandfuturecoststhatmayberequiredforultimaterealizationthroughminingoperationsorbysale.TheCompanyisinanindustrythatisdependentonanumberoffactorsincludingenvironmental,legalandpoliticalrisks,theexistenceofeconomicallyrecoverablereserves,theabilityoftheCompanyanditssubsidiariestoobtainnecessaryfinancingtocompletethedevelopment,andfutureprofitableproductionortheproceedsofdispositionthereof.
Theprovisionforassetretirementobligationsisthebestestimateofthepresentvalueofthefuturecostsofreclaimingtheenvironmentthathasbeensubjecttodisturbancethroughexplorationactivitiesorhistoricalminingactivities.TheCompanyusesassumptionsandevaluatestechnicalconditionsforeachprojectthathaveinherentuncertainties,includingchangestolawsandpracticesandtochangesinthestatusofthesitefromtime-to-time.Thetimingandcostoftherehabilitationisalsosubjecttouncertainty.Thesechanges,ifany,arerecordedonthestatementoffinancialpositionasincurred.
TheCompanyhasnetassetsinCanadaandtheUnitedStatesandfilescorporatetaxreturnsineach.Deferredtaxliabilitiesareestimatedfortaxthatmaybecomepayableinthefuture.Futurepaymentscouldbemateriallydifferentfromourestimateddeferredtaxliabilities.Wehavedeferredtaxassetsrelatedtonon-capitallossesandotherdeductibletemporarydifferences.Deferredtaxassetsareonlyrecognizedtothedegreethattheysheltertaxliabilitiesorwhenitisprobablethatwewillhaveenoughtaxableincomeinthefuturetorecoverthem.
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Risks and Uncertainties
TherisksanduncertaintiesarediscussedwithintheCompany’smostrecentAnnualInformationFormfiledonSEDARatwww.sedar.com,andtheAnnualReportonForm40-FfiledonEDGARatwww.sec.gov/edgar.shtml.
Forward Looking Statements
Theconsolidatedfinancialstatementsandmanagement’sdiscussionandanalysiscontaincertainforward-lookingstatementsrelatingbutnotlimitedtotheCompany’sexpectations,intentions,plansandbeliefs.Forward-lookinginformationcanoftenbeidentifiedbyforward-lookingwordssuchas“anticipate”,“believe”,“expect”,“goal”,“plan”,“intend”,“estimate”,“may”and“will”orsimilarwordssuggestingfutureoutcomes,orotherexpectations,beliefs,plans,objectives,assumptions,intentionsorstatementsaboutfutureeventsorperformance.Forward-lookinginformationmayincludereserveandresourceestimates,estimatesoffutureproduction,unitcosts,costsofcapitalprojectsandtimingofcommencementofoperations,andisbasedoncurrentexpectationsthatinvolveanumberofbusinessrisksanduncertainties.Factorsthatcouldcauseactualresultstodiffermateriallyfromanyforward-lookingstatementinclude,butarenotlimitedto,failuretoestablishestimatedresourcesandreserves,thegradeandrecoveryoforewhichisminedvaryingfromestimates,capitalandoperatingcostsvaryingsignificantlyfromestimates,delaysinobtainingorfailurestoobtainrequiredgovernmental,environmentalorotherprojectapprovals,inflation,changesinexchangerates,fluctuationsincommodityprices,delaysinthedevelopmentofprojectsandotherfactors.Forward-lookingstatementsaresubjecttorisks,uncertaintiesandotherfactorsthatcouldcauseactualresultstodiffermateriallyfromexpectedresults.
Potentialshareholdersandprospectiveinvestorsshouldbeawarethatthesestatementsaresubjecttoknownandunknownrisks,uncertaintiesandotherfactorsthatcouldcauseactualresultstodiffermateriallyfromthosesuggestedbytheforward-lookingstatements.Shareholdersarecautionednottoplaceunduerelianceonforward-lookinginformation.Byitsnature,forward-lookinginformationinvolvesnumerousassumptions,inherentrisksanduncertainties,bothgeneralandspecific,thatcontributetothepossibilitythatthepredictions,forecasts,projectionsandvariousfutureeventswillnotoccur.TheCompanyundertakesnoobligationtoupdatepubliclyorotherwisereviseanyforward-lookinginformationwhetherasaresultofnewinformation,futureeventsorothersuchfactorswhichaffectthisinformation,exceptasrequiredbylaw.
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MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTSTheaccompanyingconsolidatedfinancialstatementshavebeenpreparedbymanagementinaccordancewithInternationalFinancialReportingStandards(IFRS)asissuedbytheInternationalAccountingStandardsBoard.Financialstatementsincludecertainamountsbasedonestimatesandjudgments.WhenanalternativemethodexistsunderIFRS,managementhaschosenapolicyitdeemsmostappropriateinthecircumstancesinordertoensurethattheconsolidatedfinancialstatementsarepresentedfairly,inallmaterialrespects,inaccordancewithIFRS.
TheCompanymaintainsadequatesystemsofinternalcontrols.Suchsystemsaredesignedtoprovidereasonableassurancethattransactionsareproperlyauthorizedandrecorded,theCompany’sassetsareappropriatelyaccountedforandadequatelysafeguardedandthatthefinancialinformationisrelevantandreliable.
TheBoardofDirectorsoftheCompanyisresponsibleforensuringthatmanagementfulfillsitsresponsibilitiesforfinancialreporting,andisultimatelyresponsibleforreviewingandapprovingtheconsolidatedfinancialstatementsandtheaccompanyingmanagement’sdiscussionandanalysis.TheBoardofDirectorscarriesoutthisresponsibilityprincipallythroughitsAuditCommittee.
TheAuditCommitteeisappointedbytheBoardofDirectorsandallofitsmembersarenon-managementdirectors.TheAuditCommitteemeetsperiodicallywithmanagementandtheexternalauditorstodiscussinternalcontrols,auditingmattersandfinancialreportingissues,andtosatisfyitselfthateachpartyisproperlydischargingitsresponsibilities.TheAuditCommitteealsoreviewstheconsolidatedfinancialstatements,management’sdiscussionandanalysis,theexternalauditors’report,examinesthefeesandexpensesforauditservices,andconsiderstheengagementorreappointmentoftheexternalauditors.TheAuditCommitteereportsitsfindingstotheBoardofDirectorsforitsconsiderationwhenapprovingtheconsolidatedfinancialstatementsforissuancetotheshareholders.KPMGLLP,theexternalauditors,havefullandfreeaccesstotheAuditCommittee.
RudiP.Fronk ChristopherJ.ReynoldsChairmanandChiefExecutiveOfficer VicePresident,FinanceandChiefFinancialOfficerMarch24,2016 March24,2016
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INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRMTotheShareholdersandBoardofDirectorsofSeabridgeGoldInc.
WehaveauditedtheaccompanyingconsolidatedfinancialstatementsofSeabridgeGoldInc.,whichcomprisetheconsolidatedstatementsoffinancialpositionasatDecember31,2015andDecember31,2014,theconsolidatedstatementsofoperationsandcomprehensiveloss,changesinshareholders’equityandcashflowsfortheyearsendedDecember31,2015andDecember31,2014,andnotes,comprisingasummaryofsignificantaccountingpoliciesandotherexplanatoryinformation.
Management’s Responsibility for the Consolidated Financial StatementsManagementisresponsibleforthepreparationandfairpresentationoftheseconsolidatedfinancialstatementsinaccordancewithInternationalFinancialReportingStandardsasissuedbytheInternationalAccountingStandardsBoard,andforsuchinternalcontrolasmanagementdeterminesisnecessarytoenablethepreparationofconsolidatedfinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.
Auditors’ ResponsibilityOurresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedonouraudits.WeconductedourauditsinaccordancewithCanadiangenerallyacceptedauditingstandardsandthestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreefrommaterialmisstatement.
Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresintheconsolidatedfinancialstatements.Theproceduresselecteddependonourjudgment,includingtheassessmentoftherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,weconsiderinternalcontrolrelevanttotheentity’spreparationandfairpresentationoftheconsolidatedfinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.
Webelievethattheauditevidencewehaveobtainedinourauditsissufficientandappropriatetoprovideabasisforourauditopinion.
OpinionInouropinion,theconsolidatedfinancialstatementspresentfairly,inallmaterialrespects,theconsolidatedfinancialpositionofSeabridgeGoldInc.asatDecember31,2015andDecember31,2014,anditsconsolidatedfinancialperformanceanditsconsolidatedcashflowsfortheyearsthenendedinaccordancewithInternationalFinancialReportingStandardsasissuedbytheInternationalAccountingStandardsBoard.
Other MatterWealsohaveaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates),SeabridgeGoldInc.’sinternalcontroloverfinancialreportingasofDecember31,2015,basedonthecriteriaestablishedinInternalControl–IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO),andourreportdatedMarch24,2016expressedanunmodified(unqualified)opinionontheeffectivenessofSeabridgeGoldInc.’sinternalcontroloverfinancialreporting.
CharteredProfessionalAccountants,LicensedPublicAccountantsMarch24,2016Toronto,Canada
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTINGTotheShareholdersandBoardofDirectorsofSeabridgeGoldInc.
WehaveauditedSeabridgeGoldInc.’sinternalcontroloverfinancialreportingasofDecember31,2015,basedoncriteriaestablishedinInternalControl–IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO).SeabridgeGoldInc.’smanagementisresponsibleformaintainingeffectiveinternalcontroloverfinancialreportingandforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreportingincludedundertheheadingInternalControlsoverFinancialReportinginManagement’sDiscussionandAnalysisfortheyearendedDecember31,2015.OurresponsibilityistoexpressanopinionontheCompany’sinternalcontroloverfinancialreportingbasedonouraudit.
WeconductedourauditinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Ourauditincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,andtestingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk.Ourauditalsoincludedperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditprovidesareasonablebasisforouropinion.
Acompany’sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompany’sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(1)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthecompany;(2)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompany;and(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
Inouropinion,SeabridgeGoldInc.maintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreportingasofDecember31,2015,basedoncriteriaestablishedinInternalControl–IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO).
Wealsohaveaudited,inaccordancewithCanadiangenerallyacceptedauditingstandardsandthestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates),theconsolidatedstatementsoffinancialpositionofSeabridgeGoldInc.asofDecember31,2015andDecember31,2014,andtherelatedconsolidatedstatementsofoperationsandcomprehensiveloss,changesinshareholders’equityandcashflowsfortheyearsendedDecember31,2015andDecember31,2014,andourreportdatedMarch24,2016expressedanunmodified(unqualified)opiniononthoseconsolidatedfinancialstatements.
CharteredProfessionalAccountants,LicensedPublicAccountantsMarch24,2016Toronto,Canada
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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (ExpressedinthousandsofCanadiandollars)
December 31, 2015 December 31, 2014
AssetsCurrent assetsCashandcashequivalents(Note4) 990 256Short-termdeposits(Note4) 14,540 6,037Amountsreceivableandprepaidexpenses(Note5) 565 5,092Investments(Note6) 4,039 4,897
20,134 16,282Non-current assetsMineralinterests(Note7) 278,798 260,521Reclamationdeposits(Note9) 1,595 1,553
Totalnon-currentassets 280,393 262,074
Total assets 300,527 278,356
Liabilities and shareholders’ equityCurrent liabilitiesAccountspayableandaccruedliabilities(Note8) 1,392 3,737Taxespayable - 65Flow-throughsharepremium(Note10) 981 941
2,373 4,743Non-current liabilitiesDeferredincometaxliabilities(Note14) 14,841 12,430Provisionforreclamationliabilities(Note9) 1,329 1,349
Totalnon-currentliabilities 16,170 13,779
Total liabilities 18,543 18,522
Shareholders’ equity (Note 10) 281,984 259,834
Total liabilities and shareholders’ equity 300,527 278,356
Commitments (Note 15)
The accompanying notes form an integral part of these consolidated financial statements.
These financial statements were approved by the Board of Directors and were signed on its behalf:
RudiP.Fronk JayS.LaymanDirector Director
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (ExpressedinthousandsofCanadiandollarsexceptcommonshareandpercommonshareamounts)
2015 2014
Corporateandadministrativeexpenses(Note12) (9,410) (14,091)Gainondispositionofmineralproperties(Note7) 1,000 2,489Otherincome-flow-throughshares(Note10) 2,907 7,489Impairmentofmineralinterests(Note7) (350) (2,437)Impairmentofinvestments(Note6) (891) (1,236)Othergainsoninvestments(Note6) 266 517Interestincome 101 190Financeexpenseandother (20) (20)Foreignexchangegain(loss) 31 (25)
Loss before income taxes (6,366) (7,124)Incometaxexpense(Note14) (2,700) (5,899)
Loss for the year (9,066) (13,023)
Other comprehensive loss, net of income taxes:Reclassificationofpreviouslydeferredgainsonavailableforsaleinvestments - (1,272)Items that may subsequently be reclassified to profit or loss: Unrealizedgainonavailableforsaleinvestments(Note6) 97 166
Totalothercomprehensivegain(loss) 97 (1,106)
Comprehensive loss for the year (8,969) (14,129)
Basic and diluted net loss per Common Share (0.18) (0.27)Basic weighted average number of common shares outstanding 49,825,270 47,655,513
The accompanying notes form an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY(ExpressedinthousandsofCanadiandollarsexceptnumberofshares)
Accumulated other Share Stock-based Contributed comprehensive Total Shares capital compensation surplus Deficit income equity
AsatJanuary1,2015 48,438,876 295,545 29,197 15,061 (80,009) 40 259,834Shareissuance 3,437,500 28,284 – – – – 28,284Shareissuancecosts – (1,101) – – – – (1,101)Stock-basedcompensation – – 3,647 – – – 3,647Shares-RSUs 263,250 2,607 (2,607) – – – –Expiredoptions – – (7,646) 7,646 – – –Deferredtax – 289 – – – – 289Othercomprehensivegain – – – – – 97 97Netlossfortheyear – – – – (9,066) – (9,066)
As at December 31, 2015 52,139,626 325,624 22,591 22,707 (89,075) 137 281,984
AsatJanuary1,2014 47,081,376 283,544 26,818 9,233 (66,986) 1,146 253,755Shareissuance 1,205,000 11,205 – – – – 11,205Shareissuancecosts – (919) – – – – (919)Stock-basedcompensation – – 9,679 – – – 9,679Shares-RSUs 152,500 1,472 (1,472) – – – –Expiredoptions – – (455) 455 – – –Cancelledoptions – – (5,373) 5,373 – – –Deferredtax – 243 – – – – 243Othercomprehensiveloss – – – – – (1,106) (1,106)Netlossfortheyear – – – – (13,023) – (13,023)
AsatDecember31,2014 48,438,876 295,545 29,197 15,061 (80,009) 40 259,834
The accompanying notes form an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS(ExpressedinthousandsofCanadiandollars) 2015 2014
Operating activitiesNetloss (9,066) (13,023)Itemsnotaffectingcash: Impairmentofmineralinterest 350 2,437 Gainondispositionofmineralproperties (1,000) (2,489) Stock-basedcompensation 3,647 9,679 Otherincome–flow-throughshares (2,907) (7,489) Impairmentofinvestments 891 1,236 Othergainoninvestments (300) (517) Incometaxexpense 2,700 5,899 Financeexpenseandother 20 20 Taxespaid (58) (1,219)Changesinnon-cashworkingcapitalitems: Amountsreceivableandprepaidexpenses 408 (253) Accountspayableandaccruedliabilities (2,111) 1,465
Net cash used in operating activities (7,426) (4,254)
Investing activitiesMineralinterests (18,602) (30,988)Mineralexplorationtaxcredits 4,119 4,435Purchaseofshort-termdeposits (30,000) (12,000)Redemptionofshort-termdeposits 21,497 26,054Dispositionofmineralinterests 1,000 1,000Cashproceedsfromsaleofinvestments 294 2,065
Net cash used in investing activities (21,692) (9,434)
Financing activitiesIssueofsharecapital(netoftransactioncosts) 29,852 12,881
Net increase (decrease) in cash and cash equivalents during the year 734 (807)Cash and cash equivalents, beginning of the year 256 1,063
Cash and cash equivalents, end of the year 990 256
The accompanying notes form an integral part of these consolidated financial statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFortheyearsendedDecember31,2015and2014
1. Reporting entity
SeabridgeGoldInc.iscomprisedofSeabridgeGoldInc.(“Seabridge”orthe“Company”)anditssubsidiaries(SeabridgeGold(NWT)Inc.andSeabridgeGoldCorp.)andisacompanyengagedintheacquisitionandexplorationofgoldpropertieslocatedinNorthAmerica.TheCompanywasincorporatedunderthelawsofBritishColumbia,Canada,onSeptember4,1979,andcontinuedunderthelawsofCanadaonOctober31,2002.ItscommonsharesarelistedontheTorontoStockExchangetradingunderthesymbol“SEA”andontheNewYorkStockExchangeunderthesymbol“SA”.TheCompanyisdomiciledinCanada,theaddressofitsregisteredofficeis10thFloor,595HoweStreet,Vancouver,BritishColumbia,CanadaV6C2T5,andtheaddressofitscorporateofficeis106FrontStreetEast,4thFloor,Toronto,Ontario,CanadaM5A1E1.
2. Statement of compliance and basis of presentation
TheseconsolidatedfinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(“IFRS”)asissuedbytheInternationalAccountingStandardsBoard(“IASB”).ThesefinancialstatementswereauthorizedforissuancebytheBoardofDirectorsoftheCompanyonMarch24,2016.
3. SIGNIFICANT ACCOUNTING POLICIES
Thesignificantaccountingpoliciesusedinthepreparationoftheseconsolidatedfinancialstatementsaredescribedbelow.
(a) Basis of measurementTheconsolidatedfinancialstatementshavebeenpreparedonthehistoricalcostbasis,exceptforavailableforsalefinancialassets,otherassetsatfairvaluethroughprofitandlossandstockbasedcompensation,whicharemeasuredatfairvalue.
(b) Basis of consolidation - Subsidiaries SubsidiariesareentitiesoverwhichtheCompanyhascontrol.ControloveranentityexistswhentheCompanyisexposedorhasrightstoreturnsfromitsinvolvementwiththeentityandhastheabilitytoaffectthosereturnsthroughitspowerovertheentity.SubsidiariesarefullyconsolidatedfromthedateonwhichcontrolistransferredtotheCompany.Theyaredeconsolidatedfromthedateonwhichcontrolceases.
Businessacquisitionsareaccountedforusingtheacquisitionmethodwherebyacquiredassetsandliabilitiesarerecordedatfairvalueasofthedateofacquisitionwiththeexcessofthepurchaseconsiderationoversuchfairvaluebeingrecordedasgoodwillandallocatedtocashgeneratingunits.Non-controllinginterestinanacquisitionmaybemeasuredateitherfairvalueoratthenon-controllinginterest’sproportionateshareofthefairvalueoftheacquiree’snetidentifiableassets.
Ifthefairvalueofthenetassetsacquiredexceedsthepurchaseconsideration,thedifferenceisrecognizedimmediatelyasagainintheconsolidatedstatementofoperationsandcomprehensiveloss.
Whereabusinesscombinationisachievedinstages,previouslyheldequityinterestsintheacquireearere-measuredatacquisition-datefairvalueandanyresultinggainorlossisrecognizedintheconsolidatedstatementofoperationsandcomprehensiveloss.Acquisitionrelatedcostsareexpensedduringtheperiodinwhichtheyareincurred,exceptforthecostofdebtorequityinstrumentsissuedinrelationtotheacquisitionwhichisincludedinthecarryingamountoftherelatedinstrument.Certainfairvaluesmaybeestimatedattheacquisitiondatependingconfirmationorcompletionofthevaluationprocess.Whereprovisionalvaluesareusedinaccountingforabusinesscombination,theymaybeadjustedretrospectivelyinsubsequentperiods.However,themeasurementperiodwillnotexceedoneyearfromtheacquisitiondate.
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(c) Associates AnassociateisanentityoverwhichtheCompanyhassignificantinfluencebutnotcontrolandonethatisneitherasubsidiarynoraninterestinajointarrangement.SignificantinfluenceispresumedtoexistwheretheCompanyhasbetween20%and50%ofthevotingrights,butcanalsoarisewheretheCompanyhaslessthan20%ifinfluenceisexertedoverpolicydecisionsthataffecttheentity.TheCompany’sshareofthenetassetsandnetincomeorlossofassociatesisaccountedforintheconsolidatedfinancialstatementsusingtheequitymethodofaccounting.
(d) Translation of foreign currencies TheseconsolidatedfinancialstatementsarepresentedinCanadiandollars,whichistheCompany’s,andeachofitssubsidiary’s,functionalcurrency.
ForeigncurrencytransactionsaretranslatedintoCanadiandollarsusingtheexchangeratesprevailingatthedatesofthetransactionsorvaluationwhereitemsarere-measured.Foreignexchangegainsandlossesresultingfromthesettlementofsuchtransactionsarerecognizedintheconsolidatedstatementofoperationsandcomprehensiveloss.
MonetaryassetsandliabilitiesoftheCompanydenominatedinaforeigncurrencyaretranslatedintoCanadiandollarsattherateofexchangeatthestatementoffinancialpositiondate.Non-monetaryassetsandliabilitiesaretranslatedathistoricalrates.Revenuesandexpensesaretranslatedataverageexchangeratesprevailingduringtheperiod.Exchangegainsandlossesareincludedinthedeterminationofprofitorlossfortheyear.
(e) Critical accounting judgments and estimation uncertainty InapplyingtheCompany’saccountingpoliciesinconformitywithIFRS,managementisrequiredtomakejudgments,estimatesandassumptionsaboutthecarryingamountsofcertainassetsandliabilities.Theseestimatesandjudgmentsarecontinuallyevaluatedandarebasedonhistoricalexperienceandotherfactors,includingexpectationsoffutureeventsthatarebelievedtobereasonableunderthecircumstances.Actualresultsmaydifferfromtheseestimates.
(i) CRITICAL ACCOUNTING JUDGMENTS
Thefollowingarethecriticaljudgments,thattheCompanyhasmadeintheprocessofapplyingtheCompany’saccountingpoliciesandthathavethemostsignificanteffectontheamountsrecognizedintheconsolidatedfinancialstatements(refertoappropriateaccountingpoliciesfordetails).
(a)Mineralreservesandresources
Tocalculatereservesandresources,theCompanyusesassumptionsandevaluatestechnical,economicandgeologicalconditionsforeachorebody.Measuredgradeoftheoreanditsmetallurgycanhaveasignificanteffectonthecarryingvalueofmineralpropertiesandthereforetherecoverabilityofcosts.Futuremarketpricesforgoldandcopperandothercommoditiesarealsofactoredintovaluationmodels.Changestothesefactorscanaffecttherecoverabilityofmineralpropertiesandimpairmentthereto.
(b)Impairmentofassets
WhentherehasbeenadeclineinthefairvalueofaninvestmentinmarketablesecuritiesthattheCompanyhasjudgedtobesignificantorprolonged,theinvestmentiswrittendowntofairvalueandthelossisrecognizedinthestatementofoperationsandcomprehensiveloss.Formineralproperties,shouldtheCompanydecidetoproceedwithdevelopmentinrespectofaparticularareaofinterest,therelevantexplorationandevaluationassetistestedforimpairmentatthattime.
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(ii) KEY SOURCES OF ESTIMATION UNCERTAINTY
(a)Mineralproperties
Therecoverabilityofthecarryingvalueofmineralpropertiesandassociateddeferredexplorationexpensesisbasedonmarketconditionsforminerals,underlyingmineralresourcesassociatedwiththepropertiesandfuturecoststhatmayberequiredforultimaterealizationthroughminingoperationsorbysale.TheCompanyisinanindustrythatisdependentonanumberoffactorsincludingenvironmental,legalandpoliticalrisks,theexistenceofeconomicallyrecoverablereserves,theabilityoftheCompanyanditssubsidiariestoobtainnecessaryfinancingtocompletethedevelopment,andfutureprofitableproductionortheproceedsofdispositionthereof.
(b)Assetretirementobligations
Theprovisionforassetretirementobligationsisthebestestimateofthepresentvalueofthefuturecostsofreclaimingtheenvironmentthathasbeensubjecttodisturbancethroughexplorationactivitiesorhistoricalminingactivities.TheCompanyusesassumptionsandevaluatestechnicalconditionsforeachprojectthathaveinherentuncertainties,includingchangestolawsandpracticesandtochangesinthestatusofthesitefromtime-to-time.Thetimingandcostoftherehabilitationisalsosubjecttouncertainty.Thesechanges,ifany,arerecordedonthestatementoffinancialpositionasincurred.
(c)Share-basedpayments
Thefactorsaffectingstock-basedcompensationincludeestimatesofwhenstockoptionsandrestrictedshareunitsmightbeexercisedandsharepricevolatility.ThetimingforexerciseofoptionsisoutoftheCompany’scontrolandwilldependuponavarietyoffactors,includingthemarketvalueoftheCompany’ssharesandfinancialobjectivesoftheshare-basedinstrumentholders.TheCompanyusedhistoricaldatatodeterminevolatilityinaccordancewiththeBlack-Scholesmodel.However,thefuturevolatilityisuncertainandthemodelhasitslimitations.
(d)Deferredincometaxes
TheCompanyhasnetassetsinCanadaandtheUnitedStatesandfilescorporatetaxreturnsineach.Deferredtaxliabilitiesareestimatedfortaxthatmaybecomepayableinthefuture.Futurepaymentscouldbemateriallydifferentfromourestimateddeferredtaxliabilities.Wehavedeferredtaxassetsrelatedtonon-capitallossesandotherdeductibletemporarydifferences.Deferredtaxassetsareonlyrecognizedtothedegreethatitshelterstaxliabilitiesorwhenitisprobablethattherewillbesufficienttaxableincomeinthefuturetorecoverthem.
(f) Cash and cash equivalents and short-term deposits Cashandcashequivalentsandshort-termdepositsconsistofbalanceswithbanksandinvestmentsinmoneymarketinstruments.Theseinstrumentsarecarriedatfairvaluethroughprofitorloss.Cashandcashequivalentsconsistofinvestmentswithmaturitiesofupto90daysatthedateofpurchase.Short-termdepositsconsistofinvestmentswithmaturitiesfrom91daystooneyearatthedateofpurchase.
(g) InvestmentsInvestmentsinmarketablesecuritiesaccountedforasavailable-for-salesecuritiesarerecordedatfairvalue.Thefairvaluesoftheinvestmentsaredeterminedbasedontheclosingpricesreportedonrecognizedsecuritiesexchangesandover-the-countermarkets.Suchindividualmarketvaluesdonotnecessarilyrepresenttherealizablevalueofthetotalholdingofanysecurity,whichmaybemoreorlessthanthatindicatedbymarketquotations.Increasesordecreasesinthemarketvalueofinvestmentsarerecordedinothercomprehensiveincomenetofrelatedincometaxes.Whentherehasbeenalossinthevalueofaninvestmentinmarketablesecuritiesthatisdeterminedtobesignificantorprolonged,theinvestmentiswrittendownandthelossisrecordedinthestatementofoperationsandcomprehensiveloss.
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(h) Mineral interests Mineralresourcepropertiesarecarriedatcost.TheCompanyconsidersexplorationanddevelopmentcostsandexpenditurestohavethecharacteristicsofproperty,plantandequipmentand,assuch,theCompanycapitalizesallexplorationcosts,whichincludelicenseacquisitioncosts,advanceroyalties,holdingcosts,fieldexplorationandfieldsupervisorycostsandallcostsassociatedwithexplorationandevaluationactivitiesrelatingtospecificpropertiesasincurred,untilthosepropertiesaredeterminedtobeeconomicallyviableformineralproduction.Generalandadministrativecostsareonlyincludedinthemeasurementofexplorationandevaluationcostswheretheyarerelateddirectlytoactivitiesinaparticularareaofinterest.Thefairvalueofanyrecoveriesfromthedispositionoroptioningofamineralpropertyiscreditedtothecarryingvalueofmineralproperties.
Onceaprojecthasbeenestablishedascommerciallyviableandtechnicallyfeasible,relateddevelopmentexpendituresarecapitalized.Thisincludescostsincurredinpreparingthesiteforminingoperations.Capitalizationceaseswhenthemineiscapableofcommercialoperations.
TheactualrecoveryvalueofcapitalizedexpendituresformineralpropertiesanddeferredexplorationcostswillbecontingentuponthediscoveryofeconomicallyviablereservesandtheCompany’sfinancialabilityatthattimetofullyexploitthesepropertiesordetermineasuitableplanofdisposition.
Whenadecisionismadetoproceedwithdevelopmentinrespectofaparticularareaofinterest,therelevantexplorationandevaluationassetistestedforimpairment,reclassifiedtodevelopmentproperties,andthenamortizedoverthelifeofthereservesassociatedwiththeareaofinterestonceminingoperationshavecommenced.
(i) Property and equipmentPropertyandequipmentarestatedatcost,lessaccumulateddepreciationandaccumulatedimpairmentlosses.Thecostofpropertyandequipmentcomprisesitspurchaseprice,anycostsdirectlyattributabletobringingtheassettothelocationandconditionnecessaryforittobecapableofoperatinginthemannerintendedbymanagementandtheestimatedclosureandrestorationcostsassociatedwiththeasset.Depreciationisprovidedusingthestraight-linemethodatanannualrateof20%fromthedateofacquisition.Residualvaluesandusefullivesarereviewed,andadjustedifappropriate,ateachstatementoffinancialpositiondate.Changestotheestimatedresidualvaluesorusefullivesareaccountedforprospectively.
(j) Impairment of non-financial assetsThecarryingvalueoftheCompany’smineralinterestsisassessedforimpairmentwhenindicatorsofsuchimpairmentexist.Ifanyindicationofimpairmentexists,anestimateoftheasset’srecoverableamountiscalculatedtodeterminetheextentoftheimpairmentloss,ifany.Therecoverableamountisdeterminedasthehigherofthefairvaluelesscoststosellfortheassetandtheasset’svalueinuse.Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheassetforwhichtheestimatesoffuturecashflowshavenotbeenadjusted.
Impairmentisdeterminedonanassetbyassetbasis,wheneverpossible.Ifitisnotpossibletodetermineimpairmentonanindividualassetbasis,thenimpairmentisconsideredonthebasisofacashgeneratingunit(“CGU”).CGUsrepresentthelowestlevelforwhichthereareseparatelyidentifiablecashinflowsthatarelargelyindependentofthecashflowsfromotherassetsorothergroupofassets.
Ifthecarryingamountoftheassetexceedsitsrecoverableamount,theassetisimpairedandanimpairmentlossischargedimmediatelytocomprehensivelosswithinthestatementofoperationsandcomprehensivelosssoastoreducethecarryingamounttoitsrecoverableamount.
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Anassessmentismadeateachreportingdateastowhetherthereisanyindicationthatpreviouslyrecognizedimpairmentlossesmaynolongerexistormayhavedecreased.Ifsuchindicationexists,theCompanymakesanestimateoftherecoverableamount.
Apreviouslyrecognizedimpairmentlossisreversedonlyiftherehasbeenachangeintheestimatesusedtodeterminetheasset’srecoverableamountsincethelastimpairmentlosswasrecognized.Ifthisisthecase,thecarryingamountoftheassetisincreasedtoitsrecoverableamount.Theincreasedamountcannotexceedthecarryingamountthatwouldhavebeendeterminedhadnoimpairmentlossbeenrecognizedfortheassetinprioryears.Suchreversalisrecognizedinthestatementofoperationsandcomprehensiveloss.
(k) Reclamation liabilitiesProvisionsforenvironmentalrestorationarerecognizedwhen:(i)theCompanyhasapresentlegalorconstructiveobligationasaresultofpastexploration,developmentorproductionevents;(ii)itisprobablethatanoutflowofresourceswillberequiredtosettletheobligation;(iii)andtheamountcanbereliablyestimated.Provisionsdonotincludeanyadditionalobligationswhichareexpectedtoarisefromfuturedisturbance.
Costsareestimatedonthebasisofaformalreportandaresubjecttoregularreview.
Provisionsaremeasuredatthepresentvalueoftheexpendituresexpectedtoberequiredtosettletheobligationincorporatingrisksspecifictotheobligationusingapre-taxratethatreflectscurrentmarketassessmentsofthetimevalueofmoney.Whenestimatesofobligationsarerevised,thepresentvalueofthechangesinobligationsisrecordedintheperiodbyachangeintheobligationamountandacorrespondingadjustmenttothemineralinterestasset.
Theamortizationor‘unwinding’ofthediscountappliedinestablishingthenetpresentvalueofprovisionsduetothepassageoftimeischargedtothestatementofoperationsandcomprehensivelossineachaccountingperiod.
Theultimatecostofenvironmentalremediationisuncertainandcostestimatescanvaryinresponsetomanyfactorsincludingchangestotherelevantlegalrequirements,theemergenceofnewrestorationtechniquesorexperienceatotherminesites.Theexpectedtimingofexpenditurecanalsochange,forexampleinresponsetochangesinorereservesorproductionrates.Asaresulttherecouldbesignificantadjustmentstotheprovisionsforrestorationandenvironmentalcleanup,whichwouldaffectfuturefinancialresults.
Fundsondepositwiththirdpartiesprovidedassecurityforfuturereclamationcostsareincludedinreclamationdepositsonthestatementoffinancialposition.
(l) Income taxesIncometaxexpensecomprisescurrentanddeferredtax.Currentanddeferredtaxarerecognizedinprofitorlossexcepttotheextentthatitrelatestoabusinesscombinationoritemsrecognizeddirectlyinequity.
Currenttaxistheexpectedtaxpayableonthetaxableincomefortheyear,usingtaxratesenactedorsubstantivelyenactedatthereportingdate,andanyadjustmenttotaxpayableinrespectofpreviousyears.
Deferredtaxisrecognizedusingtheassetandliabilitymethod,providingfortemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesforfinancialreportingpurposesandtheamountsusedfortaxationpurposes.
Deferredtaxismeasuredattheratesthatareexpectedtobeappliedtotemporarydifferenceswhentheyreverse,basedonthelawsthathavebeenenactedorsubstantiallyenactedbythereportingdate.Deferredtaxisnotrecognizedforthefollowingtemporarydifferences;theinitialrecognitionofassetsorliabilitiesinatransactionthatisnotabusinesscombinationandthataffectsneitheraccountingnortaxableprofitorloss,anddifferencesrelatingtoinvestmentsinsubsidiariesandjointlycontrolledentitiestotheextentthatitisprobablethattheywillnotreverseintheforeseeablefuture.Inaddition,deferredtaxisnotrecognizedfortaxabletemporarydifferencesarisingontheinitialrecognitionofgoodwillwhichisnotdeductiblefortaxpurposes.
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Adeferredtaxassetisrecognizedonlytotheextentthatitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichtheassetcanbeutilized.Deferredtaxassetsarereviewedateachreportingdateandarereducedtotheextentthatitisnolongerprobablethattherelatedtaxbenefitwillberealized.
TheCompanyhascertainnon-monetaryassetsandliabilitiesforwhichthetaxreportingcurrencyisdifferentfromitsfunctionalcurrency.Anytranslationgainsorlossesontheremeasurementoftheseitemsatcurrentexchangeratesversushistoricexchangeratesthatgiverisetoatemporarydifferenceisrecordedasadeferredtaxassetorliability.
(m) Stock-based compensation (options and restricted share units)TheCompanyappliesthefairvaluemethodforstock-basedcompensationandotherstock-basedpayments.ThefairvalueofoptionsisvaluedusingtheBlackScholesoption-pricingmodelandothermodelsforthetwo-tieredoptionsandrestrictedshareunitsasmaybeappropriate.Thegrantdatefairvalueofstock-basedpaymentawardsgrantedtoemployeesisrecognizedasanemployeeexpense,withacorrespondingincreaseinequity,overtheperiodthattheemployeesunconditionallybecomeentitledtotheawards.Theamountrecognizedasanexpenseisadjustedtoreflectthenumberofawardsforwhichtherelatedserviceandnon-marketvestingconditionsareexpectedtobemet,suchthattheamountultimatelyrecognizedasanexpenseisbasedonthenumberofawardsthatdomeettherelatedserviceandnon-marketperformanceconditionsatthevestingdate(Note10).TheCompanyreviewsestimatedforfeituresofoptionsonanongoingbasis.
(n) Flow-through sharesTheCompanyfinancesaportionofitsexplorationactivitiesthroughtheissuanceofflow-throughcommonshares.Thetaxdeductibilityofqualifyingexpendituresistransferredtotheinvestorpurchasingtheshares.ConsiderationforthetransferreddeductibilityofthequalifyingexpendituresisoftenpaidthroughapremiumpriceoverthemarketpriceoftheCompany’sshares.TheCompanyreportsthispremiumasaliabilityonthestatementoffinancialpositionandthebalanceisreportedassharecapital.Ateachreportingperiod,andasqualifyingexpenditureshavebeenincurred,theliabilityisreducedonaproportionatebasisandincomeisrecognizedinthestatementofoperationsandcomprehensiveloss.
(o) Net profit (loss) per common shareBasicprofit(loss)percommonshareiscomputedbasedontheweightedaveragenumberofcommonsharesoutstandingduringtheyear.TheCompanyusesthetreasurystockmethodforcalculatingdilutedearningspersharewhichassumesthatstockoptionsandRSUswithanexercisepricelowerthantheaveragequotedmarketpricewereexercisedatthelaterofthebeginningoftheyear,ortimeofissue.StockoptionswithanexercisepricegreaterthantheaveragequotedmarketpriceofthecommonsharesandRSUsarenotincludedinthecalculationofdilutedprofitpershareastheeffectisanti-dilutive.
(p) Financial assets and liabilitiesFinancialassetswithinthescopeofIAS39areclassifiedaseitherfinancialassetsatfairvaluethroughprofitorloss,loansandreceivables,held-to-maturityinvestmentsoravailable-for-salefinancialassets,asappropriate.Whenfinancialassetsarerecognizedinitially,theyaremeasuredatfairvalue,plus,inthecaseoffinancialassetsnotatfairvaluethroughprofitorloss,directlyattributabletransactioncosts.TheCompanydeterminestheclassificationofitsfinancialassetsatinitialrecognitionand,whereallowedandappropriate,re-evaluatesthisdesignationateachfinancialyear-end.
TheCompany’sfinancialinstrumentsarecomprisedofthefollowing:
Financial assets: Classification:
Cashandcashequivalents FairvaluethroughprofitorlossShort-termdeposits FairvaluethroughprofitorlossAmountsreceivable LoansandreceivablesInvestments Availableforsale
Financial liabilities: Classification:
Accountspayableandotherliabilities Otherfinancialliabilities
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(i) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Financialassetsatfairvaluethroughprofitorlossincludefinancialassetsheldfortradingandfinancialassetsdesignateduponinitialrecognitionasfairvaluethroughprofitorloss.
(ii) LOANS AND RECEIVABLES
Loansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactivemarket,donotqualifyastradingassetsandhavenotbeendesignatedaseitherfairvaluethroughprofitorlossoravailableforsale.Afterinitialmeasurement,loansandreceivablesaresubsequentlymeasuredatamortizedcostusingtheeffectiveinterestmethodlessanyallowanceforimpairment.Amortizedcostiscalculatedtakingintoaccountanydiscountorpremiumonacquisitionandincludesfeesthatareanintegralpartoftheeffectiveinterestrateandtransactioncosts.Gainsandlossesarerecognizedintheconsolidatedstatementofoperationswhentheloansandreceivablesarederecognizedorimpaired,aswellasthroughtheamortizationprocess.
(iii) AVAILABLE FOR SALE INVESTMENTS
Financialassetsclassifiedasavailable-for-salearemeasuredatfairvalue,withchangesinfairvaluesrecognizedinothercomprehensiveincome,exceptwhenthereisobjectiveevidencethattheassetisimpaired,atwhichpointthecumulativelossthathadbeenpreviouslyrecognizedinothercomprehensiveincomeisrecognizedwithintheconsolidatedstatementofoperationsandcomprehensiveloss.
(iv) FAIR VALUE
Fairvalueisthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.Thefairvaluehierarchyestablishesthreelevelstoclassifytheinputstovaluationtechniquesusedtomeasurefairvalue.
(v) IMPAIRMENT OF FINANCIAL ASSETS
Financialassetsareassessedforindicatorsofimpairmentateachfinancialreportingdate.Financialassetsareimpairedwherethereisobjectiveevidencethat,asaresultofoneormoreeventsthatoccurredaftertheinitialrecognitionofthefinancialasset,theestimatedfuturecashflowsoftheinstrumenthavebeenimpacted.Evidenceofimpairmentcouldinclude:
• significantfinancialdifficultyoftheissuerorcounterparty;or • defaultordelinquencyininterestorprincipalpayments;or • itbecomingprobablethattheborrowerwillenterbankruptcyorfinancialre-organization.
Thecarryingamountofthefinancialassetisreducedbytheimpairmentlossdirectlyforallfinancialassetswiththeexceptionofamountsreceivable,wherethecarryingamountisreducedthroughtheuseofanallowanceaccount.Whenanamountreceivableisconsidereduncollectible,itiswrittenoffagainsttheallowanceaccount.Subsequentrecoveriesofamountspreviouslywrittenoffarecreditedagainsttheallowanceaccount.Changesinthecarryingamountoftheallowanceaccountarerecognizedinprofitorloss.If,inasubsequentperiod,theamountoftheimpairmentlossdecreasesandthedecreasecanberelatedobjectivelytoaneventoccurringaftertheimpairmentwasrecognized,thepreviouslyrecognizedimpairmentlossisreversedthroughprofitorlosstotheextentthatthecarryingamountoftheinvestmentatthedatetheimpairmentreverseddoesnotexceedwhattheamortizedcostwouldhavebeenhadtheimpairmentnotbeenrecognized.Inthecaseofanimpairmentlossreversalbeingrecordedforavailable-for-salemarketablesecurities,thereversalisrecordedinothercomprehensiveincome.
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(q) New accounting standards not yet adoptedNewstandardsandamendmentstostandardsthatarerelevanttotheCompanyandeffectiveforannualperiodsbeginningonorafterJanuary1,2016,thathavenotbeenappliedinpreparingtheseconsolidatedfinancialstatementsare:
IAS1,Presentation of Financial Statements (“IAS 1”)introducesamendmentstoimprovepresentationanddisclosureinfinancialstatements.TheamendmentsareeffectiveforannualperiodsbeginningonorafterJanuary1,2016.TheCompanyintendstoadopttheseamendmentsinitsfinancialstatementsfortheannualperiodbeginningonJanuary1,2016.TheCompanydoesnotexpecttheamendmentstohaveamaterialimpactonthefinancialstatements.
IFRS9,Financial Instruments (“IFRS 9”) introducesnewrequirementsforclassificationandmeasurementoffinancialassets,additionalchangestofinancialliabilitiesandanewgeneralhedgeaccountingstandard.ThemandatoryeffectivedateisforannualperiodsbeginningonorafterJanuary1,2018.Earlyadoptionispermittedandthenewstandardmustbeappliedretrospectively,withsomeexceptions.TheCompanydoesnotexpectthestandardwillhaveamaterialimpactonthefinancialstatementsuponadoption.
AmendmentstoIFRS11, Joint Operations (“IFRS 11”)requiresbusinesscombinationaccountingtobeappliedtoacquisitionsofinterestsinajointoperationthatconstituteabusinessandapplyprospectivelyforannualperiodsbeginningonorafterJanuary1,2016.TheCompanywilladopttheamendmentstoIFRS11initsfinancialstatementsfortheannualperiodbeginningonJanuary1,2016.TheCompanydoesnotexpecttheamendmentstohaveamaterialimpactonthefinancialstatements.
IFRS15,Revenue From Contracts with Customers (“IFRS 15”) willreplaceIAS18Revenue,IAS11Constructioncontracts,andsomerevenue-relatedinterpretations.ThenewstandardiseffectiveforannualperiodsbeginningonorafterJanuary1,2018.Earlierapplicationispermitted.Thestandardcontainsasinglemodelthatappliestocontractswithcustomersandtwoapproachestorecognizingrevenueateitherapointintimeorovertime.Themodelfeaturesafive-stepanalysisoftransactionstodeterminewhenandhowmuchrevenueshouldberecognized.Newestimatesandjudgmentalthresholdswereintroduced,whichmayaffecttheamountand/ortimingofrevenuerecognized.TheCompanyintendstoadoptIFRS15initsfinancialstatementsfortheannualperiodbeginningonJanuary1,2018.TheCompanydoesnotexpectthestandardwillhaveamaterialimpactonthefinancialstatementsuponadoption.
AmendmentstoIAS16Property, Plant and Equipment and IAS 38IntangibleAssetsstatethatrevenue-basedmethodsofdepreciationcannotbeusedforproperty,plantandequipmentandtheamendmentsinIAS38introducethesuppositionthattheuseofrevenue-basedamortizationmethodsforintangibleassetsisinappropriate.TheCompanywilladopttheamendmentstoIAS16andIAS38initsfinancialstatementsfortheannualperiodbeginningonJanuary1,2016.TheCompanydoesnotexpecttheamendmentswillhaveamaterialimpactonthefinancialstatementsuponadoption.
4. Cash and cash equivalents and short-term deposits
($000’s) December 31, 2015 December 31, 2014
Cashandcashequivalents 990 256Short-termdeposits 14,540 6,037
15,530 6,293
Short-termdepositsconsistofCanadianScheduleIbankguaranteednoteswithtermsfrom91daysuptooneyearbutarecashableinwholeorinpartwithinterestatanytimetomaturity.AllofthecashandcashequivalentsareheldinaCanadianScheduleIbank.
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5. Amounts receivable and prepaid expenses
($000’s) December 31, 2015 December 31, 2014
Provincialtaxcredits - 4,246HST 249 389Prepaidexpenses 316 229Otherreceivables - 228
565 5,092
6. investments
Compre- January 1, Acqui- Dispo- Gain on Gain (loss) of Impair- hensive Dec 31, ($000’s) 2015 sitions sitions Disposition associates ment gain 2015
Available-for-saleinvestments 3,246 - (294) 28 - (346) 97 2,731Investmentsinassociates 1,651 - - - 202 (545) - 1,308
4,897 - (294) 28 202 (891) 97 4,039
Gain on Compre- January 1, Acqui- Dispo- Reclas- Gain (loss) of Impair- hensive Dec 31, ($000’s) 2014 sitions sitions sification associates ment loss 2014
Available-for-saleinvestments 5,179 1,581 (2,082) 1,144 (403) (1,067) (1,106) 3,246Investmentsinassociates 1,924 103 - - (207) (169) - 1,651
7,103 1,684 (2,082) 1,144 (610) (1,236) (1,106) 4,897
TheCompanyholdscommonsharesofseveralminingcompaniesthatwerereceivedasconsiderationforoptionedmineralpropertiesandothershort-terminvestments,includingonegoldexchangetradedreceipt.Theseavailable-for-salefinancialassetsarerecordedatfairvalueof$2.7million(2014-$3.2million)onthestatementsoffinancialposition.TheCompanydisposedof$0.3millionoftheseinvestmentsduring2015andrecognizedamarginalgain.Alsoin2015,theCompanydeterminedthattherecoverabilityofsomeofitsremainingavailable-for-saleinvestmentswasimpairedandrecordeda$0.3million(2014-$1.1million)chargetothestatementofoperationsandcomprehensiveloss.
TheCompanyholdsoneinvestmentinanassociatethatisaccountedforontheequitybasis.DuringtheyearendedDecember31,2015,theCompanyrecordeditsproportionateshareofthenetincomeoftheassociateof$0.2million(2014–$0.2millionloss)withinothergainsoninvestmentsonthestatementofoperationsandcomprehensiveincomeand,atDecember31,2015,afterrecognizinganimpairmenttotherecoverabilityoftheinvestmentof$0.5million(2014-$0.2million),carriedtheinvestmentat$1.3milliononthestatementoffinancialposition.
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TheCompanyhadpreviouslyaccountedfortheinvestmentatfairvalueasitwasclassifiedasanavailable-for-saleasset.During2014,theCompanyobtainedsignificantinfluenceoverthisinvestmentandonreclassificationfromavailable-for-saletoassociatetheCompanyrecognizedagainof$0.6milliononthestatementofoperationsandcomprehensiveloss.Thegainwascomprisedof$1.3millionofdeferredgains,previouslyrecognizedinaccumulatedothercomprehensiveincomeand$0.7millionlossinthefirstfiscalquarterof2014,representingthechangeinfairvalueoftheinvestmentduringtheperiod,priortoobtainingsignificantinfluence.7. mineral interests
Mineralinterestexpendituresonprojectsareconsideredasexplorationandevaluationandtheirrelatedcostsconsistofthefollowing:
Balance, Expenditures Recoveries Impairment Balance, ($000’s) January 1, 2015 2015 2015 2015 December 31, 2015
KSM 191,929 18,000 – – 209,929CourageousLake 67,471 627 – – 68,098NevadaProjects 350 – – (350) -GrassyMountain 771 – – – 771 260,521 18,627 – (350) 278,798
Balance, Expenditures Recoveries Impairment Balance,($000’s) January1,2014 2014 2014 2014 December31,2014
KSM 165,196 30,852 (4,119) – 191,929CourageousLake 66,585 886 – – 67,471NevadaProjects 2,882 – (95) (2,437) 350GrassyMountain 771 – – – 771 235,434 31,738 (4,214) (2,437) 260,521
ContinuedexplorationoftheCompany’smineralpropertiesissubjecttocertainleasepayments,projectholdingcosts,rentalfeesandfilingfees.
a) KSM (Kerr-Sulphurets-Mitchell)
In2001,theCompanypurchaseda100%interestincontiguousclaimblocksintheSkeenaMiningDivision,BritishColumbia.Thevendormaintainsa1%netsmelterroyaltyinterestontheproject,subjecttomaximumaggregateroyaltypaymentsof$4.5million.TheCompanyisobligatedtopurchasethenetsmelterroyaltyinterestforthepriceof$4.5millionintheeventthatapositivefeasibilitystudydemonstratesa10%orhigherinternalrateofreturnaftertaxandfinancingcosts.
In2002,theCompanyoptionedtheKSMpropertytoNorandaInc.(whichsubsequentlybecameFalconbridgeLimitedandthenXstrataplc.-nowGlencoreplc)whichcouldearnuptoa65%interestbyincurringexplorationexpendituresandfundingthecostofafeasibilitystudy.InApril2006,theCompanyreacquiredtheexplorationrightstotheKSMpropertyfromFalconbridge.OnclosingoftheformalagreementinAugust2006,theCompanyissuedFalconbridge200,000commonsharesoftheCompanywithadeemedvalueof$3,140,000excludingshareissuecosts.TheCompanyalsoissued2millionwarrantstopurchasecommonsharesoftheCompanywithanexercisepriceof$13.50each.The2,000,000warrantswereexercisedin2007andproceedsof$27,000,000werereceivedbytheCompany.
InJuly2009,theCompanyagreedtoacquirevariousmineralclaimsimmediatelyadjacenttotheKSMpropertyforfurtherexplorationandpossiblemineinfrastructureuse.ThetermsoftheagreementrequiredtheCompanytopay$1millionincash,issue75,000sharesandpayadvanceroyaltiesof$100,000peryearfor10yearscommencingonclosingoftheagreement.Thepropertyissubjecttoa4.5%netsmelterroyalty
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fromwhichtheadvanceroyaltiesaredeductible.ThepurchaseagreementclosedinSeptember2009,withthepaymentof$1millionincash,theissuanceof75,000sharesvaluedat$2,442,750andthepaymentofthefirstyear’s$100,000advanceroyalty.
InFebruary2011,theCompanyacquireda100%interestinadjacentmineralclaimsmainlyformineinfrastructurepurposesforacashpaymentof$675,000,subjecttoa2%netsmelterreturnsroyaltyontheseadjacentclaims.
In2011and2012,theCompanycompletedagreementsgrantingathirdpartyanoptiontoacquirea2%netsmelterroyaltyonallgoldandsilverproductionsalesfromKSMforapaymentequaltothelesserof$160millionorU.S.$200million.Theoptionisexercisableforaperiodof60daysfollowingtheannouncementofreceiptofallmaterialapprovalsandpermits,fullprojectfinancingandcertainotherconditionsfortheKSMproject.
In2014,approvalofanenvironmentalassessmentapplication,submittedtoprovincialandfederalregulatorsin2013wasobtained.Alsoin2014,theCompanyappliedfor$4.1millionofrefundableprovincialtaxcreditsrelatedtoexplorationexpendituresincurredin2011atKSMandtherecoverywascreditedtomineralpropertiesandacorrespondingreceivablewasrecognizedontheDecember31,2014statementoffinancialposition.In2015theCompanycollectedthefunds.
In2015,$18millionofexpenditureswereincurredontheKSMprojectastheCompanyfinalizedtheanalysisoftheresourceupdateonDeepKerrandIronCapLowerZonefromthe2014explorationdrillingandexecutedthe2015explorationanddrillingprogram.
b) Courageous Lake
In2002,theCompanypurchaseda100%interestintheCourageousLakegoldprojectfromNewmontCanadaLimitedandTotalResources(Canada)Limited(“theVendors”)forU.S.$2.5million.TheCourageousLakegoldprojectconsistsofminingleaseslocatedinNorthwestTerritoriesofCanada.
In2004,anadditionalpropertywasoptionedinthearea.Underthetermsoftheagreement,theCompanypaid$50,000onclosingandwasrequiredtomakeoptionpaymentsof$50,000oneachofthefirsttwoanniversarydatesandsubsequently$100,000peryearuptoatotalof$1,250,000.TheCompanyhasmade$950,000inpaymentsandiscommittedtomakethreeadditionalannualpaymentsuntil2017.Thepropertymaybepurchasedoutrightatanytimewiththeacceleratedpaymentoftheremainingbalance.
In2015,theCompanyincurred$0.6millionofexplorationandothercostscompletingalimitedexplorationprogramwhiletheCompanycontinuesitsprimaryfocusonexplorationprogramsatKSM.
c) Grassy Mountain
In2000,theCompanyacquiredanoptionona100%interestinmineralclaimslocatedinMalheurCounty,Oregon,U.S.A.During2002,theCompanypaidU.S.$50,000inoptionpayments.OnDecember23,2002,theagreementwasamendedandtheCompanymadeafurtheroptionpaymentofU.S.$300,000andinMarch2003acquiredthepropertyforapaymentofU.S.$600,000.
InApril2011,theCompanyannouncedthatanagreementhadbeenreachedtooptiontheGrassyMountainprojecttoCalicoResourcesCorp.(“Calico”)whichwassubsequentlyamendedin2013.Intheoriginalagreement,inordertoexercisetheoption,CalicowastoissuetotheCompany(i)twomillionofitscommonsharesfollowingTSXVentureExchangeapproval;(ii)fourmillionofitscommonsharesatthefirstanniversary,and(iii)eightmillionofitsshareswhentheprojecthasreceivedtheprincipalminingandenvironmentalpermitsnecessaryfortheconstructionandoperationofamine.TheCompanyreceivedthefirsttwomillioncommonsharesofCalicoin2011andavalueof$740,000wasrecordedasareductiontothecarryingvalueofthemineralproperties.InFebruary2013,theagreementwasamendedtoallowforanacceleratedexerciseoftheoptionandCalicoissued6,433,000commonsharesand4,567,000specialwarrantstoacquirea100%interestintheGrassyMountainproject.Eachspecialwarrantwasexercisableto
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acquireonecommonshareofCalicofornoadditionalconsideration.Thefairvalueofthesharesandspecialwarrantsreducedthecarryingvalueofthemineralpropertiesatthetimeofreceiptofthesecurities.During2013and2014,theCompanyelectedtoconvertallofthespecialwarrantsintocommonshares.
Inadditiontothesharesandspecialwarrantsreceivedasconsideration,afterthedeliveryofaNationalInstrument43-101compliantfeasibilitystudyontheproject,CalicomusteithergranttheCompanya10%netprofitsinterestorpaytheCompany$10millionincash,atthesoleelectionoftheCompany.Followingthede-recognitionoftheGrassyMountainnetassets,in2013,avalueof$771,000hasbeenretainedwithinmineralproperties.
d) Nevada Projects
InJune2011,theCompanyenteredintoanagreementletterofintentwithGoldenPredatorCorp.pursuanttowhichtheCompanyandGoldenPredatorCorp.,wouldcontributeaportfolioofmineralpropertiesintoanewprivatecompanycalledWolfpackGoldCorp.(“Wolfpack”).ThetransactionwasclosedonJune26,2012andcertainpropertiesweretransferredtoWolfpack,fromtheCompany,whileotherswereoptioned.Intotal,5,506,500sharesofWolfpackwerereceivedasconsiderationfortheoptionedandtransferredproperties.
In2014,theCompanywasnotifiedthattheoptiontopurchaseFourMileBasinandLibertySpringswouldbediscontinued.TheCompanydecidednottocontinuetocarrythemaintenancecostsoftheseclaimsanddeterminedthattherecoverabilityofthecarryingcostswasimpairedandchargedthestatementofoperations$2.4millioninthatyear.Similarly,inthecurrentyear,theCompanywasnotifiedthattheremainingoptiononCastleBlackRockwouldbediscontinuedandtheCompanyfullyimpairedtheremainingcarryingcostoftheNevadaprojects.
e) Other mineral properties
(i)RedMountain
In2001,theCompanypurchaseda100%interestinanarrayofassetsassociatedwithmineralclaimsintheSkeenaMiningDivision,BritishColumbia,togetherwithrelatedprojectdataanddrillcore,anownedofficebuildingandaleasedwarehouse,variousminingequipmentontheprojectsite,andamineralexplorationpermitwhichisassociatedwithacashreclamationdepositof$1million.
TheCompanyassumedallliabilitiesassociatedwiththeassetsacquired,includingallenvironmentalliabilities,allongoinglicensingobligationsandongoingleaseholdobligationsincludingnetsmelterroyaltyobligationsoncertainmineralclaimsrangingfrom2.0%to6.5%aswellasanannualminimumroyaltypaymentof$50,000.
In2014,theCompanyenteredintoanagreementwithIDMMining(“IDM”)tooptiontheRedMountainProject.Inordertoexerciseitsoption,IDMpaidtheCompany$1millionin2014andanother$1millionin2015.IDMalsoissuedtotheCompany4,955,500commonshares,thefairvalueofwhichwas$1.5million,andwasrecordedininvestmentsonthestatementoffinancialposition.IDMisalsoobligatedtospend$7.5millionontheRedMountainProjectoverathree-yearperiod.Atthetimeofthereceiptofthecashandsharesmentionedabove,therewasnocarryingvaluerecordedforRedMountain,asallhistoricalacquisitionandexplorationcostshadbeenfullyrecoveredthroughoptionpaymentsandotherrecoveriesandassuch,the$1millionreceivedin2015andthecombinedvalueofthecashandsharesof$2.5millionreceivedin2014hasbeenrecordedonthestatementofoperationsandcomprehensivelossasagainonthedispositionofmineralpropertiesintherespectiveyears.
(ii)QuartzMountain
In2001,theCompanypurchaseda100%interestinmineralclaimsinLakeCounty,Oregon.Thevendorretaineda1%netsmelterroyaltyinterestonunpatentedclaimsacquiredanda0.5%netsmelterroyaltyinterestwasgrantedtoanunrelatedpartyasafinder’sfee.
In2011,subjecttoanagreementbetweentheCompanyandOrsaVenturesCorp.(“Orsa”)theCompanygrantedOrsatheexclusiveoptiontoearna100%interestintheQuartzMountaingoldpropertyandallofSeabridge’sundivided50%beneficialjointventureinterestinanadjacentperipheralproperty.Theagreement
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stipulatedthatOrsawouldpaytheCompany$0.5milliononorbeforethefifthdayfollowingregulatoryapprovaloftheoptionagreementandmakestagedpaymentsof$5millionincashorcommonsharesofOrsa,atthediscretionoftheCompany.In2013,AlamosGoldInc.(“Alamos”)acquiredOrsaanditsoptiontoacquireQuartzMountainandtheCompanyreceivedthenextstagedpaymentof$2millionfromAlamos.ThereisnocarryingvaluerecordedforQuartzMountainasallhistoricalacquisitionandexplorationcostshavebeenfullyrecoveredthroughoptionpaymentsandotherrecoveries.
Uponthecompletionofafeasibilitystudy,AlamosmustpaytheCompany$3millionandeitheranadditional$15millionorprovidea2%netsmelterreturnroyaltyonproductionatQuartzMountain,attheoptionoftheCompany.
8. Accounts payable and accrued liabilities
($000’s) December 31, 2015 December 31, 2014
Tradepayables 1,104 3,545Tradeandotherpayablesduetorelatedparties 88 56Non-tradepayablesandaccruedexpenses 200 136
1,392 3,737
9. Provision for reclamation liabilities
($000’s) December 31, 2015 December 31, 2014
Beginningoftheyear 1,349 1,349Accretion 18 17Currentyearadjustment (38) (17)
Endoftheyear 1,329 1,349
TheCompany’spolicyonprovidingforreclamationobligationsisdescribedinNote3.Althoughtheultimatecoststobeincurredareuncertain,theCompany’sestimatesarebasedonindependentstudiesoragreementswiththerelatedgovernmentbodyforeachprojectusingcurrentrestorationstandardsandtechniques.Theestimateoftheassetretirementobligations,asatDecember31,2015,wascalculatedusingthetotalestimatedundiscountedcashflows,of$1.5million(December31,2014-$1.5million)requiredtosettleestimatedobligationsandexpectedtimingofcashflowpaymentsrequiredtosettletheobligationsin2024.Thediscountrateusedtocalculatethepresentvalueofthereclamationobligationswas1.4%atDecember31,2015(1.25%-December31,2014).TheCompanyhasplacedatotalof$1.6million(December31,2014-$1.6million)ondepositwithfinancialinstitutionsthatarepledgedassecurityagainstthereclamationprovision.
10. shareholders’ equity
($000’s) December 31, 2015 December 31, 2014
Sharecapital 325,624 295,545Stockbasedcompensation 22,591 29,197Contributedsurplus 22,707 15,061Deficit (89,075) (80,009)Accumulatedothercomprehensiveincome 137 40
281,984 259,834
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TheCompanyisauthorizedtoissueanunlimitednumberofpreferredsharesandcommonshareswithnoparvalue.NopreferredshareshavebeenissuedorwereoutstandingatDecember31,2015andDecember31,2014.
TheCompanymanagesitscapitalstructureandmakesadjustmentstoit,basedonthefundsavailabletotheCompany,inordertosupporttheacquisition,explorationanddevelopmentofmineralproperties.TheBoardofDirectorsdoesnotestablishquantitativereturnoncapitalcriteriaformanagement,butratherreliesontheexpertiseoftheCompany’smanagementtosustainfuturedevelopmentofthebusiness.
ThepropertiesinwhichtheCompanycurrentlyhasaninterestareintheexplorationstage;assuchtheCompanyisdependentonexternalfinancingtofunditsactivities.Inordertocarryouttheplannedexplorationandpayforadministrativecosts,theCompanywillspenditsexistingworkingcapitalandraiseadditionalamountsasneeded.TheCompanywillcontinuetoassessnewpropertiesandseektoacquireaninterestinadditionalpropertiesthatwouldbeaccretiveandmeaningfultotheCompany.TheCompanyisnotsubjecttoexternallyimposedcapitalrequirements.
Managementreviewsitscapitalmanagementapproachonanongoingbasisandbelievesthatthisapproach,giventherelativesizeoftheCompany,isreasonable.TherewerenochangesintheCompany’sapproachtocapitalmanagementduringtheyearendedDecember31,2015.TheCompanyconsidersitscapitaltobesharecapital,stockbasedcompensation,contributedsurplusanddeficit.
OnOctober30,2015,theCompanyissued1,800,000commonsharesoftheCompany,throughanon-brokeredprivateplacement,atapriceof$8.10pershareraisinggrossproceedsof$14.6million.
OnApril7,2015theCompanyissued1,610,000flow-throughcommonshares,at$10.17pershare,raisinggrossproceedsof$16.4million.Thepurchasepricerepresenteda22%premiumoverthemarketpriceoftheCompany’ssharesonthatdate.Shareissuancecostsof$1.0millionwereincurredinrelationtotheofferingandhavebeenincludedinequity.TheCompanyhascommittedtorenounceitsabilitytodeductqualifyingexplorationexpendituresfortheequivalentvalueofthegrossproceedsofthefinancingsandtransferthedeductibilitytothepurchasersoftheflow-throughshares.TheeffectivedateoftherenouncementisDecember31,2015.The$2.9millionpremiumhasbeenrecognizedasaliabilityonthestatementoffinancialpositionandthebalancewasrecordedassharecapital.Ateachreportingperiod,andasqualifyingexpendituresareincurred,theliabilityisreducedonaproportionatebasisandincomeisrecognizedonthestatementofoperationsandcomprehensiveincome.IntheperiodApril8,2015toDecember31,2015,$2.0millionofthepremiumwasrecognizedthroughotherincomeonthestatementofoperationsandcomprehensiveincomefortheproportionateamountofqualifyingexpendituresmaderelativetothe$16.4millioncommitment.
OnJuly22,2014theCompanyissued1,150,000flow-throughcommonshares,at$12.00pershare,raisinggrossproceedsof$13.8million.Thepurchasepricerepresenteda29%premiumoverthemarketpriceoftheCompany’ssharesonthatdate.TheCompanycommittedtorenounceitsabilitytodeductqualifyingexplorationexpendituresfortheequivalentvalueofthegrossproceedsofthefinancingsandtransferthedeductibilitytothepurchasersoftheflow-throughshares.TheeffectivedateoftherenouncementoftheseexpenditureswasDecember31,2014.Thefullpremiumof$3.1millionwasinitiallyrecognizedasaliabilityonthestatementoffinancialpositionandthebalancewasrecordedassharecapital.Ateachreportingperiod,andasqualifyingexpenditureswereincurred,theliabilitywasbeingreducedonaproportionatebasisandincomewasrecognizedonthestatementofoperationsandcomprehensiveloss.IntheperiodJuly22,2014toDecember31,2014$2.2millionofthepremiumwasrecognizedthroughotherincomeonthestatementofoperationsfortheproportionateamountofqualifyingexpendituresmaderelativetothe$13.8millioncommitment.Theremaining$0.9millionliabilitywasamortizedandrecordedasincomeonthestatementofoperationsandcomprehensivelossin2015basedonqualifyingexpendituresinthecurrentyear.Shareissuancecostsof$0.9millionwereincurredin2014inrelationtotheofferingandhavebeenincludedinequity.
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OnDecember10,2013theCompanyissued1,500,000flow-throughcommonshares,at$11.17pershare,raisinggrossproceedsof$16.8million.Thepurchasepricerepresenteda46.6%premiumoverthemarketpriceoftheCompany’ssharesonthatdate.TheCompanyhasrenounceditsabilitytodeductqualifyingexplorationexpendituresfortheequivalentvalueofthegrossproceedsofthefinancingandhastransferredthedeductibilitytothepurchasersoftheflow-throughshares.Thepremiumof$5.3millionwasinitiallyrecognizedasaliabilityonthestatementoffinancialpositionandthebalancewasrecordedassharecapital.Ateachreportingperiod,andasqualifyingexpenditureswereincurred,theliabilitywasreducedonaproportionatebasisandincomeisrecognizedonthestatementofoperationsandcomprehensiveloss.Shareissuancecostsof$1.1millionwereincurredin2013inrelationtotheofferingandhavebeenincludedinequity.TheCompanyincurredthefull$16.8millionofqualifyingexpendituresin2014andthepremiumhasbeenfullyamortizedthroughthestatementofoperationsandcomprehensiveloss.
TheCompanyprovidescompensationtodirectorsandemployeesintheformofstockoptionsandaRestrictedShareUnits(“RSU”),planimplementedin2013.
PursuanttotheShareOptionPlan,theBoardofDirectorshastheauthoritytograntoptions,andtoestablishtheexercisepriceandlifeoftheoptionatthetimeeachoptionisgranted,atapricenotlessthantheclosingpriceoftheCommonSharesontheTorontoStockExchangeonthedateofthegrantofsuchoptionandforaperiodnotexceedingfiveyears.Allexercisedoptionsaresettledinequity.
PursuanttotheCompany’sRSUPlan,theBoardofDirectorshastheauthoritytograntRSUs,andtoestablishtermsoftheRSUsincludingthevestingcriteriaandthelifeoftheRSU.ThelifeoftheRSUisnottoexceedtwoyears.
StockoptionandRSUtransactionswereasfollows:
Weighted Amortized Amortized average value value Stock-based exercise of options of RSUs compensation Options price ($) ($000’s) RSUs ($000’s) ($000’s)
OutstandingJanuary1,2015 3,240,000 17.62 27,427 355,000 1,770 29,197
Granted 840,000 9.93 1,698 94,000 1,826 3,524ExercisedoptionorvestedRSU – 9.90 – (263,250) (2,583) (2,583)Cancelled – 9.63 – (2,500) (24) (24)Expired (495,000) 29.75 (7,646) – – (7,646)Amortizedvalueofstockbased compensationgrantedinprioryears – – 123 – – 123
Outstanding December 31, 2015 3,585,000 14.15 21,602 183,250 989 22,591
Exercisable at December 31, 2015 2,888,333
Weighted Amortized Amortized average value value Stock-based exercise of options of RSUs compensation Options price ($) ($000’s) RSUs ($000’s) ($000’s)
OutstandingJanuary1,2014 2,925,000 21.11 26,734 235,000 84 26,818
Granted 750,000 10.32 3,181 272,500 1,099 4,280ExercisedoptionorvestedRSU – – – (152,500) (1,472) (1,472)Cancelled (400,000) 28.98 (5,373) (5,373)Expired (35,000) 23.02 (455) – – (455)Amortizedvalueofstockbased – – – – – – compensationgrantedinprioryears – – 3,340 – 2,059 5,399
Outstanding December 31, 2014 3,240,000 17.62 27,427 355,000 1,770 29,197
Exercisable at December 31, 2014 3,046,666 –
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TheoutstandingshareoptionsatDecember31,2015expireatvariousdatesbetweenMarch2016andDecember2020.Asummaryofoptionsoutstanding,theirremaininglifeandexercisepricesasatDecember31,2015isasfollows:
Exercise Number Remaining Numberprice outstanding contractual life Exercisable
$30.42 150,000 3months 150,000$21.98 545,000 11months 545,000$21.54 10,000 1year2months 10,000$14.70 100,000 1year6months 100,000$17.32 180,000 1year8months 180,000$17.52 155,000 1year11months 155,000$12.60 705,000 2years2months 705,000$12.91 100,000 2years5months 100,000$8.00 50,000 3years 50,000$10.36 700,000 3years3months 700,000$9.72 50,000 3years6months 50,000$9.00 475,000 4years4months -$11.13 365,000 5years 143,333
3,585,000 2,888,333
InApril2015,475,000five-yearoptionstopurchasecommonsharesoftheCompany,withafairvalueof$1.4million,weregrantedtomembersoftheBoardofDirectors.Theseoptionshaveanexercisepriceof$9.00andweresubjecttoshareholderapprovalwhichwasobtainedinJune2015.VestingoftheseoptionsissubjecttotheCompanyenteringintoamajortransactionononeoftheCompany’stwocoreassets.Thefairvalueoftheseoptionsisbeingamortizedovertheservicelifeoftheoptions.
InDecember2015,365,000five-yearoptions,withanexercisepriceof$11.13,topurchasecommonsharesoftheCompanyweregrantedtomembersofmanagement.Theseoptionshadafairvalueof$2million.Ofthetotalgranted,235,000optionsvestoveratwo-yearperiod.Oftheremaining130,000options,onehalfofthemvestedonDecember31,2015andthesecondhalfwillvestupontheCompanyenteringintoamajortransactionononeoftheCompany’stwocoreassets.
InthequarterendedMarch31,2014,700,000five-yearoptionsweregrantedtosevendirectorsoftheCompanyatanexercisepriceof$10.36andafairvalueof$3.52peroption.Theexercisepricerepresenteda20%premiumtomarketatthetimeofthegrant.ThisgrantwasapprovedbyshareholdersinJune2014andthevestingwassubjecttotheearlierofamajortransactionononeoftheCompany’stwocoreassetsorreceiptofenvironmentalassessmentandenvironmentalimpactstatementcertificatesfortheKSMproject.Inthesecondquarterof2014,50,000optionsweregrantedtoadirectoroftheCompanywithanexercisepriceof$9.72andafairvalueof$4.45peroption.Thefairvalueoftheseoptionswasamortizedovertheservicelifeoftheoptions.
In2014,400,000optionsthatweregrantedin2010and2011werecancelled.Allofthefairvalueattributedtotheseoptionshadbeenexpensedpriortothetimeofcancellation.
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ThefairvalueoftheoptionsgrantedthatvestovertimeisestimatedonthedatesofgrantusingaBlackScholesoption-pricingmodelwiththefollowingassumptions:
2015 2014
Dividendyield Nil NilExpectedvolatility 51 - 57% 52%Risk-freerateofreturn 0.7 - 1% 1.6-1.7%Expectedlifeofoptions 5 years 4.75-5years
TheBoardgranted235,000RSUsin2013tonon-directormembersofseniormanagement.TheRSUPlanalongwiththe2013grantsweresubjecttoregulatoryandshareholderapproval.Shareholderandregulatoryapprovalswereobtainedin2014.Thefairvalueofthegrants,of$2.3million,wasestimatedatthedateallregulatoryapprovalswereobtainedandwereamortizedovertheserviceperiodsthatvariedfromsixtoeighteenmonthsfromthedateofthegrant,dependingoncertaincorporateobjectivesbeingmet.
In2014,theBoardgranted272,500RSUstonon-directormembersofseniormanagement.Thefairvalueofthegrants,of$2.6million,wasestimatedasatthegrantdateandisbeingamortizedovertheexpectedserviceperiodofthegrants.Theexpectedserviceperiodsvaryfromonetofourteenmonthsfromthedateofthegrantdependingoncertaincorporateobjectivesbeingmet.During2014,152,500RSUsfullyvestedandwereexchangedforsharesoftheCompany.
In2015,theBoardgranted94,000RSUstomembersofmanagement.Thefairvalueofthegrants,of$1.0million,wasestimatedasatthegrantdateandisbeingamortizedovertheexpectedserviceperiodofthegrants.Theexpectedserviceperiodsvaryfromonetoninemonthsfromthedateofthegrantdependingoncertaincorporateobjectivesbeingmet.In2015,263,250RSUsvestedandwereexchangedforcommonsharesoftheCompany.
11. Fair value of financial assets and liabilities
Fairvalueisthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.Thefairvaluehierarchyestablishesthreelevelstoclassifytheinputstovaluationtechniquesusedtomeasurefairvalue.
LEVEL 1: Inputsarequotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities.
LEVEL 2: Inputsarequotedpricesinmarketsthatarenotactive,quotedpricesforsimilarassetsorliabilitiesinactivemarkets,inputsotherthanquotedpricesthatareobservablefortheassetorliability(forexample,interestrateandyieldcurvesobservableatcommonlyquotedintervals,forwardpricingcurvesusedtovaluecurrencyandcommoditycontracts,volatilitymeasurementsusedtovalueoptioncontractsandobservablecreditdefaultswapspreadstoadjustforcreditriskwhereappropriate),orinputsthatarederivedprincipallyfromorcorroboratedbyobservablemarketdataorothermeans.
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LEVEL 3:Inputsareunobservable(supportedbylittleornomarketactivity).
ThefairvaluehierarchygivesthehighestprioritytoLevel1inputsandthelowestprioritytoLevel3inputs.
TheCompany’sfinancialassetsandliabilitiesasatDecember31,2015andDecember31,2014arecashandcashequivalents,short-termdeposits,amountsreceivable,available-for-saleinvestments,andaccountspayableandaccruedliabilities.Otherthaninvestments,thecarryingvaluesapproximatetheirfairvaluesduetotheimmediateorshort-termmaturityofthesefinancialinstrumentsandareclassifiedasaLevel1measurement.TheCompany’savailable-for-saleinvestmentsaremeasuredatfairvaluebasedonquotedmarketpricesandareclassifiedasalevel1measurement.
TheCompany’sfinancialriskexposuresandtheimpactontheCompany’sfinancialinstrumentsaresummarizedbelow:
Credit RiskTheCompany’screditriskisprimarilyattributabletoshort-termdeposits,andreceivablesincludedinamountsreceivableandprepaidexpenses.TheCompanyhasnosignificantconcentrationofcreditriskarisingfromoperations.Short-termdepositsconsistofCanadianScheduleIbankguaranteednotes,withtermsuptooneyearbutarecashableinwholeorinpartwithinterestatanytimetomaturity,forwhichmanagementbelievestheriskoflosstoberemote.Managementbelievesthattheriskoflosswithrespecttofinancialinstrumentsincludedinamountsreceivableandprepaidexpensestoberemote.
Liquidity RiskTheCompany’sapproachtomanagingliquidityriskistoensurethatitwillhavesufficientliquiditytomeetliabilitieswhendue.AsatDecember31,2015,theCompanyhadacashandcashequivalentsandshort-termdepositsbalanceof$15.5million(2014-$6.3million)forsettlementofcurrentliabilitiesof$1.4million,excludingtheflow-throughsharepremium.TheCompanyiscommittedtospend$5.5milliononqualifyingexplorationexpendituresinfulfillmentoftheApril15,2015flow-throughfinancingandwillincur$0.8milliontomaintainitsmineralpropertyclaimsingoodstanding.Theshort-termdepositsarevariousguaranteedaccountsandareredeemable,inwholeorinpart,withinterestatanytime.AlloftheCompany’scurrentfinancialliabilitieshavecontractualmaturitiesof30daysandaresubjecttonormaltradeterms.TheCompany’sabilitytofunditsoperationsandcapitalexpendituresandotherobligationsastheybecomedueisdependentuponmarketconditions.
Market Risk(a)InterestRateRiskTheCompanyhasnointerest-bearingdebt.TheCompany’scurrentpolicyistoinvestexcesscashinCanadianbankguaranteednotes(short-termdeposits).TheCompanyperiodicallymonitorstheinvestmentsitmakesandissatisfiedwiththecreditratingsofitsbanks.Theshort-termdepositscanbecashedinatanytimeandcanbereinvestedifinterestratesrise.
(b)ForeignCurrencyRiskTheCompany’sfunctionalcurrencyistheCanadiandollarandmajorpurchasesaretransactedinCanadianandU.S.dollars.TheCompanyfundscertainoperations,explorationandadministrativeexpensesintheUnitedStatesonacashcallbasisusingU.S.dollarcurrencyconvertedfromitsCanadiandollarbankaccountsheldinCanada.Managementbelievestheforeignexchangeriskderivedfromcurrencyconversionsisnotsignificanttoitsoperationsandthereforedoesnothedgeitsforeignexchangerisk.AsatDecember31,2015theCompanyhadnoforeigncurrencydenominatedfinancialinstruments.
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(c)InvestmentRiskTheCompanyhasinvestmentsinotherpubliclylistedexplorationcompanieswhichareincludedininvestments.TheseshareswerereceivedasoptionpaymentsoncertainexplorationpropertiestheCompanyowns.Inaddition,theCompanyholds$2.2millioninagoldexchangetradedreceiptthatisrecordedonthestatementoffinancialpositionininvestments.TheriskontheseinvestmentsissignificantduetothenatureoftheinvestmentbuttheamountsarenotsignificanttotheCompany.
12. Corporate and administrative expenses
($000’s) 2015 2014
Employeecompensation 3,459 2,509Stock-basedcompensation 3,647 9,679Professionalfees 897 734Generalandadministrative 1,407 1,169
9,410 14,091
13. Related party disclosuresCompensationtokeymanagementpersonneloftheCompany:
($000’s) 2015 2014
Compensationofdirectors:Directors’fees 363 316Services 113 86Stock-basedcompensation 283 2,375
759 2,777
Compensationofkeymanagementpersonnel:Salariesandconsultingfees 3,107 2,170Stock-basedcompensation 2,138 4,816
5,245 6,986
Totalremunerationofdirectorsandkeymanagementpersonnel 6,004 9,763
14. Income taxes
($000’s) 2015 2014
Currenttaxexpense 11 18
Deferredtaxexpense 2,689 5,881
2,700 5,899
Tax recovery recognized directly in equity
($000’s) 2015 2014
Financingcosts 289 243
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In2015,theCompanyrecognizedincometaxexpenseof$2.7million(2014-$5.9million)primarilyrelatedtoadeferredtaxexpensearisingduetotherenouncementofexpendituresrelatedto2014and2015flow-throughshareswhicharecapitalizedforaccountingpurposes,offsetpartiallybyadeferredtaxrecoveryarisingfromthelossesinthecurrentyearand2014.
Rate reconciliationTheprovisionforincometaxdiffersfromtheamountthatwouldhaveresultedbyapplyingthecombinedFederalandOntarioandNorthwestTerritoriesstatutoryincometaxratesof26.29%(2014-26.44%)
($000’s) 2015 2014
Lossbeforeincometaxes (6,366) (7,124)
26.29% 26.44%Taxrecoverycalculatedusingstatutoryrates (1,674) (1,884)Non-deductibleitems 198 570Differenceinforeigntaxrates (37) (303)Changeindeferredtaxrates (65) (33)Movementintaxbenefitsnotrecognized (191) 527Branchtax 11 16Renouncementofflow-throughexpenditures 4,027 6,972Priorperiodadjustment 427 37Other 3 (3)
Incometaxexpense 2,700 5,899
Deferred income taxThefollowingtablesummarizesthecomponentsofdeferredincometax:
($000’s) December 31, 2015 December 31, 2014
Deferredtaxassets Propertyandequipment 63 63Provisionforreclamationliabilities 349 362Financingcosts 583 664Non-capitallosscarryforwards 13,200 10,728
Deferredtaxliabilities Mineralinterests (29,036) (24,247)
(14,841) (12,430)
Unrecognized deferred tax assetsDeferredincometaxassetshavenotbeenrecognizedinrespectofthefollowingdeductibletemporarydifferences:
($000’s) December 31, 2015 December 31, 2014
Investmentinsubsidiaries 4,422 4,847Marketablesecurities 1,360 1,598Losscarryforwards 735 451Investmenttaxcredits 1,481 1,898Foreigntaxcredits 16 16Mineralproperties 454 357
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Thetaxlossesnotrecognizedexpireaspertheamountandyearsnotedbelow.Thedeductibletemporarydifferencesdonotexpireunderthecurrenttaxlegislation.DeferredtaxassetshavenotbeenrecognizedinrespectoftheseitemsbecauseitisnotprobablethatfuturetaxableprofitwouldbeavailableagainstwhichtheCompanycanutilizethebenefitstherefrom.
Income tax attributesAsatDecember31,2015,theCompanyhadthefollowingCanadianincometaxattributestocarryforward:
Amount (000’s) Expiry date
Canadiannon-capitallosses 51,339 2035Canadiancapitallosses 885 IndefiniteCanadiantaxbasisofmineralinterest 168,054 Indefinite
U.S.non-capitallosses 160 2035U.S.captiallosses 758 2020U.S.taxbasisofmineralinterest 1,725 Indefinite
15. Commitments
Paymentsduebyperiod
($000’s) Total 2016 2017-18 2019-20 After 2020
Mineralinterests 7,987 793 2,186 2,404 2,604Flow-throughexpenditures 5,451 5,451 – – –Businesspremisesoperatinglease 187 132 55 – –
13,625 6,376 2,241 2,404 2,604
TheCompanyiscommittedtospend$5.5millionin2016onqualifyingexplorationexpendituresinfulfillmentofagreementswithsubscribersof1,610,000flow-throughsharesissuedinApril2015(seenote10).
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CORPORATE INFORMATION
DirectorsRudiP.FronkChairmanoftheBoard
A.FrederickBanfield
D.ScottBarr
EliseoGonzalez-Urien
RichardC.Kraus
JayS.Layman
JohnW.Sabine
OfficersRudiP.FronkChiefExecutiveOfficer
JayS.LaymanPresidentandChiefOperatingOfficer
WilliamE.ThrelkeldSeniorVicePresident,Exploration
PeterD.WilliamsSeniorVicePresident,TechnicalServices
ChristopherJ.ReynoldsVicePresident,FinanceandChiefFinancialOfficer
R.BrentMurphyVicePresident,EnvironmentalAffairs
C.BruceScottVicePresident,CorporateAffairsandCorporateSecretary
GloriaM.TrujilloAssistantCorporateSecretary
Stock Exchange ListingsTorontoStockExchange,symbol:“SEA”NewYorkStockExchange,symbol:“SA”CUSIPNumber811916105
Head OfficeSeabridgeGoldInc.106FrontStreetEast,Suite400Toronto,OntarioM5A1E1CanadaTel:4163679292,Fax:[email protected]
Investor RelationsRudiP.FronkTel:[email protected]
Registrar and Transfer AgentComputershareInvestorServicesInc.100UniversityAvenue8thFloor,NorthTowerToronto,OntarioM5J2Y1CanadaTollfree(NorthAmerica):18005646253InternationalDirectDial:5149827555
ComputershareInvestorServicesInc.250RoyallStreetCanton,Massachusetts02021USATollfree(NorthAmerica):18005646253InternationalDirectDial:5149827555
AuditorsKPMGLLPSuite4600,333BayStreetBayAdelaideCentreToronto,OntarioM5H2S5Canada
Legal CounselBlake,Cassels&GraydonLLP595BurrardStreetP.O.Box49314Suite2600,ThreeBentallCentreVancouver,BritishColumbiaV7X1L3Canada
CarterLedyard&MilburnLLP2WallStreetNewYork,NewYork10005USA
CBCSLawCorporation6063BlinkBonnieRd.WestVancouver,BritishColumbiaV7W1V9Canada
DuMoulinBlackLLP10thFloor,595HoweStreetVancouver,BritishColumbiaV6C2T5Canada
TURNING CASH INTO
106 Front St. East, Suite 400
Toronto, Ontario M5A 1E1
Canada
T 416 367 9292
F 416 367 2711
www.seabridgegold.net
www.ksmproject.com