We have compiled the interim balance sheets of Electra Gold Ltd. as at September 30, 2013 and interim statement of operations, retained earnings and cash flow for the three and six months then ended from information provided by management. We have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of such information. Readers are cautioned that these statements may not be appropriate for their purposes.
Under National Instrument 51-102, Part 4, Subsection 4.4(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying unaudited interim financial statements of the Corporation have been prepared by and are responsibility of the Corporation’s management. The Corporation’s independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of the interim financial statements by an entity’s auditor.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2013 AND 2012
(Unaudited - Expressed in Canadian Dollars)
1. NATURE OF OPERATIONS, ECONOMIC DEPENDENCE AND GOING CONCERN
Electra Gold Ltd. (the “Company”) is a mining company, specializing in the development of and exploration for industrial minerals used in the cement industry. The Company was incorporated in the Province of British Columbia on December 1, 1981 as a result of the amalgamation of Electra Mining Corporation and Pacific North West Resources Ltd.
The Company is in the process of mining the Apple Bay mineral properties located on Vancouver Island near Port Hardy, British Columbia. 100% of the Company’s entire mineral production in 2012 and to date in 2013 was sold to one customer (the “Customer”). The mineral claims are located on crown land within the traditional territory of Quatsino First Nation Band. The Company’s operations are exposed to the financial and operating risks of these business partners.
The Company is in the process of exploring other industrial mineral properties and is considered to be an exploration company. The recoverability of the amounts shown for these other mineral exploration properties is dependent on the existence of economically recoverable reserves on these properties. Due to the historical losses generated by the operations of the Apple Bay Property, discussions are taking place regarding the possibility of vending out the operation.
These financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since inception. The Company has accumulated a deficit of $17,311,765 and has a working capital deficit of $1,058,848 at September 30, 2013. The Company’s ability to continue as a going concern is dependent upon its ability to obtain continued credit and operational support from its operational partners and management. Management plans to obtain increased net cash inflow from Customer revenues, additional customers for its products, lower operating costs, and share capital financing from shareholders and new investors. These conditions raise substantial doubt about its ability to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue in business.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The Board of Directors approved the financial statements on November 29, 2013.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
b) Critical Judgments and Sources of Measurement Uncertainty
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods then ended. Due to the inherent uncertainty involved with making such estimates and assumptions, actual results reported in future periods could differ materially from those estimates. This could materially affect the carrying value and the ultimate recoverability of the amounts recorded for mineral properties. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Critical Judgments
The following are critical judgments that management has made in the process of applying accounting policies and that have the most significant effect on the amounts recognized in the financial statements:
i. The determination of categories of financial assets and financial liabilities has been identified as an accounting policy which involves judgments or assessments made by management.
ii. The assessment of the probabilities of future taxable income in which deferred tax assets can be utilized is based on the Company’s’ estimates of future profits or losses adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. If a positive forecast of taxable income indicates the probably use of a deferred tax asset, especially when it can be utilized without a time limit, that deferred tax asset is usually recognized in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by management based on the specific facts and circumstances.
iii. The determinations of the eligibility of the expenditures which generate the mining exploration tax credit receivable involve judgments or assessments made by management.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
b) Critical Judgments and Sources of Measurement Uncertainty (Continued)
Exploration and evaluation assets
The Company is in the exploration stage with respect to its investment in exploration and evaluation assets and, accordingly, follows the practice of capitalizing all costs relating to the acquisition of exploration for and development of mineral properties and crediting all proceeds received against the cost of the related properties. Such costs include, but are not exclusive to, geological and geophysical studies, exploratory drilling and sampling. At such time as commercial production commences, these costs will be charged to operations on a unit-of-production method based on proven and probable reserves. The aggregate costs related to abandoned mineral properties are charged to operations at the time of any abandonment, or when it has been determined that there is evidence of a permanent impairment. An impairment charge relating to a mineral property is subsequently reversed when new exploration results or actual or potential proceeds on sale or farm out of the property result in a revised estimate of the recoverable amount, but only to the extent that this does not exceed the original carrying value of the property that would have resulted if no impairment had been recognized. The recoverability of amounts shown for exploration and evaluation assets is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain financing to complete development of the properties, and on future production or proceeds of disposition.
The Company recognizes in income costs recovered on mineral properties when amounts received or receivable are in excess of the carrying amount. Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified to mining property and development assets.
c) Financial Instruments
Financial assets
The Company classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. Transaction costs associated with FVTPL assets are expensed as incurred, while transaction costs associated with all other financial assets are included in the initial carrying value. The Company’s accounting policy for each category is as follows:
Fair value through profit or loss – This category comprises derivatives, or assets acquired or incurred principally for the purpose of selling or repurchasing it in the near term. They are carried in the statement of financial position at fair value with changes in fair value recognized in the statement of operations.
Loans and receivables – These assets are non-derivative financial assets with fixed or determinable payments that are quoted in an active market. They are carried at cost less any provision for impairment. Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
c) Financial Instruments (Continued)
Held to maturity investments – These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company’s management has the positive intention and ability to hold to maturity. These assets are measured at amortized cost using the effective interest method. If there is objective evidence that the investment is impaired, determined by reference to external credit ratings and other relevant indicators, the financial asset is measured at the present value of estimated future cash flows. Any changes to the carrying amount of the investment, including any impairment losses, are recognized in the statement of operations and comprehensive loss.
Available for sale – Non-derivative financial assets not included in the above categories are classified as available for sale. They are carried at fair value with changes in fair value recognized directly in equity. Where a decline in the fair value of an available for sale financial asset constitutes objective evidence impairment, the amount of the loss is removed from equity and recognized in the statement of operations and comprehensive loss.
All financial assets except for those at fair value through profit or loss are subject to review for impairment at each reporting date. Financial assets are impaired when there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described above.
Financial risk factors
The Company’s risk exposures and the impact on the Company’s financial statements are summarized below.
Credit Risk
The Company is exposed to credit risk with respect to accounts receivable if a customer fails to meet its contractual obligations. The Company undertakes credit evaluations on customers as necessary and has monitoring processes intended to mitigate credit risks and maintain appropriate provisions for potential credit losses. The Company has no significant allowance for doubtful accounts in 2012 and 2011. A significant proportion of the Company’s accounts receivable balance is with customers in the cement industry and is subject to normal industry credit risks.
Credit risk also arises from cash and reclamation deposits held with financial institutions. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The Company’s cash is held with a major chartered bank.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
c) Financial Instruments (Continued)
Liquidity Risk
Liquidity risk is the risk that the Company may encounter difficulties in meeting obligations associated with financial liabilities. The Company’s growth strategy requires significant resources which are derived from cash flows provided by operations, the issuance of equity or a combination thereof. As at September 30, 2013 the Company was holding cash of $2,145. The Company plans to obtain increased cash flow from operations and share capital financings. There can be no guarantee that management’s efforts to raise additional funds will be successful.
Interest Rate Risk
The Company is not exposed to significant interest rate risks arising from financial instruments.
Commodity Price Risk
The Company is exposed to price risk with respect to commodity prices of industrial minerals. The Company monitors the price of commodities, as well as major input prices, and considers the risk exposure to fluctuating prices.
Currency Price Risk
The Company’s functional currency is the Canadian dollar. There is no significant foreign exchange risk to the Company. The Company does not engage in any form of derivative or hedging instruments.
Financial liabilities
The Company classifies its financial liabilities into one of two categories, depending on the purpose for which the asset was acquired. The Company’s accounting policy for each category is as follows:
Fair value through profit or loss – This category comprises derivatives, or liabilities acquired or incurred principally for the purpose of selling or repurchasing it in the near term. They are carried in the statement of financial position at fair value with changes in fair value recognized in the statement of operations and comprehensive loss.
Other financial liabilities – This category includes amounts due to related parties, royalties payable and accounts payables and accrued liabilities, all of which are recognized at amortized cost.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
c) Financial Instruments (Continued)
Liquidity Risk
Liquidity risk is the risk that the Company may encounter difficulties in meeting obligations associated with financial liabilities. The Company’s growth strategy requires significant resources which are derived from cash flows provided by operations, the issuance of equity or a combination thereof. As at September 30, 2013 the Company was holding cash of $2,145. The Company plans to obtain increased cash flow from operations and share capital financings. There can be no guarantee that management’s efforts to raise additional funds will be successful.
Interest Rate Risk
The Company is not exposed to significant interest rate risks arising from financial instruments.
Commodity Price Risk
The Company is exposed to price risk with respect to commodity prices of industrial minerals. The Company monitors the price of commodities, as well as major input prices, and considers the risk exposure to fluctuating prices.
Currency Price Risk
The Company’s functional currency is the Canadian dollar. There is no significant foreign exchange risk to the Company. The Company does not engage in any form of derivative or hedging instruments.
Financial liabilities
The Company classifies its financial liabilities into one of two categories, depending on the purpose for which the asset was acquired. The Company’s accounting policy for each category is as follows:
Fair value through profit or loss – This category comprises derivatives, or liabilities acquired or incurred principally for the purpose of selling or repurchasing it in the near term. They are carried in the statement of financial position at fair value with changes in fair value recognized in the statement of operations and comprehensive loss.
Other financial liabilities – This category includes amounts due to related parties, royalties payable and accounts payables and accrued liabilities, all of which are recognized at amortized cost.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
e) Revenue Recognition
Sales are recognized and recorded as each barge is shipped at agreed prices, when title transfers, and the rights and obligations of ownership pass to the customer and collection is reasonably assured.
f) Inventory
Inventory is recorded at the lower of cost and net realizable value. Inventory consists of ore that has been extracted and hauled to the crushing and loading facility. Cost includes extraction and crushing costs. Hauling costs are expensed as incurred. Write downs to net realizable value may be reversed to the extent of the original write down, if there is clear evidence of an increase in value due to a change in circumstances.
g) Equipment
Equipment is recorded at cost and amortized over the estimated useful lives of the respective items using the declining balance method at rates of 20% to 30% per year.
h) Exploration and Evaluation Assets
Mineral properties comprise acquisition costs including option payments to maintain mineral property titles in good standing and exploration costs directly incurred on the properties. The Company records its interest in mineral properties and related expenditures at cost or at fair value if the consideration is common shares, less option payments received. From time to time, the Company acquires or sells property interests pursuant to the terms of option agreements. As options are exercisable entirely at the discretion of the optionee, the related amounts are recorded upon payment or receipt.
Capitalized costs related to sold or abandoned properties are written off in the period of sale or abandonment. Capitalized costs related to producing properties are amortized to production on the unit-of-production method, based upon the depletion of estimated production capacity.
The amounts capitalized represent costs to be charged to operations in the future and do not necessarily reflect the present or future values of particular properties. The recoverability of the carrying value of mineral properties is dependent upon the discovery of economically recoverable resources, the ability of the Company to obtain financing or other means to complete development of the properties, and the future profitable productions or proceeds from the disposition of the properties.
Although the Company has taken steps to verify title to mineral properties in which it has an interest, in accordance with industry norms for the current stage of exploration of such properties, these procedures do not guarantee the Company’s title. Property may be subject to unregistered prior agreements and non-compliance with regulatory requirements.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
i) Resource property interests
The acquisition costs of resource properties and any subsequent property exploration and evaluation costs are capitalized until the property to which they related is placed into production, sold, allowed to lapse, impaired, or abandoned. Exploration and evaluation costs incurred prior to obtaining ownership, or the right to explore a property, are expensed as incurred as property examination costs. Properties that have close proximity and have the possibility of being developed as a single mine are grouped as projects and are considered separate cash generating units (“CGU”) for the purpose of determining future mineral reserves and impairments.
Proceeds received from a partial sale or option of any interest in a property are credited against the carrying value of the property. When the proceeds exceed the carrying costs the excess is recorded in profit or loss in the period the excess is received. When all of the interest in a property is sold, subject only to any retained royalty interests which may exist, the accumulated property costs are written off, with any gain or loss included in profit or loss in the period the transfer takes place. No initial value is assigned to any retained royalty interest. A royalty interest is subsequently assessed for value by reference to developments on the underlying mineral property.
Management reviews the capitalized costs on its mineral properties when facts or circumstances indicate the impairment in value taking into consideration current exploration results and management’s assessment of the future probability of profitable operations form the property, or likely gains from the disposition or option of the property. If a property is
abandoned, or considered to have no future economic potential, the acquisition and deferred exploration and evaluation costs are written off to profit or loss. If the carrying value of a project exceeds the estimated value, an impairment provision is recorded.
j) Environmental rehabilitation
An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by exploration, development or ongoing production of a mineral property interest. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net present value, are provided for and capitalized at the start of each project to the carrying amount of the asset, as soon as the legal or constructive obligation to incur such costs arises. Discount rates using a pre-tax rate that reflect the time value of money are used to calculate the net present value. These costs are charged against profit or loss over the economic life of the related asset, through amortization using either the unit of production or the straight line method. The related liability is adjusted for each period for the unwinding of the discount rate and for the changes to the current market-based discount rate, amount or timing of the underlying cash flows needed to settle the obligation. Costs for restoration of subsequent site damage which is created on an ongoing basis during the production are provided for at their net present values and charged against profits as extraction progresses. Upon settlement of the liability, a gain or loss is recorded to the extent that actual cost is more or less than the initial estimate.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
k) Share Capital
Common shares are classified as equity. Transaction costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects. Common shares issued for consideration other than cash, are valued based on their market value at the date the shares are issued.
The Company has adopted a residual value method with respect to the measurement of shares and warrants issued as private placement units. The residual method first allocates value to the more easily measurable component based on fair value and then the residual value, if any, to the less easily measurable component. The Company considers the fair
value of common shares issued in the private placements to be the more easily measurable component and the common shares are valued at their fair value, as determined by the closing quoted bid price on the announcement date. The balance if any is allocated to the attached warrants. Any fair value attributed to the warrants is recorded as share-based payment reserve.
Common shares, which by agreement are designated as flow through shares, are usually issued at a premium to non flow through common shares. On issue, share capital is increased only by the non flow through share equivalent value. Any premium is recorded as another liability. Pursuant to any flow through share agreement the Company must renounce its flow through share exploration expenditures to the flow through share holders, and the Company gives up its rights to the income tax benefits on the exploration expenditures. The loss of the tax benefit is recorded as a deferred tax liability and eliminates the original other liability, with the difference, if any, recorded as deferred income tax expense. In instances where the Company has sufficient deductible temporary differences available to offset the deferred income tax liability created from renouncing the exploration expenditures, the realization of the deductible temporary differences will be shown as a recovery in profit or loss in the period of renunciation.
l) Share-based payment transactions
The Company has a stock option plan that allows certain officers, directors, consultants, and related company employees to acquire shares of the Company. The fair value of the options is recognized as an expense with a corresponding increase in equity.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
k) Share Capital
Common shares are classified as equity. Transaction costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects. Common shares issued for consideration other than cash, are valued based on their market value at the date the shares are issued.
The Company has adopted a residual value method with respect to the measurement of shares and warrants issued as private placement units. The residual method first allocates value to the more easily measurable component based on fair value and then the residual value, if any, to the less easily measurable component. The Company considers the fair
value of common shares issued in the private placements to be the more easily measurable component and the common shares are valued at their fair value, as determined by the closing quoted bid price on the announcement date. The balance if any is allocated to the attached warrants. Any fair value attributed to the warrants is recorded as share-based payment reserve.
Common shares, which by agreement are designated as flow through shares, are usually issued at a premium to non flow through common shares. On issue, share capital is increased only by the non flow through share equivalent value. Any premium is recorded as another liability. Pursuant to any flow through share agreement the Company must renounce its flow through share exploration expenditures to the flow through share holders, and the Company gives up its rights to the income tax benefits on the exploration expenditures. The loss of the tax benefit is recorded as a deferred tax liability and eliminates the original other liability, with the difference, if any, recorded as deferred income tax expense. In instances where the Company has sufficient deductible temporary differences available to offset the deferred income tax liability created from renouncing the exploration expenditures, the realization of the deductible temporary differences will be shown as a recovery in profit or loss in the period of renunciation.
l) Share-based payment transactions
The Company has a stock option plan that allows certain officers, directors, consultants, and related company employees to acquire shares of the Company. The fair value of the options is recognized as an expense with a corresponding increase in equity.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
o) New standards not yet adopted
IFRS 9 – ‘Financial Instruments’
This standard and its consequential amendments are applicable to annual reporting periods beginning on or after January 1, 2015. This standard introduces new classification and measurement models for financial assets, using a single approach to determine whether a financial asset is measured at amortized cost or fair value. To be classified and measured at amortized cost, assets must satisfy the business model test for managing the financial assets and have certain contractual cash flow characteristics. All other financial instrument assets are to be classified and measured at fair value. This standard allows an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading) in other comprehensive income, with dividends as a return on these investments being recognized in profit or loss. In addition, those equity instruments measured at fair value through other comprehensive income would no longer have to apply any impairment requirements nor would there be any ‘recycling’ of gains or losses through profit or loss on disposal. The accounting for financial liabilities continues to be classified and measured in accordance with IAS 39, with one exception, being that the portion of a change of fair value relating to the entity’s own credit risk is to be presented in other comprehensive income unless it would create an accounting mismatch.
3. MARKETABLE SECURITIES
During the year ended December 31, 2010 the Company received 200,000 common shares of Claim Post Resources, as part of the compensation with respect to the RaceTrack Property option agreement. A further 200,000 shares were received during the year ended December 31, 2012 as per the agreement totaling 400,000 shares. At September 30, 2013 the quoted market value of the Claim Post Resources shares were $12,000 (December 31, 2012 - $20,000).
4. RECLAMATION DEPOSITS
The Company has posted reclamation term deposits with the Company’s bankers and directly with the Minister of Finance in the amount of $212,500 (2011 - $182,500) as a condition of approval to a Work System and Reclamation Program Permit issued by B.C. Ministry of Energy, Mines and Petroleum Resources. These deposits bear interest at a weighted average of 0.9% per annum and mature between June and November 2013.
6. RESOURCE PROPERTIES (Continued)
Proven, Producing
a) Apple Bay
The Company has agreements under which it has acquired industrial mineral and metal rights to one mining lease and a surrounding block of contiguous mineral claims known as Apple Bay, lying southwest of the town of Port Hardy on northern Vancouver Island in British Columbia. The total area covered is about 1,900 hectares.
The Company signed lease and sublease agreements dated September 30, 2002 with a director and an officer of the Company, a company controlled by this individual and an unrelated party. Pursuant to the agreements, the Company leased the mineral rights to the Apple Bay property located near Port Hardy on Vancouver Island for an initial term expiring
February 7, 2031. In consideration, the Company issued 3,000,000 shares at $0.10 per share and agreed to pay two royalties to each of the related and unrelated parties which total $1.00 per metric tonne of industrial product sold on the property. The Company may purchase one half of each of the royalties for $500,000. Both royalty holders have provided a right of first refusal to the Customer to purchase these royalties. The Company also agreed to spend $100,000 in exploration expenditures during the first year of the agreement (spent) and an aggregate of $300,000 (spent) within five years. The Company will also pay a 3% net smelter returns royalty (“NSR”) for all base and precious metals produced from the property.
The Company received a Permit (Q220) on April 8, 2004 approving the work system and reclamation program. Subsequent amendments were approved on June 1, 2005 of the 2005 Mine Plan and March 2006 for increased production.
Pursuant to an agreement dated June 25, 2003, the Company purchased additional Apple Bay claims from a director and an officer of the Company, for $13,140 which represented the related party’s carrying cost, plus a 0.5% NSR on all base and precious metals produced from the property.
The Company entered into an agreement dated February 3, 2005 with a company for the exploration development and mining of base and precious mineral resources within the Apple Bay property. The company may earn a 100% interest in the property by making a total of $200,000 in cash payments over time to the Company, and upon a production decision,
paying an additional $800,000 in cash or shares. The Company retains the right to explore and exploit the property for non-metallic industrial minerals, and in addition, was granted the right to explore certain of the company’s mineral claims for non-metallic industrial minerals.
6. EVALUATION AND EXPLORATION ASSETS (Continued)
a) Apple Bay (Continued)
In late 2007 a permit was received from the Ministry of Energy, Mines and Petroleum Resources to construct an access road. The road was completed in March 2008 for expanded access beyond the currently producing quarry. In light of a valuation of the quarry completed in January 2010, the Company decided to write-down the asset in the amount of $190,264 due to the negligible value and drain on cash flow. For this reason an additional $92,849 was written down on the property during the year ended December 31, 2011 and a further $86,849 during the year ended December 31, 2012.
March 7, 2012 the Company received approval for construction of the East Effluent Treatment System which was subsequently built in the latter half of 2012. On April 1, 2012, the Company posted an additional $20,000 refundable reclamation bond for the PEM100 Operation (total now $180,000) to reflect the issuing of an Amended Operating Permit which includes a second mitigation system on the east side of the site to handle water runoff conditions.
Unproven, Gold exploration
b) DOT Apex Property
On February 1, 2010, the Company entered into an agreement to purchase a 100% interest in the DOT Apex claim group which are five mineral claims located 25km northwest of the community of Boston Bar in southwestern British Columbia. The claim group covers 1,887 hectares and is a gold silver property. The terms of the option agreement are as set out
below:
The Vendor retains a 2% cent net smelter royalty of which 1% can be bought back by the Company paying $1,000,000.
6. EVALUATION AND EXPLORATION ASSETS (Continued)
e) Iron Range Property
On January 19, 2011 the Company was issued TSX Venture Exchange acceptance of two agreements whereby the Company acquired a total of nineteen claims near Kimberley, B.C. The Company issued 2,000,000 common shares and paid $5,000 in cash under the first agreement, and issued 1,500,000 shares and paid $4,000 cash under the second
agreement. This property was re-staked at a reduced land holding and now comprises three claims.
f) Race Track Property
On March 10, 2010, the Company announced the acquisition of a gold property in the West Timmins area of Ontario. The property consists of 103 claim units and 12 patented claims located in the southeast corner of Ogden Township approximately 10km south south-west from downtown Timmins. The property was acquired from two vendors and to earn 100% interest in the mineral rights of the property the Company must satisfy the following for each of the two vendors:
-
Issue 800,000 shares (issued);
-
Incur a total of $100,000 in expenditures on the property by February 23, 2012(incurred); and
-
Incur an additional $100,000 in expenditures on the property by February 23, 2013(incurred).
The Company may elect to purchase from one of the vendors at any time 2/3 (2%) of the 3% NSR Royalty, upon the payment to the vendor of one million dollars ($1,000,000) per 1%, and from the second vendor 1/2 (1%) of the 2% NSR Royalty, upon the payment to the vendor of one million dollars ($1,000,000) per 1%.
On September 15, 2010, the Company announced it had signed a letter of intent with Claim Post Resources for the continued development of the RaceTrack gold property in Timmins, Ontario. The terms of the option agreement are below:
6. EVALUATION AND EXPLORATION ASSETS (Continued)
Unproven, Coal and other industrial products exploration
g) Suquash Project
On August 7, 2008, the Company entered into a purchase agreement with an unrelated party to buy all of its rights to obtain coal leases covering the Suquash coal mine near Fort Rupert with the BC Ministry of Energy, Mines and Petroleum Resources, and to explore and develop the Suquash Coalfield. The agreement calls for a purchase price of $8,800 (paid) and the allotment of 3,000,000 common shares of the Company, as per the following schedule:
-
500,000 shares upon the issue of a mine exploration permit and the written support for the project by the Fort Rupert Band Council (issued);
-
500,000 shares by April 30, 2009 (issued);
-
1,000,000 shares on the completion of a NI 43-101 Technical Report documenting in-situ reserves of at least 5 million tones of 11,000 B.T.U coal (issued); and
-
1,000,000 shares on the extraction and sale of a 10,000 tonne bulk sample with 50,000 tonnes developed (issued).
A permit was granted on September 30, 2008 by the Ministry of Energy, Mines and Petroleum Resources for three coal lease permit applications totaling 1,038 hectares. The lease payments of $7,000 per year have been kept current.
h) Lang Bay
On June 25, 2003, the Company acquired 32 claims from directors of the Company in exchange for 500,000 shares of the Company at $0.10 per share, 10 claims have been allowed to lapse and 22 claims remain in good standing at December 31, 2012. These claims are located approximately 15 kilometers south east of Powell River, British Columbia,
covering 800 hectares.
i) Harvey Cove Property
The Harvey Cove exploration project is located on Northern Vancouver Island west of LeMare Lake. Harvey Cove is located within the traditional territory of the Quatsino First Nation and is 100% owned by the Company although the purchase price has not been paid.
7. RELATED PARTY TRANSACTIONS AND AMOUNTS OWING
The Company acquired and leased mineral properties from related parties as disclosed in the mineral properties note and issued shares for indebtedness to related parties as disclosed in the share capital note. In addition during the quarters ended June 30, 2013 and 2012, the Company carried out a number of transactions with related parties.
Related Party Transactions
a) The Company paid or accrued consulting fees of $3,000 (September 30, 2012 - $1,500) to a director and CFO of the Company, Ron Savelieff for CFO and consulting services.
b) The Company accrued geological fees and expenses of $10,316 (September 30, 2012 - $50,059), that are included in exploration costs and management fees to a company controlled by the Company’s President, Jo Shearer.
c) The Company paid directors’ fees performed by directors of $Nil (September 30, 2012 - $Nil).
d) Royalties totaling $NIL (September 30, 2012 - $3,854) were accrued to a company controlled by the President, Jo Shearer.
e) Royalties totaling $12,647 (September 30, 2012 - $5,782) were paid or accrued to the spouse of a former director, Jackie Howich.
Due to Related Parties
As at September 30, 2013, amounts due to directors, officers and companies with a common director or officer for royalties, fees and expenses aggregated $1,094,675 (December 31, 2012 - $897,856). Amounts due to related parties are unsecured and non-interest bearing with no fixed terms of repayment accordingly fair value is not readily determinable.
Transactions with related parties have been valued in these financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
8. ROYALTIES PAYABLE
The Company entered into a Participation and Royalty Agreement with the Quatsino First Nation, dated August 20, 2003, which grants the Company the exclusive right to mine certain claims over the term of the agreement expiring June 30, 2013. As consideration, Homegold Resources Ltd. (owned by the President of the Company) transferred 400,000 common shares of the Company to the Quatsino First Nation and a member has been appointed as director of the Company. A
royalty of $1.00 per metric tonne is also payable. Payment for one half of the royalty is deferred until production exceeds 200,000 metric tonnes in a calendar year. As at June 30, 2013, an amount of $409,134 (December 31, 2012 - $396,239) is owed under this deferral arrangement. On March 13, 2006, the Company received a long-term permit from the B.C. Ministry of Energy and Mines to mine up to 249,000 metric tonnes annually. The Company has not produced in excess of 200,000 metric tonnes in any year and does not expect to produce in excess of 200,000 metric tonnes in 2013 and, therefore, the amount owing under the deferral arrangement has been classified as a non-current liability at June 30, 2013.
9. ASSET RETIREMENT OBLIGATION
As of December 31, 2012, the Company has recorded an estimate for the future cost of reclaiming the Apple Bay mine in the amount of $127,013 (2011 - $119,218). The Company recorded $7,795 (2011 - $6,717) of accretion during the 2012 year. The estimate reflects the present value to reclaim the quarry and mitigation system, involving re-sloping, re-contouring and re-vegetation of the property, on approximately seven hectares of land area. The Company anticipates the cost of reclamation work commencing in 2017 at $170,000 and has used a net discount rate of 6.0%.
The estimate is subject to measurement uncertainty with respect to costs in the local market for third parties to perform the work, the actual timing of reclamation, the inflation and discount rate used.
10. SHARE CAPITAL
a) Authorized
Unlimited number of common shares without par value
Unlimited number of class A preference shares without par value; none issued
b) Issued and Outstanding
Period Ended September 30, 2013
i) On June 6, 2013, the Company issued 2,000,000 shares at a deemed value of $10,000
pursuant to the Everton Resources Gold Ledge agreement.
ii) On March 5, 2013, the Company issued 2,000,000 shares at a deemed value of $30,000
pursuant to the 3 Monster purchase agreement.
10. SHARE CAPITAL (Continued)
Year Ended December 31, 2012
iii) On February 2, 2012, the Company issued 100,000 shares at a value of $3,000 pursuant to the Apex Dot option agreement.
iv) On September 26, 2012 the Company issued 2,000,000 shares at a value of $20,000 pursuant to the Golden Ridge property agreement.
c) Stock Options
The Company maintains a stock option plan for directors, officers, employees and consultants and may issue share purchase options up to 10% of the issued share capital of the Company at the market price of the Company's shares on the date of grant. The options can be granted for a maximum term of 5 years and vesting is determined by the
directors.
The following table summarizes the Company’s stock option activity during the quarter ended June 30, 2013 and year ended December 31, 2012. The options issued vested immediately and have a two year term. The remaining weighted average life of outstanding options at June 30, 2013 is Nil and December 31, 2012 was 0.5 years.
11. NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company recorded non-cash investing and financing activities as follows:
During the period ended September 30, 2013
- The Company issued 2,000,000 shares for property in the amount of $0.05 per share for a total value of $10,000.
- The Company issued 2,000,000 shares for property in the amount of $0.015 per share for a total value of $30,000.
During the year ended December 31, 2012
- The Company issued 100,000 shares for property payments in the amount of $0.03 per share and 2,000,000 shares for property payments in the amount of $0.01 per share for a total value of $23,000.
12. SEGMENTED INFORMATION
The Company currently conducts substantially all of its operations in Canada in two business segments, being the mining of industrial mineral properties, and exploration for gold and other industrial minerals.
During the period ended September 30, 2013, 100% of revenue was from one customer $424,829 (2012 - $207,974 and 100%). These sales are pursuant to a purchase agreement dated April 1, 2004, which is for an initial term of five years and was renewed for an additional 5 years in 2009 by mutual agreement.
13. MANAGEMENT OF CAPITAL
The Company considers its capital to include all components of debt and shareholders’ equity. Its objectives are to ensure that the Company continues to operate as a going concern, if possible, in order to pursue the operation of its mine property and the development of its mineral properties, to sustain future development and growth as well as to maintain a flexible
capital structure which optimizes the costs of capital at an acceptable risk.
The Company manages the capital structure and makes adjustments to it in light of changes in the economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue new shares, seek debt financing, or acquire or dispose of assets. The Company, upon approval from its Board of
Directors, makes changes to its capital structure as deemed appropriate under the specific circumstances.
There were no changes to the Company’s approach to capital management during the period ended September 30, 2013. The Company is not subject to any external covenants.
14. SUBSEQUENT EVENTS
Subsequent to September 30, 2013:
-
On November 14, 2013 the Company shipped another barge (#116) of chalky geyserite to
Ash Grove.
Form 52-109FV2
Certification of Interim Filings
Venture Issuer Basic Certificate
I, Jo Shearer, CEO, and Director of Electra Gold Ltd., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Electra Gold Ltd. (the “issuer”) for the interim period ended September 30, 2013.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: November 28, 2013
“Jo Shearer”
Jo Shearer
CEO and Director
Form 52-109FV2
Certification of Interim Filings
Venture Issuer Basic Certificate
I, Ron Savelieff, CFO, and Director of Electra Gold Ltd., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Electra Gold Ltd. (the “issuer”) for the interim period ended September 30, 2013.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: November 28, 2013
“Ron Savelieff”
Ron Savelieff
CFO and Director
