GUYANA GOLDFIELDS INC. › 896225004 › files › doc_financials › 2017 › Q… · The...

GUYANA GOLDFIELDS INC. Condensed Consolidated Interim Financial Statements

FIRST QUARTER 2017

FIRST QUARTER 2017

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GUYANA GOLDFIELDS INC. Condensed Consolidated Interim Statements of Financial Position (Unaudited - Expressed in thousands of U.S. Dollars)

March 31, 2017 December 31, 2016

ASSETS

Current assets

Cash and cash equivalents (Note 4) $ 75,431 $ 73,151 Available for sale security (Note 5) 55,759 30,699 Accounts receivable, prepaid expenses and other assets 6,191 5,531 Deposits with suppliers 10,396 7,081 Inventories (Note 6) 28,913 28,904

Total current assets 176,690 145,366 Non-current assets

Restricted cash 1,197 1,184 Mineral properties, plant and equipment (Note 7) 275,544 275,370 Derivative asset (Note 8) 42 1,025 Deferred tax asset 15,309 15,890

Total assets $ 468,782 $ 438,835

LIABILITIES AND EQUITY

Current liabilities

Accounts payable and accrued liabilities $ 9,665 $ 14,320 Current portion of long-term debt 19,603 19,603 Derivative liability (Note 8) 237 -

Total current liabilities 29,505 33,923 Non-current liabilities

Long-term debt (net) 54,014 58,810 Asset retirement obligations 5,003 4,988 Restricted Share Unit (RSU) liability 146 28 Deferred tax liability 7,162 4,240

Total liabilities $ 95,830 $ 101,989 EQUITY

Share capital (Note 9) $ 498,907 $ 490,600 Stock options (Note 10) 4,865 5,999 Contributed surplus 26,824 26,824 Accumulated other comprehensive income 39,695 20,698 Accumulated deficit (197,339) (207,275)

Total equity $ 372,952 $ 336,846 Total liabilities and equity $ 468,782 $ 438,835

The notes on pages 4 to 16 are an integral part of these condensed consolidated interim financial statements. Commitments and Contingencies (Note 13)

FIRST QUARTER 2017

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GUYANA GOLDFIELDS INC. Condensed Consolidated Interim Statements of Comprehensive Income (Unaudited - Expressed in thousands of U.S. Dollars)

Three months ended

March 31, 2017 March 31, 2016 Revenues

Metal sales $ 49,957 $ 48,530

Cost of sales Production costs 21,003 21,284 Royalty 3,984 3,869 Depreciation 8,653 5,977

Earnings from mine operations 16,317 17,400 Corporate general and administrative expenses 1,960 1,151 Exploration and evaluation expenses 979 222 Stock-based compensation (Note 10) 934 344 Depreciation 10 81

Earnings before finance income and taxes 12,434 15,602 Net finance expense (Note 11) 2,043 4,107

Earnings before tax 10,391 11,495 Tax expense (Note 12) 453 4,478

Net earnings 9,938 7,017 Other Comprehensive Income

Unrealized gain on available-for-sale security, net (Note 5) 18,997 - COMPREHENSIVE INCOME $ 28,935 $ 7,017

Net earnings per share Basic 0.06 0.05 Diluted 0.06 0.04 Weighted average number of shares outstanding

Basic 171,535,049 152,754,624 Diluted 174,491,678 157,475,484

The notes on pages 4 to 16 are an integral part of these condensed consolidated interim financial statements.

FIRST QUARTER 2017

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GUYANA GOLDFIELDS INC. Condensed Consolidated Interim Statements of Cash Flows (Unaudited - Expressed in thousands of U.S. Dollars)

Three months ended

March 31, 2017

March 31, 2016 (restated)

Cash provided by (used in)

Operating cash flows

Net income $ 9,938 $ 7,017 Items not involving cash:

Depreciation 8,663 6,058 Deferred tax expense 454 4,478 Finance expense (note 11) 2,192 3,620 Stock-based compensation 1,111 344

Change in operating working capital balances: Change in inventory (8) (1,201) Deposits with suppliers - (1,009) Accounts receivable, prepaid expenses and other assets (777) 205 Accounts payable and accrued liabilities (4,655) 6,609

$ 16,918 $ 26,121 Financing cash flows

Repayment of loan facility (5,000) (6,800) Interest on loan facility (Note 13) (950) (2,484) Proceeds from exercise of stock options 3,308 1,618

$ (2,642) $ (7,666) Investing cash flows

Expenditures on development - (11,619) Additions to mineral properties, plant and equipment (8,344) (4,222) Deposits with suppliers (3,195) (1,165) Release of restricted cash, net - 4,000

$ (11,539) $ (13,006)

Net change in cash and cash equivalents $ 2,737 $ 5,449 Effect of exchange rate on cash held in foreign currency (457) 172 Cash and cash equivalents, beginning of period 73,151 12,899

Cash and cash equivalents, end of period (Note 5) $ 75,431 $ 18,520

See note 16 for changes to comparative presentation.

The notes on pages 4 to 16 are an integral part of these consolidated financial statements.

FIRST QUARTER 2017

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GUYANA GOLDFIELDS INC. Condensed Consolidated Interim Statements of Changes in Equity (Unaudited - Expressed in thousands of U.S. Dollars)

The notes on pages 4 to 16 are an integral part of these consolidated financial statements.

GUYANA GOLDFIELDS INC. FIRST QUARTER 2017 Notes to the Condensed Consolidated Interim Financial Statements For the three months ended March 31, 2017 and 2016 (Unaudited - Expressed in thousands of U.S. Dollars, unless otherwise indicated)

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1. NATURE OF OPERATIONS Guyana Goldfields Inc. (the "Company" or "Guyana Goldfields") is a company domiciled in Canada and was incorporated on December 12, 1994, under the Canadian Business Corporations Act. The Company shares are publicly traded on the Toronto Stock Exchange (TSX:GUY). The Company’s head office is registered at 141 Adelaide Street West, Suite 1608, Toronto, Ontario, Canada.

Guyana Goldfields Inc. and its wholly owned subsidiaries are engaged in the acquisition, exploration, development and operation of precious metal mineral properties, principally in Guyana, South America. The Company’s primary asset is its wholly owned Aurora Gold Mine, located in Guyana South America. On January 1, 2016 the Company declared commercial production of the Aurora Gold Mine.

2. BASIS OF PRESENTATION

(a) Statement of compliance

These condensed consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”), as applicable to the preparation of interim financial statements, including International Accounting Standard 34 (“Interim Financial Reporting”). The condensed consolidated interim financial information should be read in conjunction with the annual audited financial statements for the year ended December 31, 2016, which have been prepared in accordance with IFRS.

The preparation of consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities and expenses. See Note 4 for significant judgements, estimates and assumptions.

The condensed interim consolidated financial statements were authorized for issue by the Board of Directors on May 1, 2017.

(b) Functional and presentation currency of presentation

These consolidated financial statements are presented in United States dollars, which is the functional currency of the Company and all its subsidiaries. All financial information presented in United States dollars has been rounded to the nearest thousand. Some figures in these statements have been expressed in Canadian Dollars (Cdn$) for information purposes, and have been denoted as such.

(c) Use of estimates and judgements

The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continually evaluated and are based on management's experience and other factors, including expectations of


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future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ materially from these estimates.

The significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended December 31, 2016.

3. ACCOUNTING POLICIES The accounting policies followed in these unaudited condensed consolidated interim financial statements are the same as those applied in the Company’s audited consolidated financial statements for the year ended December 31, 2016.

(a) New Accounting Pronouncements not yet adopted

The following new standards, new interpretations and amendments to standards and interpretations have been issued but are not effective until financial years beginning on or after January 1, 2017 and have not been early adopted. Pronouncements that are not applicable to the company have been excluded from those described below.

Accounting standards effective on or after January 1, 2017:

IFRS 15 (Revenue Recognition) - The International Accounting Standards Board (“IASB”) has issued a new standard for the recognition of revenue, IFRS 15 – Revenue from Contracts. This standard will replace IAS 18 which covers contracts for goods and services and IAS 11 which covers construction contracts. The new standard is based on the principle that revenue is recognized when control of a good or service transfers to a customer, so the notion of control replaces the existing notion of risks and rewards. The standard permits a modified retrospective approach for the adoption. Under this approach, entities recognize transitional adjustments in retained earnings on the date of initial application (i.e. January 1, 2018), without restating the comparative period. Entities will only need to apply the new rules to contracts that are not completed as of the date of initial application. The standard is effective for annual reporting periods beginning on or after January 1, 2018. Early adoption is permitted. The Corporation is currently evaluating the impact that the adoption will have on its results of operations, financial position and disclosures.

IFRS 9 (Financial Instruments) - IFRS 9 addresses the classification, measurement and de-recognition of financial assets and financial liabilities and introduces new rules for hedge accounting. In July 2014, the IASB made further changes to the classification and measurement rules and also introduced a new impairment model. These latest amendments now complete the new financial instruments standard. IFRS 7 (Financial Instruments: Disclosure) addresses the disclosure of financial assets and financial liabilities in the financial statements. IFRS 7 will be amended to require additional disclosures on transition from IAS 39 to IFRS 9, effective on adoption of IFRS 9. IFRS 9 is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. The Company has evaluated the standard and has concluded that the application of IFRS 9 will not have a material impact on its financial statements.


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IFRS 16 (Leases) - In January 2016, the IASB issued IFRS 16 – Leases which establishes the principles that an entity should use to determine the recognition, measurement, presentation and disclosure of leases for both parties to a contract: the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 replaces the previous leases Standard, IAS 17, Leases, and related Interpretations. IFRS 16 is effective from January 1, 2019 though a company can choose to apply IFRS 16 before that date but only in conjunction with IFRS 15 Revenue from Contracts with Customers. The Company is currently assessing the impact of this standard.

4. CASH AND CASH EQUIVALENTS At March 31, 2017, the Company held $75.4 million of cash (December 31, 2016 - $73.1 million) with approximately $56.8 million (December 31, 2016 - $56.8 million) denominated in United States dollars, with the remaining predominantly in Canadian dollars. Cash is deposited primarily in Canadian chartered banks and financial institutions.

5. AVAILABLE FOR SALE SECURITY During 2016 the Company purchased a combined 103.2 million shares of SolGold Plc (“SolGold”) for total consideration of $10 million pursuant to SolGold’s capital raisings that closed on September 2, 2016 and October 17, 2016. SolGold is traded on the AIM London Stock Exchange (LON:SOLG).

Fair market value of the shares at the date of these financial statements is $55.8 million, resulting in accumulated other comprehensive income of $39.7 million recorded in equity, which is presented net of tax.

Current period unrealized gain presented through other compressive income breaks down as follows:

Three months ended March 31, 2017 March 31, 2016 Unrealized Gain $ 25,059 $ - Less tax liability (Note 12) (6,062) - Other comprehensive income $ 18,997 $ -

6. INVENTORIES

March 31, 2017 December 31, 2016

Ore stockpiled $ 2,195 $ 5,180 In-circuit 3,717 2,082 Finished goods 2,824 1,709 Materials and supplies 20,177 19,933 Total $ 28,913 $ 28,904

The amount of depreciation included in inventory at March 31, 2017 is $1.9 million (December 31, 2016 – $2.5 million).


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7. MINERAL PROPERTIES, PLANT AND EQUIPMENT

8. DERIVATIVE ASSETS The Company has entered into diesel swap contracts to mitigate risk associated with volatility in diesel price. The Company has not applied hedge accounting to these derivative contracts. The swap contracts are fair valued at each balance sheet date, with the movement in fair value recognized through “net finance income (expense)” in net earnings (loss). The mark-to-market fair values of all contracts is determined by using inputs that are observable and determined using standard valuation techniques. Derivative instruments are classified within Level 2 of the fair value hierarchy.

The diesel commodity swap forward contracts are secured under the Loan Facility and documented in the form of an International Swap and Derivatives Association (“ISDA”) master agreement.

During the quarter, the Company entered into an additional 3.6 million litres of diesel swap contracts, settling monthly in 2019, at an average rate of $0.46/litre.


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The following is a summary of the Company’s commitments for diesel forward contracts at March 31, 2017:

Year Contracted operating

expenses Number of litres

hedged Average rate per litre

(US cents/litre) 2017 $ 3,842 8,400,000 $ 0.46 2018 5,888 14,400,000 0.41 2019 4,950 10,800,000 0.46

Total $ 14,680 33,600,000 $ 0.44

The fair market value of the open contracts at the balance sheet dates is as follows:

March 31, 2017 December 31, 2016 Derivative asset $ 42 $ 1,092 Derivative liability (237) - Fair market value $ (195) $ 1,092

The realized and unrealized gain (loss) in these condensed consolidated statements of comprehensive income is as follows:

Three months ended March 31, 2017 March 31, 2016 Realized loss on diesel swap instruments $ 54 $ 448 Unrealized loss (gain) on diesel swap instruments 1,287 (115) Total realized and unrealized loss on derivative instruments $ 1,341 $ 333

9. SHARE CAPITAL The Company is authorized to issue an unlimited number of common shares. The issued and outstanding common shares consist of the following:

Number of Shares Amount

At December 31, 2015 152,438,149 $ 383,695 Issued on exercise of options 4,285,324 5,989 Fair value of options exercised - 3,086 Issued on Prospectus Offering (i) 14,330,000 103,462 Share issue expenses (ii) - (5,632) At December 31, 2016 171,053,473 $ 490,600 Issued on exercise of options 1,478,660 3,308 Fair value of options exercised - 1,985 Deferred tax recovery on share issuance costs (Note 12) - 3,014 At March 31, 2017 172,532,133 $ 498,907


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(i) On July 19, 2016, the Company closed a bought deal offering (the “Prospectus Offering”) pursuant to which the

Company issued 12,830,000 common shares (the “Common Shares”), at a price of Cdn$9.40 per Common Share for gross proceeds of $92.6 million (or approximately Cdn$120.6 million). The Common Shares were sold pursuant to an underwriting agreement with a syndicate of underwriters. On August 22, 2016, the Company closed the over-allotment option by the underwriters and issued an additional 1,500,000 common shares (the “Common Shares”), at a price of $9.40 per Common Share for gross proceeds of 10.9 million (or approximately Cdn$14.1 million).

(ii) Share issue expenses represent underwriters’ commission relating to the Offering, and legal and regulatory costs associated with both the above-mentioned Prospectus Offering.

10. STOCK BASED COMPENSATION The following share based payments have been recognized in these statements of comprehensive income:

Stock option plan

(equity settled) RSU plan

(cash settled) Total Production Costs $ 87 $ 74 $ 160 Corporate administration 749 185 934 Exploration and evaluation 16 2 17 3 Months ended March 31, 2017 $ 851 $ 260 $ 1,111

Production Costs $ - $ - $ - Corporate administration 344 - 344 Exploration and evaluation - - - 3 Months ended March 31, 2016 $ 344 $ - $ 344

(a) Stock option plan

The stock option plan of the Company (the “Option Plan”) was approved by the shareholders on May 15, 2015, amended and restated as of February 4, 2016. The exercise price of stock options granted in accordance with the plan will be not less than the closing price of the common shares on the trading day immediately prior to the effective date of grant. All option exercises to be settled in the Company’s shares.


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The following table shows the continuity of stock options during the periods presented:

The following are the stock options outstanding and stock options exercisable as at March 31, 2017:

(b) Restricted share unit plan

In May 2015, the Company established a restricted share unit (“RSU”) plan, to provide Directors, Senior Officers and Key Employees of the Company in order to allow them to participate in the long-term success of the Company. Each RSU has the same value as on Guyana Goldfields common share. RSU’s issued to date have the following vesting schedule: one third on the first anniversary of the date of grant; one third on second anniversary of the date of grant; and one third on the third anniversary of the date of grant. On vesting, all share units are to be settled by cash of the Company.

The fair value of the RSU liability at March 31, 2017 was $0.5 million (December 31, 2016 – $0.1 million).


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11. NET FINANCE EXPENSE (INCOME)

12. INCOME TAXES On an interim basis, income tax expense is recognized based on Management’s estimate of the corporate annual income tax rate expected for the full year applied to the pre-tax income of the interim period.

Three months ended March 31, 2017 March 31, 2016 Current income tax expense $ 3,502 $ 4,478 Deferred income tax benefit (3,048) - Income tax expense $ 453 $ 4,478

The deferred income tax benefit recognized during the current period relates to previously unrecognized deferred tax assets that have now been recognized as a result of the deferred tax on the available for sale investment through other comprehensive income. The unrealized gain on available for sale investment recognized through accumulated other comprehensive income has been shown net of the following estimated tax impact (see note 5).

Three months ended March 31, 2017 March 31, 2016 Unrealized gain on available for sale investment $ 45,758 $ 0 Capital gain exemption 50% 50% Taxable capital gain $ 22,879 $ - Corporate tax rate 26.50% 26.50% Tax on unrealized gain $ 6,062 $ -

Deferred tax recovery recognized in equity (Note 9) $ 3,014 $ - Deferred tax recovery recognized in net income 3,049 - Total deferred tax recovery recognized $ 6,063 $ 0


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13.COMMITMENTS AND CONTINGENCIES The Company is committed to $94.5 million for obligations under the debt facility, contractual commitments, purchases of equipment goods and services, and operating leases, summarized as follows:

Contractual obligations exist with respect to royalties, however the amount cannot be estimated with certainty as is dependent on net revenues, which is a function of gold price and volume of ounces sold.

14. SEGMENTED INFORMATION As at March 31, 2017, the Company’s operations comprise a single reporting operating segment engaged in mineral exploration, development and production in Guyana. As the operations comprise a single reporting segment, amounts disclosed in the consolidated financial statements also represent segment amounts.

Geographical Information

The following geographical information is provided as supplemental information to users of the financial statements to further describe the Company’s operations:

As at and for the three months ended March 31, 2017 Guyana Canada Other Total Mineral properties, plant and equipment $ 275,544 $ - $ - $ 275,544 Total assets 336,348 132,347 87 468,782 Total liabilities 95,046 778 6 95,830 Gross profit 16,317 - - 16,317 Other expenses (revenue), including tax 7,017 (689) 51 6,379 Net income (loss) 9,300 689 (51) 9,938


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Geographical segment information (continued)

As at and for the three months ended March 31, 2016 Guyana Canada Other Total Mineral properties, plant and equipment $ 274,426 $ 30.0 $ - $ 274,456 Total assets 324,645 40,826 86 365,471 Total liabilities 171,050 1,617 6 172,676 Gross profit 17,400 - - 17,400 Other expenses, including tax 9,130 1,202 51 10,383 Net Income $ 8,270 $ (1,202) $ (51) $ 7,017

15. RELATED PARTY TRANSACTIONS Remuneration of key management personnel of the Company was as follows:

Three months ended March 31, 2017 March 31, 2016 Compensation – salaries and related benefits $ 520 $ 386 Directors fees 69 59 Share-based compensation 544 198 Total $ 1,133 $ 643

Key management personnel are defined as the senior management team and members of the Board of Directors. All the above related party transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

16. CHANGES TO COMPARATIVE PRESENTATION The condensed interim consolidated statement of cash flows for three months ended March 31, 2016 reflects the retrospective application of a voluntary change in accounting policy adopted in 2017 to classify, in the consolidated statements of cash flows, interest paid as a financing activity, instead of within operating activities, as previously reported.

The change in accounting policy was adopted in accordance with IAS 7, Statement of Cash Flows, which provides a policy choice to classify interest paid as either an operating activity, or a financing activity. The Company considers the classification of these interest payments within financing activities to be the most useful to financial statement users and, consequently, that this presentation results in reliable and more relevant information.


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The following table outlines the effect of this accounting policy change for the three months ended March 31, 2016:

Previously reported

Amount of restatement

Restated March 31, 2016

Cash used by operating activities $ 23,637 $ 2,484 $ 26,121 Cash used by financing activities $ (5,182) $ (2,484) $ (7,666)

Previously reported

Amount of restatement

Restated March 31, 2016

Cash used by operating activities $ 23,637 $ 2,484 $ 26,121 Cash used by financing activities $ (5,182) $ (2,484) $ (7,666)

GUYANA GOLDFIELDS INC. › 896225004 › files › doc_financials › 2017 › Q… · The...

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