Orosur Mining Inc. Condensed Interim Consolidated Financial Statements For the three and six month period ended November 30, 2014

Transcription

1 Condensed Interim Consolidated Financial Statements For the three and six month period ended 2014 Notice to the reader The accompanying unaudited condensed interim financial statements of the Company have been prepared by and are the responsibility of management. The unaudited condensed interim financial statements have not been reviewed by the Company's auditors. Contents Condensed Interim Consolidated Statements of Financial Position 2 Condensed Interim Consolidated Statements of Income and Comprehensive Income 3 Condensed Interim Consolidated Statements of Cash Flows 4 Condensed Interim Consolidated Statements of Changes in Shareholders Equity 5 Selected explanatory notes 6 23

2 Condensed Interim Consolidated Statements of Financial Position Note Ref. As at 2014 ($) As at May 31, 2014 ($) Assets Cash and cash equivalents 6,815 10,818 Accounts receivables and other assets 4 2,791 3,338 Inventories 5 14,969 14,254 Total current assets 24,575 28,410 Accounts receivables and other assets Property plant and equipment and development costs 6 33,576 37,323 Exploration and evaluation costs 7 44,469 35,813 Deferred income tax assets 13 6,063 5,470 Restricted cash Total non-current assets 84,810 79,278 Total assets 109, ,688 Liabilities and Shareholders Equity Trade payables and other accrued liabilities 4 14,620 13,343 Current portion of long-term debt 18 2,681 3,978 Environmental rehabilitation provisions Total current liabilities 17,899 17,919 Long-term debt Environmental rehabilitation provisions 8 5,448 5,828 Total non-current liabilities 5,959 6,789 Total liabilities 23,858 24,708 Capital stock 9 60,544 55,184 Warrants Contributed surplus 5,876 5,708 Retained earnings 19,045 22,088 Total shareholders equity 85,527 82,980 Total liabilities and shareholders equity 109, ,688 Approved on behalf of the Board of Directors Ignacio Salazar Chief Executive Officer Daniel J. Moretti Chief Financial Officer The accompanying notes are an integral part of these unaudited interim consolidated financial statements. 2

3 Condensed Interim Consolidated Statements of Profit (Loss) and Comprehensive Profit (Loss) Thousands of United States Dollars, except for earnings per share amounts Note Ref. Three months ended Six months ended 2014 ($) 2013 ($) 2014 ($) 2013 ($) Sales 17,404 20,375 33,930 43,320 Cost of sales 20 (18,925) (16,194) (35,399) (36,093) Gross profit (1,521) 4,181 (1,469) 7,227 Corporate and administrative expense (993) (901) (1,875) (1,732) Exploration and evaluation expenses written off (4) (374) (33) (890) Other income Finance cost 19 (57) - (152) (120) Finance income Net foreign exchange gain (loss) (29) (285) (882) (1,473) (1,644) (2,601) (Loss) profit before income tax (2,403) 2,708 (3,113) 4,626 Recovery (Provision) for income taxes 13 1, (2,125) Total (loss) profit for the period (1,244) 3,537 (2,524) 2,501 Other comprehensive loss Foreign exchange differences on translating foreign operations (466) - (520) - Total comprehensive (loss) profit for the period (1,710) 3,537 (3,044) 2,501 (Loss) profit per common share Basic and fully diluted 17 (0.02) 0.05 (0.04) 0.03 The accompanying notes are an integral part of these unaudited interim consolidated financial statements. 3

4 Condensed Interim Consolidated Statements of Cash Flows Note Ref. Six months ended 2014 ($) 2013 ($) Net inflow (outflow) of cash related to the following activities Cash flow from operating activities Net (loss) profit for the period (2,524) 2,501 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation 7,682 8,746 Exploration and evaluation expenses Accretion of asset retirement obligation Deferred income tax assets 13 (593) 2,162 Stock based compensation Gain on sale of property, plant and equipment (156) 9 Others (190) 3 Subtotal 4,361 13,594 Changes in operating assets and liabilities Accounts receivables and other assets Inventories (716) 1,894 Trade payables and other accrued liabilities 650 (3,423) Net cash generated from operating activities 4,861 12,305 Cash flow from financing activities Repayment of long-term debt 18 (2,508) (1,985) Net cash used in financing activities (2,508) (1,985) Cash flow from investing activities Purchase of property, plant and equipment and development costs 6 (4,506) (1,856) Environmental tasks 8 (419) (2,276) Proceeds from the sale of fixed assets Exploration and evaluation expenditure assets 7 (2,198) (3,004) Net cash used in investing activities (6,356) (7,136) (Decrease) Increase in cash and cash equivalents (4,003) 3,184 Cash and cash equivalents at the beginning of period 10,818 5,633 Cash and cash equivalents at the end of period 6,815 8,817 The accompanying notes are an integral part of these unaudited interim consolidated financial statements. 4

5 Condensed Interim Consolidated Statements of Changes in Shareholders Equity Six months ended 2014 ($) 2013 ($) Capital stock Balance at beginning of period 55,184 55,184 Issued for Waymar acquisition 5,360 - Balance at end of period 60,544 55,184 Broker Warrants Balance at beginning of period Issued for Waymar acquisition 62 - Expiration - (276) Balance at end of period 62 - Contributed surplus Balance at beginning of period 5,708 5,534 Employee stock based compensation recognized Issued for Waymar acquisition 94 - Balance at end of period 5,876 5,629 Retained earnings Balance at beginning of period 22,088 16,965 Warrant expiration Net loss for the period (2,524) 2,501 Currency translation reserve (520) - Balance at end of period 19,045 19,742 Shareholders equity at end of period 85,527 80,555 The accompanying notes are an integral part of these unaudited interim consolidated financial statements. 5

6 1. Nature of Operations Orosur Mining Inc. (Orosur or the Company ) is a gold producer and exploration company focused on identifying and developing mineral opportunities either directly or through earn-in agreements. Orosur was incorporated and is domiciled in Canada and is governed by the corporate laws of the Yukon Territory, Canada. The Company s shares are listed on the Toronto Stock Exchange (TSX) in Canada and the Alternative Investment Market (AIM) of the London Stock Exchange in the United Kingdom. The Company s corporate office is located at Avenida Cerro Colorado 5240, suite 602, Torres Las Condes, Santiago de Chile, Chile, and the address of its registered office is 36 Toronto Street, Suite 1000, Toronto, Ontario M5C 2C5. Orosur operates in Uruguay, Chile and Colombia. In Uruguay, the Company operates the San Gregorio gold operations, has land holdings with active near mine and regional exploration programs and has entered into contractual arrangements with third parties to develop iron ore, base metals and diamond projects on its mining tenements. Gold is produced in the form of doré, which is shipped to refineries for final processing. In Chile, the Company conducts exploration and development activities. On July 10, 2014, the Company completed the acquisition of Waymar Resources Ltd. which has exploration properties in Colombia (Note 3). 2. Basis of preparation These unaudited condensed interim consolidated financial statements were prepared in accordance with International Financial Reporting Standards ( IFRS ) and IFRIC interpretations, as issued by the International Accounting Standards Board ( IASB ), applicable to the preparation of unaudited condensed interim consolidated financial statements, including International Accounting Standard ( IAS ) 34, Interim Financial Reporting. These unaudited condensed interim consolidated financial statements do not include all disclosures required by IFRS for an annual consolidated financial statement and accordingly should be read in conjunction with the Company s annual financial statements for the year ended May 31, The accounting policies followed in these unaudited condensed interim consolidated financial statements are those applied in the Company s financial statements for the year ended May 31, 2014, as set out in Note 3. The preparation of these interim financial statements requires the use of certain significant accounting estimates and judgment by management in applying the Company s accounting policies. The areas involving significant judgment and estimates have been set out in Note 4 of the Company s audited consolidated financial statements for the year ended May 31, Functional and presentation currency The functional and presentation currency of the Company is the United States dollar. All of the Company's entities have the United States dollar as the functional currency, except for B.C. Ltd., Cordillera Holdings International Ltd. and Minera Anzá S.A., which functional currency is the Canadian dollar and Minera Anzá S.A. (Colombia branch), which functional currency is the Colombian peso. The results of operations and financial position of all the Company s entities that have a functional currency different from the presentation currency (United States dollar) are translated into the presentation currency as follows: 6

7 a) Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; b) Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and c) All resulting exchange differences are recognized in other comprehensive income under caption Currency translation reserve. These unaudited condensed interim consolidated financial statements were prepared on a going concern basis under the historical cost method except for certain financial assets and liabilities which are measured at fair value, and were approved by the Board of Directors for issue on January 14, Asset acquisition On July 10, 2014, the Company completed the acquisition of Waymar Resources Ltd. ( Waymar ). Under the transaction, the Company acquired all of the issued common shares of Waymar at an exchange ratio of Orosur common shares for each Waymar common share. As a result, 18,466,938 Orosur common shares were issued and 49,245,170 Waymar common shares were cancelled. The fair value of the 18,466,938 Orosur common shares issued as part of the transaction was based on the published share price as of July 9, 2014 (C$ 0.31 per Orosur common share). As part of the transaction, Waymar share options to acquire Waymar common shares were converted to Orosur share options to acquire Orosur common shares. As a result, 1,500,000 Waymar share options were converted to 562,500 Orosur share options (Note 10) using the exchange ratio of The exercise price (C$ 0.267) of the converted options was calculated by dividing the Waymar exercise price by the exchange ratio and the expiry date of these options is the earlier of the original expiration date and July 10, Additionally, Orosur issued 450,000 share purchase warrants, (Note 11) in exchange for 1,200,000 Waymar share purchase warrants held by Continental Gold Limited. The exercise price (C$ 0.333) of these warrants was calculated by dividing the Waymar exercise price by the exchange ratio and the expiry date of these warrants is March 3, All of Waymar s properties mining titles are fully owned by Minera Anza S.A., a subsidiary of Waymar. Waymar s Anza gold project is located in the Middle Cauca Belt in Antioquia, Colombia that includes Buritica, Titiribi, Marmato and La Colosa. For accounting purposes, Waymar is not considered a business under IFRS 3 Business Combinations as at the time of the acquisition as it is not capable of generating outputs that can provide a return to Orosur. As a result, the Waymar transaction has been accounted for as an asset acquisition with share based consideration. Transaction costs incurred by Orosur related to the Waymar transaction have been capitalized as part of the consideration amount. The purchase price was calculated as follows: 7

8 Number (000's) $ Common shares: 18,467 5,360 Warrants: Stock options: Transaction costs: 418 Total purchase price: 5,934 For the purpose of these consolidated financial statements, the following table sets forth an allocation of the purchase price to assets and liabilities acquired. $ Cash and cash equivalents 19 Other receivables 13 Short term investments 2 Fixed Assets 41 Mineral properties 6,970 Accounts payable and accruals (627) Promissory note payable (484) Total purchase price: 5, Accounts receivable and other assets, trade payables and other accrued liabilities (i) Accounts receivable and other assets 2014 ($) May 31,2014 ($) Tax receivables (a) 1,740 1,697 Prepaid expenses (b) 710 1,148 Marketable securities 8 8 Miscellaneous receivable (c) Total accounts receivable 2,791 3,338 Non current Miscellaneous receivable (d) (a) Tax receivables consist of refunds to be collected for Uruguayan Value Added Tax and Canadian HST. (b) Includes advance payments to suppliers. 8

9 (c) Current miscellaneous receivable consists of expenses to be reimbursed by farm-out partners and suppliers and mining services provided to third parties. (d) Non-current miscellaneous receivable represents a prepayment made to a supplier to start the raise boring of the Arenal underground. The supplier was unable to provide the services. As a result, the Company initiated negotiations to recover the amount. A positive arbitration award was received on April 3, 2014 but the amount is expected to be recovered in more than one year. (ii) Trade payables and other accrued liabilities 2014 ($) May 31,2014 ($) Commercial suppliers 9,796 8,209 Salaries, labour benefits and social security contributions 4,255 4,710 Mining royalties, income tax and other taxes Total trade payables and other accrued liabilities 14,620 13, Inventories 2014 ($) May 31, 2014 ($) Ore in stockpiles (i) Gold in circuit 2,689 2,895 Finished metals Mine operating supplies 11,625 10,838 Total inventories 14,969 14,254 (i) Ore in stockpiles includes material that the Company processes within its normal operation cycle. Realization of ore in stockpiles within the next twelve months is subject to the Company s discretion as such ore is usually blended with ore mined and transported directly to the processing plant to optimize production. The Company does not carry stockpiles to be processed in the long term. Ore in stockpiles is carried at its net realizable value of $642 (May 31, $495) which is lower than its accumulated average production cost of $745 (May 31, $1,810). 9

10 6. Property, plant and equipment and development costs Cost Tangible fixed assets (1) Environment al rehabilitation provision Tangible underground development costs (2) Development costs Open pit and development costs (3) E&E not subject to depreciation (4) Deferred stripping asset (6) Balance May 31, 2013 $ 71,500 8,294 24,842 47,931 4, ,096 Additions $ ,856 Reclassification from E&E (5) $ (37) - - (37) Others $ (220) - - (220) Disposals $ (2) (2) Balance Nov 30, 2013 $ 72,031 8,294 25,771 47,674 4, ,693 Additions $ 1,737 2, ,478 Reclassification from E&E (5) $ , ,116 Others $ (23) Disposals $ (143) (143) Balance May 31, 2014 $ 73,602 10,914 26,675 49,637 5, ,389 Additions $ 2, ,506 Reclassification from E&E (5) $ ,512 (1,512) - - Others $ Disposals $ (2,541) (2,541) Balance Nov 30, 2014 $ 74,043 10,914 27,004 51,318 4, ,393 Total 10

11 Accumulated depreciation Tangible fixed assets (1) Environmental rehabilitation provision Tangible Underground development costs (2) Development costs E&E subject to depreciation (3) E&E not subject to depreciation (4) Deferred Stripping asset (6) Balance May 31, 2013 $ 51,744 5,946 4,726 47, ,775 Depreciation $ 3, , ,746 Disposals $ (9) (9) Others $ Impairment of assets $ Balance Nov 30, 2013 $ 55,541 6,189 9,195 47, ,512 Depreciation $ 3,365 2,774 2,558 1,398-10,096 Disposals $ Others $ (104) (104) Impairment of assets $ Balance May 31, 2014 $ 59,468 8,963 11,753 48,985 (104) - 129,066 Depreciation $ 2, ,617 1, ,682 Disposals $ (1,930) (1,930) Impairment of assets $ Balance Nov 30, 2014 $ 60,532 9,206 14,371 50,340 (104) ,817 Total Carrying amount As at Nov 30, 2014 $ 13,511 1,708 12, , ,576 As at May 31, ,133 1,951 14, ,664-37,323 As at May 31, 2013 $ 19,756 2,348 20, ,529-47,321 (1) Includes land, buildings, processing facilities, mobile and stationery equipment, furniture and other office equipment. The plant is located on leased land. The lease expires in No further payments are due on the lease. (2) Includes the ramp and gallery access to ore for Arenal Deeps Underground operation, ventilation shafts and other tangible development to access the ore body. (3) Includes exploration and evaluation costs for properties under production, including resource definition work. (4) Includes exploration and evaluation costs for properties for which commercial production has not begun. (5) Includes exploration and evaluation costs prior to the Company defining proven and probable reserves and intention to develop the property commercially. (6) Includes pre-stripping extracted from Vaca Muerta during June

12 7. Exploration and evaluation costs Nov 30, 2014 ($) May 31, 2014 ($) Balance at beginning of period 35,813 31,686 Cash payments for exploration expenditure 2,198 6,575 Cash payments to acquire rights to explore - (150) Waymar acquisition exploration projects 6,491 - Reclassification to mineral properties - (2,079) Exploration expenses written off (33) (219) Balance at the end of the period 44,469 35,813 As at Nov 30, 2014 ($) As at Nov 30, 2013 ($) Expenses incurred during the period (i) Capitalized expenses written off - 39 Total exploration expenses (i) Includes expenses incurred prior to obtaining legal rights to explore an area (including expenses related to the evaluation of properties that can be acquired by the Company) and expenses in areas that have been considered impaired in the past but the Company legally maintains for strategically reasons and, in some cases, continues to explore. It also includes depreciation of property, plant and equipment affected to exploration activities. Exploration farm in agreements, acquisitions and farm out agreements are those disclosed in Note 8 of the Company s audited financial statements for the year ended May 31, No changes occurred during the quarter regarding the status of each project as reported at May 31, 2014, except for the acquisition of Waymar as discussed in Note 3 and the following: In November 2014, Codelco has extended the farm-in contract at the Anillo Project by to 2020, with potential to further extend into The initial farm-in term was scheduled to expire in September Anillo was originally optioned from Codelco to Fortune Valley Resources Inc. (Fortune Valley) in September The Company acquired the Project as part of the acquisition of Fortune Valley in January The original contract with Codelco required Orosur to spend in excess of $3,000 and complete a Feasibility Study prior to September 2015 in order to acquire a 65% interest in the Project. Under the original contract, the Company s total capital spent to date on the Project is $4,300 which indicates that the Company has met the $3,000 required spend. Based on the amended contract executed in November 2014, the Feasibility Study completion deadline has been extended to January This new deadline may also be further extended by Codelco by two years to January 2022 if the Company has a discovery and has defined a mineral resource by January In November 2014, the Company signed a non-binding letter of intent (LOI) with Asset Chile to option a minority share in its interest in the Anillo project. The LOI contemplates that the Option Agreement (if entered into) will provide that Asset Chile may earn up to a 40% interest in the Company s interest in Anillo and in exchange, the Option Agreement requires Asset Chile to spend up to $3,500 in a three phased option. 12

13 8. Environmental rehabilitation provision The Company s environmental rehabilitation provision relates to the retirement and remediation of the San Gregorio operation in Uruguay. The environmental rehabilitation obligations have been recorded as a liability at estimated fair value determined by calculating the net present value of estimated future costs, assuming a risk free bond rate of 1.5% (May 31, %) and an inflation factor of 1.475% (May 31, %). The following table summarizes the movements in the environmental rehabilitation provision for the six months ended 2014: 2014 ($) May 31, 2014 ($) Balance at beginning of period 6,427 6,148 Changes in cash flow estimates - 2,620 Expenditure incurred in rehabilitation (419) (2,572) Accretion expense Balance at end of period 6,046 6,427 The Company has a legal and constructive obligation to restore the San Gregorio operation when mining operations cease. This estimate is revised annually according to a mine plan. The Company advances rehabilitation work previous to the closure date at its discretion and in accordance with the Uruguayan Environmental Agency. Uruguayan mining and environmental legislation requires environmental obligations to be supported by guarantees. As a result, a rehabilitation guarantee letter of credit of $2,300 (May 31, $2,300) has been provided by HSBC Bank (Uruguay) S.A and an environmental guarantee for $5,000 (May 31, 2014 $5,000) has been provided by AIG, the Uruguayan branch insurance company. 9. Capital stock The Company has an authorized capital of unlimited number of common shares of no par value. As of 2014 the Company has a total of 96,635,081 issued shares outstanding (May 31, ,168,143). Movements in capital for the period are shown hereinafter: Number of shares (000 s) ($) Balance as of May 31, ,168 55,184 Issued for Waymar acquisition 18,467 5,360 Balance as of ,635 60,544 13

14 10. Stock-based compensation a) Stock options The Company has a Stock Option Plan (the Plan ) for the officers, directors, employees and consultants of the Company and its subsidiaries. Options under the Plan are typically granted in such numbers as reflects the responsibility of the particular optionee and his or her contribution to the business and activities of the Company. Options granted under the Plan since November 2012 have a term of between 5 to 10 years. Except in specified circumstances, options are not assignable and terminate on the optionee ceasing to be employed by or associated with the Company. The terms of the Plan further provide that the price at which shares may be issued under the Plan cannot be less than the market price (net of permissible discounts) of the shares when the relevant options were granted. One-third of options vest on the grant date, one-third of options vest twelve months from grant date and the final one-third vest twenty four months from grant date. The following table summarizes information regarding the Company s outstanding options at 2014: Number of Shares Option Price per Share Range Weighted Average Exercise Price (000s) CDN $ CDN $ Balance at May 31, ,879 $ $1.20 $0.67 Forfeited (811) $ $0.75 $0.66 Expired (189) $0.60 $0.60 Balance at Nov 30, $ $1.20 $0.68 Expired (856) $ $0.75 $0.66 Forfeited 611 $0.52 $0.52 Granted 2,550 $0.23 $0.23 Balance at May 31, ,184 $ $1.20 $0.33 Expired (207) $ $0.75 $0.39 Forfeited (133) $0.23 $0.23 Granted (i) 563 $0.267 $0.267 Balance at Nov 30, ,406 $ $1.20 $0.31 (i) For the quarter ended August 31, 2014, as a result of the Waymar acquisition, 1,500,000 fully vested Waymar share options were converted to 562,500 Orosur share options (Note 3) at a value of $94. The fair value was determined based on the Black-Scholes option pricing model using the following assumptions: strike price CA$ 0.267; risk free interest rate 1.00%; expected life 2 years; expected volatility % and expected dividends - $nil. 14

15 Outstanding Exercisable Range of option Options Weighted average Price 000s Exercise Price Weighted average remaining contractual life Options 000s Weighted average Exercise Price CDN $ CDN $ Years CDN $ , , , At 2014, there were 3,405,834 options outstanding, of which 1,839,167 are vested and exercisable (May 31, ,183,835 and 1,483,835, respectively). The weighted average exercise price of the options outstanding at 2014 is CDN$ 0.38 (May 31, 2014 CDN$ 0.33). b) Performance share awards The Board of Directors approved the cancellation of performance share awards on Oct 3, Holders of any performance share awards outstanding on that date have agreed to surrender their awards. 11. Warrants As a result of the Waymar acquisition (Note 3), the Company issued 450,000 share purchase warrants in exchange for the 1,200,000 Waymar share purchase warrants to Continental Gold Limited. A value of $62 is attributed to these share purchase warrants estimated based on the Black-Scholes option pricing model using the following assumptions: strike price CA$ 0.34; risk free interest rate 1.00%; expected life 2 years; expected volatility % and expected dividends - $nil. The following table summarizes information regarding the Company s outstanding warrants at November 30, 2014: Number of Warrants Value (000s) $ Balance at May 31, 2013 and November 30, Expired (563) (276) Balance at May 31, Granted Balance at

16 12. Related parties (a) Subsidiaries: The consolidated financial statements include the financial statements of Orosur Mining Inc. (Parent) and the following subsidiaries (together referred as the Company ): Name of subsidiary Country of incorporation Equity interest as of 2014 International Mining Holdings Limited (IMHL) Barbados 100% 100% Loryser S.A Uruguay 100% 100% Minera San Gregorio S.A. Uruguay 100% 100% Cinco Ríos S.A Uruguay 100% 100% Nafypel S.A. Uruguay 100% 100% Triselco S.A. Uruguay 100% 100% Kevelux S.A Uruguay 100% 100% Glendora S.A. Uruguay 100% 100% Dalván S.A Uruguay 100% 100% Bolir S.A. Uruguay 100% 100% Brimol S.A. Uruguay 100% 100% Montemura S.A. Uruguay 100% 100% Ugdev S.A.(i) Uruguay 100% 100% Fortune Valley Resources Inc. Canada 100% 100% Fortune Valley Resources Inc. BVI BVI 100% 100% Fortune Valley Resources Chile S.A Chile 100% 100% B.C Ltd Canada Cordillera Holdings International Ltd BVI Minera Anzá S.A (BVI) Canada BVI BVI 100% 100% 100% 0% 0% 0% Minera Anzá S.A. (Colombia branch) Colombia 100% 0% Equity interest as of May 31, 2014 All intercompany transactions and balances are eliminated on consolidation. 13. Income Taxes (a) Current and deferred income tax composition: 16

17 Three month period ended Six month period ended 2014 ($) 2013 ($) 2014 ($) 2013 ($) Current income tax expense for the period Adjustment in respect of prior years 4 (48) 4 (48) Deferred income tax provision (recovery) (1,163) (792) (593) 2,162 Total income tax expense (gain) for the period (1,159) (829) (589) 2,125 (b) Changes and composition of the deferred income tax asset: Three month period ended November 30, 2014 ($) Six month period ended November 30, 2014 ($) For the year ended May 31, 2014 ($) Balance beginning of period 4,900 5,470 5,305 Recognized future tax income 1, Balance end of period 6,063 6,063 5, ($) May 31, 2014 ($) Property plant and equipment and development costs 3,456 3,948 Inventories Exploration and evaluation costs (176) (133) Labor provisions Fiscal losses 2, Deferred income tax asset 6,063 5,470 Changes in the value of the deferred income tax asset have been recognized in the statement of income. The deferred tax asset represents rights for future tax deduction in Uruguay tax jurisdiction. The Company has no deferred tax asset in any other jurisdiction it operates. 14. Segmented Information The Company is a gold producer, develops its own exploration programs and evaluates mining assets acquisitions throughout Latin America. Accordingly, the Company identifies the following three operating segments that management reviews regularly in order to evaluate their performance and make decisions about resources to be allocated: i) Production segment: The Company has one only producing asset, the San Gregorio gold operation in northern Uruguay (UY) and its minor satellite pits. It is the only producing gold mine in the country and it generates all of the Company s ordinary revenues. The Company sells all of its metal production to one customer. ii) Exploration segment: The Company carries on exploration programs on its mineral portfolio in Uruguay, Chile (CH) and Colombia (acquisitions) with the objective of adding reserves to its production 17

18 profile and/or generating other kind of joint ventures and farm out agreements. The segment additionally includes the evaluation of mining asset acquisitions throughout Latin America. iii) Corporate segment: The corporate segment is comprised of general and administrative expense, management of the Company, board activities, and fund-raising activities when needed to finance exploration programs, acquisition of assets and the development of mine operations. Production (UY) Exploration (UY) Exploration (CH) Exploration (acquisitions) Corporate Total For three month period ended 2014 Sales 17, ,404 Cost of sales (18,925) (18,925) Exploration expenses and write off - (4) (4) Corporate and administrative expenses (993) (993) Other income Total segment loss (1,321) (4) - - (993) (2,318) Investment in exploration and evaluation ,100 Investment in PP&E and development costs 2, ,132 For six month period ended 2014 Sales 33, ,930 Cost of sales (35,399) (35,399) Exploration expenses and write off - (33) (33) Corporate and administrative expenses (1,875) (1,875) Other income Total segment loss (1,081) (33) - - (1,875) (2,989) Investment in exploration and evaluation - 1, ,198 Investment in PP&E and development costs 4,524 - (18) - - 4,506 As at 2014 Property, plant and equipment and development costs 31,202 1, ,576 Exploration and evaluation costs - 7,592 30,407 6,470-44,469 Total assets 57,067 8,647 31,161 6,470 6, ,385 18

19 Corporate Total Production (UY) Exploration (UY) Exploration (CH) Exploration (acquisitions) For three month period ended 2013 Sales 20, ,375 Cost of sales (16,194) (16,194) Exploration expenses and write off - (355) (19) - - (374) Corporate and administrative expenses (901) (901) Other income Total segment income (loss) 4,267 (355) (19) - (901) 2,992 Investment in exploration and evaluation ,492 Investment in PP&E and development costs (347) 3 (258) - - (602) For six month period ended 2013 Sales 43, ,320 Cost of sales (36,093) (36,093) Exploration expenses and write off - (851) (39) - - (890) Corporate and administrative expenses (1,732) (1,732) Other income Total segment income (loss) 7,353 (851) (39) - (1,732) 4,731 Investment in exploration and evaluation - 1,349 1, ,004 Investment in PP&E and development costs 1, ,856 As at 2013 Property, plant and equipment and development costs 39, ,181 Exploration and evaluation costs - 5,421 29, ,477 Total assets 69,137 5,481 29, ,520 Reconciliation of segment income to net income for the period is as follows: Three month period ended Six month period ended 2014 ($) 2013 ($) 2014 ($) 2013 ($) Segment (loss) income (2,318) 2,992 (2,989) 4,731 Net finance cost (56) 1 (149) (118) Net foreign exchange gain (loss) (29) (285) Income tax 1, (2,125) Total comprehensive (loss) income for the period (1,244) 3,537 (2,524) 2,501 19

20 15. Financial risk management and capital management The Company is exposed to a variety of financial risks that are disclosed in Note 17 of the Company s audited financial statements for the year ended May 31, Cash flow Additional information Cash comprises cash at bank and on hand. Cash flow from operating activities includes interest and income tax cash payments as detailed below: For the three month period ended For the six month period ended 2014 ($) 2013 ($) 2014 ($) 2013 ($) Income tax paid Interest paid The Company is reimbursed the Uruguayan VAT included in the purchase of goods and services through the issue of tax credit certificates. Income tax paid shown is a result of the application of such tax credits to the cancellation of income tax obligations. Cash flow from investing activities in property, plant and equipment and development costs is detailed below: For the three month period ended For the six month period ended 2014 ($) 2013 ($) 2014 ($) 2013 ($) Tangible fixed assets as defined in Note 6 1,644 (140) 2, Mine development costs ,563 1,322 Environmental work rehabilitation as in Note , ,276 Total invested 2,302 1,674 4,925 4, Basic and diluted loss per share Basic earnings per share are calculated by dividing the profit of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding during the year to assume conversion of all dilutive potential ordinary shares. A calculation is done to determine the number of shares that could have been acquired at fair value (determined at the average market share price of the Company s share for the corresponding period) based on the monetary value of all dilutive share options to acquire shares of the Company. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options to determine diluted earnings per share (treasury stock method). Details of such calculation are as follows: 20

21 (a) Basic: Three months ended Six months ended Basic Weighted average shares outstanding number 84,323,789 78,166,476 90,479,435 78,166,476 Net loss attributable to equity holders $ (1,244) 3,537 (2,524) 2,501 Basic loss per share US cents per share (0.01) 0.05 (0.03) 0.03 (b) Diluted: Three months ended Six months ended Potential net incremental of dilutive shares number 2,550-2,550 - Potential proceeds from dilutive share options $ Average quoted market share price for the period CDN $ per share Potential shares to be repurchased number 2,227-2,541 - Potential net incremental of shares after repurchase number 9,206-9,206 - Diluted Weighted average shares outstanding number 84,323,789 78,168,143 90,488,641 78,168,143 Net income attributable to equity holders $ (2,407) 3,537 (3,687) 2,501 Diluted earnings per share US cents per share (0.03) 0.05 (0.04) 0.03 As a result of the loss for the period ended 2014, the effect of potential issuances of shares under options and warrants would be anti-dilutive and accordingly basic and diluted loss per share is the same. 18. Long-term debt 2014 ($) May 31, 2014 ($) HSBC loan (i) 1,375 2,750 Santander loan (ii) 1,817 2,189 3,192 4,939 Less current portion (2,681) (3,978) Non-current portion (i) In March 2011, Loryser S.A., a Uruguayan subsidiary of the Company, entered into a Line of Credit Facility with HSBC Bank (Uruguay) S.A. for $5,500. As of May 31, 2014, the Company has withdrawn the 21

22 full amount of the facility. Amounts withdrawn bear an interest of LIBOR plus 3.25%, with a minimum 4.50% rate payable by semester. Capital will start to be settled in four semi-annual installments, (September 15, 2013, March 15, 2014, September 15, 2014 and March 15, 2015). As security for the use of the HSBC credit facility stated in Note 6, the Company has pledged certain equipment. As of 2014 the company has paid three installments, one in September 15, 2013, one in March 15, 2014 and one in September 15, 2014 ($4,125). (ii) On February 28, 2013, Loryser S.A., a Uruguayan subsidiary of the Company, signed a lease credit facility with Banco Santander (Uruguay) S.A. to finance the acquisition of a haul mobile fleet for a total amount of $3,532 to be settled in 36 monthly equal installments at a 4.5% annual effective interest rate. The Company has secured the facility against the pledge of the equipment. As of 2014, the company has paid all the installments. During the quarter ended August 31, 2014, the Company had acquired seven small vehicles that were financed with a lease credit facility with Banco Santander (Uruguay) S.A. for a total amount of $0.3 million. As of 2014, the company has paid all the installments. (iii) As part of the acquisition of Waymar, the Company assumed a $500 loan payable to Continental Gold Limited ( Continental ) which was repaid on September 1, In conjunction with issuing the loan to Waymar, Continental holds 450,000 Orosur warrants (converted from 1,200,000 former Waymar warrants) exercisable at Cdn$0.333 per Orosur share until March 3, 2016 (Note 3). As of 2014, the Company has repaid the loan with Continental. 19. Finance income and finance cost For the three months ended For the six months ended Finance income 2014 ($) 2013 ($) 2014 ($) 2013 ($) Interest on bank deposits Total For the three months ended For the six months ended Finance cost 2014 ($) 2013 ($) 2014 ($) 2013 ($) Environmental rehabilitation accretion Interest expense on bank borrowings 38 (19) Total Cost of sales The Company s costs of sales are comprised of the following: 22

23 For the three month period ended For the six month period ended 2014 ($) 2013 ($) 2014 ($) 2013 ($) Mining and transportations costs 8,438 6,810 16,785 14,899 Processing costs 3,467 3,223 6,342 6,219 Mine site administration costs 1,255 1,149 2,506 2,535 Change in stockpiles, gold in circuit and finished goods 1, ,243 Refinery charges Depreciation 3,210 4,451 7,682 8,746 Mining royalties and other production tax ,482 1,108 Provision for layoffs 82 (121) (151) 803 Total cost of sales 18,925 16,194 35,399 36,093 23