Q CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Transcription

1 Q CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 2018

2 Condensed Consolidated Interim Statements of Financial Position (Expressed in millions of U.S. dollars) ASSETS December 31 Note Current assets Cash and cash equivalents $ $ Receivables and other assets Prepaid expenses and deposits Inventories Derivative assets Total current assets Non-current assets Long-term inventories Long-term deposits 5(ii) Property, plant and equipment 5 2, ,122.6 Total non-current assets 2, ,177.7 Total assets $ 2,469.4 $ 2,417.5 LIABILITIES Current liabilities Trade and other payables $ 69.8 $ 70.6 Derivative liabilities Total current liabilitites Non-current liabilities Long-term debt Provisions Deferred tax liability Total non-current liabilities Total liabilities EQUITY Shareholders' equity Issued capital 7 2, ,308.5 Accumulated deficit (423.2) (441.9) Share-based payment reserve Total shareholders' equity 1, ,957.1 Total liabilities and equity $ 2,469.4 $ 2,417.5 Commitments and contingencies (note 11) The accompanying notes are an integral part of these condensed consolidated interim financial statements. 1

3 Condensed Consolidated Interim Statements of Comprehensive Earnings Three months ended Six months ended Note Revenues Metal sales $ $ $ $ Cost of sales Production costs Depreciation and depletion Earnings from mine operations Corporate administration Exploration and evaluation Other operating (income) loss (0.1) Earnings before finance items and taxes Net finance cost Earnings before taxes Income and mining tax expense (recovery) (1.4) 50.3 (3.6) Net earnings and comprehensive earnings $ 8.8 $ 24.5 $ 18.7 $ 30.5 Earnings per share 8 Basic $ 0.05 $ 0.14 $ 0.11 $ 0.17 Dliuted $ 0.05 $ 0.14 $ 0.11 $ 0.17 The accompanying notes are an integral part of these condensed consolidated interim financial statements. 2

4 Condensed Consolidated Interim Statements of Cash Flows (Expressed in millions of U.S. dollars) Three months ended Six months ended Note Operating activities Net earnings $ 8.8 $ 24.5 $ 18.7 $ 30.5 Adjustments for: Depreciation and depletion Other operating (income) loss Share-based payments 0.1 (0.2) (1.8) 0.3 Net finance cost Income and mining tax expense (recovery) (1.4) 50.3 (3.6) Changes in non-cash w orking capital items: Accounts receivable and other assets (8.4) (2.4) (6.1) 0.4 Accounts payable and accrued liabilities (4.8) Inventories (8.8) 11.6 (23.5) 14.6 Net cash generated by operating activities Investing activities Purchase of property, plant and equipment (54.3) (61.2) (92.2) (86.0) Other proceeds Interest received Net cash used in investing activities (53.7) (60.9) (90.4) (85.4) Financing activities Credit facility repayment 6 (10.0) - (20.0) - Convertible notes repayments - (17.9) - (38.1) Issuance of common shares on exercise of options Interest paid (3.0) (9.5) (5.7) (10.2) Net cash used in financing activities (11.9) (26.5) (24.0) (47.3) Effect of exchange rates on cash and cash equivalents (1.9) 1.3 (3.1) 1.8 Increase (decrease) in cash and cash equivalents (2.2) (4.8) 16.2 (1.2) Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period $ $ The accompanying notes are an integral part of these condensed consolidated interim financial statements. 3

5 Condensed Consolidated Interim Statements of Changes in Equity (Expressed in millions of U.S. dollars) Six months ended Note Issued capital Balance, beginning of year $ 2,308.5 $ 2,304.4 Issued on exercise of options Balance, end of period 7 2, ,306.1 Accumulated deficit Balance, beginning of year (441.9) (530.1) Net earnings for the period Balance, end of period (423.2) (499.6) Share-based payment reserve Balance, beginning of year Share-based payments Exercise of options (0.7) (0.6) Balance, end of period Total shareholders' equity $ 1,978.4 $ 1,896.4 The accompanying notes are an integral part of these condensed consolidated interim financial statements. 4

6 1. CORPORATE INFORMATION Detour Gold Corporation ( Detour Gold or the Company ) is a company domiciled in Canada and was incorporated on July 19, 2006 under the Canada Business Corporations Act. The Company is publicly traded with its shares listed on the Toronto Stock Exchange (TSX: DGC). The Company s registered and head office is located at Commerce Court West, 199 Bay Street, Suite 4100, Toronto, Ontario, M5L 1E2. The Company is a Canadian gold producer engaged in the acquisition, exploration, development and operation of mineral property interests. The Company s primary asset is its wholly-owned Detour Lake mine located in northeastern Ontario. 2. BASIS OF PREPARATION (a) Statement of compliance These condensed consolidated interim financial statements (the financial statements ) have been prepared in accordance with IAS 34 Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board and the IFRS Interpretations Committee. They do not include all information required for annual financial statements and should be read in conjunction with the consolidated financial statements of the Company as at and for the year ended December 31, Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes to the Company s financial position and performance since the last audited annual consolidated financial statements. These financial statements were authorized for issuance by the Company s Board of Directors on July 25, (b) Use of estimates and judgments 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 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, 2017 except for those related to impairment of assets. The significant decrease in the Company s market capitalization during the period was considered an indicator of impairment and, accordingly, an impairment assessment was performed. Based on the assessment, the carrying value of the Detour Lake mine was recoverable at, 2018 and no impairment was deemed necessary. 3. SIGNIFICANT ACCOUNTING POLICIES Except as described in the Company s condensed consolidated interim financial statements as at and for the three months ended March 31, 2018, the accounting policies applied by the Company in these financial statements are the same as those applied by the Company in its consolidated financial statements as at and for the year ended December 31, (a) New accounting pronouncements not yet adopted On June 7, 2017, the IASB issued IFRIC Interpretation 23 Uncertainty over Income Tax Treatments. The Interpretation provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The Interpretation is applicable for annual periods beginning on or after January 1, Earlier application is permitted. The Company intends to adopt the Interpretation in its financial statements for the annual period beginning on January 1, The Company does not expect the Interpretation to have a material impact on the financial statements. 5

7 On January 13, 2016, the IASB issued IFRS 16 Leases. The new standard is effective for annual periods beginning on or after January 1, IFRS 16 will replace IAS 17 Leases. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. IFRS 16 substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Other areas of the lease accounting model have been impacted, including the definition of a lease. Transitional provisions have been provided. The Company intends to adopt IFRS 16 in its financial statements for the period beginning on January 1, The Company is evaluating the impact of adoption and expects to report more detailed information in its consolidated financial statements as the effective date approaches. 4. INVENTORIES December Ore stockpiles $ 51.7 $ 36.7 In-circuit Finished metal Materials and supplies Less: Long-term ore stockpiles (7.8) (16.4) Less: Long-term materials and supplies (5.7) (6.4) Inventories $ $ 91.5 The amount of depreciation included in inventories at, 2018 was $24.7 (December 31, $18.5). Long-term ore stockpiles represents ore that is expected to be processed beyond the next 12 months. Long-term materials and supplies represents materials and supplies that are expected to be used beyond the next 12 months. 6

8 5. PROPERTY, PLANT AND EQUIPMENT Land Mining properties (i) Plant & equipment Capital w orkin-progress Total Cost As at January 1, 2017 $ 1.5 $ $ 2,354.0 $ 6.0 $ 2,581.6 Additions Disposals (0.1) - (35.1) - (35.2) Transfers in (out) (36.6) - Decommissioning and restoration As at December 31, 2017 $ 1.4 $ $ 2,438.4 $ 32.4 $ 2,734.9 Additions Disposals - - (23.8) - (23.8) Transfers in (out) (28.5) - Decommissioning and restoration - - (0.9) - (0.9) As at, 2018 $ 1.4 $ $ 2,491.3 $ 26.4 $ 2,800.0 Accumulated depreciation As at January 1, 2017 $ - $ 14.6 $ $ - $ Depreciation Disposals - - (33.8) - (33.8) As at December 31, 2017 $ - $ 20.0 $ $ - $ Depreciation Disposals - - (23.6) - (23.6) As at, 2018 $ - $ 23.6 $ $ - $ Net book value As at December 31, 2017 $ 1.4 $ $ 1,846.1 $ 32.4 $ 2,122.6 As at, 2018 $ 1.4 $ $ 1,841.1 $ 26.4 $ 2,126.2 i. The Company incurred deferred stripping costs of $18.2 during the first half of 2018 (year ended December 31, $42.6), which are included in mining properties. ii. The Company s long-term deposits balance represents down payments on equipment including significant components of mobile equipment and is transferred to property, plant and equipment when fully paid and the related equipment is available for use. At, 2018, the long-term deposit balance was $32.7 (December 31, $32.3) on the statement of financial position. 7

9 6. LONG-TERM DEBT December Term loan $ $ Revolving credit facility Long-term debt $ $ Contractual undiscounted debt repayments Thereafter Repayment of term loan $ - $ - $ $ - $ - Repayment of revolving credit facility Interest on the credit facility Total $ 6.0 $ 11.9 $ $ 52.4 $ - Credit Facility In July 2017, the Company entered into a $500 Senior Secured Credit Facility (the Credit Facility ). The Credit Facility is comprised of a $300 Revolving Credit Facility (the Revolver") with a tenor of four years and a $200 nonrevolving Term Loan (the Term Loan ) with a tenor of three years. The Company paid $2.5 in transaction costs and upfront fees on closing, which have been recorded against the Term Loan and Revolver and are amortized over their respective terms. The Revolver has a provision that allows the Company to request an extension of its term by one year, subject to approval by the bank group. The Credit Facility bears an interest rate of Libor plus 2.125% to 3.125% on drawn amounts and 0.48% to 0.70% on undrawn amounts, based on the Company s leverage ratio, as defined in the agreement. As at, 2018, the Company has drawn the full term loan (December 31, 2017 full term loan), $50 of the Revolver (December 31, $70), and issued $29.8 (Cdn$39.1) (December 31, $30.4 (Cdn$38.2)) of letters of credit under the Revolver. The Company had $220.2 (December 31, $199.6) of undrawn liquidity on the Revolver as at, The Credit Facility is secured against all assets of the Company and contains covenants customary for a loan facility of this nature, including limits on indebtedness, asset sales and liens. It contains financial covenant tests that include (a) a minimum interest coverage ratio of 3.5:1.0, and (b) a maximum leverage ratio of 3.5:1.0. The Company is in compliance with all covenants as at, The changes in obligations related to the Credit Facility are summarized below: Term Loan Revolver Total Credit Facility Balance, January 1, 2017 $ - $ - $ - Draw dow ns Principal repayments - (30.0) (30.0) Accretion Accrued interest payable Credit Facility Less: interest payable included in Trade and other payables (1.4) (0.4) (1.8) Balance, December 31, 2017 $ $ 68.4 $ Draw dow ns Principal repayments - (20.0) (20.0) Accretion Accrued interest payable Credit Facility Less: interest payable included in Trade and other payables (1.6) (0.3) (1.9) Balance,, 2018 $ $ 49.3 $

10 The Company recorded interest expense of $3.1 and $6.0 and paid interest of $3.0 and $5.7 on the Credit Facility for the three and six months ended, In the prior year period, the Company had an average of $343.6 and $329.4 of convertible notes outstanding and recorded interest expense of $4.5 and $9.4 for the three and six months ended, The Company s convertible notes matured on November 30, In addition, the Company recorded $0.5 of interest expense on its previous credit facility. 7. ISSUED CAPITAL Authorized share capital of the Company is comprised of an unlimited number of voting and participating common shares, without par value. All issued shares are fully paid. Note Millions of shares Amount Balance, January 1, $ 2,304.5 Shares issued under the share option plan 9 (a) Balance, December 31, ,308.5 Shares issued under the share option plan 9 (a) Balance,, $ 2, BASIC AND DILUTED EARNINGS PER SHARE Three months ended Six months ended Number of shares in millions Net earnings for the period $ 8.8 $ 24.5 $ 18.7 $ 30.5 Weighted average basic number of shares outstanding Weighted average shares dilution adjustments: Share options Share units Weighted average diluted number of shares outstanding Earnings per share Basic $ 0.05 $ 0.14 $ 0.11 $ 0.17 Diluted $ 0.05 $ 0.14 $ 0.11 $ 0.17 The following table lists the equity securities excluded from the computation of diluted earnings per share. The securities were excluded as they had an anti-dilutive effect on net earnings per share; or the exercise prices relating to the particular security exceeded the weighted average market price of the Company s common shares. Three months ended Six months ended Number of shares in millions Share options Convertible notes

11 9. SHARE-BASED PAYMENTS The share-based payment expense (recovery) recognized in these financial statements are as follows: Equity-settled Cash settled plans Share option plan (a) DSU plan (b) RSU plan (b) PSU plan (b) Total Production costs i $ 0.3 $ - $ - $ - $ 0.3 Corporate administration ii 0.6 (0.8) Six months ended, 2018 $ 0.9 $ (0.8) $ 0.5 $ 0.1 $ 0.7 Production costs i $ 0.5 $ - $ 0.1 $ 0.1 $ 0.7 Corporate administration ii Six months ended, 2017 $ 1.5 $ 0.4 $ 0.8 $ 0.6 $ 3.3 i. Total share-based payment expense for the three months ended, 2018 was $0.3 ( $0.5). ii. Total share-based payment expense for the three months ended, 2018 was $0.1 ( $2.3). (a) Share option plan The Company s share option plan, as amended and restated, was approved by Detour Gold s shareholders on May 5, These share options are settled in the Company s shares. Movements in the share options are summarized below: Number of options Weighted average Weighted average (millions) exercise price (i) exercise price (Cdn$) Balance, January 1, $ $ Granted Forfeited (0.3) Expired (0.6) Exercised (0.3) Balance, December 31, Granted Forfeited (0.1) Expired (0.2) Exercised (0.2) Balance,, $ $ i. At, 2018, the U.S. dollar weighted average exercise price was calculated using the period end U.S. to Canadian dollar exchange rate of 1.31 (December 31, ). The weighted average share price on the date of exercise of stock options for the six months ended, 2018 was Cdn$13.05 (December 31, Cdn$16.36). 10

12 The options granted were valued using the following inputs in the Black-Scholes option pricing model: Six months ended Number of stock options granted in millions Grant price (Cdn$) $ $ Expected volatility (i) 53% 58% Risk free rate 1.88% 0.84% Expected dividend yield $nil $nil Expected life in years Fair value (w eighted average) Cdn $ 4.84 $ 6.48 U.S. (ii) $ 3.74 $ 4.87 i. Expected volatility is measured as the annualized standard deviation of share price returns, based on the Company s historical movements in the price of the Company s common shares. ii. The U.S. dollar weighted average Black-Scholes value was calculated using the spot Canadian to U.S. dollar exchange rate on the date of grant. Share options outstanding and exercisable at, 2018 are: Exercise price (Cdn$) Options Outstanding Number of options Weighted average exercise price (i) Weighted average exercise price (Cdn$) Weighted average remaining contractual life (years) Number of options Options Exercisable Weighted average exercise price (i) Weighted average exercise price (Cdn$) Weighted average remaining contractual life (years) $ $ $ 5.67 $ $ 5.67 $ $ $ $ 9.29 $ $ 9.16 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ i. The U.S. dollar weighted average exercise price was calculated using the period end U.S. to Canadian dollar exchange rate of (b) Share unit plans Share unit liabilities are: December Deferred Share Units ("DSU") $ 2.5 $ 3.3 Restricted Share Unit ("RSU") Performance Restricted Share Unit ("PSU") Total $ 6.0 $

13 Changes to the number of share units are: DSU RSU PSU (000s) (000s) (000s) Balance, January 1, Granted Forfeited - (71) (30) Performance factor Released - (208) (48) Balance, December 31, Granted Forfeited - (53) (51) Performance factor - - (39) Released (12) (171) (75) Balance,, During the three and six months ended, 2018, share units settled in cash were $0.3 and $2.5 (three and six months ended, $3.1 and $3.1). 10. NET FINANCE COSTS Three months ended Six months ended Note Finance income Interest income $ (0.5) $ (0.2) $ (0.9) $ (0.4) Renounciation of flow -through shares (1.4) (0.5) (0.2) (0.9) (1.8) Finance costs Interest expenses and bank charges Accretion on debt Accretion on decommissioning and restoration provisions Foreign exchange (gain) loss 2.2 (2.1) 3.4 (2.7) Unrealized and realized (gain) loss on derivative instruments (2.0) 2.9 (1.2) Unrealized and realized loss on investments Fair value gain on the convertible notes - (0.1) - (0.9) Realized loss on repurchase of convertible notes Net finance cost $ 5.9 $ 9.3 $ 12.6 $

14 11. COMMITMENTS AND CONTINGENCIES (a) Purchase commitments As at, 2018, total purchase commitments for capital expenditures for the Detour Lake mine amounted to $24.8 (December 31, $30.2). (b) Operating leases The Company has operating lease agreements involving office space and equipment. Future minimum lease payments required to meet obligations that have initial or remaining non-cancelable lease terms are $0.3 in 2018, $0.6 each year from 2019 to 2020, and $0.1 thereafter. (c) Detour Lake mine royalty Production from the Detour Lake mine is subject to a 2% net smelter royalty payable to Franco-Nevada Canada Holdings Corp. ( FN ). FN has the right to elect, on a yearly basis, to have the royalty paid in cash or in-kind. FN has elected to receive the royalty paid in-kind., the Company accrued or paid in-kind 2,837 and 5,856 ounces of gold (three and six months ended, ,064 and 5,632 ounces of gold). (d) Mine site closure obligation The Company has issued $15.3 (Cdn$20.1) of surety bonds, and a letter of credit for $21.5 (Cdn$28.3) under the Credit Facility (note 6) in favour of the Ministry of Northern Development and Mines in support of the closure plan of the Detour Lake mine as at, FAIR VALUE MEASUREMENTS Fair value is the price that would be received to sell an asset or paid to transfer a liability in an arm s length transaction between market participants at the measurement date. When appropriate, the Company adjusts the valuation models to incorporate a measure of credit risk. The carrying values of cash and cash equivalents, receivables and other assets, and trade and other payables approximate their fair values due to the short-term maturity of these financial instruments. Cash settled share units represents DSUs, RSUs and PSUs. These liabilities are included in Trade and other payables on the consolidated statements of financial position. The fair value of derivative assets and liabilities are based on independently provided inputs and determined using standard valuation techniques. The following table does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value. There were no transfers among levels during the six months ended, 2018 and year ended December 31, The Company does not have any financial assets or liabilities measured at fair value based on unobservable inputs (level 3). 13

15 , 2018 Financial assets Fair value through profit or loss Comparative information reflects IAS 39 disclosures: Carrying value Fair value Quoted prices in Significant Amortized Fair value active markets observable cost through OCI (Level 1) inputs (Level 2) Cash and cash equivalents $ - $ $ - $ - $ - Receivables and other assets Derivative assets Total financial assets $ 0.7 $ $ - $ - $ 0.7 Financial liabilities Trade and other payables $ - $ 63.8 $ - $ - $ - Cash settled share units Long-term debt Derivative liabilities Total financial liabilities $ 7.8 $ $ - $ - $ December 31, 2017 Financial assets Fair value through profit or loss Carrying value Fair value Loans and receivables Other financial liabilites Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Cash and cash equivalents $ - $ $ - $ - $ - Receivables and other assets Derivative assets Total financial assets $ 2.7 $ $ - $ 0.2 $ 2.5 Financial liabilities Trade and other payables $ - $ - $ 61.9 $ - $ - Cash settled share units Long-term debt Derivative liabilities Total financial liabilities $ 9.5 $ - $ $ - $

16 13. DERIVATIVE INSTRUMENTS Fair values of derivative instruments Balance sheet classification December Currency contracts Derivative assets $ 0.7 $ 2.5 Currency contracts Derivative liabilities $ (1.8) $ (0.8) Total derivative assets $ 0.7 $ 2.5 Total derivative liabilities $ (1.8) $ (0.8) All derivatives outstanding as at, 2018 and December 31, 2017 mature or expire within one year from the period end date. As at, 2018, the Company had $180.0 of zero-cost collars to hedge its Canadian dollar denominated costs whereby it can sell U.S. dollars at an average rate of 1.25 and can participate up to an average rate of As at, 2018, the Company had no gold or diesel derivative contracts outstanding. (Gains) losses on derivative instruments Three months ended Six months ended Unrealized (gain) loss Gold contracts $ - $ (0.3) $ - $ (0.7) Currency contracts 0.7 (2.5) 2.8 (2.4) Diesel contracts Total $ 0.7 $ (2.2) $ 2.8 $ (1.9) Realized (gain) loss Gold contracts $ - $ - $ - $ - Currency contracts Diesel contracts - (0.1) - (0.3) Total $ 0.2 $ 0.2 $ 0.1 $ 0.7 Total unrealized and realized (gain) loss on derivative instruments $ 0.9 $ (2.0) $ 2.9 $ (1.2) Sensitivities The Company enters into foreign exchange collars relating to the portion of the future operating expenses incurred in Canadian dollars. With all other variables held constant, a 10% increase or decrease of the U.S. dollar against the Canadian dollar would have affected the Company s net earnings and comprehensive earnings by negative $12.1 and positive $12.4, respectively. 15

17 14. CURRENT AND DEFERRED TAXES Three months ended Six months ended Current tax expense $ - $ - $ - $ - Deferred tax expense (recovery) Ontario mining tax Income tax 17.4 (5.2) 40.5 (7.7) Total current and deferred tax expense (recovery) $ 21.6 $ (1.4) $ 50.3 $ (3.6) 16