Related Party Transactions

6 Months Ended

Jun. 30, 2016

Related Party Transactions

Except as noted elsewhere in these consolidated financial statements, related party transactions are disclosed as follows:

(i)

Consulting Fees

For the three and six months ended June 30, 2015, the Company paid $Nil and $188,934 to Mr. H. Lutz Klingmann for services as President of the Company. Included in these consulting fees was $151,428 related to 150,000 bonus shares (Refer to Note 4 – Share Capital). There were no consulting fees paid during the three and six months ended June 30, 2016.

During the three and six months ended June 30, 2016, the Company paid a total of $27,703 and $56,238 (Three and six months ended June 30, 2015 - $18,414 and $36,852) to the three independent directors of the Company. During the three and six months ended June 30, 2016, Thomas M. Clay did not receive director fees.

(ii)

Notes Payable

On January 1, 2014, the Company entered into an agreement to secure a $10,000,000 loan (the “January 2014 Loan”). The January 2014 Loan was provided by members of the Clay family, who are shareholders of the Company, including $7,500,000 provided by an investment vehicle managed by Thomas M. Clay, a Director and insider of the Company. The January 2014 Loan had a twelve-month term and an annual interest rate of 5%, payable on the maturity date.

The January 2014 Loan was repaid on a date that is less than 183 days before the maturity date. As a result, the Company paid the Lenders an additional charge in the amount that is equivalent to 5% of the principal amount, plus interest on the principal amount at the rate of 5% per annum accrued to the date the January 2014 Loan was repaid. The Company repaid $7,500,000 loan plus the $375,000 accrued interest and $375,000 additional charge on December 31, 2014.

The remaining balance of the loan, $2,500,000, the accrued interest of $125,000 and the additional charge of $125,000, were paid on January 5, 2015.

On December 31, 2014 the Company also entered into a new loan (the “December 2014 Loan”) with the same parties for an amount of $12,500,000. The December 2014 Loan was due on demand on July 1, 2015 and bore an annual interest rate of 10% payable at the end of each quarter. The loan was guaranteed by GQM Holdings, and secured by a pledge of the Company's interests in GQM Canada, GQM Canada’s interest in GQM Holdings and GQM Holdings' 50% interest in GQM LLC. The Company also incurred a financing fee to secure the loan in the amount of $1,000,000, of which $750,000 was paid on December 31, 2014 and the remaining $250,000 was paid on January 5, 2015. The Company agreed to pay the legal fees incurred by the lenders relating to this instrument which amounted to $90,916. The total legal fees paid for the transaction were $118,695. The Company also agreed to provide the lenders with the option for certain registration rights whereby the Company would bear the costs and responsibility of registering the lenders common shares for the purposes of disposition subsequent to July 1, 2015. The Company has determined it is unlikely the registration option would be exercised and therefore has not accrued any potential costs related to the registration of the common shares. The Company has presented these transaction costs as a contra liability as substantially all of these costs were paid to the lenders.

On June 8, 2015, the Company amended the December 2014 Loan to extend the maturity to December 8, 2016 and increased the principal amount from $12,500,000 to $37,500,000 (the “June 2015 Loan”). The Company also issued 10,000,000 common share purchase warrants exercisable for a period of five years expiring June 8, 2020. The common share purchase warrants have an exercise price of $0.95. All other terms remained the same as the December 2014 Loan. The Company also incurred a financing fee to secure the loan in the amount of $1,500,000, all of which was paid on June 8, 2015. The Company agreed to pay the legal fees incurred by the lenders relating to this instrument which amounted to $46,408. The legal fees were expensed as the transaction met the definition of a debt extinguishment. The terms of the registration rights remains unchanged as does the Company’s assessment of the likelihood of the registration rights being exercised.

As such, as of June 30, 2016, no accrual has been made for the potential costs related to the registration rights.

	June 30, 2016		December 31, 2015
Balance, beginning of the period	$	36,053,012	$	13,881,305
Accretion of discount on the June 2015 Loan		1,232,053		1,374,228
Interest payable transferred to principal balance of the June 2015 Loan		1,963,682		1,181,507
Fair value at inception, notes payable		-		33,497,277
Repayment of loans		-		(2,500,000)
Accretion of financing and legal fees		-		967,156
Extinguishment of the December 2014 Loan		-		(12,500,000)
Loss on extinguishment of debt		-		151,539
Balance, end of the period	$	39,248,747	$	36,053,012

Interest payable relating to the June 2015 Loan as at June 30, 2016 was $1,013,346 (December 31, 2015 - $969,645). Subsequent to June 30, 2016, the $1,013,346 interest payable was added to the principal balance of the loan. Please refer to Note 14 for complete details.

(iii)

Share Purchase Warrants

On June 8, 2015 the Company issued 10,000,000 share purchase warrants to the Clay family in connection with the June 2015 Loan. The share purchase warrants are exercisable until June 8, 2020 at an exercise price of $0.95. Included in the June 2015 Loan agreement was an anti-dilution provision. If the Company were to complete a financing at a share price lower than the exercise price of the share purchase warrants, the exercise price of the share purchase warrants would be adjusted to match the price at which the financing was completed.

The share purchase warrants meet the definition of a derivative liability instrument as the exercise price is not a fixed price as described above. Therefore, the settlement feature does not meet the “fixed-for-fixed” criteria outlined in ASC 815-40-15.

The fair value of the derivative liability related to the share purchase warrants as at June 30, 2016 is $8,072,628 (December 31, 2015 - $2,498,269). The derivative liability was calculated using an option pricing valuation model with the following assumptions:

	2016		2015
Risk-free interest rate		0.57%		0.73%
Expected life of derivative liability		3.94 years		4.44 years
Expected volatility		81.79%		76.11%
Dividend rate		0.00%		0.00%

The estimated fair value of the share purchase warrants is as follows:

	June 30, 2016		December 31, 2015
Balance, beginning of the period	$	2,498,269	$	-
Fair value at inception		-		4,002,723
Change in fair value		5,574,359		(1,504,454)
Balance, end of the period	$	8,072,628	$	2,498,269

(iv)

Amortization of Discounts and Interest Expense

The following table summarizes the amortization of discounts and interest on loans and convertible debentures:

	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
	June 30, 2016		June 30, 2015		June 30, 2016		June 30, 2015
Accretion of the June 2015 Loan discount	$	625,631	$	143,069	$	1,232,053	$	143,069
Interest expense related to the June 2015 Loan		1,013,346		229,167		2,007,383		229,167
*Interest expense related to Komatsu Financial loans		153,917		31,148		320,252		44,558
Interest expense related to the convertible debentures		-		40,301		-		80,586
Amortization of the convertible debentures		-		842,681		-		1,590,551
Interest expense related to the December 2014 Loan		-		236,301		-		547,945
Accretion of the December 2014 Loan financing fees		-		430,427		-		967,155
Accretion of discount and interest on loan and convertible debentures	$	1,792,894	$	1,953,094	$	3,559,688	$	3,603,031

The Company’s loans were contracted to fund significant development costs. The Company capitalizes a portion of the interest expense as it related to funds borrowed to complete development activities at the Project site.

	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
	June 30, 2016		June 30, 2015		June 30, 2016		June 30, 2015
Accretion of discounts and interest on loan, advance and convertible debenture	$	1,792,894	$	1,953,094	$	3,559,688	$	3,603,031
Less: **Interest costs capitalized		-		(882,983)		(1,005,223)		(1,585,167)
Interest expense	$	1,792,894	$	1,070,111	$	2,554,465	$	2,017,864

*Komatsu is not a related party and has only been included in the above table to reconcile the total interest expense incurred for the period to the amounts capitalized and expensed.

**Interest capitalization ended on March 31, 2016 as the mine went into production on April 1, 2016.

(v)

Joint Venture Transaction

Variable Interest Entity

In accordance with ASC 810-10-30, the Company has determined that GQM LLC meets the definition of a VIE and that the Company is part of a related party group that, in its entirety, would meet the definition of a primary beneficiary. Although no individual variable interest holder individually meets the definition of a primary beneficiary in the absence of the related party group, Golden Queen has determined it is considered the member of the related party group most closely associated with GQM LLC. As a result, the Company has consolidated 100% of the accounts of GQM LLC in these consolidated financial statements, while presenting a non-controlling interest portion representing the 50% interest of Gauss in GQM LLC on its balance sheet. A portion of the non-controlling interest has been presented as temporary equity on the Company’s balance sheet representing the initial value of the non-controlling interest that could potentially be redeemable by Gauss in the future.

The net assets of GQM LLC as of June 30, 2016 and December 31, 2015 are as follows:

	June 30, 2016		December 31, 2015
Assets, GQM LLC	$	152,641,089	$	158,209,916
Liabilities, GQM LLC		(20,650,466)		(22,591,211)
Net assets, GQM LLC	$	131,990,623	$	135,618,705

Included in the assets above, is $13,875,539 (December 31, 2015 - $31,531,853) in cash held as at June 30, 2016. The cash in GQM LLC is directed specifically to fund working capital until the Project reaches positive cash flows. The liabilities of GQM LLC do not have recourse to the general credit of the primary beneficiary except in two situations. Please refer to notes 5 and 12 for details on the exceptions.

Non-Controlling Interest The carrying value of the non-controlling interest is adjusted for net income and loss, distributions and contributions pursuant to ASC 810-10 based on the same percentage allocation used to calculate the initial book value of temporary equity.

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30, 2016			June 30, 2015			June 30, 2016			June 30, 2015
Net loss and comprehensive loss in GQM LLC	$	(2,918,749)		$	(1,424,736)		$	(3,628,082)		$	(1,998,148)
Non-controlling interest percentage		50	%		50	%		50	%		50	%
Net loss and comprehensive loss attributable to non-controlling interest		(1,459,375)			(712,368)			(1,814,041)			(999,074)
Net loss and comprehensive loss attributable to permanent non-controlling interest		(875,625)			(427,419)			(1,088,425)			(599,443)
Net loss and comprehensive loss attributable to temporary non-controlling interest		(583,750)			(284,949)			(725,616)			(399,631)

(v)

Joint Venture Transaction

	Permanent Non-		Temporary Non-
	Controlling Interest		Controlling Interest
Carrying value of non-controlling interest, December 31, 2014	$	34,250,468	$	22,833,645
Capital contribution		7,500,000		5,000,000
Net loss and comprehensive loss for the year		(1,064,857)		(709,904)
Carrying value of non-controlling interest, December 31, 2015	$	40,685,611	$	27,123,741

	Permanent Non-		Temporary Non-
	Controlling Interest		Controlling Interest
Carrying value of non-controlling interest, December 31, 2015	$	40,685,611	$	27,123,741
Net loss and comprehensive loss for the period		(1,088,425)		(725,616)
Carrying value of non-controlling interest, June 30, 2016	$	39,597,186	$	26,398,125