Related Party Transactions

9 Months Ended

Sep. 30, 2017

9.	*Related Party Transactions*

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

(i)

Management Agreement

During the three and nine months ended September 30, 2017, the Company paid a total of $0.03 million and $0.09 million (three and nine months ended September 30, 2016 - $0.02 million and $0.08 million respectively), respectively, to the three independent directors of the Company. Additionally, the Company paid $0.02 million (2016 - $Nil) for consulting services to Behre Dolbear, a company of which a director of Golden Queen serves in the capacity of an executive officer.

(ii)

Note Payable

On December 31, 2014, the Company entered into a loan (the “December 2014 Loan”) with the Clay Group for $12.5 million, due on July 1, 2015. 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 $12.5 million to $37.5 million (the “June 2015 Loan”). On November 18, 2016, the Company repaid $12.2 million of the June 2015 Loan and accrued interest with cash on hand and net proceeds of $10.1 million from an equity financing. The Company restructured the remaining debt with a new loan with a principal amount of $31.0 million (the “November 2016 Loan”). The November 2016 Loan has a thirty-month term and an annual interest rate of 8%, payable on a quarterly basis commencing during the first quarter of 2017. Quarterly principal payments of $2.5 million commence during the first quarter of 2018, with a payment of the remaining balance at the maturity date. Under terms of the November 2016 loan, at the Company’s option, the payment of the first three quarterly interest payments due have been deferred to January 1, 2018. On November 10, 2017, the Company amended the terms of the November 2016 Loan (see Note 17).

In connection with the November 2016 Loan the Company issued 8,000,000 common share purchase warrants exercisable for a period of five years expiring November 21, 2021. The common share purchase warrants have an exercise price of $0.85. The Company also incurred a financing fee to secure the loan in the amount of $0.9 million, all of which was paid on November 18, 2016.

The table below summarizes the activity on the November 2016 Loan:

	September 30, 2017		December 31, 2016
Balance, beginning of the period	$	26,347	$	36,053
Interest payable transferred to principal balance		1,560		2,977
Accretion of discount on loans		1,250		1,996
Capitalized financing fee and legal fees		-		(930)
Reduction of debt upon issuance of warrants		-		(3,090)
Repayment of loans and interest		-		(10,659)
Balance, end of the period	$	29,157	$	26,347

Current portion	$	9,061	$	-
Non-current portion	$	20,096	$	26,347

(iii)

Amortization of Discounts and Interest Expense

The following table summarizes the amortization of discounts and interest on loan:

	Three Months		Three Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended
	September 30,		September 30,		September 30,		September 30,
	2017		2016		2017		2016
Accretion of the November 2016 Loan discount	$	510	$	-	$	1,250	$	-
Interest expense related to the November 2016 Loan		642		-		1,914		-
Interest expense related to Komatsu financial loans ⁽¹⁾		143		144		428		464
Accretion of the June 2015 Loan discount		-		621		-		1,853
Interest expense related to the June 2015 Loan		-		1,050		-		3,057
Accretion of discount and interest on loan	$	1,295	$	1,815	$	3,592	$	5,374

⁽¹⁾

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.

⁽²⁾

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

(iv)

Joint Venture Transaction

The Company has presented Gauss’ ownership in GQM LLC as a non-controlling interest amount on the balance sheet within the equity section. However, there are terms in the agreement that provide for the exit from the investment in GQM LLC for an initial member whose interest in GQM LLC becomes less than 20%.

If a member becomes less than a 20% interest holder, its remaining unit interest will (ultimately) be terminated through one of 3 events at the non-diluted member’s option:

Through conversion to a net smelter royalty (“NSR”);

Through a buy-out (at fair value) by the non-diluted member; or

Through a sale process by which the diluted member’s interest is sold.

The net assets of GQM LLC as of September 30, 2017, and December 31, 2016 are as follows:

	September 30, 2017		December 31, 2016
Assets, GQM LLC	$	152,193	$	151,802
Liabilities, GQM LLC		(24,092)		(20,710)
Net assets, GQM LLC	$	128,101	$	131,092

Included in the assets above, is $3.8 million (December 31, 2016 - $11.1 million) in cash held as at September 30, 2017. The cash in GQM LLC is directed specifically to fund capital expenditures required to continue with production and to settle GQM LLC’s obligations. The liabilities of GQM LLC do not have recourse to the general credit of Golden Queen except for $2.2 million for 2 mining drill loans and $3.0 million in surety bond agreements.

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			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,
	2017			2016			2017			2016
Net and comprehensive income (loss) in GQM LLC	$	(2,674)		$	1,706		$	(2,991)		$	(1,922)
Non-controlling interest percentage		50	%		50	%		50	%		50	%
Net and comprehensive loss attributable to non-controlling interest	$	(1,335)		$	853		$	(1,495)		$	(961)
Net and comprehensive loss attributable to permanent non-controlling interest	$	(801)		$	512		$	(897)		$	(577)
Net and comprehensive loss attributable to temporary non-controlling interest	$	(534)		$	341		$	(598)		$	(384)

	Permanent Non-		Temporary Non-
	Controlling		Controlling
	Interest		Interest
Carrying value of non-controlling interest, December 31, 2016	$	39,327	$	26,219
Net and comprehensive loss for the period		(897)		(598)
Carrying value of non-controlling interest, September 30, 2017	$	38,430	$	25,621

(v)

Revolving credit

On May 23, 2017, GQM LLC entered into a revolving credit facility of $5 million with Gauss Holdings and Auvergne LLC. The revolving credit is available until May 23, 2018 and bears a 12% simple annual interest. GQM LLC paid a closing fee of $0.1 million which was classified as prepaid expenses and other current assets. $0.02 million and $0.04 million of the closing fee was amortized during the three and nine months ended September 30, 2017, respectively. As at September 30, 2017, no amounts had been drawn under this facility.