Related Party Transactions

3 Months Ended

Mar. 31, 2019

13.

Related Party Transactions

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

(i)

Compensation of Key Management Personnel, Transactions with Related Parties and Related Party Balances

For the three months ended March 31, 2019, the Company recognized $361 (2018

–

$195) salaries and fees for Officers and Directors.

(ii)

Note Payable

As at December 31, 2018, The Company had a loan with the Clay Group with a principal balance of $25,625 (the “Clay Group Loan”). The Clay Group Loan had principal and accrued interest due as follows: $1.7 million of principal and accrued interest on January 1, 2019; $3.9 million of principal and accrued interest on April 1, 2019; and the balance due on May 21, 2019. On December 27, 2018, the Company and the Clay Group agreed to amend the Clay Group Loan, extending the due date of $1.7 million of principal as well as interest from the original due date of January 1, 2019 to February 1, 2019. An extension fee of $125 was added to the principal amount owing. On February 1, 2019, the due date was extended to February 8, 2019 for an extension fee of $75 that was added to the principal amount owing. On February 8, 2019, the due dates of principal and interest on the Clay Group Loan were extended until completion of the proposed transaction (Note 16). The amendments were accounted for as debt modifications.

The following table summarizes activity on the notes payable:

	March 31, 2019			December 31, 2018
Balance, beginning of the year	$	24,690		$	30,099
Accretion of discount on loans		526			2,040
Capitalized financing, extension and legal fees		(75	)		(125	)
Extension fee added to principal		75			125
Accretion of capitalized financing, extension and legal fees		265			262
Repayment of loans and interest		-			(7,711
Balance, end of the year	$	25,481		$	24,690

Current portion	$	25,481		$	24,690
Non-current portion	$	-		$	-

(iii)

Amortization of Discounts and Interest Expense

The following table summarizes the amortization of discount and interest on loans:

	Three Months Ended March 31,		Three Months Ended March 31,
	2019		2018
Accretion of the Clay Group Loan discount	$	526	$	490
Accretion of capitalized financing and legal fees		265		65
Amortization of deferred financing fees		655		-
Interest expense related to the Clay Group Loan		658		713
Interest expense related to the 2018 Credit Facility		180		-
Closing and commitment fees related to credit facilities		27		30
Interest expense related to Komatsu financial loans (1)		109		235
Accretion of discount and interest on loan	$	2,420	$	1,533

(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.

(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

% interest holder, its remaining 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 at December 31, 2018 and 2017 are as follows:

	March 31, 2019			December 31, 2018
Assets, GQM LLC	$	176,635		$	171,334
Liabilities, GQM LLC		(24,782	)		(29,904	)
Net assets, GQM LLC	$	151,853		$	141,430

Included in the assets above, is $4,713 (December 31, 2018

–

$4,149) in cash held by GQM LLC which 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 $349 for a mining drill loan and $5,507 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 Ended March 31,			Three Months Ended March 31,
	2019			2018
Net and comprehensive income (loss) in GQM LLC	$	95		$	(7,294	)
Non-controlling interest percentage		50	%		50	%
Net and comprehensive income (loss) attributable to non-controlling interest	$	48		$	(3,646	)
Net and comprehensive income (loss) attributable to permanent non-controlling interest	$	29		$	(2,188	)
Net and comprehensive income (loss) attributable to temporary non-controlling interest	$	19		$	(1,458	)

	Permanent Non-Controlling Interest		Temporary Non-Controlling Interest
Carrying value of non-controlling interest, December 31, 2017	$	36,321	$	24,214
Capital contribution		10,000		-
Net and comprehensive income for the year		108		72
Carrying value of non-controlling interest, December 31, 2018	$	46,429	$	24,286
Net and comprehensive income for the period		29		19
Carrying value of non-controlling interest, March 31, 2019	$	46,458	$	24,305

(v)

Credit Facility

On October 12, 2018, GQM LLC entered into an agreement with Gauss Holdings LLC and Auvergne LLC (the “Lenders”) whereby the Lenders are providing GQM LLC a revolving credit loan facility (the “2018 Credit Facility”) in the amount of $20 million. The 2018 Credit Facility bears interest at a rate of 8% per annum and in addition, is subject to a commitment fee of 1% per annum on available loan balance. As per terms of the agreement, GQM LLC accrued commitment fees of $45 for the year ended December 31, 2018. The loan matures March 31, 2020. As at March 31, 2019, GQM LLC had drawn $10,000 (December 31, 2018 - $

5,000

) from the 2018 Credit Facility and

accrued interest of $327

(December 31, 2018 - $

121

). Subsequent to the period end GQM LLC drew an additional $5,000 from the 2018 Credit Facility (Note 17).

In connection with the 2018 Credit Facility, the Lenders were issued 21,486 warrants (the “GQM LLC Warrants”), with each warrant entitling the holder to purchase a unit of GQM LLC for a period of five (5) years at an exercise price of $475.384 per unit.

The warrants are classified as a derivative liability due to a clause in the warrant agreement that offers the warrant holders price protection (Note 8). The fair value of GQM LLC Warrants at the issuance date of $3,314 is

accounted for as a finance cost and amortized to the statement of loss over the term of the 2018 Credit Facility. During the three months ended March 31, 2019, the Company recorded amortization expense of $

655

The GQM LLC Warrants represent a fully-diluted 7.5% interest in the equity of GQM LLC. If the GQM LLC warrants are exercised, the Company’s interest in GQM LLC will be diluted to 46.25%. The Company’s current interest in GQM LLC is 50%.

The 2018 Credit Facility is secured by a pledge of the Company’s equity interest in GQM LLC.