GOLD LEASE TRANSACTIONS

9 Months Ended

Sep. 30, 2018

NOTE 14 – GOLD LEASE TRANSACTIONS

a)	Gold lease transactions with related party

On January 3, 2017, Wuhan Kingold entered into a gold lease agreement with Shuntianyi to lease a total of 4,000 kilograms of Au9999 gold in aggregate with carrying value of approximately $131.1 million for a period from January 3, 2017 to February 28, 2017. The leased gold was fully returned by the Company to Shuntianyi on February 28, 2017.

As of September 30, 2018 and December 31, 2017, the Company had no leased gold outstanding from any related party, respectively.

b)	Gold lease transaction with financial institutes

The Company leased gold as a way to finance its growth and will return the same amount of gold to China Construction Bank (“CCB”), Shanghai Pudong Development Bank (“SPD Bank”) and CITIC Bank at the end of the respective lease agreements. Under these gold lease arrangements, each of CCB, SPD Bank and CITIC Bank retains beneficial ownership of the gold leased to the Company and treats it as if the gold is placed on consignment to the Company. All three banks have their own representatives on the Company’s premises to monitor on a daily basis the use and security of the gold leased to the Company. Accordingly, the Company records these gold lease transactions as operating leases because the Company does not have ownership nor has it assumed the risk of loss for the leased gold.

As of September 30, 2018 and December 31, 2017, no leased gold was outstanding and no restricted cash was pledged as collateral to safeguard any gold leases from financial institutions.

Interest expense for all gold lease arrangements for the three and nine months ended September 30, 2018 was Nil. Interest expense for all gold lease arrangements for the three and nine months ended September 30, 2017 was approximately $1,159 and $115,972, respectively, which was included in the cost of sales.