Derivative Financial Instruments

12 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

Derivative financial instruments at December 31, 2013 and 2012 consisted of the following:

Derivative Type	2013		2012
Derivative liabilities
Gold call options	$	—	$	16,330
Gold forwards	—		297,451
Contingent debt obligation payment	250,000		—
Contingent dividend payment	—		230,900
Total derivative liabilities	$	250,000	$	544,681

Gold Call Option, Forward, and Put Derivatives - During the year ended December 31, 2012, the Company entered into gold call, put, and forward derivative contracts in connection with the Auramet Facility transaction (see footnote 11). The gold puts expired during 2012 and the gold calls and forwards expired during 2013. The Company recognized gains on the change in fair value of the gold calls and forwards derivatives outstanding during the year ended December 31, 2013 of $16,330 and $297,451, respectively. During the year ended December 31, 2012, the Company recognized a loss of $172,500 on the gold puts, a gain of $108,361 on the gold calls, and a loss of $297,451 on the gold forwards. The changes in the fair value of these derivatives were included as components of change in fair value of derivatives in the consolidated statements of operations.

During the year ended December 31, 2013, the Company entered into separate gold forward and call option derivative contracts related to future gold sales with its primary customer. Premiums received at the inception of written gold call options are recorded as a liability and totaled $217,935 for the year ended December 31, 2013. The Company recognized a gain of $59,289 and $217,935 on the change in fair value of the gold forward and call option derivatives, respectively, during the year ended December 31, 2013. The recognized gains were included as a component of mining revenues as the contracts relate to gold sales. The gold forward and call option derivative contracts outstanding at December 31, 2013 covered a total of 118 and 2,500 gold ounces with an average price of $1,254 and $1,293 per ounce, respectively, and are expected to settle or expire within three months. The fair value of these gold forward and call option derivatives was not significant as of December 31, 2013.

Contingent Debt Obligation Payment Derivative - During the year ended December 31, 2013, the Company entered into an agreement to issue 1,000,000 shares of our common stock for a $2,000,000 principal payment on its Golden Goose debt obligation (see footnote 11). As part of the agreement, the Company agreed to make an additional payment to the noteholder on December 31, 2014 equal to the difference between $2,000,000 and the cash proceeds received from the noteholder’s subsequent sale of the common stock shares issued plus the value of any remaining unsold shares held by the noteholder on December 15, 2014. The value of the remaining unsold shares held by the noteholder will be determined based on the closing price of the Company’s common stock on December 15, 2014 multiplied by the number of remaining unsold shares as of December 15, 2014. We determined the contingent obligation to make an additional payment to ultimately satisfy the debt obligation was a derivative liability. The fair value of the common shares issued and derivative liability at issuance date was $1,840,000 and $160,000, respectively. The derivative's fair value was $250,000 at December 31, 2013. The recognized loss on the change in fair value of the derivative liability for the year ended December 31, 2013 was $90,000 and was included as a component of change in fair value of derivatives in the consolidated statements of operations.

Contingent Dividend Payment Derivative - The Series A1, Series A2 and Series B convertible preferred stock include a contingent dividend payment feature. The contingent dividend payment derivative is derived from the possibility the Company may be required to pay an additional dividend to all convertible preferred stockholders if the Series A2 convertible preferred stock is force converted to common stock before August 31, 2013 or if the Series B convertible preferred stock is force converted into common stock before October 18, 2013. Accordingly, we applied fair value measurement to the contingent dividend derivative at each reporting period using a Monte Carlo valuation model. Upon the issuance of 862.5 shares of Series A1 convertible preferred stock in 2012 and 2011, we recorded a derivative liability as an adjustment to the fair value basis of the convertible preferred stock issued of $6,009 and $15,954, respectively. During the years ended December 31, 2013, 2012 and 2011, the Company recognized a gain of $230,900, $800,109, and $3,864,164, respectively, on the change in fair value of the contingent dividend payment derivative liability. Each of these amounts was recorded within the change in fair value of derivatives in the consolidated statements of operations. The contingent dividend payment feature expired in 2013.