Derivative Financial Instruments

6 Months Ended

Jun. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

Derivative financial instruments consisted of the following:

	June 30,		December 31,
Derivative Type	2014		2013
Derivative liabilities
Gold collar options (written calls and purchased puts)	$	28,980	$	—
Contingent debt obligation payment	437,854		250,000
Gold call options and forwards	62,336		—
Total derivative liabilities	$	529,170	$	250,000

Gold Collar Options - On February 11, 2014, theCompany entered into written call and purchased put gold collar options contracts in connection with the Revolving Credit Facility transaction (see footnote 6). The premiums received for the written gold calls equaled the premiums paid to purchase the gold puts resulting in no net cash consideration from the Company on the transaction date. The gold calls and puts have various expiration dates through December 2014. The average strike price of the written gold call contracts is approximately $1,375 per ounce and covers a total of 4,600 ounces. The average strike price of the purchased gold put contracts is approximately $1,120 per ounce and covers a total of 4,600 ounces. During the three and six month periods ended June 30, 2014, the Company recognized a net gain of $87,175 and a net loss of $28,980, respectively, on the change in fair value of the gold collar options included as components of change in fair value of derivatives in the condensed consolidated statement of operations.

Contingent Debt Obligation Payment Derivative - On February 11, 2014, theCompany agreed to pay certain debt issuance costs in connection with the Revolving Credit Facility transaction (see footnote 6) via the issuance of 137,105 shares of common stock with an estimated grant date fair value of $274,210. With respect to 63,505 of such shares issued to Auramet, the Company agreed to make an additional payment to Auramet equal to the difference between $123,835 and sales proceeds received from the sale of such shares of common stock. As of June 30, 2014 the liability associated with the terms of this agreement was $21,382. During the three and six month periods ended June 30, 2014, the Company recognized a loss of $2,330 and $21,382, respectively, on the change in the fair value of this obligation included as a component of change in fair value of derivatives in the condensed consolidated statement of operations.

Gold Call Option and Forward Derivatives - During the six months ended June 30, 2014, 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 $62,336 at June 30, 2014. During the three and six month periods ended June 30, 2014, the Company recognized a loss of $29,713 and $88, respectively, on the change in fair value of the gold forward derivatives. During the three and six month periods ended June 20, 2014, the Company recognized a gain of $135,808 and a loss of $62,248 on the change in fair value of the call option derivatives. The recognized gains and losses 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 June 30, 2014 covered a total of 88 and 1,900 gold ounces with an average price of $1,315 and $1,306 per ounce, respectively, and are expected to settle or expire within four months.

During the year ended December 31, 2013, the Company entered into an agreement to issue 1,000,000 shares of common stock for a $2,000,000 principal payment on its Golden Goose debt obligation. 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 derivative's fair value was $416,472 at June 30, 2014, and $250,000 at December 31, 2013. The recognized loss on the change in fair value of the derivative liability for the three and six month periods ended June 30, 2014 was $66,472 and $166,472, respectively, and was included as a component of change in fair value of derivatives in the condensed consolidated statement of operations.