Prepaid Forward Gold Contract Liability

6 Months Ended

Jun. 30, 2021

Forward Gold Sales Contract Liability [Abstract]

PREPAID FORWARD GOLD CONTRACT LIABILITY

NOTE 3 – PREPAID FORWARD GOLD CONTRACT LIABILITY

During 2019, the Company entered into and closed a Pre-Paid Forward Gold Purchase Agreement (the “Purchase Agreement”) with PDK Utah Holdings L.P. (“PDK”) for the sale and purchase by PDK of gold produced from the Company’s mining property. Under the terms of the original Purchase Agreement, as amended, PDK agreed to purchase a total of 47,045 ounces of gold from the Company. The Company agreed to deliver ounces of gold produced from the Kiewit property to PDK and the Company would then receive proceeds from PDK at the then current spot price less a discount specified in the Purchase Agreement. The Company has the option of paying cash to PDK for the number of ounces to be delivered each month at a rate of $500 per ounce. The Company received a net amount of $13,600,000 in 2019 for the future delivery of these gold ounces.

The Purchase Agreement contains a royalty provision whereby royalties of 4% are due to PDK on gold and silver recovered from mining operations at the Kiewit site and sold by the Company to a third party. Under the Purchase Agreement, the Company also pays a 5% withholding tax to the state of Utah on the PDK royalty payments. Royalties are payable within 30 days following the end of each fiscal quarter. PDK-related royalties and royalty withholding payable at June 30, 2021 and December 31, 2020 were $347,942 and $221,897, respectively. The June 30, 2021 balance includes royalties payable for the second, third and fourth quarters of 2020 and the first and second quarters of 2021.

The Purchase Agreement contains a participation payment whereby PDK receives a portion of the proceeds from gold sold by the Company to a third party. The payment due to PDK is based upon a percentage of proceeds over a set gold price per ounce. The upside participation amounts are payable within four days following each sale. The June 30, 2021 and December 31, 2020 upside participation payable is $1,027,900 and $576,360, respectively. The June 30, 2021 balance includes participation payments payable for the third and fourth quarters of 2020 and the first and second quarters of 2021.

In addition, under the Purchase Agreement, PDK may reduce the required number of ounces to be sold in exchange for up to 8,000 common shares of the Company. As security for the obligations of the Company under the Purchase Agreement, the Company has granted PDK a security interest in all of the assets of the Company and has issued and recorded a Leasehold Deed of Trust, Assignment of Leases, Rents, As Extracted Collateral and Contracts, Security Agreement and Fixture Filing. The Purchase Agreement contains representations and warranties, as well as affirmative and negative covenants customary to a transaction of this nature.

Under the terms of the Purchase Agreement, as amended, the Company is obligated to deliver gold in the following quantities:

Months	Gold Ounces per Month		Total Gold Ounces
December 2020		655		655
January 2021 to March 2021		896		2,688
April 2021 to March 2022		911		10,932
April 2022 to March 2023		1,396		16,752
April 2023 to December 2023		1,753		15,777
January 2024		241		241
				47,045

No gold has been delivered under the contract. As of June 30, 2021 and December 31, 2020, a cumulative of 6,076 and 655 ounces, respectively, were scheduled to be delivered to PDK under the terms of the Purchase Agreement. The ounces due but unpaid to PDK at June 30, 2021 have been reflected in current liabilities at the amount calculated based on the Company’s option to pay cash in lieu of delivery at $500 per ounce. The forward gold contract balance and the related contract expense for the six-month period ended June 30, 2021 are as follows:

Total ounces to be delivered through June 30, 2021		6,076
Contractual payment per ounce in lieu of delivery	$	500
Amount due to PDK at June 30, 2021	$	3,038,000
Forward gold contract balance associated with 6,076 ounces		(1,756,450	)
Forward gold contract expense for the six months ended June 30, 2021	$	1,281,550
Prepaid forward gold contract liability balance at December 31, 2020	$	13,600,000
Forward gold contract balance associated with 6,076 ounces		(1,756,450	)
Prepaid forward gold contract liability balance at June 30, 2021	$	11,843,550

On December 1, 2020, the Company notified PDK that it would not be able to make the December delivery of gold and elected to use one of the delivery postponement options under the Purchase Agreement, as amended. This provision permits the Company to delay delivery by up to 30 days by delivering the amount of gold due within 30 days, plus interest calculated at the default interest rate, thereby causing the December ounces to be come due in January 2021. At the end of this 30-day extension period the Company was unable to deliver the December payment and the amount became due on January 25, 2021.

As of June 30, 202,1 and through the issuance of these financial statements, PDK has sent invoices to the Company for the deliveries and payments due. However, no notice of default on the Purchase Agreement has been received from PDK. The failure to make gold deliveries under the Purchase Agreement, as amended, provides PDK with certain remedies, including termination of the agreement, demand for early payment of the entire delivery obligations, and enforcement of foreclosure rights against the assets pledged as security under the agreement. The Company is in ongoing negotiations with PDK in an effort to re-negotiate the terms of the agreement. Due to the delinquent status of the deliveries and PDK’s rights under the default provisions of the Purchase Agreement, the Company has classified the entire liability balance owing as current on the June 30, 2021 balance sheet.