Xtra-Gold Resources Corp. - Exhibit 99.2 - Filed by newsfilecorp.com
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the interim
consolidated financial statements and results of operations (“MD&A”) of
Xtra-Gold Resources Corp. (“Xtra-Gold” or our “company”) for the three months
and six months ended June 30, 2015 and 2014 should be read in conjunction with
the interim consolidated financial statements and the related notes to the
company’s interim consolidated financial statements. The following discussion
contains forward-looking statements that reflect Xtra-Gold’s plans, estimates
and beliefs. Our company’s actual results could differ materially from those
discussed in the forward-looking statements set out herein. Factors that could
cause or contribute to such differences include, but are not limited to those
discussed below and as contained elsewhere in this MD&A. Our company’s
consolidated unaudited financial statements are stated in United States Dollars
and are prepared in accordance with United States Generally Accepted Accounting
Principles (“U.S. GAAP”).
Additional information relating to our company, including our
consolidated audited financial statements and the notes thereto for the years
ended December 31, 2014, 2013 and 2012 and our annual report on Form 20-F, can
be viewed on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Highlights for the Three Months Ended June 30,
2015
During the three months ended June 30, 2015:
| • |
in connection with our gold recovery operations, we
produced 413 ounces of raw gold. We sold 505 fine ounces of gold at an
average price of US$1,219 per ounce. |
During the six months ended June 30, 2015:
| • |
in connection with our gold recovery operations, we
produced 741 ounces of raw gold. We sold 704 fine ounces of gold at an
average price of US$1,210 per ounce. |
| |
|
| • |
we repurchased 85,000 shares for US$9,458 and cancelled
them. |
Highlights for the Year Ended December 31,
2014
During the year ended December 31, 2014:
|
• |
in connection with our Kibi Gold Project, located on the
Kibi Gold Belt, exploration activities were limited to Zone 5
reconnaissance geology / prospecting with 144 rock composite chip samples
collected and geological - geophysical modelling geared towards drill
target selection; |
| |
|
|
|
• |
in connection with our Kwabeng Project, located on the
Kibi Gold Belt: |
| |
|
|
|
• |
we announced prospecting and sampling results for the
Bomaa prospect (May 2014); |
| |
|
|
|
• |
we recovered 1,159 ounces of placer gold and sold 1,159
ounces for net proceeds of $411,152. As at the date of this MD&A,
during 2015, we plan to continue placer gold recovery operations at this
project; and |
| |
|
|
|
• |
in connection with our Pameng Project, located on the
Kibi Gold Belt, soil geochemical sampling was completed on two grids with
a total of approximately 80.5 line-km cross-lines established at 200 meter
spacing and 2,853 soil samples collected at 25 meter station spacing. A
total of 202 rock composite chip samples were collected as part of a
prospecting program focusing on the ground proofing of geophysical and
structural geology targets. With a view to conserving our company’s
working capital, management decided to postpone the laboratory analyses of
the soil and rock samples for the fiscal year; and |
| |
|
|
|
• |
a total of 452,500 common shares were re-purchased for
$136,679 and cancelled. |
Overview
- 2 -
We are a gold exploration company engaged in the exploration of
gold properties in the Republic of Ghana, West Africa. Our mining portfolio
currently consists of 225.87 square km comprised of 33.65 square km for our Kibi
project, 51.67 square km for our Banso project, 55.28 square km for our Muoso
project, 44.76 square km for our Kwabeng project, and 40.51 square km for our
Pameng project, or 55,873 acres, pursuant to the leased areas set forth in our
mining leases.
Technical Disclosure
The hardrock, lode gold exploration technical information
relating to our mineral properties contained in this MD&A is based upon
information prepared by or the preparation of which was supervised by Yves
Clement, P.Geo., our Vice-President, Exploration. Mr. Clement is a Qualified
Person as defined by Canadian Securities National Instrument 43-101 concerning
standards of disclosure for mineral projects.
Plan of Operations
Our strategic plan is, with respect to our mineral projects, to
conduct an exploration program, consisting of the following:
at our Kibi project:
-
an exploration program consisting of additional outcrop stripping /
trenching followed by detailed geological mapping and channel sampling to
further investigate the auriferous occurrences discovered by the latest
prospecting efforts and to further define the strike-extensions of the known
gold-bearing shear zones;
-
prospecting / reconnaissance geology of the additional prospective
IP/Resistivity targets present along the 2.2 km long Zone 5 grid is also
planned; and
-
a drill program of approximately 2,000 to 3,000 meters at an estimated cost
of $300,000 to $500,000;
at our Kwabeng project:
-
ongoing geological compilation, prospecting, soil geochemical sampling, and
scout trenching to identify and/or further advance grassroots targets; and
-
the continuation of placer gold recovery operations at this project
(commenced in March 2013);
at our Pameng project:
-
ongoing geological compilation, prospecting, soil geochemical sampling, and
scout trenching to identify and/or further advance grassroots targets; and
-
to acquire further interests in gold mineralized projects that fall within
the criteria of providing a geological basis for development of drilling
initiatives that can enhance shareholder value by demonstrating the potential
to define reserves.
As part of our current business strategy, we plan to continue
engaging technical personnel under contract where possible as our management
believes that this strategy, at its current level of development, provides the
best services available in the circumstances, leads to lower overall costs and
provides the best flexibility for our business operations.
We anticipate that our ongoing efforts will continue to be
focused on the exploration and development of our projects and completing
acquisitions in strategic areas.
As at the date of this MD&A, we have resumed our recovery
of placer gold operations at our Kwabeng project. We contract out as many
services as possible on our placer gold recovery operations to local Ghanaians
in order to maximize cost efficiencies.
Our fiscal 2015 budget to carry out our plan of operations is
approximately $880,000 to $1,080,000 comprised of $480,000 to $680,000 for our
2015 exploration program ($180,000) and planned drilling program on our Kibi
gold project ($300,000 to $500,000) as disclosed in our 20-F annual report under
Item 4.B – Information on Xtra-Gold – Business Overview and approximately
$400,000 for general and administrative expenses, (which excludes approximately
$200,000 in non-cash stock-based compensation expense). These expenditures are
subject to change if management decides to scale back or accelerate operations.
Until the gold price recovers from continued weakness, the drilling program will
be deferred.
- 3 -
Our company has historically relied on equity and debt
financings to finance its ongoing operations. Existing working capital, possible
debt instruments, further private placements and anticipated cash flow from
placer gold recovery operations are expected to be adequate to fund our
company’s operations over the next year. During the current year and subsequent
to 2015, we will require additional capital to implement our plan of operations.
We anticipate that these funds primarily will be raised through equity and debt
financing or from other available sources of financing. If we raise additional
funds through the issuance of equity or convertible debt securities, it may
result in the dilution in the equity ownership of investors in our common stock.
There can be no assurance that additional financing will be available upon
acceptable terms, if at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable to take advantage of prospective
new opportunities or acquisitions, which could significantly and materially
restrict our operations, or we may be forced to discontinue our current
projects.
Trends
In 2014, many commodity and stock market indices continued to
experience historically high levels of volatility in the face of global economic
uncertainty. Gold prices decreased over 2014 as financial markets sold gold to
invest in other equities which were more consistent with economic growth
prospects.
During 2015, the U.S. dollar strengthened against most
currencies, as economic reports reflected a U.S. economic recovery in
progress.
During 2014, the gold price was volatile, reaching a high of
$1,385 per ounce. During the first half of 2015, the gold price continued to be
volatile, reaching a high of $1,295.75 on January 22, 2015 and a low of
$1,147.25 on March 18, 2015. The average gold price for the first half of 2015
was $1,206 per ounce compared to an average gold price during the same period in
2014 of $1,291. The tone for the precious metals market in the near future will
depend on whether the U.S. dollar will be supported and if the central banks
will continue to maintain interest rates at low levels to support economic
growth. The continued global easing of monetary policy could lead to higher
inflation and further U.S. dollar volatility. This dollar volatility could have
a positive impact on gold prices in the future. Conversely, subdued inflation
rates and the recovering global economy could put downward pressure on the gold
price. Additionally, recent economic events could have a positive effect on the
gold price.
Overall, a lower U.S. dollar should lead to higher costs in
U.S. dollar terms to identify and explore for gold but could be more than offset
by higher gold prices, resulting in greater interest in gold exploration
companies. Conversely, if the U.S. dollar strengthens further, interest in the
gold exploration sector could be reduced.
Summary of Quarterly Results
| |
|
|
|
|
Basic and Diluted Income
|
|
| Three Months Ended |
|
Net Income (Loss) |
|
|
(Loss) Per Share |
|
| |
|
|
|
|
$ |
|
| |
|
|
|
|
|
|
| June 30, 2015 |
$ |
(44,670 |
) |
$ |
(0.00 |
) |
| March 31, 2015 |
|
(182,765 |
) |
|
(0.00 |
) |
| December 31, 2014 |
|
(130,615 |
) |
|
(0.00 |
) |
| September 30, 2014 |
|
(15,068 |
) |
|
(0.00 |
) |
| June 30, 2014 |
|
(293,144 |
) |
|
(0.01 |
) |
| March 31, 2014 |
|
(255,072 |
) |
|
(0.01 |
) |
| December 31, 2013 |
|
(244,225 |
) |
|
(0.01 |
) |
| September 30, 2013 |
|
70,928 |
|
|
0.00 |
|
| June 30, 2013 |
|
82,484 |
|
|
0.00 |
|
| March 31, 2013 |
|
(651,280 |
) |
|
(0.01 |
) |
| December 31, 2012 |
|
(2,701,993 |
) |
|
(0.06 |
) |
| September 30, 2012 |
|
(6,501 |
) |
|
(0.00 |
) |
- 4 -
Summary of the Last Three Fiscal Years ended December
31
| |
|
2014 |
|
|
2013 |
|
|
2012 |
|
| |
|
$ |
|
|
$ |
|
|
$ |
|
| Operating revenues |
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
| Consolidated loss and comprehensive loss for the
year |
|
(687,057 |
) |
|
(750,942 |
) |
|
(7,631,636 |
) |
Net loss and comprehensive loss attributable
to
non-controlling interest |
|
6,842
|
|
|
8,849
|
|
|
466,378 |
|
Net loss and comprehensive loss attributable to
Xtra-Gold
Resources Corp. |
|
(693,899 |
) |
|
(742,093 |
) |
|
(7,165,258 |
) |
Basic and diluted loss attributable to common
shareholders
per common share |
|
(0.02 |
) |
|
(0.02 |
) |
|
(0.16 |
)) |
| Total current assets |
|
1,124,733 |
|
|
1,717,195 |
|
|
2,692,522 |
|
| Total assets |
|
2,713,212 |
|
|
3,616,752 |
|
|
4,836,377 |
|
| Total current liabilities |
|
327,193 |
|
|
311,904 |
|
|
404,507 |
|
| Total liabilities |
|
327,193 |
|
|
515,299 |
|
|
931,491 |
|
| Working capital |
|
797,540 |
|
|
1,405,291 |
|
|
1,948,426 |
|
| Capital stock |
|
45,811 |
|
|
46,264 |
|
|
46,540 |
|
| Total shareholders’ equity |
|
2,386,019 |
|
|
3,101,453 |
|
|
3,904,866 |
|
| Total Xtra-Gold Resources Corp. shareholders’
equity |
|
3,360,935 |
|
|
4,083,211 |
|
|
4,877,795 |
|
| Dividends declared per share |
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
Basic and diluted weighted average number of
common
shares outstanding |
|
45,996,481 |
|
|
46,481,748 |
|
|
44,698,113 |
|
Results of Operations for the Three Months Ended June 30,
2015 as Compared to the Three Months Ended June 30, 2014
Our company’s net loss for the three months ended June 30, 2015
was $44,670 as compared to a net loss of $293,144 for the three months ended
June 30, 2014, a reduction in loss of $248,474. Most of the improvement related
to improved results from gold recovery and reduced stock based compensation
expense.
Our company’s basic and diluted net loss per share for the
three months ended June 30, 2015 was $0.00 compared to a net loss of $0.01 per
share for the three months ended June 30, 2014. The weighted average number of
shares outstanding was 45,726,417 at June 30, 2015 compared to 45,994,598 for
the three months ended June 30, 2014. The decrease in the weighted average
number of shares outstanding can be attributed to the repurchase of shares over
2014 and 2015.
We incurred expenses of $217,229 in the three months ended June
30, 2015 as compared to $360,918 in the three months ended June 30, 2014, a
decrease of $143,689. Amortization for the three months ended June 30, 2015 was
$36,553 as compared to $47,019 for the three months ended June 30, 2014, a decrease of $10,466, as
no equipment was purchased in 2014 or 2015. General and administrative
(“G&A”) expenses were $100,772 in the three months ended June 30,
2015 as compared to $202,673 in the three months ended June 30, 2014, a decrease
of $101,901. The decrease in G&A expenses in the three months ended June 30,
2015 can be primarily attributed to lower stock based compensation and
regulatory costs. Other G&A expenses were in line with those in Q2 2014.
Exploration costs decreased by $31,321 to $79,905 in the three months ended June
30, 2015 as compared to $111,226 for the three months ended June 30, 2014,
primarily due to a limited work program in 2015. All exploration costs were
expensed in the periods.
- 5 -
During the June 2015 quarter, in connection with our Kibi
project, exploration activities focused on Zone 5 outcrop stripping and detailed
geological mapping / channel sampling to further investigate the auriferous
occurrences discovered by recent prospecting efforts and to further define the
strike-extensions of the known gold-bearing shear zones. A total of 214 saw-cut
channel samples totaling approximately 174 linear-meters were collected from
approximately 2,215 square meters of stripped / power washed bedrock exposure,
including 373 square meters of manual stripping and 1,842 square meters of
mechanical stripping; with an additional 27 saprolite channel samples collected
from the outer walls of the stripped areas. The present Zone 5 channel samples
will be submitted to the laboratory upon the completion of the ongoing outcrop
stripping / sampling program, and sample results for the entire 2015 Zone 5 work
program will be reported upon final compilation of the geological and assay
result data. Additional exploration efforts on our Kibi project included the
collection of 44 rock composite chip samples as part of an ongoing prospecting
program designed to identify new grassroots gold targets on the Apapam
concession; with assay results for said sampling still pending from the
laboratory.
In connection with our Kwabeng project, a total of 10 rock
composite chip samples were collected as part of a prospecting program focusing
on the ground proofing of geophysical and structural geology targets. We did not
conduct any exploration activities on our Pameng project during the current
reporting period.
We reported a gain of $184,571 related to other items for the
three months ended June 30, 2015 compared to a gain of $57,296 for the three
months ended June 30, 2014 as improved gold recoveries were partly offset by
foreign exchange expense in Q2 2015 as compared to Q2 2014.
During the three months ended June 30, 2015, we sold 505 ounces
of fine gold from our gold recovery operations and produced 413 raw gold ounces
from the placer gold operations. Our gold receipts, after production costs and
royalties, during the three months ended June 30, 2015, generated a gain on gold
recovery of $240,674 (June 30, 2014 – loss of $46,026). Gold sales relating to
our share of gold is not recognized until the risks and rewards of ownership
passed to the buyer. These placer gold recovery operations were contracted to
local Ghanaian groups. We pay a 5% government royalty on our gold sales. Using
local contractors promotes the local economy while avoiding illegal workings on
our projects.
During the three months ended June 30, 2015, our company had a
foreign exchange loss of $51,834 compared to a gain of $76,465 in the three
months ended June 30, 2014 which can be attributed to a stronger U.S. dollar
during the quarter.
Our company’s portfolio of marketable securities had a realized
loss of $8,306 and an unrealized gain of $4,933 in the three months ended June
30, 2015 compared to a realized gain of $275 and unrealized gain of $21,420 in
the three months ended June 30, 2014. Unrealized gains and losses reflect
mark-to-market changes in the investment portfolio during a period. A realized
gain is recognized when securities are sold from the investment portfolio, being
the difference between the selling price and the purchase price of the security
sold. At the time of the sale, any mark-to-market gain or loss which is related
to the security sold, previously recognized in unrealized gains and losses, is
reversed.
On July 24, 2015, Buccaneer filed an action in the Ontario
Superior Court of Justice against the Company and Mark McGinnis (the “Action”). In the Action, Buccaneer alleges that in July, 2010,
Buccaneer and the Company entered into a letter of intent to option the
Company’s Banso and Muoso prospecting licenses in Ghana leading to a joint
venture between the parties. Buccaneer also alleges that pursuant to the said
joint venture, Buccaneer acquired an immediate 55% undivided interest in the
alluvial mining rights of the Company’s Banso and Muoso Concessions (the “Concessions”) at
the time of the agreement was reached and paid $50,000 for those rights. The
Action claims against the defendants damages for breach of contract and breach
of fiduciary duty and for an accounting of profits from the sale of alluvial
gold recovered from the Concessions. Buccaneer seeks damages in the amount of
$5,000,000 plus further amounts and costs to be determined at trial.
The Company believes the claims in the Action are without merit
and will vigorously defend the unfounded claims in the event they are raised in
an appropriate forum. It is the Company’s position that the matters in issue in
the Action are subject to an arbitration agreement and that the Action is not
properly before the Ontario court, and the Company intends to seek an order of
the Ontario Superior Court of Justice staying the Action. In respect of the
allegation in the Action by Buccaneer that it acquired an immediate 55% interest
in the alluvial rights to the Concessions, the Company has been unable to locate
any record of such alluvial sales agreement or payment in respect thereof, and
questions the validity/existence of the same. The Company is reviewing the
circumstances of the disclosure made by the Company in respect of an alleged
agreement relating to alluvial rights to the Concessions.
- 6 -
Results of Operations for the Six Months Ended June 30,
2015 as Compared to the Three Months Ended June 30, 2014
Our company’s net loss for the six months ended June 30, 2015
was $227,435 as compared to a net loss of $548,216 for the six months ended June
30, 2014, a reduction in loss of $320,781. Most of the improvement resulted from
increased gold recovery and decreased spending for both exploration and general
and administration, which were partly offset by foreign exchange expenses in
2015.
Our company’s basic and diluted net loss per share for the six
months ended June 30, 2015 was $0.00 compared to a net loss of $0.01 per share
for the six months ended June 30, 2014. The weighted average number of shares
outstanding was 45,735,809 at June 30, 2015 compared to 46,126,934 for the six
months ended June 30, 2014. The decrease in the weighted average number of
shares outstanding can be attributed to the repurchase of shares over 2014 and
2015.
We incurred expenses of $410,741 in the six months ended June
30, 2015 as compared to $689,399 in the six months ended June 30, 2014, a
decrease of $278,658. Decreased amortization resulted from no equipment was
purchased in 2014 or 2015. General and administrative (“G&A”)
expenses were lower primarily due to lower stock based compensation costs.
Exploration costs decreased due to a limited work program to date in 2015.
We reported a gain of $196,323 related to other items for the
six months ended June 30, 2015 compared to a gain of $125,689 for the six months
ended June 30, 2014. Increased gold recoveries were partly offset by increased
foreign exchange expense in the first half of 2015 as compared to the first half
of 2014. Gold production in the first half of 2015 was 741 raw ounces of gold
and we sold 704 fine ounces of gold.
Our company’s portfolio of marketable securities had a realized
loss of $8,306 in the six months ended June 30, 2015 compared to a realized gain
of $2,933 in the six months ended June 30, 2014, due to results on share
dispositions. Our company recognized an unrealized loss of $8,074 in the six
months ended June 30, 2015 compared to an unrealized gain of $28,717 in the six
months ended June 30, 2014. Unrealized gains and losses reflect mark-to-market
changes in the investment portfolio during the periods.
Corporate and Management Changes
At our Annual General Meeting on June 22, 2015, the following
individuals did not stand for re-election; Paul Zyla, Richard Grayston, and Dr.
Guy Della Valle. The following individuals were newly elected as Directors;
Denis Laviolette and Hans Morsches. Paul Zyla did not continue as CEO and was
replaced by Peter Minuk. John Ross did not continue as CFO and was replaced by
Victor Nkansa.
Liquidity and Capital Resources
Our activities, principally the exploration and acquisition of
properties for gold and other metals, may be financed through joint ventures or
through the completion of equity transactions such as equity offerings and the
exercise of stock options and warrants. During the six months ended June 30,
2015, our company repurchased 85,000 of our shares at a cost of $9,458. These
shares were cancelled in the first quarter. During the year ended December 31,
2014, our company repurchased 452,500 of our shares at a cost of $136,679. These
shares were cancelled.
At June 30, 2015, accounts payable and accrued liabilities
increased to $233,653 (December 31, 2014 - $230,798), due to a increased
obligations related to gold sales. Our asset retirement obligation increased to
$123,431 at June 30, 2015 from $96,395 at December 31, 2014 as land was
disturbed in the gold recovery process. Our cash and cash equivalents as at
March 31, 2015 were sufficient to pay these liabilities. We believe that our
company has sufficient working capital to achieve our 2015 operating plan.
At June 30, 2015, we had total cash and cash equivalents of
$737,465 (December 31, 2014 - $850,736). Working capital as of June 30, 2015 was
$646,769 (December 31, 2014 - $797,540). The decrease in cash mostly reflects
gold recovery efforts not realized until the following quarter, combined with
exploration and administrative spending.
We are an exploration company focused on gold and associated
commodities and do not have operating revenues; and therefore, we must utilize
our current cash reserves, income from placer gold sales, income from
investments, funds obtained from the exercise of stock options and warrants and other financing transactions to
maintain our capacity to meet the planned exploration programs, or to fund any
further development activities. There is no certainty that future financing will
be available to us in the amounts or at the times desired on terms acceptable to
us, if at all.
- 7 -
Our shares of common stock, warrants and stock options
outstanding as at August 10, 2015, December 31, 2014 and December 31, 2013 were
as follows:
| |
August 10, 2015 |
December 31, 2014 |
December 31, 2013 |
| Common Shares |
45,726,417 |
45,811,417 |
46,263,917 |
| Warrants |
- |
- |
964,500 |
| Stock Options |
2,210,000 |
2,426,000 |
2,489,000 |
| Fully diluted |
47,936,417 |
48,237,417 |
49,717,417 |
As of the date of this MD&A, the exercise of all options
would raise approximately $0.7 million, however such exercise is not anticipated
until the market value of our shares of common stock increases in value.
We remain debt free and our credit and interest rate risk is
limited to interest-bearing assets of cash and bank or government guaranteed
investment vehicles. Accounts payable and accrued liabilities are short-term and
non-interest bearing.
Our liquidity risk with financial instruments is minimal as
excess cash is invested with a Canadian financial institution in
government-backed securities or bank-backed guaranteed investment
certificates.
Our fiscal 2015 budget to carry out our plan of operations is
approximately $880,000 to $1,080,000 as disclosed above under “Plan of
Operations”.
We believe that we are adequately capitalized to achieve our
operating plan for fiscal 2015. As is typical for junior exploration companies,
we will require additional funds from equity sources to maintain the current
momentum on our projects. At June 30, 2015 and at December 31, 2014, there were
no borrowings or capital expenditure commitments made by our company.
Related Party Transactions
During the three month periods ended June 31, 2015 and June 31,
2014, our company entered into the following transactions with related
parties:
| |
|
|
June 30, |
|
|
June 30, |
|
| |
|
|
2015 |
|
|
2014 |
|
| |
|
|
|
|
|
|
|
| |
Consulting fees paid or accrued to officers
or their companies |
$ |
236,776 |
|
$ |
200,642 |
|
| |
Directors’ fees |
|
4,857 |
|
|
8,793 |
|
| |
|
|
|
|
|
|
|
| |
Stock option grants to officers and directors |
|
— |
|
|
108,000 |
|
| |
Stock option grant price range |
$ |
— |
|
|
CAD$0.50 |
|
Of the total consulting fees noted above in 2015, $82,842 (2014
- $62,390) was payable by the Company to a private company of which a related
party is a shareholder and director and is entitled to receive 50% of this
amount. An amount of $52,842 in 2015 (2014 - $7,170) was payable to the private
company of which a related party is entitled to 50% of this amount. A further
balance of $10,000 at June 30, 2015 and December 31, 2014 remains payable to
this related party.
As at June 30, 2015, $97,493 (December 31, 2014 - $97,493) was
due from Buccaneer for services performed by the Company during the periods.
A total of 2,147,000 stock options previously granted to
related parties were amended in 2014 by re-pricing these options to CAD$0.50 per
share.
- 8 -
Material Commitments
Mineral Property Commitments
Our company is committed to expend, from time to time fees
payable:
|
• |
to the Minerals Commission of Ghana for: |
| |
|
|
|
• |
an extension of an expiry date of a prospecting license
(currently $15,000 for each occurrence); |
| |
|
|
|
• |
a grant of a mining lease (currently $100,000); |
| |
|
|
|
• |
an extension of a mining lease (currently
$100,000); |
| |
|
|
|
• |
annual operating permits; and |
| |
|
|
|
• |
the conversion of a reconnaissance license to a
prospecting license (currently $20,000); |
| |
|
|
|
• |
to the Environmental Protection Agency of Ghana
for: |
| |
|
|
|
• |
processing and certificate fees with respect to EPA
permits; |
| |
|
|
|
• |
the issuance of permits before the commencement of any
work at a particular concession; or |
| |
|
|
|
• |
the posting of a bond in connection with any mining
operations undertaken by our company; and |
| |
|
|
|
• |
for a legal obligation associated with our mineral
properties for clean up costs when work programs are completed. We are
committed to expend an aggregate of less than $500 in connection with
annual ground rent and mining permits to enter upon and gain access to the
area covered by our mining leases and future reconnaissance and
prospecting licenses for our following concessions and such other
financial commitments arising out of any approved exploration programs in
connection therewith: |
| |
|
|
|
• |
the Apapam concession (Kibi project); |
| |
|
|
|
• |
the Kwabeng concession (Kwabeng project); |
| |
|
|
|
• |
the Pameng concession (Pameng project); |
| |
|
|
|
• |
the Banso concession (Banso project); and |
| |
|
|
|
• |
the Muoso concession (Muoso
project). |
Upon and following the commencement of gold production at any
of our projects, a royalty of the net smelter returns is payable quarterly to
the Government of Ghana as prescribed by legislation.
Purchase of Significant Equipment
We consider the availability of equipment to conduct our
exploration activities. While we do not expect we will be buying any equipment
in the foreseeable future, we will continue to assess the situation and weigh
our program needs against equipment availabitlity.
Off Balance Sheet Arrangements
Our company has no off balance sheet arrangements.
Significant Accounting Applications
- 9 -
Application of Critical Accounting Policies
We believe the following critical accounting policies affect
our more significant judgments and estimates used in the preparation of our
financial statements.
Generally accepted accounting principles
These consolidated financial statements have been prepared in
conformity with generally accepted accounting principles of the United States of America (“US GAAP”).
Principles of consolidation
These consolidated financial statements include the accounts of
our company, our wholly owned subsidiaries, Xtra Energy ( from October 31,
2003), XG Exploration (from February 16, 2004), XOG (from October 20, 2005) and
XOGG (from March2, 2006) and our 90% owned subsidiary, XG Mining (from December
22, 2004). All intercompany accounts and transactions have been eliminated on
consolidation.
Use of estimates
The preparation of consolidated financial statements in
conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant areas requiring
the use of estimates include the carrying value and recoverability of mineral
properties, inputs used in the calculation of stock-based compensation and
warrants, inputs used in the calculation of the asset retirement obligation, and
the valuation allowance applied to deferred income taxes. Actual results could
differ from those estimates, and would impact future results of operations and
cash flows.
Cash and cash equivalents
Our company considers highly liquid investments with original
maturities of three months or less to be cash equivalents. At June 30, 2015 and
December 31, 2014, cash and cash equivalents consisted of cash held at financial
institutions.
Receivables
No allowance for doubtful accounts has been provided.
Management has evaluated all receivables and believes they are all
collectible.
Recovery of gold
Recovery of gold and other income is recognized when title and
the risks and rewards of ownership to delivered bullion and commodities pass to
the buyer and collection is reasonably assured.
Trading securities
Our company’s trading securities are reported at fair value,
with realized and unrealized gains and losses included in earnings.
Non-Controlling Interest
The consolidated financial statements include the accounts of
XG Mining (from December 22, 2004). All intercompany accounts and transactions
have been eliminated upon consolidation. Our company records a non-controlling
interest which reflects the 10% portion of the earnings (loss) of XG Mining
allocable to the holders of the minority interest.
Equipment
Equipment is recorded at cost and is being amortized over its
estimated useful lives using the declining balance method at the following
annual rates:
| Furniture and equipment |
20% |
| Computer equipment |
30% |
| Vehicles |
30% |
| Exploration equipment |
20% |
- 10 -
Mineral properties and exploration and development
costs
The costs of acquiring mineral rights are capitalized at the
date of acquisition. After acquisition, various factors can affect the
recoverability of the capitalized costs. If, after review, management concludes
that the carrying amount of a mineral property is impaired, it will be written
down to estimated fair value. Exploration costs incurred on mineral properties
are expensed as incurred. Development costs incurred on proven and probable
reserves will be capitalized. Upon commencement of production, capitalized costs
will be amortized using the unit-of-production method over the estimated life of
the ore body based on proven and probable reserves (which exclude
non-recoverable reserves and anticipated processing losses). When our company
receives an option payment related to a property, the proceeds of the payment
are applied to reduce the carrying value of the exploration asset.
Long-lived assets
Long-lived assets held and used by our company are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. For purposes of evaluating
the recoverability of long-lived assets, the recoverability test is performed
using undiscounted net cash flows related to the long-lived assets. If such
assets are considered to be impaired, the impairment recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of their carrying
amount or fair value less costs to sell.
Asset retirement obligations
Our company records the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that result from
the acquisition, construction, development, and/or normal use of the long-lived
assets. Our company also records a corresponding asset which is amortized over
the life of the asset. Subsequent to the initial measurement of the asset
retirement obligation, the obligation is adjusted at the end of each period to
reflect the passage of time ( accretion expense) and changes in the estimated
future cash flows underlying the obligation ( asset retirement cost).
Stock-based compensation
Our company accounts for share-based compensation under the
provisions of ASC 718, “Compensation-Stock Compensation”. Under the fair value
recognition provisions, stock-based compensation expense is measured at the
grant date for all stock-based awards to employees and directors and is
recognized as an expense over the requisite service period, which is generally
the vesting period. The Black-Scholes option valuation model is used to
calculate fair value.
Our company accounts for stock compensation arrangements with
non-employees in accordance with ASC 718 which require that such equity
instruments are recorded at their fair value on the measurement date. The
measurement of stock-based compensation is subject to periodic adjustment as the
underlying equity instruments vest. Nonemployee stock-based compensation charges
are amortized over the vesting period on a straight-line basis. For stock
options granted to non-employees, the fair value of the stock options is
estimated using a Black-Scholes valuation model.
Warrants
Our company evaluates all of its financial instruments to
determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted
for as liabilities, the derivative instrument is initially recorded at its fair
value using the appropriate valuation methodology and is then re-valued at each
reporting date, with changes in the fair value reported in the consolidated
statements of operations. The warrants are presented as a liability because they
do not meet the criteria of Accounting Standard Codification (“ASC”) topic 480
for equity classification. Subsequent changes in the fair value of the warrants
are recorded in the consolidated statement of operations.
Income taxes
Our company accounts for income taxes under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under the asset and liability method the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A valuation
allowance is recognized if it is more likely than not that some portion or all
of the deferred tax asset will not be recognized.
- 11 -
Loss per share
Basic loss per common share is computed using the weighted
average number of common shares outstanding during the year. To calculate
diluted loss per share, our company uses the treasury stock method and the if
converted method. As of June 30, 2015 and December 31, 2014, there were nil
warrants and 2,210,000 stock options outstanding which have not been included in
the weighted average number of common shares outstanding as these were
anti-dilutive.
Foreign exchange
Our company’s functional currency is the U.S. dollar. Any
monetary assets and liabilities that are in a currency other than the U.S.
dollar are translated at the rate prevailing at year end. Revenue and expenses
in a foreign currency are translated at rates that approximate those in effect
at the time of translation. Gains and losses from translation of foreign
currency transactions into U.S. dollars are included in current results of
operations.
Financial instruments
Our company’s financial instruments consist of cash and cash
equivalents, trading securities, receivables, accounts payable and accrued
liabilities. It is management’s opinion that our company is not exposed to
significant interest, currency or credit risks arising from its financial
instruments. The fair values of these financial instruments approximate their
carrying values unless otherwise noted. Our company has its cash primarily in
commercial banks in Toronto, Ontario, Canada.
Fair value of financial assets and liabilities
Our company measures the fair value of financial assets and
liabilities based on US GAAP guidance which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements.
Our company classifies financial assets and liabilities as
held-for-trading, available-for-sale, held-to-maturity, loans and receivables or
other financial liabilities depending on their nature. Financial assets and
financial liabilities are recognized at fair value on their initial recognition,
except for those arising from certain related party transactions which are
accounted for at the transferor’s carrying amount or exchange amount.
Financial assets and liabilities classified as held-for-trading
are measured at fair value, with gains and losses recognized in net income.
Financial assets classified as held-to-maturity, loans and receivables, and
financial liabilities other than those classified as held-for-trading are
measured at amortized cost, using the effective interest method of amortization.
Financial assets classified as available-for-sale are measured at fair value,
with unrealized gains and losses being recognized as other comprehensive income
until realized, or if an unrealized loss is considered other than temporary, the
unrealized loss is recorded in income.
Financial instruments, including cash and cash equivalents,
accounts payable and accrued liabilities are carried at cost, which management
believes approximates fair value due to the short term nature of these
instruments. Investments in trading securities are classified as held for
trading, with unrealized gains and losses being recognized in income.
The following table presents information about the assets that
are measured at fair value on a recurring basis as of March 31, 2015, and
indicates the fair value hierarchy of the valuation techniques our company
utilized to determine such fair value. In general, fair values determined by
Level 1 inputs utilize quoted prices (unadjusted) in active markets for
identical assets. Fair values determined by Level 2 inputs utilize data points
that are observable such as quoted prices, interest rates and yield curves. Fair
values determined by Level 3 inputs are unobservable data points for the asset
or liability, and included situations where there is little, if any, market
activity for the asset:
- 12 -
| |
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
| |
|
|
|
|
|
Quoted Prices |
|
|
Other |
|
|
Significant |
|
| |
|
|
|
|
|
in Active |
|
|
Observable |
|
|
Unobservable |
|
| |
|
|
June 30, |
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
| |
|
|
2015 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents |
$ |
737,465 |
|
$ |
737,465 |
|
$ |
— |
|
$ |
— |
|
| |
Restricted cash |
|
221,322 |
|
|
221,322 |
|
|
— |
|
|
— |
|
| |
Marketable securities |
|
57,577 |
|
|
57,577 |
|
|
— |
|
|
— |
|
| |
Total |
$ |
1,016,364 |
|
$ |
1,016,364 |
|
$ |
— |
|
$ |
— |
|
The fair values of cash and cash equivalents and marketable
securities are determined through market, observable and corroborated
sources.
Concentration of credit risk
The financial instrument which potentially subjects our company
to concentration of credit risk is cash. Our company maintains cash in bank
accounts that, at times, may exceed federally insured limits. As of June 30,
2015 and December 31, 2014, our company has exceeded the federally insured
limit. Our company has not experienced any losses in such accounts and believes
it is not exposed to any significant risks on its cash in bank accounts. Our
company sells all gold recovered to one licensed export agent in Ghana. There is
no contract in place and the company is able to switch suppliers at its
discretion.
Recently Adopted Accounting Pronouncements
Our company does not expect the adoption of recently issued
accounting pronouncements to have a significant impact on our company’s
consolidated financial position, results of operations or cash flows.
Recent accounting pronouncements
In June 2014, the Financial Accounting Standards Board (
“FASB”) issued Accounting Standards Update(ASU) No. 2014 -10, “Development Stage
Entities ( Topic 915): Elimination of Certain Financial Reporting Requirements,
Including an Amendment to Variable Interest Entities Guidance in Topic
810,Consolidation”. This ASU does the following, among other things: a)
eliminates the requirement to present inception-to-date information on the
statements of income, cash flows, and shareholders' equity, b) eliminates the
need to label the financial statements as those of a development stage entity,
c) eliminates the need to disclose a description of the development stage
activities in which the entity is engaged, and d) amends FASB ASC 275, “Risks
and Uncertainties”, to clarify that information on risks and uncertainties for
entities that have not commenced planned principal operations is required. The
amendments in ASU No. 2014-10 related to the elimination of Topic 915
disclosures and the additional disclosure for Topic 275 are effective for public
companies for annual and interim reporting periods beginning after December 15,
2014. Early adoption is permitted. The Company has evaluated this ASU and
adopted beginning with the period ended December 31, 2014.
Caution Regarding Forward-Looking Statements
This MD&A contains certain forward-looking information and
forward-looking statements, as defined in applicable securities laws (collectively referred to herein as “forward-looking
statements”). These statements relate to future events or our company’s future
performance. All statements other than statements of historical fact are
forward-looking statements. Often, but not always, forward-looking statements
can be identified by the use of words such as “plans”, “expects”, “is expected”,
“budget”, “scheduled”, “estimates”, “continues”, “forecasts”, “projects”,
“predicts”, “intends”, “anticipates” or “believes”, or variations of, or the
negatives of, such words and phrases or state that certain actions, events or
results “may”, “could”, “would”, “should”, “might” or “will” be taken, occur or
be achieved. Forward-looking statements involve known and unknown risks,
uncertainties and other factors, which may cause actual results to differ
materially from those anticipated in such forward-looking statements. The
forward-looking statements in this MD&A speak only as of the date of this
MD&A or as of the date specified in such statement.
The following table outlines certain significant
forward-looking statements contained in this MD&A and provides the material
assumptions used to develop such statements and material risk factors that could
cause actual results to differ materially from the forward-looking
statements.
- 13 -
| Forward-Looking Statements |
Assumptions |
Risk Factors |
| Potential of Xtra-Gold’s properties to contain economic
gold deposits and other mineral deposits and/or to become near-term and/or
low-cost producers |
Availability of financing for our projects.
Actual results of our exploration, resource goals, metallurgical
testing, economic studies and development
activities will be
favourable.
Operating, exploration and development costs will be consistent with
our expectations.
Ability to retain and attract skilled staff.
All requisite regulatory and governmental approvals will be received on
a timely basis on terms acceptable to Xtra-Gold, including development of
any deposit in compliance with Ghanaian mining law.
Social engagement and local acceptance of our projects.
Economic,
political and industry market conditions will be favourable. |
Changes in the capital markets impacting availability of future
financings.
Uncertainties involved in interpreting geological data and confirming
title to acquired properties.
Possibility of future exploration results, metallurgical test work,
economic studies and development activities will not be consistent with
our expectations.
Variations from the technical reports.
Increases in costs, environmental compliance and changes in
environmental, local legislation and regulation, community support and the
political and economic climate.
Price volatility of gold and other associated commodities impacting the
economics of our projects.
|
| Potential to expand the NI 43-101 resources on Xtra-Gold’s
existing projects and achieve its growth targets |
Availability of financing.
Actual results of our exploration,
resource goals, metallurgical testing, economic studies and development
activities will be favourable.
NI 43-101 technical reports are
correct and comprehensive.
Operating, exploration and development costs will be consistent with
our expectations.
Ability to retain and attract skilled staff.
All requisite regulatory and governmental approvals will be received on
a timely basis on terms acceptable to Xtra-Gold.
Social engagement and local acceptance of our projects.
Economic, political and industry market conditions will be favourable.
Continuance of gold recovery operations. |
Changes in the capital markets impacting availability of future
financings.
Uncertainties involved in interpreting geological data
and confirming title to acquired properties.
Possibility of future
exploration results, metallurgical test work, economic studies and
development activities will not be consistent with our expectations.
Variations from the technical reports.
Increases in costs, environmental compliance and changes in
environmental, local legislation and regulation, community support and the
political and economic climate.
Price volatility of gold and other associated commodities impacting the
economics of our projects.
Continued cooperation of government bodies to conduct placer
operations.
|
| Ability to meet working capital needs for fiscal 2015 |
Operating and exploration activities and
associated costs will be consistent with our current expectations. |
Changes in the capital markets impacting
availability and timing of future financings on acceptable terms.
|
- 14 -
| Forward-Looking Statements |
Assumptions |
Risk Factors |
|
Capital markets and financing opportunities are favourable to
Xtra-Gold.
Sale of any investments, if warranted, on acceptable terms.
Xtra-Gold continues as a going concern. |
Increases in costs, environmental compliance and changes in
environmental, other local legislation and regulation.
Adjustments to currently proposed operating and exploration activities.
Price volatility of gold and other commodities impacting sentiment for
investment in the resource markets. |
| Plans, costs, timing and capital for future exploration and
development of Xtra-Gold’s properties including the potential impact of
complying with existing and proposed laws and regulations |
Availability of financing for our exploration and development
activities.
Actual results of our exploration, resource goals, metallurgical
testing, economic studies and development
activities will be
favourable.
Operating, exploration and development costs will be consistent with
our expectations.
Ability to retain and attract skilled staff.
All requisite regulatory and governmental approvals will be received on
a timely basis on terms acceptable to Xtra-Gold.
Economic, political and industry market conditions will be favourable.
|
Changes in the capital markets impacting availability of future
financings.
Uncertainties involved in interpreting geological data and confirming
title to acquired properties.
Possibility of future exploration results, metallurgical test work and
economic studies will not be consistent with our expectations.
Increases in costs, environmental compliance and changes in
environmental, local legislation and regulation and political and economic
climate.
Price volatility of gold and other commodities impacting the economics
of our projects.
|
| Management’s outlook regarding future trends |
Availability of financing.
Actual
results of our exploration, resource goals, metallurgical testing,
economic studies and development
activities will be favourable.
Prices for gold and other commodities will be favourable to
Xtra-Gold.
Government regulation in Ghana will support development
of any deposit.
|
Price volatility of gold and other commodities
impacting the economics of our projects and appetite for investing in
junior gold exploration equities.
Possibility of future
exploration results, metallurgical test work, economic studies and
development activities will not be consistent with our expectations.
Increases in costs, environmental compliance and changes in
economic, political and industry market climate.
|
Inherent in forward-looking statements are risks, uncertainties
and other factors beyond Xtra-Gold’s ability to predict or control. Please also make reference to those risk factors listed in the
“Risk Factors” section above. Readers are cautioned that the above chart is not
exhaustive of the factors that may affect the forward-looking statements, and
that the underlying assumptions may prove to be incorrect. Actual results and
developments are likely to differ, and may differ materially, from those
expressed or implied by the forward-looking statements contained in this
MD&A.
- 15 -
Forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause Xtra-Gold’s actual results,
performance or achievements to be materially different from any of its future
results, performance or achievements expressed or implied by forward-looking
statements. All forward-looking statements herein are qualified by this
cautionary statement. Accordingly, readers should not place undue reliance on
forward-looking statements. Our company undertakes no obligation to update
publicly or otherwise revise any forward-looking statements whether as a result
of new information or future events or otherwise, except as may be required by law. If our company
does update one or more forward-looking statements, no inference should be drawn
that it will make additional updates with respect to those or other
forward-looking statements, unless required by law.
Dated: August 10, 2015
