NOTE 8 SHAREHOLDERS’ EQUITY

Stock options

During the three months ended March 31, 2019, 221,500 shares of common stock were issued upon exercise of stock options under the Equity Incentive Plan, at a weighted average exercise price of $1.00 per share for proceeds of $0.2 million. This compares to 35,199 shares of common stock issued upon exercise of stock options at a weighted average exercise price of $1.15 per share for proceeds of $0.1 million during the same period of 2018.

Shareholders’ distributions

No distributions were paid during the three months ended March 31, 2019. During the three months ended March 31, 2018, the Company paid a shareholders’ distribution of $0.005 per share of common stock, for a total of $1.7 million.

Pursuant to a term loan facility dated August 10, 2018, there exists limitations on the distributions the Company is authorized to declare and pay. The Company may declare and pay distributions in any fiscal year that do not exceed the amount of dividends per share made in the fiscal year ended December 31, 2017.

Equity Issuances

On March 29, 2019, the Company issued 14,193,548 Units at $1.55 per Unit, for net proceeds of $20.3 million, after deducting issuance costs of $1.7 million. Each Unit consists of one common share and one-half of one warrant to purchase one common share at a price of $2.00. Warrants are exercisable at any time prior to March 29, 2022, after which the warrants will expire and be of no value.

The Company concluded that both common shares and warrants are equity-linked financial instruments and should be accounted for permanently in the shareholders’ equity section in the Consolidated Balance Sheets, with no requirement to subsequently revalue any of the instruments. Based on the relative fair values, the Company allocated $17.8 million to common shares and $2.5 million to warrants, net of issuance costs.

The Company used the Black-Scholes pricing model to determine the fair value of warrants using the following assumptions:


Risk-free interest rate		2.30	%
Dividend yield		0.00	%
Volatility factor of the expected market price of common stock		50	%
Weighted-average expected life		3 years
Weighted-average grant date fair value	$	0.43

All 7,096,774 warrants remained outstanding and unexercised as of March 31, 2019.

On March 29, 2019, the Company also issued 1,935,484 Subscription Receipts at $1.55 per Subscription Receipt to certain of our executive officers, directors, employees and consultants for gross proceeds of $3.0 million or net proceeds of $2.8 million. Each Subscription Receipt will automatically entitle the holder to receive, without payment of additional consideration, one Unit, upon necessary shareholder and NYSE approvals. We are seeking shareholder approval for the conversion of the Subscription Receipts at our 2019 annual meeting of shareholders on May 23, 2019. All proceeds from the sale of Subscription Receipts have been placed into escrow, and will be held until the necessary approvals are obtained.

Flow-through shares

On December 20, 2018, the Company issued 6,634,000 flow-through common shares (within the meaning of subsection 66(15) of the Income Tax Act (Canada)) priced at $2.24 per share for total proceeds of $14.9 million. On December 19, 2017, the Company issued 4,000,000 flow-through common shares priced at $2.50 per share for total proceeds of $10.0 million. The purpose of both offerings was to fund exploration activities on the Company’s properties in the Timmins region of Canada. The total proceeds were allocated between the sale of tax benefits and the sale of common shares. As at March 31, 2019 the Company recorded a liability for the flow-through premium in the amount of $2.9 million (December 31, 2018 – $3.0 million). The obligation is fulfilled when eligible expenditures are incurred.

As at March 31, 2019, the Company reduced the flow-through premium by $0.1 million (March 31, 2018 – $0.6 million) to reflect the effect of the cost incurred to date. The reduction of the flow-through premium was recognized in income and mining tax recovery on the Consolidated Statement of Operations.

The proceeds of the flow-through shares offering are shown as restricted cash on the Consolidated Balance Sheets. During the three months ended March 31, 2019, $0.4 million was spent on flow-through qualifying expenditures for Timmins exploration activities as intended (three months ended March 31, 2018 – $1.2 million). The restricted cash balance was $14.8 million at March 31, 2019.

At-the-market (“ATM”) offering

Pursuant to an equity distribution agreement dated November 8, 2018, the Company was permitted to offer and sell from time to time shares of its common stock having an aggregate offering price of up to $90.0 million, with the net proceeds to fund working capital and general corporate purposes. During the three months ended March 31, 2019, the Company utilized this stock offering program to issue an aggregate of 1,010,545 shares of common stock for gross and net proceeds of approximately $1.9 million (March 31, 2018 – $nil). The agreement was terminated by the Company on March 13, 2019.