COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2023

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 16 COMMITMENTS AND CONTINGENCIES

In addition to the commitments for payments on operating and finance leases and the repayment of long-term debt (Note 10), as at March 31, 2023, the Company has the following commitments and contingencies:

Reclamation Obligations

As part of its ongoing business and operations, the Company is required to provide bonding for its environmental reclamation obligations. As at March 31, 2023, the Company had a surety facility in place to cover all its bonding obligations, which include $27.8 million of bonding in Nevada and $11.5 million (C$15.6 million) of bonding in Canada.

The terms of the facility carry an average annual financing fee of 2.3% and require a deposit of 10%. The surety bonds are available for draw-down by the beneficiary in the event the Company does not perform its reclamation obligations. If the specific reclamation requirements are met, the beneficiary of the surety bonds will release the instrument to the issuing entity. The Company believes it is in compliance with all applicable bonding obligations and will be able to satisfy future bonding requirements, through existing or alternative means, as they arise. As at March 31, 2023, the Company recorded $4.2 million in restricted cash in non-current assets as a deposit against the surety facility.

Streaming Agreement

As part of the acquisition of the Black Fox Complex in 2017, the Company assumed a gold purchase agreement (streaming contract) related to production from certain land claims. The Company is obligated to sell 8% of gold production from the Black Fox mine and 6.3% from the adjoining Pike River property (Black Fox extension) to Sandstorm Gold Ltd. at the lesser of market price or $561 per ounce (with inflation adjustments of up to 2% per year) until 2090.

The Company records the revenue from these shipments based on the contract price at the time of delivery to the customer. During the three months ended March 31, 2023, the Company recorded revenue of $0.4 million (2022 - $0.4 million) related to the gold stream sales.

Flow-through Eligible Expenses

On March 2, 2022, the Company completed a flow-through share issuance for gross proceeds of $15.1 million. The proceeds of this offering are required to be used for the continued exploration of the Company’s properties in the Timmins region of Canada. As at March 31, 2023, the Company has incurred $5.6 million of the required CEE spend and expects to fulfill the remaining $9.5 million of the CEE commitments by the end of 2023.

Prepayment Agreement

On July 27, 2022, the Company entered into a precious metals purchase agreement with Auramet International LLC (“Auramet”). Under this agreement, the Company may sell the gold on a Spot Basis, on a Forward Basis and on a Supplier Advance basis, i.e. the gold is priced and paid for while the gold is:

(i) at a mine for a maximum of 15 business days before shipment; or

(ii) in-transit to a refinery; or

(iii) while being refined at a refinery.

During the three months ended March 31, 2023, the Company received the combined net proceeds of $22.8 million from the sales on a Supplier Advance Basis. The Company recorded revenue of $26.7 million related to the gold sales, with the remaining $2.3 million representing 1,200 ounces pledged but not yet delivered to Auramet, recorded as a contract liability on the Consolidated Balance Sheets.

Other potential contingencies

The Company’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment.  These laws and regulations are continually changing and generally becoming more restrictive. The Company conducts its operations so as to protect public health and the environment, and believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations.

The Company and its predecessors have transferred their interest in several mining properties to third parties throughout its history. The Company could remain potentially liable for environmental enforcement actions related to its prior ownership of such properties.  However, the Company has no reasonable belief that any violation of relevant environmental laws or regulations has occurred regarding these transferred properties.