3. Joint Venture

9 Months Ended

Sep. 30, 2015

Notes

3. Joint Venture

3.   JOINT VENTURE

On May 7, 2012, the Company entered into a joint venture (“the JV”) with NyacAU, LLC (“NyacAU”), an Alaskan private company, to bring Goldrich’s Chandalar placer gold properties into production as defined in the joint venture agreement. In each case as used herein in reference to the JV, “production” is as defined by the JV agreement. As part of the agreement, Goldrich and NyacAU formed a 50:50 joint venture company, Goldrich NyacAU Placer LLC (“GNP”), to operate the Chandalar placer mines, with NyacAU acting as managing partner. Goldrich has no significant control or influence over the JV, and therefore accounts for its investment using the cost method, which totals $55,300 at September 30, 2015 and December 31, 2014.

Under the terms of the joint venture agreement (the “Agreement”), NyacAU provided funding to the JV. The loans are to be repaid from future production. According to the Agreement, on at least an annual basis, the JV shall allocate and distribute all revenue (whether in cash or as gold) generated from the JV’s placer operation in the following order:

1.      Current year operating expenses,

2.      Members’ distribution of 20% (10% to Goldrich and 10% to NyacAU) provided that, for so long as the loan (LOC2) to GNP from NyacAU for the purchase of a royalty is not paid in full, the JV shall retain 100% of Goldrich’s distribution and apply against the loan,

3.      After payment of operating expenses and the member’s distribution of 20%, the JV will apply any remaining revenue to reduce the remaining balance of the loan from NyacAU to GNP for the development of the mine (LOC1),

4.      Reserves for future operating expenses and capital needs, not to exceed $3,000,000 in any year, and

5.      Member distributions of any remaining gold production on a 50:50 basis to each of the JV partners after the loan LOC2 is paid in full from Goldrich’s distribution.

On June 23, 2015, the Company raised gross proceeds of $1.2 million through the sale of 12% of the cash flows Goldrich receives in the future from its interest in GNP (“Distribution Interest”) to Chandalar Gold, LLC (“CGL”), a non-related entity. Goldrich retained its ownership of its 50% interest in GNP but, after the transaction, subject to the terms of the GNP operating agreement, Goldrich will effectively receive approximately 44% and CGL will receive 6% (12% of Goldrich’s 50% of GNP = 6%) of any cash distributions produced by GNP.

As part of the purchase, CGL received 2,250,000 Series P Warrants and an option to acquire an additional 10% Distribution Interest in the cash flows Goldrich receives from its interest in GNP. Each Series P Warrant is exercisable to purchase one share of common stock of the Company at $0.07, for a period of five (5) years.

The Distribution Interest option must be exercised before July 1, 2016 to purchase an additional 10% of Goldrich’s future cash flow from GNP in consideration of a one-time cash payment of $1.3 million.

Subsequent to the exercise of the option and payment of all commissions, Goldrich would effectively receive, subject to the terms of the GNP operating agreement, approximately 38.5% and CGL would receive 11% (22% of Goldrich’s 50% of GNP = 11%) of any cash distributions produced by GNP.

The lead agent for the sale received a commission equal to 5% of gross proceeds raised, was granted a perpetual undivided 0.5% interest in distributions paid out by GNP to Goldrich, and was issued 1.2 million Series P-2 Warrants. Each Series P-2 Warrant is exercisable into one share of common stock of the Company for a period of five (5) years at a price of $0.05 per share. Should CGL exercise its option, the same fee structure would apply as above, including an additional 0.5% interest in distributions paid out by GNP to Goldrich.

The gross fair values of the Series P and Series P-2 warrants were estimated on the issue date at $110,250 and $60,000, respectively, using the following weighted average assumptions: 

Risk-free interest rate	1.71%
Expected dividend yield	0
Expected term (in years)	5
Expected volatility	141.7%

After applying the out of pocket costs of sale of $125,164 and recognizing the fair value of the Series P Warrants of $88,644, the Company recognized a gain of $979,279 on the sale of the joint venture cash distribution interest after applying a proportionate adjustment of 6,913 (12.5%) of the investment amount. A relative portion of the costs of sale, or $21,606, were allocated to Additional paid-in capital in proportion of the fair value of the warrants to the total sale price.