GOLDRICH MINING COMPANY As used in herein, the terms "Goldrich," the "Company," "we," "us," and "our"
refer to
This discussion and analysis contains forward-looking statements that involve
known or unknown risks, uncertainties and other factors that may cause the
actual results, performance, or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. Except for historical information,
the matters set forth herein, which are forward-looking statements, involve
certain risks and uncertainties that could cause actual results to differ.
Potential risks and uncertainties include, but are not limited to, unexpected
changes in business and economic conditions; significant increases or decreases
in gold prices; changes in interest and currency exchange rates; unanticipated
grade changes; metallurgy, processing, access, availability of materials,
equipment, supplies and water; results of current and future exploration and
production activities; local and community impacts and issues; timing of receipt
and maintenance of government approvals; accidents and labor disputes;
environmental costs and risks; competitive factors, including competition for
property acquisitions; and availability of external financing at reasonable
rates or at all, and those set forth under the heading "Risk Factors" in our
Form 10-K filed with the
This discussion and analysis should be read in conjunction with the accompanying
unaudited consolidated financial statements and related notes. The discussion
and analysis of the financial condition and results of operations are based upon
the unaudited consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in
General
Our Chandalar,
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Goldrich's primary focus is the exploration and discovery of the hard-rock
(lode) targets, while also working to build additional shareholder value by
monetizing the placer assets that are derived from those lode targets. We are
currently defining drilling targets for a hard-rock (lode) gold deposit in an
area of interest approximately 1,800 feet wide and over five miles long,
possibly underlain by a granitic, mineralized intrusion. Exploration therefore
has taken on two directions; one toward defining a low-grade, large tonnage body
of mineralization running beneath the headwaters of
As part of implementing our focus to build shareholder value by monetizing the
placer assets in addition to our primary focus of developing the hard-rock
(lode) assets, in 2012,
As shown below, the placer gold extraction by GNP increased each year from 2015 through 2018, trending toward extraction figures that were anticipated by the Preliminary Economic Assessment authored by qualified geologists for us:
Year Ounces of Ounces of Fine Gold
Placer Gold
2015 4,400 3,900
2016 10,200 8,200
2017 15,000 12,300
2018 20,900 17,100
Although GNP's extraction increased over the years, ultimately the extraction
numbers attained over those years fell short of the Minimum Production
Requirements required in the Operating Agreement. According to the terms of the
agreement, GNP was required to pay a Minimum Production Requirement of 1,100
ounces for 2016, 1,200 ounces for 2017, and 1,300 ounces for 2018 to both
Goldrich and NyacAU by
On
Goldrich has commissioned an independent third-party mining engineering firm to
complete a mining plan and Initial Assessment for the
Joint Venture Agreement
On
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managing partner. Goldrich has no significant control or influence over the JV, and therefore accounts for its investment using the cost less impairment method.
As of
Under the terms of the joint venture agreement (the "Agreement"), the JV was to
make annual Member's Distributions of 10% of the balance of revenue generated by
the Joint Venture after deducting Operating Expenses as defined by the GNP
Operating Agreement. Related to these distributions, on
Concerning Loan3, in 2012, the joint venture purchased, on Goldrich's behalf, a
2% royalty interest, payable on all production from certain Goldrich mining
claims at the Chandalar,
Arbitration
In 2017, we, our subsidiary and the joint venture, as claimants, filed an
arbitration statement of claim before a three-member
During the years ended
On
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Dissolution/Liquidation of GNP and Related Issues ("the Second Interim Award").
On
The Partial Final Award
A summary of the various matters addressed in the Partial Final Award is as follows:
Capital vs. Operating Leases.
In response to a claim made by Goldrich, the Panel ruled that certain leases
were capital leases, rather than operating leases, which increased the basis
upon which distributions are made to the JV partners. In addition, the Panel
modified the interest rates applicable to the leases, which decreased the
profitability of the JV for the change in interest on all leases but only
decreased the basis upon which distributions are made to Goldrich for leases
that were deemed to be operating leases. The net change had no effect on the
Company's
Ownership by GNP of Leased Equipment.
The Panel ruled that certain continuing lease payments made by GNP for equipment
treated as operating leases, which were subsequently ruled capital leases,
represented buy-out payments at the conclusion of the capital lease. Therefore,
ownership of the subject equipment was transferred to GNP. As a result of the
ruling, certain leased equipment became the property of GNP, but was
subsequently transferred to
Lease Charges and Ownership of Arctic
The Panel ruled that lease payments made by GNP to
Interim Distributions to Goldrich for 2016 and 2017.
As a result of the awards noted above, the Panel determined that the Company is
entitled to an additional
Payment of Interest Earned by LOC1.
The Partial Final Award also addressed our claim for payment of interest earned
by LOC1. The Panel determined that NyacAU should pay the Company 50% of the
interest earned on LOC1 actually received by NyacAU, or
2012 Reclamation Work
The Panel ruled Goldrich is responsible to pay the full amount charged by NyacAU for the 2012 reclamation work and NyacAU is also entitled to 5% pre-judgement interest on the award from the date the first invoice
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was sent to Goldrich. Goldrich has accrued a liability for this ruling, however Goldrich has contested the party to whom payment should be made and whether additional amounts not invoiced by GNP should be included in the award.
Allocation of Tax Losses
From 2012 through 2018, NyacAU, as managers of GNP, had allocated net tax losses
from GNP totaling
Prior to Goldrich receiving the award, the
In
Other
·The arbitration awarded NyacAU's request that an entry be made on GNP's books
for unpaid and unbilled interest expense of
·The Panel awarded
·The Partial Final Award found the Company liable for an act of negligent
misrepresentation regarding the concealment of certain technical information
from NyacAU. We have vigorously disputed the concealment and the finding of
negligence. Nevertheless, as a result of the Panel's determination, the Panel
awarded Dr.
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interest payable to
·As requested by Goldrich and NyacAU, the Panel will retain jurisdiction and oversight over the dissolution/liquidation process to its completion. The Panel stated, "there is likely more information the parties will have to provide on certain issues--including, among others, changes in the balance of LOC1 and the issue of transfer of the permit to Goldrich--before a Final Award on dissolution/liquidation can be made." As of the date of this report, the balance of LOC1 continues to change as a result of on-going rulings by the Panel. Additionally, the Panel has stated it lacks jurisdiction on the transfer of the mining permit, which the Panel has ruled is a matter to be negotiated between the parties.
·The Panel ruled that "there has been no prevailing party in the arbitration to this point, although it reserves judgment as to whether a prevailing party will emerge from the Final Award with regard to issues which are now part of the Revised [Second] Interim Award. Accordingly, as to all issues covered by this Partial Final Award, the parties shall bear their own costs, expenses, and attorneys' fees."
The Second Interim Award
The Second Interim Award was necessitated by the fact that the dissolution/liquidation of the joint venture had not yet run its course. A summary of the various matters addressed in the Second Interim Award is as follows:
Transfer of Mining Permits The Panel ordered that:
a)No later than
b)Reasonably prior to
Neither order was successfully executed by the parties on the dates specified by the Panel. The Second Interim Award confirmed the dissolution of GNP and noted that "no provision of the Claims Lease or the Operating Agreement speaks directly to the rights or obligations of GNP to transfer its mining permit, which is held in the name of the manager, NyacAU. Although GNP no longer has the right to mine, GNP and specifically NyacAU have the liability of reclamation. Absent a transfer of the Permit, GNP (through NyacAU) would be obligated to complete reclamation, and obtain final approval from appropriate government authorities, as required by the Claims Lease-a process estimated to take several years."
If NyacAU does not transfer the mining permit to Goldrich as part of the dissolution, they will retain the requirement to reclaim the mine, and Goldrich will be prevented from mining the property, since two mining permits cannot be issued for the same claims. The actual cost of the reclamation will be subject to many variables, not the least of which will be whether the remedial activity is undertaken while the mine is inactive or conversely, when the mine is actively producing gold. If the mining permit were to be transferred to Goldrich or another entity with the reclamation obligation intact, the reclamation activity could be undertaken as a key piece of a mining plan in order to mitigate reclamation costs. If an agreement cannot be reached to transfer the mining permit and the associated reclamation of prior mining activities, Goldrich will be prevented from mining its claims, and will be limited to exploration activities on the hard rock deposits of the Chandalar property.
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NyacAU has indicated they will not transfer the permit without also transferring
the reclamation obligation, of which they believe to be
Balance and payment of LOC1
The Panel calculated a tentative balance of LOC1 at
As allowed by the Operating Agreement and a separate Security Agreement between GNP and NyacAU, NyacAU has recorded a security interest in future placer gold production from all current placer claims owned by Goldrich as collateral for repayment of fifty percent (50%) of GNP's LOC1 to NyacAU. The agreements between GNP and NyacAU are silent concerning what happens if GNP is dissolved and is no longer producing gold, the basis of calculation, timing of remittance and other key factors related to repayment if mining activities were to be undertaken again. If there is no further placer production from these claims, Goldrich does not have a liability to pay LOC1.
The Panel ruled in the
If an agreement cannot be reached for the transfer of the mining permit and
reclamation liability to Goldrich or an operating company that will harvest the
placer gold in the deposit, mining will likely not continue at the mine and LOC1
likely will not be paid. Further, in order to operate the mine, Goldrich will be
required to raise money to fund replacement equipment, wash plant,
infrastructure and initial operating costs to restart the mine, due to the
mining assets which have been removed as part of the liquidation of GNP.
Although the Company announced the completion of an Initial Assessment Report on
Goldrich may not have a reasonable avenue to pursue in restarting the mine and may be limited to raising investment funds for the sole purpose of exploration of the hard rock deposits.
Right to Offset Damages or Distributions
The Panel granted the request that any damages awarded to one party can be an offset to distributions (or damages) due to the other party.
Judgements issued by
On
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A summary of the various matters addressed in the
On
Reclamation:
a)We had previously filed a motion to compel NyacAU to correct accruals for
certain expenses including reclamation, demobilization, equipment rental and
utilities. Most notably, we contended that an accrual for reclamation liability
of approximately
b)We had previously filed a motion to compel NyacAU to reclaim the disturbed acres as required under the Operating Agreement and the mining permit issued to NyacAU in 2013, and to require NyacAU to fund the reclamation reserve from cash that had been distributed to NyacAU. The Panel denied our motion and ruled that while there was express provision in the Operating Agreement to establish reserves necessary for contingent or unforeseen liabilities or obligations, which could conceivably include reclamation reserves, the agreement does not impose an express obligation to reclaim the project site. The obligation to perform reclamation is imposed by the claims lease and the mining permit issued to NyacAU, which requires the permit holder to reclaim the site in accordance with government regulations. The ruling also states that the determination of the scope of potential obligations to reclaim under the permit is beyond the jurisdiction of the Panel. Further, the Panel ruled that the Operating Agreement does not impose an obligation on the Company to pay 50% of the reclamation fee, confirming again the obligation resides with the permit holder. Still further, the Panel ruled that the reclamation fees were not operating expenses to bring the mine to commercial production and therefore by definition of the Operating Agreement, precludes reclamation expenses from being added to LOC1, for which we would be obligated to remit 50% to NyacAU upon liquidation of GNP. This ruling deprives NyacAU of a security interest in 50% of future placer gold production at the site to repay reclamation expenses which it advances. There was no direct financial consequence to us as a result of this ruling; however, the effect on the future balance of LOC1and our liability for 50% of that balance would be significant now that NyacAU is not allowed to pass through reclamation costs to GNP but is required to retain responsibility for those costs as holder of the mining permit.
c)NyacAU had previously filed a motion to compel the Company to recognize and
remit a reclamation liability that had been invoiced by GNP to Goldrich in 2014
for reclamation work it performed on Goldrich's behalf for violations resulting
from our 2012 mining activities. We had previously challenged the validity of
the invoice, citing back charges to GNP that had not been recognized or remitted
to it. The Panel denied Goldrich's claim and ruled in favor of NyacAU. While we
continue to work with the Panel to clarify the party to whom the reclamation is
payable, the specific amount of the payable and the calculation of interest
associated with the liability, it has recorded an accrued liability totaling
Mining Claims
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All of our mining claims remain the property of the Company.
Repayment of misappropriation of JV funds
We had previously filed a motion to compel NyacAU to repay funds it considered
to be misappropriated as payments on LOC1 in contravention of the payment
priority requirements as outlined in the Operating Agreement (See Note 3 Joint
Venture). A successful challenge of these cash disbursements would return to GNP
funds that we considered to be necessary to pay for reclamation costs, partner
distributions, vendor obligations and other cash requirements that have
precedence over repayment of LOC1. The ruling was deferred pending additional
information to be determined in the future, such as the profitability of
operations in 2018, which has not yet been determined when taking the Panel's
ruling into account. In
Clarification concerning GNP's 2018 Profitability and 2018 Interim Distributions.
We had made a challenge to the Panel's understanding of facts related to GNP's
profitability for 2018 as presented in the arbitration proceedings, with a
motion to distribute interim distribution after applying the rulings made to
date. The Panel deferred ruling on the matter, retaining jurisdiction to decide
the issue of interim distributions for 2018 and requested the parties to present
evidence and argument (disregarding any jurisdictional issue) as to (i) whether
Goldrich has a right to interim distributions for 2018, and (ii) the amount, if
any, of distributions to be paid. Goldrich has submitted a claim for
approximately
Clarification of LOC1 Interest Paid and Amounts Owed to Goldrich.
We had challenged the amount of payment of LOC1 interest by GNP to NyacAU and
claimed reimbursement of 50% of the amount remitted as specified by the
Operating Agreement. The Panel deferred a ruling and required more information
from each party. In
Subordination of
A challenge to the validity of priority of security interest was ruled in the
Company's favor. NyacAU's security interest for LOC1 was reaffirmed to be placer
gold production from the mining claims, while
Supplemental Orders 5-8
On
·2018 Profitability and 2018 Interim Distributions
Under the GNP Operating Agreement, Goldrich was entitled to receive certain
interim distributions based on GNP's profitability. Goldrich received such
distributions for 2016 and 2017. Goldrich challenged the Panel's understanding
of facts related to GNP's profitability for 2018 as presented in the arbitration
proceedings and made a motion for GNP to distribute interim distributions for
2018 after applying the arbitration rulings made to date. Goldrich submitted a
claim to the arbitration Panel for approximately
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The Panel ruled that GNP was dissolved at the end of the 2018 mining season
(
·Goldrich's Portion of Interest Paid on LOC1
Under the GNP Operating Agreement, Goldrich is to receive 50% of any interest on
LOC1 paid by GNP to NyacAU. Goldrich made a claim to the arbitration Panel that
GNP had paid interest to NyacAU and that Goldrich was entitled to 50% of the
amount paid. The Panel ruled that NyacAU is obligated to pay Goldrich 50% of
Goldrich is also entitled to recover 5% prejudgment interest on unpaid LOC1
interest as it fell due. The Panel further ruled that LOC1 interest totaled
(cumulatively)
·Clarification of Award
In the Partial Final Award given in 2019, the arbitration Panel made an award to
NyacAU of
Orders on Respondents' Motion to Confirm Judgment
On
Estimates of Arbitration
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It is possible that there could be either adverse or favorable developments in the arbitration pending with the Company and its JV partner. An unfavorable outcome or settlement of pending arbitration could encourage the commencement of additional legal action by the affected party.
We record provisions in the consolidated financial statements for pending arbitration results when it determines that an outcome is probable, and the amount of the gain or loss can be reasonably estimated. At the present time, except as stated otherwise, while it is reasonably possible that a favorable or unfavorable outcome in the arbitration may occur, after assessing the information available, management is unable to estimate the possible gain or loss, or range of gains or losses, for the pending arbitration; and accordingly, no estimated gains or losses have been accrued in the consolidated financial statements for favorable or unfavorable outcomes. Legal defense costs are expensed as incurred.
Liquidity and Capital Resources
We are an exploration stage company and have incurred losses since our
inception. We currently do not have sufficient cash to support the Company
through 2021 and beyond. We anticipate that we will incur approximately
We have filed an arbitration claim against our joint venture operating partner
to challenge certain accounting treatment of capital leases, allocations of tax
losses, charges to the JV for funding costs related to the JV manager's
financing, related-party transactions, and other items of dispute. For recent
developments in the arbitration proceedings, see the sections titled Joint
Venture Agreement and Arbitration above and Subsequent Events below. The
arbitration is proceeding on the basis that GNP has been dissolved. As noted
above, NyacAU has recorded a secured interest in all placer gold production from
certain claims owned by Goldrich as collateral for repayment of fifty percent
(50%) of LOC1. Arbitration proceedings may significantly affect the balance of
LOC1, the magnitude of which cannot be estimated at the date of this report. The
arbitration Panel calculated a tentative balance of LOC1 at
The audit opinion and notes that accompany our consolidated financial statements
for the year ended
We currently have only a brief recent history of a recurring source of revenue
and in 2016 received our first cash distribution from the joint venture. If we
profitably execute a production business plan, our ability to continue as a
going concern may improve and become less dependent on our ability to raise
capital to fund our future exploration and working capital requirements. Our
plans for the long-term include the profitable exploitation of our mining
properties and financing our future operations through sales of our common stock
and/or debt. Additionally, the current capital markets and general economic
conditions in
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During the six months ended
If we are unable to timely satisfy our obligations under these secured senior
notes payable, the notes payable in gold, originally due
We believe we will be able to secure sufficient financing for further operations
and exploration activities of our Company but we cannot give assurance we will
be successful in attracting financing on terms acceptable to us, if at all.
Additionally, anticipating continued placer production after dissolution of GNP,
we look forward to internal cash flow and additional options for financing. A
successful mining operation may provide the long-term financial strength for the
Company to remove the going concern condition in future years. To increase its
access to financial markets, Goldrich intends to also seek a listing of its
shares on a recognized stock exchange in
The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. If the going concern basis were not appropriate for these financial statements, adjustments would be necessary in the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used.
Results of Operations
On
On
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During the six months ended
During the six-month periods ended
During the six-months ended
Private Placement Offerings
No private placement offerings occurred during the six-months ended
Notes Payable in Gold, Notes Payable & Notes Payable -
At
During September of 2020, the holders of the notes payable and notes payable
- related party, received shares in lieu of cash for interest. A total of
13,719,248 common shares with a basis of
Effective
As a result of the borrowings under the notes payable in gold, notes payable and
notes payable - related party (collectively, the "Notes"), we are faced with a
significant hurdle in financing the Company going forward, whether to conduct
exploration programs or initiate a mining program at the Chandalar mine. Our
near-term cash requirements are greater than the liquid assets we have available
to satisfy them, and the holders of the Notes could choose to exercise their
rights to demand payment, which would result in a default situation relative to
the Notes.
Subsequent Events
During
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Mining Permit and Future Mining Activities
The recent upward movements in the price of gold to a range of
If we can attract the type of investor who is comfortable with reinstating the placer mining operation, we may have a viable and productive path forward toward obtaining financing in the short-term to achieve long-term profitability. To effectively pursue this strategy, (1) the mining permit for the Chandalar mine must be transferred to us from NyacAU, our former JV partner and the current holder of the permit, (2) financial concessions must be made relative to LOC1, which is currently to be satisfied from gold produced from the claims at the Chandalar mine, and (3) reclamation costs for the Chandalar mine that currently are the responsibility of NyacAU must be mitigated by a mining plan that accomplishes much of the reclamation costs as part of the ongoing mining activity. We do not believe an investor or group of investors will be willing to step forward to fund the placer mining activity without these three factors aligning themselves as described.
Additionally, without a profitable mining operation, the ability to pay back the Notes may not be available to us. If that is the case, the payback would require us to raise money from placements of equity instruments to raise the cash to satisfy the obligations. Such a use of funds may present a funding effort that receives tepid or little response in the equity markets.
However, we do believe there are investors motivated to provide funding for exploration programs to locate and exploit the hard rock deposits from which the placer mineralization is coming from. This strategy can be pursued independent of any mining activities.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Inflation
We do not believe that inflation has had a significant impact on our consolidated results of operations or financial condition.
Contractual Obligations See Subsequent Events above. Critical Accounting Policies
We have identified our critical accounting policies, the application of which may materially affect the financial statements, either because of the significance of the financials statement item to which they relate, or because they require management's judgment in making estimates and assumptions in measuring, at a specific point in time, events which will be settled in the future. The critical accounting policies, judgments and estimates which management believes have the most significant effect on the financial statements are set forth below:
·Estimates of the recoverability of the carrying value of our mining and mineral property assets. We use publicly available pricing or valuation estimates of comparable property and equipment to assess the carrying value of our mining and mineral property assets. However, if future results vary
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materially from the assumptions and estimates used by us, we may be required to recognize an impairment in the assets' carrying value.
·Estimates of our environmental liabilities. Our potential obligations in environmental remediation, asset retirement obligations or reclamation activities are considered critical due to the assumptions and estimates inherent in accruals of such liabilities, including uncertainties relating to specific reclamation and remediation methods and costs, the application and changing of environmental laws, regulations and interpretations by regulatory authorities.
·Accounting for Investments in Joint Ventures. For joint ventures in which we do not have joint control or significant influence, the cost method is used. Under the cost method, these investments are carried at the lower of cost or fair value. For those joint ventures in which there is joint control between the parties and in which we have significant influence, the equity method is utilized whereby our share of the ventures' earnings and losses is included in the statement of operations as earnings in joint ventures and our investments therein are adjusted by a similar amount. We have no significant influence over our joint venture described in Note 3 Joint Ventures to the financial statements, and therefore account for our investment using the cost method. For joint ventures where we hold more than 50% of the voting interest and has significant influence, the joint venture is consolidated with the presentation of a non-controlling interest. In determining whether significant influence exists, we consider our participation in policy-making decisions and our representation on the venture's management committee. We currently have no joint venture of this nature.
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