As filed with the Securities and Exchange Commission on October 16, 2020.

 

Registration No. 333-        

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM S-1

 

Registration Statement Under

THE SECURITIES ACT OF 1933

 

FORTITUDE GOLD Corporation

(Exact name of registrant as specified in charter) 

     
Colorado   1040
(State or other jurisdiction of incorporation)   (Primary Standard Industrial Classification Code Number)
     
85-2602691  

2886 Carriage Manor Point,

Colorado Springs, Colorado 80906

303-320-7708

(IRS Employer I.D. Number)   (Address, including zip code, and telephone number including
area of principal executive offices)

 

Jason Reid

President
2886 Carriage Manor Point

Colorado Springs, CO 80906
303-320-7708

 

(Name and address, including zip code, and telephone number, including area code, of agent for service)

 

Copies of all communications, including all communications sent

to the agent for service, should be sent to:

 

William T. Hart, Esq.

Hart & Hart

1624 Washington Street

Denver, Colorado 80203

(303) 839-0061

 

As soon as practicable after the effective date of this Registration Statement

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box, and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box, and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨
       
Non-accelerated filer x Smaller reporting company x
       
    Emerging growth company x

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act   ¨    

 

CALCULATION OF REGISTRATION FEE

 

          Maximum     Proposed        
    Amount to     Offering     Maximum     Amount of  
Title of each Class   be     Price per     Aggregate     Registration  
of Securities to be Registered   Registered (1)     Share (2)     Offer Price     Fee  
                                 
Common Stock     20,000,000     $ 3.42     $ 68,400,000     $ 7,463  

 

(1) Represents shares to be distributed to the shareholders of Gold Resource Corporation

  

(2) There is currently no market for the Issuer’s common stock. Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457 under the Securities and Exchange Commission.

 

The registrant hereby amends this Registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of l933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine

 

 

 

 

 

  

PROSPECTUS

 

FORTITUDE GOLD CORPORATION

Common Stock

 

This Prospectus is being furnished to you as a shareholder of Gold Resource Corporation (“GRC”) in connection with the planned distribution (the “Spin-Off” or the “Distribution”) by GRC to its shareholders of all the shares of the common stock of Fortitude Gold Corporation (the “Company,” “we,” “our,” “us,” “FGC,” or the “Spin-Off”).

 

At the time of the Spin-Off, GRC will distribute all of our outstanding shares of common stock held by it (approximately 20,000,000 shares, subject to change prior to the effective date) on a pro rata basis to holders of GRC’s common stock. Each share of GRC’s common stock outstanding as of [____], Mountain Time, on [____], 2020, the record date for the Spin-Off (the “Record Date”), will entitle the holder to [__] shares of our common stock. The Distribution will be made in book-entry form by Computershare Trust Company, GRC’s Transfer Agent. Fractional shares of common stock will be distributed in connection with the Spin-Off.

 

The Spin-Off will be effective as of   [___], Mountain Time, on [___], 2020. Immediately after the Spin-Off, we will be an independent public company.

 

The shareholders of GRC are not required to vote on or take any other action in connection with the Spin-Off. GRC shareholders will not be required to pay any consideration for the common stock they receive in the Spin-Off, and they will not be required to surrender or exchange their shares of GRC’s common stock or take any other action in connection with the Spin-Off.

 

GRC currently owns all of our outstanding shares of our common stock. Accordingly, there is currently no public market for our common stock. However, we anticipate that our common stock will trade on the OTC Market Group platform shortly after the Spin-Off under the symbol “[___].”

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

In reviewing this Prospectus, you should carefully consider the matters described in the section titled “Risk Factors” beginning on page 4 of this Prospectus.

 

This Prospectus is not an offer to sell, or a solicitation of an offer to buy, any securities.

 

The date of this Prospectus is [_______], 2020.

 

 

 

 

TABLE OF CONTENTS

 

  Page
   
Forward Looking Statements 1
Prospectus Summary 2
Risk Factors 4
Dividend Policy 13
Our Corporate Reorganization 13
Management Discussion and Analysis 14
Our Business 20
Management 29
Principal Shareholders 34
The Spin-Off 35
Relationship with Gold Resource Corporation after Spin-Off 37
Description of Securities 38
Legal Matters 40
Experts 40
Where You Can Find More Information 40
Glossary 41
Financial Statements F-1

 

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FORWARD LOOKING STATEMENTS

 

This prospectus contains forward-looking statements that involve risks and uncertainties. When used in this prospectus, the words “plan,” “target,” “anticipate,” “believe,” “estimate,” “intend,” “expect” and similar expressions are intended to identify such forward-looking statements. Forward-looking statements include, without limitation, the statements regarding our strategy, future plans for development and production, future expenses and costs, future liquidity and capital resources, and future dividends. All forward-looking statements in this prospectus are based upon information available to us on the date of this prospectus, and we assume no obligation to update any such forward-looking statements. Forward looking statements involve a number of risks and uncertainties and there can be no assurance that such statements will prove to be accurate. Our actual results could differ materially from those discussed in this prospectus. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the Risk Factors section of this prospectus.

 

In addition to the specific factors identified under the Risk Factors section of this prospectus, other uncertainties that could affect the accuracy of forward-looking statements include:

 

· Commodity price fluctuations;

 

· Governmental and regulatory permit requirements and timing;

 

· Rock formations, faults and fractures, water flow or other unanticipated geological situations;

 

· Unexpected changes in business and economic conditions, including the rate of inflation;

 

· Changes in interest rates;

 

· Timing and amount of production;

 

· Technological changes in the mining industry;

 

· Our operating costs and other costs of doing business;

 

· Access to and availability of materials, equipment, supplies, labor and supervision, power and water;

 

· Results of current and future feasibility studies;

 

· The level of demand for our products;

 

· Changes in our business strategy, plans and goals;

 

· Interpretation of drill hole results and the geology, grade and continuity of mineralization;

 

· Litigation by private parties or regulatory action by governmental entities;

 

· Acts of God such as floods, earthquakes, and any other natural disasters; and

 

· The impact of the COVID-19 Coronavirus.

 

This list, together with the factors identified in the Risk Factors section of this prospectus, is not exhaustive of the factors that may affect any of our forward-looking statements. You should read this prospectus completely and with the understanding that our actual future results may be materially different from what we expect. These forward-looking statements represent our beliefs, expectations, and opinions only as of the date of this prospectus. We do not intend to update these forward-looking statements except as required by law. We qualify all of our forward-looking statements by these cautionary statements.

 

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PROSPECTUS SUMMARY

 

This summary highlights certain information about Fortitude Gold Corporation (the “Company,” “we,” “our,” “us,” “FGC” or the “Spin-Off”) and information appearing elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider to fully understand the Spin-Off and its consequences to you. You should read this entire prospectus carefully.

 

This Prospectus is being furnished to you as a shareholder of Gold Resource Corporation (“GRC”) in connection with the planned Spin-Off by GRC to its shareholders of all our shares of common stock.

 

See the section of this prospectus captioned “The Spin-Off” for further information.

 

Overview

 

Fortitude Gold Corporation is a mining company which pursues gold and silver projects that are expected to have both low operating costs and high returns on capital. We are presently focused on mineral production from our Isabella Pearl project in Nevada. Our processing facilities at the Isabella Pearl project produce doré from ore mined from an open-pit mine, which contains precious metals of gold and silver. We also continue exploration and evaluation work on our portfolio of other precious metal properties in Nevada and continue to evaluate other properties for possible acquisition.

 

Historically, GRC’s two mining units consisted of its Oaxaca Mining unit in Mexico and its Nevada Mining unit in the U.S.A. Each mining unit differs in jurisdiction, scale, processing facilities, and mine type. Separate strategic business plans are warranted for each mining unit going forward to best allow each unit to grow and add greater value in separate ways than a combined company would allow. The Oaxaca Mining unit plans to deploy more cashflow into operations for organic growth that may allow accretive merger and acquisition opportunities. The Nevada Mining unit targets the expansion of its gold production through the producing Isabella Pearl Mine and its portfolio of mining properties in the pipeline followed by potential future dividends targeting market appreciation through dividend yield. Following completion of the Spin-Off, each company is expected to be well-capitalized with a strong balance sheet, generating strong free cash flow and be well-positioned for future growth while pursuing different strategic business focuses. The potential benefits and the reason we pursued the Spin-Off includes, but are not limited to the following:

 

· Allows the Nevada Mining unit to operate as a stand-alone company to employ a separate business strategy to maximize shareholder value.
· Allocation of capital and cashflow in a more efficient and effective manner for a business strategy targeting future dividends and potential market valuations based on yield.
· Unlock a value premium for the Nevada Mining unit through recognition of its operating location in one of the world’s premier mining jurisdictions.
· Optimize capital structure for specific business strategy.
· Allow company to focus on open-pit, heap leach operations in Nevada.

 

The Company’s Chief Executive Officer and Chairman of the Board look to replicate the legacy GRC success as a dividend focused, yield play with a tight capital structure. After ramping up production, the Company targets strong, near term cash flow from the Isabella Pearl operation for the exploration and development of the Company’s highly prospective property portfolio in Nevada’s Walker Lane mineralized trend. The Company plans to explore along the mineralized trend where the Company’s Isabella Pearl operation is located and discover and delineate new mineralization on its other properties with the goal of putting additional projects into production.

 

We were formed as a Colorado corporation on August 11, 2020. Our principal executive offices are located at 2886 Carriage Manor Point, Colorado Springs, Colorado 80906. After the Spin-Off we will obtain a new telephone number and email address and we will establish a website.

 

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Implications of Being an Emerging Growth Company

 

We qualify as an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012, or "JOBS Act.” An Emerging Growth Company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

· a requirement for quarterly and annual reports filed with the U.S. Securities and Exchange Commission (“SEC”) to have only two years of audited financial statements and only two years of related management’s discussion and analysis;

 

· reduced disclosure concerning executive compensation arrangements;

 

· exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002; and

 

· No non-binding advisory votes on executive compensation or golden parachute arrangements.

 

We have utilized some of these exemptions in this prospectus, which are also available to us as a smaller reporting company as defined under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

In addition, Section 107 of the JOBS Act provides that an emerging growth company utilize the extended transition period provided in Section 7(a)(2)(b) of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards. We are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

We could remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which annual gross revenue equals or exceeds $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

 

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RISK FACTORS

 

The price of our common stock may be materially affected by a number of risk factors, including those summarized below:

 

Risks Relating to Our Company 

 

Our results of operations, cash flows and the value of our properties are highly dependent on the market prices of gold and silver and these prices can be volatile.  The profitability of our gold and silver mining operations and the value of our mining properties are directly related to the market price of gold and silver. The price of gold and silver may also have a significant influence on the market price of our common stock. The market price of gold and silver historically has fluctuated significantly and is affected by numerous factors beyond our control. These factors include supply and demand fundamentals, global or national political or economic conditions, expectations with respect to the rate of inflation, the relative strength of the U.S. dollar and other currencies, interest rates, gold and silver sales and loans by central banks, forward sales by metal producers, accumulation and divestiture by exchange traded funds, and a number of other factors.

 

We derive our revenue from the sale of gold and silver and our results of operations will fluctuate as the prices of these metals change.  A period of significant and sustained lower gold and silver prices would materially and adversely affect our results of operations and cash flows. The volatility of mineral prices represents a substantial risk which no amount of planning or technical expertise can fully eliminate. In the event mineral prices decline or remain low for prolonged periods of time, we may be unable to develop our existing exploration properties, which may adversely affect our results of operations, financial performance, and cash flows. An asset impairment charge may result from the occurrence of unexpected adverse events that impact our estimates of expected cash flows generated from our producing properties or the market value of our non-producing properties, including a material diminution in the price of gold or silver.

 

During 2019, the price of gold, as measured by the London P.M. fix, fluctuated from a low of $1,270 per ounce to a high of $1,546 per ounce while the price of silver fluctuated from a low of $14.38 per ounce to a high of $19.31 per ounce. As of September 30, 2020, gold and silver prices were $1,888 per ounce and $23.35 per ounce, respectively. The volatility in gold and silver prices is illustrated by the following table, which sets forth for each of the past five calendar years, the high, low, and average annual market prices in U.S. dollars per ounce of gold and silver based on the daily London P.M. fix:

 

    2015     2016     2017     2018     2019  
Gold:                                        
High   $ 1,297     $ 1,366     $ 1,346     $ 1,355     $ 1,546  
Low   $ 1,049     $ 1,077     $ 1,151     $ 1,178     $ 1,270  
Average   $ 1,160     $ 1,251     $ 1,257     $ 1,268     $ 1,393  
Silver:                                        
High   $ 18.23     $ 20.71     $ 18.56     $ 17.52     $ 19.31  
Low   $ 13.71     $ 13.58     $ 15.22     $ 13.97     $ 14.38  
Average   $ 15.68     $ 17.14     $ 17.04     $ 15.71     $ 16.21  

 

 

Our production is currently limited to a single mine and any interruptions or stoppages in our mining activities would adversely affect our revenue. We are entirely dependent on revenues from a single mine to fund our operations. Any interruption in our ability to mine this location, such as a labor strike, natural disaster, or loss of permits would negatively impact our ability to generate revenue following such interruption. Additionally, if we are unable to economically develop additional mines, we will eventually deplete our reserves and will no longer generate revenue sufficient to fund our operations. A decrease in, or cessation of, our mining operations at this mine would adversely affect our financial performance and may eventually cause us to cease operations.

 

4

 

 

If we are unable to achieve anticipated gold and silver production levels, our financial condition and results of operations will be adversely affected. We have proceeded with the processing of ore from the Isabella Pearl mine at the Isabella Pearl project, based on estimates from our Proven and Probable Reserve report. However, risks related to reserve estimates, metallurgy, and/or mining dilution are inherent when working with extractable minerals. Sales of gold and silver that we realize from future mining activity will be less than anticipated if the mined material does not contain the concentration of gold and silver predicted by our geological exploration, studies, and reports. If sales of gold and silver are less than anticipated, we may not be able to recover our investment in our properties and our operations may be adversely affected. Our inability to realize production based on quarterly or annual projections may also adversely affect the price of our common stock. 

 

Estimates of proven and probable reserves are uncertain and the volume and grade of ore actually recovered may vary from our estimates. The proven and probable reserves stated in this prospectus represent the amount of gold and silver we estimated, at December 31, 2019, that could be economically and legally extracted or produced at the time of the reserve determination. Estimates of proven and probable reserves are subject to considerable uncertainty. Such estimates are, to a large extent, based on the prices of gold and silver, as well as interpretations of geologic data obtained from drill holes and other exploration techniques. These prices and interpretations are subject to change.  If we determine that certain of our estimated reserves have become uneconomic, we may be forced to reduce our estimates.  Actual production may be significantly less than we expect.

 

Any material changes in mineral estimates and grades of mineralization may affect the economic viability of our current operations, our decision to place a new property into production and/or such property’s return on capital. There can be no assurance that mineral recoveries in small scale laboratory tests will be duplicated in a large-scale on-site operation in a production environment. Extended declines in market prices for gold or silver may render portions of our mineralization estimates uneconomic and result in reduced reported mineralization or adversely affect the commercial viability of one or more of our properties. Any material reductions in estimates of mineralization, or of our ability to extract this mineralization, could have a material adverse effect on our results of operations, financial condition, and stock price.

 

Our current property portfolio is limited to one producing property and our ability to remain profitable over the long-term will depend on our ability to expand the known deposits on this property, and /or identify, explore and develop additional properties. Gold and silver producers must continually replace reserves depleted by production to maintain production levels over the long term and provide a return on invested capital. Depleted reserves can be replaced in several ways, including expanding known ore bodies, locating new deposits, or acquiring interests in reserves from third parties. Exploration is highly speculative in nature, capital intensive, involves many risks and is frequently unproductive. Our current or future exploration programs may not result in new mineral producing operations. Even if significant mineralization is discovered, it will likely take many years from the initial phases of exploration until commencement of production, during which time the economic feasibility of production may change.

 

From time to time, we may acquire mineral interests from other parties. Such acquisitions are based on an analysis of a variety of factors including historical exploration results, estimates of and assumptions regarding the extent of mineralized material, and/or reserves, the timing of production from such reserves and cash and other operating costs. In addition, we may rely on data and reports prepared by third parties (including the ability to permit and compliance with existing regulations) which may contain information or data that we are unable to independently verify or confirm. All of these factors are uncertain and may have an impact on our ability to develop the properties.

 

As a result of these uncertainties, our exploration programs and any acquisitions which we may pursue may not result in the expansion or replacement of our current production with new ore reserves or operations, which could have a material adverse effect on our business, prospects, results of operations and financial position and price of our common stock.

 

We may not be profitable.  Metal prices have a significant impact on our profit margin and there is no assurance that we will be profitable in the future. Unexpected interruptions in our mining business may cause us to incur losses, or the revenue that we generate from production may not be sufficient to fund continuing operations including exploration and mine construction costs. Our failure to generate future profits may adversely affect the price of our common stock. 

 

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We may require significant additional capital to fund our business plans. We may be required to expend significant funds to determine if mineralized material and proven and probable mineral reserves exist at any of our non-producing properties, to continue exploration, and if warranted, develop our existing properties and to identify and acquire additional properties to diversify our property portfolio.  If we receive the necessary permits and make a positive development decision, we will require significant additional capital to bring the project into production. We have spent, and may be required to continue to expend, significant amounts of capital for drilling, geological and geochemical analysis, assaying, feasibility studies, engineering, mine construction and development, and mining and process equipment in connection with our exploration, development, and production activities.

 

Our ability to obtain necessary funding for these purposes, in turn, depends upon a number of factors, including our historical and prospective results of operations, the status of the national and worldwide economy, the price of gold, silver and other valuable metals, the condition of the debt and equity markets, and the costs associated with extracting minerals. We may not be successful in generating or obtaining the required financing, or if we can obtain such financing, such financing may not be on terms that are favorable to us. Failure to obtain such additional financing could result in delay or indefinite postponement of further mining operations or exploration and construction and the possible partial or total loss of our interest in our properties.

 

If we do not hedge our exposure to fluctuations in gold and silver prices, we may be subject to significant reductions in price. We do not use hedging transactions with respect to any of our gold and silver production and we do not expect to do so in the future.  Accordingly, we are fully exposed to price fluctuations if precious and base metal prices decline. While the use of hedging transactions limits the downside risk of price declines, their use also may limit future revenues from price increases. Hedging transactions also involve the risk that the counterparty may be unable to satisfy its obligations.

 

Revenue from the sale of doré may be adversely affected by loss or damage during shipment and storage at our buyer’s facilities. We rely on third-party transportation companies to transport our doré to the buyer’s facilities for processing and further refining. The terms of our sales contracts with the buyers require us to rely on assay results from samples of our doré to determine the final sales value for our metals. Once the doré leaves our processing facility, we no longer have direct custody and control of these products. Theft, loss, road accidents, improper storage, fire, natural disasters, tampering or other unexpected events while in transit or at the buyer’s location may lead to the loss of all or a portion of our doré products. Such losses may not be covered by insurance and may lead to a delay or interruption in our revenue and as a result, our operating results may be adversely affected.

 

Exploration and, if deemed feasible, development of mineral properties is inherently risky and could lead to unproductive properties and/or capital investments. Our long-term success depends on our ability to identify additional mineral deposits on our properties and any other properties that we may acquire and to develop one or more of those properties into commercially viable mining operations. Mineral exploration is highly speculative in nature, involves many risks and is frequently unproductive. These risks include unusual or unexpected geologic formations and the inability to obtain suitable or adequate machinery, equipment, or labor. The success of gold exploration is determined in part by the following factors:

 

· The identification of potential gold mineralization based on surface and drill analysis;

 

· Availability of government-granted exploration and construction permits;

 

· The quality of our management and our geological and technical expertise; and

 

· The capital available for exploration and development.

 

Substantial expenditures are required to establish proven and probable reserves through detailed drilling and analysis, to develop metallurgical processes to extract metal and to develop the mining and processing facilities and infrastructure at any site chosen for mining. Whether a mineral deposit will be commercially viable depends on a number of factors, which include, without limitation, the particular attributes of the deposit, such as size, grade, metallurgy, rock competency and proximity to infrastructure such as power, water and roads; metal prices, which fluctuate widely; and government regulations, including, without limitation, regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals, environmental protection and local and community support. We may invest significant capital and resources in exploration activities and abandon such investments if we are unable to identify commercially exploitable mineral reserves. The decision to abandon a project may have an adverse effect on the market value of our common stock and our ability to raise future financing.

 

6

 

 

We may acquire additional exploration stage properties and our business may be negatively impacted if reserves are not located on acquired properties. We may in the future acquire exploration stage properties. There can be no assurance that reserves will be identified on any properties that we acquire. We may experience negative reactions from the financial markets if we successfully complete acquisitions of additional properties and reserves are not located on acquired properties. These factors may adversely affect the trading price of our common stock or our financial condition or results of operations.

 

To the extent that we seek to expand our operations and increase our reserves through acquisitions, we may experience issues in executing acquisitions or integrating acquired operations.  From time to time, we examine opportunities to make selective acquisitions in order to provide increased returns to our shareholders and to expand our operations and reported reserves and, potentially, generate synergies. The success of any acquisition would depend on a number of factors, including, but not limited to:

 

· Identifying suitable candidates for acquisition and negotiating acceptable terms;

 

· Obtaining approval from regulatory authorities and potentially our shareholders;

 

· Implementing our standards, controls, procedures, and policies at the acquired business and addressing any pre-existing liabilities or claims involving the acquired business; and

 

· To the extent the acquired operations are in a country in which we have not operated historically, understanding the regulations and challenges of operating in that new jurisdiction.

 

There can be no assurance that we will be able to conclude any acquisitions successfully, or that any acquisition will achieve the anticipated synergies or other positive results. Any material problems that we encounter in connection with such an acquisition could have a material adverse effect on our business, results of operations, financial position, or trading price of our common stock.

 

We rely on contractors to conduct a significant portion of our operations and construction projects.  A significant portion of our operations and construction projects are currently conducted in whole or in part by third party contractors.  As a result, our operations are subject to a number of risks, some of which are outside our control, including:

 

· The difficulty and inherent delay in replacing a contractor and its operating equipment in the event that either party terminates the agreement;

 

· Reduced control and oversight over those aspects of operations which are the responsibility of the contractor;

 

· Failure of a contractor to perform under its agreement;

 

· Interruption of operations and construction or increased costs in the event that a contractor ceases its business due to insolvency or other unforeseen events;

 

· Injuries or fatalities on the job as a result of the failure to implement or follow adequate safety measures;

 

· Failure of a contractor to comply with applicable legal and regulatory requirements, to the extent it is responsible for such compliance; and

 

· Problems of a contractor with managing its workforce, labor unrest or other related employment issues.

 

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In addition, we may incur liability to third parties as a result of the actions of our contractors. The occurrence of one or more of these risks could adversely affect our results of operation, financial position, or trading price of our common stock.

  

The facilities and development of our mine and operations are subject to all of the risks inherent in development, construction, and operations. These risks include potential delays, cost overruns, shortages of material or labor, construction defects, breakdowns and injuries to persons and property. We expect to engage subcontractors and material suppliers in connection with the continued mine activities at the Isabella Pearl project. While we anticipate taking all measures which we deem reasonable and prudent in connection with our facilities, construction of the mine and the operation of the processing facility, there is no assurance that the risks described above will not cause delays or cost overruns in connection with such construction or operation. Any delays would postpone our anticipated generation of revenue and adversely affect our operations, which in turn may adversely affect our financial position and the price of our common stock. 

 

Construction of mine and process facilities is subject to all of the risks inherent in construction and start-up, including delays and costs of construction in excess of our projections. When applicable, many factors could delay or prevent the start or completion of, or increase the costs of, future projects or ongoing construction projects at our mine and process facility, including:

 

· Design, engineering and construction difficulties or delays;

 

· Cost overruns;

 

· Our failure or delay in obtaining necessary legal, regulatory and other approvals;

 

· Interruptions in the supply of the necessary equipment, or construction materials or labor or an increase in their price;

 

· Injuries to persons and property;

 

· Opposition of local and or non-governmental-organization interests; and

 

· Natural disasters, accidents, political unrest, or unforeseen events.

 

If any of the foregoing events were to occur, our financial condition could be adversely affected and we may be required to seek additional capital, which may not be available on commercially acceptable terms, or at all. If we are unable to complete such construction, we may not be able to recover any costs already incurred. Even if construction of a mine and processing facility is completed as scheduled, the costs could exceed our expectations and result in a materially adverse effect on our business, results of operations, financial condition, and cash flows.

 

Our operations are subject to permitting requirements which could result in the delay, suspension, or termination of our operations.  Our operations, including our ongoing exploration drilling programs and production, require permits from governmental authorities. If we cannot obtain or maintain the necessary permits or if there is a delay in receiving future permits, our timetable and business plan will be adversely affected.  We have from time to time relied on third party environmental firms to assist in our efforts to obtain and remain current with required regulations and permits.  While we attempt to manage and oversee third party firms, we are dependent on the firm to operate in a professional and knowledgeable manner.

 

Our ability to recognize the benefits of net losses is dependent on future cash flows and taxable income. We recognize deferred tax assets when the tax benefit is considered to be more likely than not of being realized; otherwise, a valuation allowance is applied against deferred tax assets. Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, our ability to realize the deferred tax assets could be impacted. Additionally, future changes in tax laws could limit our ability to obtain the future tax benefits represented by our deferred tax assets. At December 31, 2019 GRC Nevada Inc. (our wholly owned subsidiary) had recorded a $2.1 million valuation allowance for our net deferred tax assets as a result of the net operating losses recorded to date.

 

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Our continuing reclamation obligations at our operations could require significant additional expenditures. We are responsible for the reclamation obligations related to disturbances located on all of our properties.  We have a liability on our balance sheet to cover the estimated reclamation obligation. However, there is a risk that any reserve could be inadequate to cover the actual costs of reclamation when carried out. Continuing reclamation obligations will require a significant amount of capital. There is a risk that we will be unable to fund these additional obligations and further, that the regulatory authorities may increase reclamation requirements to such a degree that it would not be commercially reasonable to continue mining and exploration activities, which may adversely affect our results of operations, financial performance and cash flows.

  

Competition in the mining industry is intense, and we have limited financial and personnel resources with which to compete. Competition in the mining industry for desirable properties, investment capital and personnel is intense. Numerous companies headquartered in the United States (“U.S.”) and elsewhere throughout the world compete for properties and personnel on a global basis. We are a small participant in the gold mining industry due to our limited financial and personnel resources. We presently operate with a limited number of personnel and we anticipate operating in the same manner going forward. We compete with other companies in our industry to hire qualified personnel when needed to successfully operate our mine and processing facility. We may be unable to attract the necessary investment capital or personnel to fully explore and, if warranted, develop our properties and be unable to acquire other desirable properties. We believe that competition for acquiring mineral properties, as well as the competition to attract and retain qualified personnel, may continue to be intense in the future.

  

Our activities are subject to significant environmental regulations, which could raise the cost of doing business or adversely affect our ability to develop our properties. Significant state and federal environmental laws and regulations in the U.S. may hinder our ability to explore, develop, and operate. Federal laws that govern mining claim location and maintenance and mining operations on federal lands are generally administered by the Bureau of Land Management.   Additional federal laws, governing mine safety and health, also apply. State laws also require various permits and approvals before exploration, development or production operations can begin. Among other things, a reclamation plan must typically be prepared and approved, with bonding in the amount of projected reclamation costs. The bond is used to ensure that proper reclamation takes place, and the bond will not be released until that time. Local jurisdictions may also impose permitting requirements (such as conditional use permits or zoning approvals). 

 

The nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured losses. Exploration for and the production of minerals is highly speculative and involves greater risk than many other businesses. Many exploration programs do not result in the discovery of mineralization, and any mineralization discovered may not be of sufficient quantity or quality to be profitably mined. Our operations are, and any future mining operations or construction we may conduct will be, subject to all of the operating hazards and risks normally incident to exploring for and mining of mineral properties, such as, but not limited to:

 

· Fluctuation in production costs that make mining uneconomic;

 

· Labor disputes;

 

· Unanticipated variations in grade and other geologic problems;

 

· Environmental hazards;

 

· Water conditions;

 

· Difficult surface or underground conditions;

 

· Industrial accidents;

 

· Metallurgic and other processing problems;

 

· Mechanical and equipment performance problems;

 

· Unusual or unexpected rock formations;

 

· Personal injury, fire, flooding, cave-ins and landslides; and

 

· Global pandemics such as the COVID-19 Coronavirus.

 

Any of these risks can materially and adversely affect, among other things, the development of properties, production quantities and rates, costs and expenditures, potential revenues and targeted production dates. We currently have limited insurance to guard against some of these risks. If we determine that capitalized costs associated with any of our mineral interests are not likely to be recovered, we would incur a write down of our investment in these interests. All of these factors may result in losses in relation to amounts spent which are not recoverable or result in additional expenses.

 

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Title to mineral properties can be uncertain. Our ability to explore and operate our properties depends on the validity of our title to that property. Our U.S. mineral properties include patented and unpatented mining claims. Unpatented mining claims provide only possessory title and their validity is often subject to contest by third parties or the federal government, which makes the validity of unpatented mining claims uncertain and generally riskier. Uncertainties inherent in mineral properties relate to such things as the sufficiency of mineral discovery, proper posting and marking of boundaries, assessment work and possible conflicts with other claims not determinable from public record. There may be valid challenges to the title to our properties which, if successful, could impair development and/or operations.

 

We are dependent upon information technology systems, which are subject to disruption, damage, failure, and risks associated with implementation and integration. We are dependent upon information technology systems in the conduct of our operations. Our information technology systems are subject to disruption, damage, or failure from a variety of sources, including, without limitation, computer viruses, security breaches, cyber-attacks, natural disasters, and defects in design. Cybersecurity incidents, in particular, are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and the corruption of data. Various measures have been implemented to manage our risks related to information technology systems and network disruptions. However, given the unpredictability of the timing, nature and scope of information technology disruptions, we could potentially be subject to production downtimes, operational delays, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems and networks or financial losses from remedial actions, any of which could have a material adverse effect on our cash flows, competitive position, financial condition or results of operations.

 

We may also be adversely affected by system or network disruptions if new or upgraded information technology systems are defective, not installed properly or not properly integrated into our operations. If we are not able to successfully implement system upgrades or modifications, we may have to rely on manual reporting processes and controls over financial reporting that have not been planned, designed, or tested. Various measures have been implemented to manage our risks related to the system upgrades and modifications, but system upgrades and modification failures could have a material adverse effect on our business, financial condition and results of operations and could, if not successfully implemented, adversely impact the effectiveness of our internal controls over financial reporting.

 

We do not insure against all of the risks to which we may be subject in our operations and development. While we currently maintain general commercial liability, pollution and property insurance in Nevada, we may be subject to liability for certain environmental, pollution or other hazards associated with mineral exploration and mine construction, for which insurance may not be available, which may exceed the limits of our insurance coverage, or which we may elect not to insure against because of premium costs or other reasons. We may also not be insured against all interruptions to our operations. Losses from these or other events may cause us to incur significant costs which could materially adversely affect our financial condition and our ability to fund activities on our properties. A significant loss could force us to reduce or suspend our operations and development.

 

We depend upon a limited number of personnel and the loss of any of these individuals could adversely affect our business. Due to the relatively limited number of personnel that we employ, we are dependent on certain individuals to run our business. These individuals include our executive officer and other key employees. If any of these individuals were to die, become disabled or leave our company, we would be forced to identify and retain individuals to replace them. There is no assurance that we can find suitable individuals to replace them or to add to our employee base if that becomes necessary. We have no life insurance on any individual, and we may be unable to hire a suitable replacement on favorable terms should that become necessary.

 

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Risks Related to Our Common Stock

 

There currently exists no public trading market for our common stock and you will not be able to sell your shares of common stock if an active trading market does not develop. Although we expect that a public trading market will develop after the Spin-Off has been completed, there can be no assurance that a public trading market will develop at that time or be sustained in the future. Without an active public trading market, you may not be able to sell your shares without considerable delay, if at all. If a market does develop, the price for our common stock may be highly volatile and may bear no relationship to our actual financial condition or results of operations. Unless our common stock is listed on a national securities exchange, many brokerage firms may not be willing to sell our common stock on your behalf.

 

Our stock price may be volatile and as a result you could lose part or all of your investment. In addition to other risk factors identified and due to volatility associated with equity securities in general, our stock prices could decline due to the impact of numerous factors, including:

 

· Changes in the worldwide price for gold and/or silver;

 

· Adverse results from our exploration, development, or production efforts;

 

· Producing at rates lower than those targeted;

 

· Political and regulatory risks;  

 

· Weather conditions, including unusually heavy rains;

 

· Failure to meet our revenue or profit goals or operating budget;

 

· Decline in demand for our common stock;

 

· Downward revisions in securities analysts’ estimates or changes in general market conditions;

 

· Technological innovations by competitors or in competing technologies;

 

· Investor perception of our industry or our prospects;

 

· Lawsuits;

 

· Actions by government or central banks; and

 

· General economic trends.

 

Stock markets in general have experienced extreme price and volume fluctuations and the market prices of individual securities have been highly volatile. These fluctuations are often unrelated to operating performance and may adversely affect the market price of our common stock. As a result, you may be unable to sell your shares at a desired price.

 

Issuances of our stock in the future could dilute existing shareholders and adversely affect the market price of our common stock. Our Directors have the authority to issue up to 200,000,000 shares of common stock, 20,000,000 shares of preferred stock, and to issue options and warrants to purchase shares of our common stock without shareholder approval. Upon completion of the Spin-Off, we will have approximately 20,000,000 outstanding shares of common stock (subject to change prior to the effective date) and no outstanding shares of preferred stock. Future issuances of our securities could be at prices substantially below the price paid for our common stock by our current shareholders. The issuance of a significant amount of our common stock may have a disproportionately large impact on our share price compared to larger companies.

 

Awards of our shares and stock options to employees may not have their intended effect. A portion of our total compensation program for our executive officers and key personnel will include the award of shares and options to buy shares of our common stock. If the price of our common stock performs poorly, such performance may adversely affect our ability to retain or attract critical personnel. In addition, any changes made to our stock option policies or to any other of our compensation practices which are made necessary by governmental regulations or competitive pressures could affect our ability to retain and motivate existing personnel and recruit new personnel.

 

 Our directors and officers may be protected from certain types of lawsuits. The laws of Colorado provide that our directors will not be liable to us or our shareholders for monetary damages for all but certain types of conduct as directors of the company. Our bylaws permit us to indemnify our directors and officers against all damages incurred in connection with our business to the fullest extent provided or allowed by law. The exculpation provisions of these items may have the effect of preventing shareholders from recovering damages against our directors caused by their negligence, poor judgment, or other circumstances. The indemnification provisions may require us to use our limited assets to defend our directors and officers against claims, including claims arising out of their negligence, poor judgment, or other circumstances.

 

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We may issue shares of preferred stock that would have a liquidation preference to our common stock. Our Articles of Incorporation currently authorize the issuance of 20,000,000 shares of preferred stock. Our board of directors have the power to issue shares without shareholder approval, and such shares can be issued with such rights, preferences, and limitations as may be determined by our board of directors. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of any holders of preferred stock that may be issued in the future.

 

Although we presently have no commitments or agreements to issue any additional shares of preferred stock, authorized and unissued preferred stock could delay, discourage, hinder or preclude an unsolicited acquisition of our Company, could make it less likely that shareholders receive a premium for their shares as a result of any such attempt, and could adversely affect the market prices of, and the voting and other rights, of the holders of our shares of common stock.

 

You may have difficulty depositing your shares with a broker or selling shares of our common stock which you received in this offering. Many securities brokers will not accept securities for deposits and will not sell securities which trade in the over-the-counter market.

 

Further, for a securities broker which will accept deposit and agree to sell such securities in the over-the-counter market under certain circumstances, such broker may first require the customer to complete a questionnaire detailing how the customer acquired the shares, provide the securities broker with an opinion of an attorney concerning the ability of the shares to be sold in the public market, and pay a “legal review” fee which in some cases can exceed $1,000.

 

For these reasons, shareholders may have difficulty selling shares of our common stock.

 

We are an Emerging Growth Company, subject to less stringent reporting and regulatory requirements of other publicly held companies and this status may have an adverse effect on our ability to attract interest in our common stock. We are an Emerging Growth Company as defined in the JOBS Act. As long as we remain an Emerging Growth Company, we may take advantage of certain exemptions from various reporting and regulatory requirements that are applicable to other public companies that are not emerging growth companies. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

The occurrence of the COVID- 19 pandemic may negatively affect our operations depending on the severity and longevity of the pandemic. On March 11, 2020, the World Health Organization declared the outbreak of a respiratory disease caused by a new novel coronavirus (“COVID-19”) as a pandemic.

 

Precious metal mining is considered essential to support critical infrastructure under guidelines from the U.S. Department of Homeland Security and the State of Nevada. As a result, the Isabella Pearl Mine in Nevada has continued to operate at full capacity.

 

As of the date of this prospectus, there have been no significant impacts, including impairments, to our operations and financial statements. However, the long-term impact of the COVID-19 outbreak on our results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions. These developments and the impact of COVID-19 on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, our results of operations, financial position and cash flows may be materially adversely affected. We are not able to estimate the duration of the pandemic and potential impact on our business if disruptions or delays in business developments and shipments of product occur. In addition, a severe prolonged economic downturn could result in a variety of risks to our business, including a decreased ability to raise capital when and if needed on acceptable terms, if at all.

 

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Risks Relating to Our Spin-Off

 

We may be unable to make the changes necessary to achieve the perceived benefits of the Spin-Off and operate as an independent entity or we may incur greater costs, which could prevent us from operating profitably. Following the spin-off, GRC will have no obligation (beyond what is provided in the Separation Agreement and Management Services Agreement) to provide financial, operational, or organizational assistance to us.  As a consequence, we may not be able to successfully implement the changes necessary to operate independently.  We may also incur additional costs relating to operating independently that would cause our available cash resources to decline.  These costs may include, but are not limited to, board of director fees, salaries for personnel, investor relations, accounting and auditing services, legal fees, and shareholder and transfer agent costs.  We cannot guarantee that once we become a stand-alone company we will be profitable.

 

There could be significant liability if the distribution is determined to be a taxable transaction. There is no guarantee that the requirements for tax-free treatment under Section 355 of the Code will be satisfied with respect to the Spin-Off transaction. We have evaluated the requisite criteria, however, determination of taxability relies on certain facts, assumptions, representations and undertakings from the Company and Spin-Off regarding the past and future conduct of the companies’ respective businesses and other matters and the IRS may disagree with ours and our advisors’ assessments. If any of these facts, assumptions, representations, or undertakings is determined to be incorrect or not satisfied, the Company and its shareholders could be subject to significant tax liabilities following the distribution.

 

 

DIVIDEND POLICY

 

While our Board of Directors does anticipate authorizing the payment of cash dividends on our common stock in the foreseeable future, the determination to pay dividends will depend on many factors, including our financial condition, results of operations, general business conditions, contractual restrictions, capital requirements, business prospects, restrictions on the payment of dividends under Colorado law, and any other factors our Board of Directors deems relevant.

 

OUR CORPORATE REORGANIZATION AND CAPITALIZATION

 

We were incorporated in Colorado on August 11, 2020 in order to strategically provide flexibility for potential future reorganization. As a result, a discussion of our results of operations since the date of our incorporation would not be meaningful as prior to this offering, we did not engage in any activities, except in preparation for the Spin-Off. As there have been no material financial transactions since incorporation, our financial statements are omitted. The financial statements of GRC Nevada Inc. (“GRCN”) for the years ended December 31, 2019 and 2018 and the six months ended June 30, 2020 and 2019 are included in the Financial Statement section of this prospectus.

 

On August 18, 2020 we acquired all the shares of GRCN from GRC. GRCN which was incorporated on February 7, 2014, is now our wholly owned subsidiary. 

 

GRC will contribute $10 million in capital to the Company. This contribution will occur prior to the effective date of the Spin-Off. This capital contribution does not have to be repaid.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Fortitude Gold Corporation was incorporated in Colorado on August 11, 2020. On August 18, 2020 GRC transferred all of the issued and outstanding shares of GRCN to us. GRCN owns all of GRC’s former Nevada properties, including the Isabella Pearl project.

 

GRCN is a mining company which pursues gold and silver projects that are expected to have both low operating costs and high returns on capital. GRCN presently focuses on mineral production and exploration at our properties in Nevada, U.S.A. Our Isabella Pearl open pit mine produces gold and silver doré.

 

The following discussion summarizes the results of operations of GRCN and its subsidiaries for the two fiscal years ended December 31, 2019 and 2018 and for the six months ended June 30, 2020 and 2019. It also analyzes GRCN’s financial condition at December 31, 2019 and June 30, 2020 with a particular emphasis on June 30, 2020.

​ 

Since our inception, we, as a stand-alone entity, have not had any operations. As a result, the following discussion pertains only to our wholly owned subsidiary, GRCN.

 

Consolidated Results of Operations – Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

 

Sales, net.  For the year ended December 31, 2019, consolidated sales, net were $15.1 million as compared to nil for the same period in 2018.  The increase is attributable to the Isabella Pearl operations commencing production and sales in May 2019 and selling 10,272 gold ounces in 2019.  

 

Mine gross profit. For the year ended December 31, 2019, mine gross profit totaled $0.5 million compared to nil for the same period in 2018. The increase is attributable to the Isabella Pearl Mine commencing production and sales in May 2019. Production costs, depreciation and amortization and reclamation and remediation costs likewise commenced with the production of gold ounces. Gross profit in 2019 was decreased by a net realizable value inventory adjustment of $2.9 million related to lower grade ore mined during the initial start-up of the Isabella Pearl Mine.

 

General and administrative. For the year ended December 31, 2019, general and administrative expenses of $2.4 million did not materially change from $2.3 million for the same period in 2018.

 

Exploration expenses.  For the year ended December 31, 2019, property exploration expenses totaled $0.9 million as compared to $2.3 million for the same period of 2018. The decrease of $1.4 million was the direct result of the 2018 focus being on the release of our maiden Proven and Probable mineral reserve estimate for the Isabella Pearl project totaling 192,600 gold ounces at an average grade of 2.22 g/t and the 2019 focus being on achieving commercial production.

 

Other expense, net. For the year ended December 31, 2019, other expense, net of $0.2 million did not materially change from $0.2 million for the same period in 2018.

 

Net loss. For the year ended December 31, 2019 we recorded a net loss of $3.0 million compared to net loss of $4.8 million in the corresponding period for 2018. The decrease is due to the changes in our consolidated results of operations as discussed above.

 

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Consolidated Results of Operations – Six-months Ended June 30, 2020 Compared to Six-months Ended June 30, 2019

 

Sales, net.  For the first six months of 2020, consolidated sales, net were $14.4 million as compared to $1.5 million for the same period in 2019.  The increase is attributable to 8,809 gold ounces being sold from the Isabella Pearl Mine during the first half of 2020 and 1,131 gold ounces the first half of 2019 as production and sales commenced in May 2019.  

 

General and administrative. For the six months ended June 30, 2020, general and administrative expenses of $1.2 million did not materially change from $1.2 million for the same period in 2019.

 

Mine gross profit. For the first six months of 2020, mine gross loss totaled $0.7 million compared to a mining gross profit of $0.6 million for the same period in 2019. This decrease in mining gross profit is a result of net realizable value inventory adjustments of $3.6 million, for Isabella Pearl that reduced mine gross profit. This adjustment was primarily due to low grade ore that was placed on the leach pad during the first and second quarters of 2020.

 

Other expense, net. For the six months ended June 30, 2020, other expense, net of $0.1 million did not materially change from $0.1 million for the same period in 2019.

 

Net loss. For the six months June 30, 2020, we recorded net loss of $3.1 million compared to net loss of $1.2 million in the corresponding period for 2019. The increase is due to the changes in our consolidated results of operations as discussed above.

 

COVID-19 Pandemic

 

In March 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic based on the rapid increase in global exposure. In response to the pandemic, many jurisdictions, including the United States, instituted restrictions on travel, public gatherings, and certain business operations.

 

Currently the mining industry is listed as an essential business in the state of Nevada, accordingly, we continue to operate the Isabella Pearl Mine while utilizing safety measures. In an effort to mitigate the spread of COVID-19 and protect the health and safety of our employees, contractors, and communities, we have taken precautionary measures including specialized training, social distancing, screening workers before they enter facilities, a work from home mandate where possible, and close monitoring of national and regional COVID-19 impacts and governmental guidelines. Since our non-mining workforce is able to work remotely using various technology tools, we are able to maintain our operations and internal controls over financial reporting and disclosures.

 

We are not able to estimate the long-term impact of COVID-19 on our business, financial condition, results of operations, and liquidity for fiscal year 2020.

 

Factors Affecting Future Operating Results

 

The results of our operations depend in large part upon the market prices of gold and silver. Gold and silver prices fluctuate widely and are affected by numerous factors beyond our control. The level of interest rates, the rate of inflation, the stability of exchange rates, the world supply of and demand for gold, silver, and other metals, among other factors, can all cause significant fluctuations in commodity prices. Such external economic factors are in turn influenced by changes in international investment patterns, monetary systems, and political developments. The prices of gold and silver have fluctuated widely in recent years, and future price declines could cause a mineral project to become uneconomic, thereby having a material adverse effect on our business, financial condition and share price of our common stock. We have not entered into derivative contracts to protect the selling price for gold or silver. We may in the future more actively manage our exposure through derivative contracts or other commodity price risk management programs, although we have no intention of doing so in the near-term.

 

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In addition to adversely affecting our reserve estimates, results of operations and/or our financial condition, declining gold and silver prices could require a reassessment of the feasibility of a project. Even if a project is ultimately determined to be economically viable, the need to conduct such a reassessment may cause delays in the implementation of a project.

 

Other factors that will most significantly affect future operating results will be:

 

· Ongoing production ramp up at the Isabella Pearl mine
· Mine contractor meeting contractual terms
· Operational execution and metallurgical recovery results
· Replacement of ore mined by expansion of known mineralization or new discoveries
· Permit requirements and timing
· Retaining experienced personnel
· Exploration results
· Inflation and costs of production

 

Other than the foregoing we do not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on our revenues or expenses.

 

Liquidity and Capital Resources

 

GRCN primarily sources of liquidity during development, construction and ramp up stages has been through cash contributions from GRC. As production and sales from our Isabella Peal Mine continues to increase, so has our cash position. As of June 30, 2020, GRCN had a cash position of $0.2 million, which subsequently increased significantly to $6.8 million as of September 30, 2020, without additional cash contributions from GRC. We expect our liquidity to continue to improve in a near-term, as our production and sales increase. In addition, GRC will contribute $10 million upon completion of the Spin-Off.

 

As of June 30, 2020, GRCN had positive working capital of $8.9 million, consisting of current assets of $17.1 million and current liabilities of $8.2 million. This represents an increase of $11.4 million from the negative working capital balance of $2.5 million at December 31, 2019. Our working capital balance fluctuates as we use cash to fund our operations, financing and investing activities, including exploration, mine development and income taxes.  With the increase in working capital since June 30, 2020 and the addition of the $10 million capital contribution by GRC upon spin-off (see Our Corporate Reorganization and Capitalization above), we believe that our liquidity and capital resources are adequate to fund our operations, exploration, capital, and corporate activities for the next twelve months.  

 

GRCN sources and (uses) of cash for the years ended December 31, 2019 and 2018 and the six months ended June 30, 2020 and 2019 are shown below:

 

                         
    Year ended December 31,     Six Months Ended June 30,  
    2019     2018     2020     2019  
    (in thousands)  
Net cash used in operating activities   $ (5,079 )   $ (5,342 )   $ (3,468 )   $ (7,682 )
Capital expenditures   $ (22,538 )   $ (16,028 )   $ (6,195 )   $ (11,924 )
Contributions from GRC (1)   $ 29,635     $ 22,391     $ 9,680     $ 21,071  
Repayment of loans   $ (812 )   $ (596 )   $ (435 )   $ (385 )
Payment on finance leases   $ (410 )   $ (382 )   $ (217 )   $ (200 )

 

(1) Contributions from GRC are not expected to be repaid.

 

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Off-Balance Sheet Arrangements 

 

As of December 31, 2019, we had a $6.7 million off-balance sheet arrangement consisting of a $9.2 million surety bond off-set by a $2.5 million Reclamation Liability for future reclamation obligations for Isabella Pearl. 

 

Contractual Obligations 

 

The following table represents a summary of our contractual obligations at December 31, 2019, except short-term purchase order commitments arising in the ordinary course of business:

 

                                     
    Payments due by Period  
    Total     2020     2021     2022     2023     Thereafter  
    (in thousands)  
Loan payable   $ 1,661     $ 879       665     $ 87     $ 30     $ -  
Finance lease obligation     863       438       398       12       12       3  
Interest on loan payable     65       49       14       2       -       -  
Interest on finance lease obligation     50       37       12       1       -       -  
Operating lease obligations     7,257       7,257       -       -       -       -  
Contract Mining Agreement(1)     8,073       8,073       -       -       -       -  
    $ 17,969     $ 16,733     $ 1,089     $ 102     $ 42     $ 3  

 

(1) We signed a 24-month Contract Mining Agreement with a contract miner on November 14, 2018 relating to mining activities at our Isabella Pearl project.  We will be paying the contract miner operational costs in the normal course of business.  These costs represent the remaining future minimum payments for the Contract Mining Agreement over the initial 24 months of the agreement.  The future minimum payments are determined by rates within the Contract Mining Agreement, estimated tonnes moved and bank cubic yards for drilling and blasting. The Contract Mining Agreement contains a renewal option, which as of the date of this filing, is still being negotiated. We expect to complete the negotiations prior to the expiration of the original agreement.

 

Accounting Developments 

 

For a discussion of Recently Adopted Accounting Pronouncements and Recently Issued Accounting Pronouncements, please see Note 2 to the audited financial statements in the Financial Statement section of this prospectus.

 

Critical Accounting Estimates 

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets, liabilities and contingencies at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. As a result, management is required to routinely make judgments and estimates about the effects of matters that are inherently uncertain. Actual results may differ from these estimates under different conditions or assumptions. The following discussion pertains to accounting estimates management believes are most critical to the presentation of our financial position and results of operations that require management’s most difficult, subjective, or complex judgments.  

 

Revenue

         

Dore sales are recognized upon the satisfaction of performance obligations, which occurs when control of the doré transfers to the customer and price and quantity are agreed upon.  Transfer of control occurs once the customer takes possession of the doré.  Dore sales are recorded using quoted metal prices, net of refining charges.

 

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Proven and Probable Reserves

 

Critical estimates are inherent in the process of determining our reserves. Our reserves are affected largely by our assessment of future metals prices, as well as by engineering and geological estimates of ore grade, accessibility, and production cost. Metals prices are estimated at three-year trailing averages. Our assessment of reserves occurs annually, and we may utilize external audits in the future. Reserves are a key component in the valuation of our property, equipment and mine development and related depreciation rates.

 

 Reserve estimates are used in determining appropriate rates of units-of-production depreciation, with net book value of many assets depreciated over remaining estimated reserves. Reserves are also a key component in forecasts, with which we compare estimated future cash flows to current asset values in an effort to ensure that carrying values are reported appropriately. Reserves are a culmination of many estimates and are not guarantees that we will recover the indicated quantities of metals or that we will do so at a profitable level.

 

Depreciation and Amortization

 

Capitalized costs are depreciated or amortized using the straight-line method or unit-of-production (“UOP”) method at rates sufficient to depreciate such costs over the shorter of estimated productive lives of such assets or the useful life of the individual assets. Significant judgment is involved in the determination of the estimated life of the assets. Our estimates for reserves are a key component in determining our UOP rates. Our estimates of proven and probable ore reserves may change, possibly in the near term, resulting in changes to depreciation, depletion and amortization rates in future reporting periods. Productive lives range from 1 to 10 years, but do not exceed the useful life of the individual asset.

 

  Please see Note 1 to the audited financial statements in the Financial Statement section of this prospectus for depreciation rates of major asset categories.

 

Carrying Value of Stockpiles

 

Stockpiles represent ore that has been extracted from the mine and is available for further processing. Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the number of contained ounces (based on assay data), and the estimated metallurgical recovery rates.  Stockpile ore tonnages are verified by periodic surveys. Costs are added to stockpiles based on current mining costs, including applicable overhead and depreciation and amortization relating to mining operations and removed at each stockpile’s average cost per recoverable unit as material is processed.

 

We record stockpiles at the lower of average cost or net realizable value. Net realizable value represents the estimated future sales price based on short-term and long-term metals price assumptions that are applied to expected short-term (12 months or less) and long-term sales from stockpiles, less estimated costs to complete production and bring the product to sale. We recorded write-downs to reduce the carrying value of our current open-pit stockpiles at our Isabella Pearl Mine to net realizable value of $0.7 million in 2019 as a component of Production Costs,  primarily due to the realized ore grade during the ramp-up stage of the mining activities.  No net realizable value write-downs occurred in 2018. The significant assumption in determining the stockpile net realizable value at December 31, 2019 the gold price of $1,515 per ounce at December 31, 2019.

 

Carrying Value of Ore on Leach Pad

 

Ore on the leach pad represents ore that has been mined and placed on the leach pad where a solution is applied to the surface of the heap to dissolve the gold. Costs are added to ore on the leach pad based on current mining costs, including applicable depreciation and amortization relating to mining operations. Costs are removed from ore on the leach pad as ounces are recovered based on the average cost per estimated recoverable ounce of gold on the leach pad. Estimates of recoverable ore on the leach pad is calculated from the quantities of ore placed on the leach pad (measured tonnes added to the leach pad), the grade of ore placed on the leach pad (based on assay data) and a recovery percentage (based on ore type). In general, the leach pad is estimated to recover between 60% and 81% of the contained ounces placed on the leach pad, depending upon whether run-of-mine or crushed ore is placed on the leach pad.

 

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The metallurgical balancing process is constantly monitored and estimates are refined based on actual results over time. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis. We recorded write-downs to reduce the carrying value of leach pad inventory at our Isabella Pearl Mine to net realizable value of $2.2 million in 2019 as a component of Production Costs,  primarily due to the expected lower realized ore grade during the ramp-up stage of the mining and processing activities. The significant assumption in determining the net realizable value for the leach pad inventory at December 31, 2019 the gold market price of $1,515 per ounce at December 31, 2019.

 

Impairment of Long-Lived Assets

 

We evaluate the carrying value of long-lived assets to be held and used, using a fair-value based approach when events and circumstances indicate that the related carrying amount of our assets may not be recoverable. The economic environment and commodity prices may be considered as impairment indicators for the purposes of these impairment assessments. In accordance with U.S. GAAP, the carrying value of a long-lived asset or asset group is considered impaired when the anticipated undiscounted cash flows from such asset or asset group is less than its carrying value. In that event, a loss will be recorded in our consolidated statements of operations based on the difference between book value and the estimated fair value of the asset or asset group computed using discounted estimated future cash flows, or the application of an expected fair value technique in the absence of an observable market price. Future cash flows include estimates of recoverable quantities to be produced from estimated proven and probable mineral reserves, commodity prices (considering current and historical prices, price trends and related factors), production quantities, production costs, and capital expenditures, all based on life-of-mine plans and projections. In estimating future cash flows, assets are grouped at the lowest level for which identifiable cash flows exist that are largely independent of cash flows from other asset groups. It is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold and other commodity prices, production levels and costs and capital are each subject to significant risks and uncertainties.

 

Asset Retirement Obligation/Reclamation and Remediation Costs

 

Our mining and exploration activities are subject to various laws and regulations, including legal and contractual obligations to reclaim, remediate, or otherwise restore properties at the time the property is removed from service. Accounting for reclamation and remediation obligations requires management to make estimates of the future costs that we will incur to complete the work required to comply with existing laws and regulations. Actual costs may differ from the amounts estimated. Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and remediation costs. Also, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required.

 

Stock-based Compensation

 

We account for stock-based employee compensation plans under the fair value recognition and measurement provisions in accordance with applicable accounting standards, which require all stock-based payments to employees, including stock grants, and grants of stock options, to be measured based on the grant date fair value of the awards, with the resulting expense generally recognized on a straight-line basis over the period during which the employee is required to perform service in exchange for the award. 

 

Stock-based compensation expense is recorded net of estimated forfeitures in our consolidated statements of operations and as such is recorded for only those stock-based awards that we expect to vest. We estimate the forfeiture rate based on historical forfeitures of equity awards and adjust the rate to reflect changes in facts and circumstances, if any. We will revise our estimated forfeiture rate if actual forfeitures differ from our initial estimates.

 

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Income Taxes

  

The calculation of income tax expense, deferred tax assets and deferred tax liabilities involve significant management estimation and judgment involving a number of assumptions. In determining these amounts, management interprets tax legislation and makes estimates of the expected timing of the reversal of future tax assets and liabilities. We also make assumptions about future earnings, tax planning strategies and the extent to which potential future tax benefits will be used. We are also subject to assessments by various taxation authorities which may interpret tax legislation differently, which could affect the final amount or the timing of tax payments.

  

OUR BUSINESS

 

On August 18, 2020, GRC transferred all of the issued and outstanding shares of GRCN to us. GRCN owns all of GRC’s former Nevada properties, including the Isabella Pearl project. All references to “us” include our wholly owned subsidiary, GRCN unless the context requires otherwise.

 

We own 100% of five properties in Nevada, totaling 1,419 unpatented mining claims covering approximately 26,900 acres, subject to the paramount title of the United States of America, under the administration of the Bureau of Land Management (“BLM”). Under the Mining Law of 1872, which governs the location of unpatented mining claims on federal lands, the owner (locator) has the right to explore, develop, and mine minerals on unpatented mining claims without payments of production royalties to the U.S. government, subject to the surface management regulation of the BLM.  Currently, annual claim maintenance fees are the only federal payments related to unpatented mining claims.  Annual maintenance fees of $251,607 were paid during 2020.

 

In addition to the unpatented claims, we also own or lease 28 patented mining claims and fee lands covering approximately 600 acres in Mineral County, Nevada.  The patented claims and fee lands are subject to payment of annual property taxes made to the county where they are located.  Annual property taxes on our patented claims and fee lands have been paid through June 30, 2021.

 

Our properties in Nevada are located in the Walker Lane Mineral Belt which is known for its significant and high-grade gold and silver production.  Activities at our properties in Nevada range from exploration, mineral delineation, and production. We believe that our Nevada properties have excellent potential for additional discoveries of both bulk tonnage replacement-type and bonanza-grade vein-type gold deposits, similar to other gold deposits historically mined by other companies in the Paradise Peak, Borealis, Bodie, Tonopah, and Goldfield districts.

 

Properties Overview

 

Our primary focus is to discover, delineate and advance potential open pit heap leach gold operations in Nevada and commence production on all properties where we discover economic deposits.  We believe that our property portfolio is highly prospective based on geology, surface samples, and drill results. Close proximity between producing and prospective properties (approximately 50 kilometers or 30 miles or less in radius) may allow for equipment sharing and synergies whereby we may move equipment and resources from one project to the next.   Our properties are being explored at various stages at any given time. Our primary focuses in 2020 and 2021 for our drill programs include testing exploration targets along the mineralized trend and structural corridor where our Isabella Pearl mine is located, planned delineation drilling of the known mineralized zones at Golden Mile and initial exploration drilling at our East Camp Douglas property in late 2020.

 

Isabella Pearl project (Production and exploration phase): We produce gold and silver doré from our Isabella Pearl Mine, heap leach operation and associated processing plant. We expect annual gold production to continue to increase into 2021 as we mine the higher-grade material in the Pearl deposit. Our most recent Proven and Probable reserve report as of December 31, 2019 includes 220,100 ounces gold at 3.05 g/t average grade. We expect gold recoveries of approximately 81% for crushed ore and 60% for the run-of-mine (“ROM”) ore. The deposit has a 3% net smelter royalty (“NSR”) on production. The Isabella Pearl deposit sits along a mineralized structural corridor where at least 4 historic open pit heap leach operations operated to the southeast along trend. We have acquired an interest approximately 10 kilometers (6 miles) of this structural corridor to the northwest of the Isabella Pearl deposit and target future exploration and discovery of additional mineralized zones. The property covers a large district-size land position with an area of approximately 8,900 acres consisting of 496 unpatented claims.

 

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Golden Mile property (Delineation and exploration phase): On June 15, 2020, we acquired the Golden Mile property. The sellers retained a 3% NSR on future production from the property. We have the right to buy down 1% of the NSR for $1.5 million. Third-party drill highlights include 36.6 meters of 10.26 g/t gold and 6.10 meters of 46.53 g/t gold. The property covers a large district size land position with an area of approximately 9,300 acres. We target future drill programs to further delineate at least two known areas of mineralization and discover additional mineralized zones.

 

East Camp Douglas property (Exploration phase): A large district size land position of approximately 5,600 acres. The property has a 3% NSR on future production from the property. A lithocap associated with high grade gold indicates proximity to an intrusive center for potential to host significant mineralization. Third-party drill highlights include 22.86 meters of 13.55 g/t gold. We received BLM approval of our Notice of Intent granting permission to drill the lithocap area and an initial drill program commenced in Q3, 2020.

 

Mina Gold property (Exploration phase): Adjoining the northwest edge of the Golden Mile property, a mineralized zone has been identified with drill highlights including 15.24 meters of 3.86 g/t gold. The property has a 3% NSR on future production. Early metallurgical test work indicates the mineral is amenable to heap leaching. We have drilled on the patented claims and target testing the mineral extent on the unpatented claims. The Mina Gold property consists of approximately 1,200 acres.

 

 County Line property (Exploration phase): Located 23 kilometers (14 miles) north of the Isabella Pearl project, County Line has historic open pits with potential for additional mineralization discovery. The property has a 3% NSR on future production. Third-party drill highlights include 9.15 meters of 3.86 g/t gold and third-party channel samples of 33.50 meters of 3.76 g/t gold in the historic pit. Numerous untested targets remain on the property. The property covers a land position with an area of approximately 2,400 acres.

 

The maps and charts below show the general location and gold grade highlights of our properties:

  

 

  

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Production Property

 

Isabella Pearl

 

Location and Access:  The Isabella Pearl project is located in the Gabbs Valley Range in Mineral County, approximately 240 kilometers (150 miles) southeast of Reno, Nevada.  Access to the project is by a paved road approximately 10-kilometer (6 miles) north of the town of Luning, Nevada. The project has good connections to the infrastructure of west-central Nevada, with access roads to the project site linking to Nevada state route 361 and U.S. Route 95, the main highway between Reno and Las Vegas, Nevada.  

 

Geology and Mineralization: The Isabella Pearl project is located in the central portion of the Walker Lane Mineral Belt, a major northwest-trending zone on the western border of Nevada characterized by a series of closely spaced dextral strike-slip faults that were active throughout much of the middle to late Cenozoic period.  Volcanic rocks of middle Tertiary age cover much of the property and include intermediate lava flows and ignimbrite ash-flow sheets.  The volcanic rocks unconformably overlie Mesozoic strata including Triassic and Jurassic sedimentary units and Cretaceous and Jurassic igneous units.  Within the regional Walker Lane tectonic setting, several major fault zones trend through the property and are dominated by various splays and offset branches that host the gold mineralization in the area. 

 

The gold-silver mineralized zones mainly include the Isabella, Pearl, and Civit Cat deposits, collectively referred to as the Isabella Pearl deposit.  Alteration and mineral assemblages at Isabella Pearl, including widespread argillic alteration and generally abundant alunite, indicate the deposits belong to the high-sulfidation class of epithermal mineral deposits.  Potassium-Argon age determinations indicate the mineralization is about 19 Ma, some 7 to 10 million years younger than the age of the host rocks.  This early Miocene age conforms to the age of other high-sulfidation epithermal precious-metal deposits in the Walker Lane (e.g., Goldfield and Paradise Peak).

 

Facilities:  We were granted a positive Record of Decision (“ROD”) from the BLM on the Environmental Assessment (“EA”) for the Isabella Pearl project in May 2018.  This final permit allowed us to move the project forward into development and construction.  Construction progress in 2018 included the completion of haul roads, office and laboratory buildings, construction of and liner placement on the heap leach pad, the pregnant and barren solution ponds, and connection of the water well.  In 2018, we began installation of the Adsorption, Desorption and Recovery (ADR) processing facility, installed our crushing facility and commenced mining and waste removal of the first of several benches of the lower grade Isabella portion of the deposit with its estimated average grade of ~1 g/t gold. We achieved first gold production approximately 10 months after breaking ground on the project. During the second quarter of 2020 our overburden removal reached the first benches in the high-grade Pearl portion of the deposit estimated at ~3.7 g/t average with a ~5.0 g/t gold core deeper.

 

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Operating Data: The following tables summarize certain information about our operations at our Isabella Pearl project for the periods indicated:

 

    Year ended December 31,     Six Months Ended June 30,  
    2019     2018     2020     2019  
Ore mined                                
Ore (tonnes)(1)     934,723       -       302,572       688,277  
Gold grade (g/t)     0.76       -       1.33       0.69  
Low-grade stockpile (tonnes)                                
Ore (tonnes)     529,959       -       18,490       388,726  
Gold grade (g/t)     0.51       -       0.57       0.52  
Waste (tonnes)(2)     4,504,360       -       2,817,970       1,698,448  
Metal production (before payable metal deductions)(3)                                
Gold (ozs.)     10,883       -       8,900       1,678  
Silver (ozs.)     9,752       -       10,985       972  

 

(1) 2019 amounts include run-of-mine ore and initial over liner of the heap leach pad.
(2) 2020 amounts are primarily stripping tonnes for the Pearl deposit.
(3) The difference between what we report as "metal production" and "metal sold" is attributable to the difference between the quantities of metals contained in the doré we produce versus the portion of those metals actually paid for according to the terms of our sales contracts. Differences can also arise from inventory changes incidental to shipping schedules, or variances in ore grades and recoveries which impact the amount of metals contained in doré produced and sold.

 

    Year ended December 31,     Six Months Ended June 30,  
    2019     2018     2020     2019  
Metal sold                                
Gold (ozs.)     10,272       -       8,809       1,131  
Silver (ozs.)     8,332       -       11,430       612  
Average metal prices realized (1)                                
Gold ($ per oz.)     1,468       -       1,651       1,363  
Silver ($ per oz.)     17.04       -       16.36       15.07  
                                 
Total cash cost before by-product credits per gold ounce sold (2)   $ 1,054     $ -     $ 1,391     $ -  
Total cash cost after by-product credits per gold ounce sold (2)   $ 1,040     $ -     $ 1,370     $ -  
Total all-in sustaining cost per gold ounce sold (2)   $ 1,049     $ -     $ 1,402     $ -  

 

(1) Average metal prices realized vary from the market metal prices due to final settlement adjustments from our provisional invoices when they are settled. Our average metal prices realized will therefore differ from the market average metal prices in most cases.
(2) June 2019 amounts not applicable as 2019 was a partial period due to mine commencing production in May 2019.

 

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Exploration Properties 

 

Golden Mile

 

On June 15, 2020, we purchased a 100% interest in the Golden Mile property located in Nevada’s Walker Lane Mineral Belt. The property covers an area of approximately 9,300 acres consisting of 451 unpatented and 5 patented claims. Located in the Bell Mining District, Mineral County, Nevada, approximately 36 kilometers (22 miles) east of the town of Luning, Nevada. Mineralization at the property is intrusion related, with primary gold and copper mineralization associated with skarn style replacement in carbonate units. Secondary mineralization is associated with structurally controlled stockwork and breccia zones. The “Golden Mile Stock” quartz diorite-granodiorite body is believed to be responsible for the gold-copper skarn mineralization. The stock is only exposed on surface in three small areas because most of its northern extent is covered by Tertiary volcanics. In late 2020, we plan for an initial drill program to target one of the two known areas of mineralization for confirmation and delineation drilling. Numerous additional exploration targets exist. In 2021, we plan to evaluate the known mineralized zones among a much larger conceptual project plan of multiple open pits along a trend at Golden Mile to the northwest and onto the Mina Gold property. We are evaluating the potential of at least three pits feeding ore to a strategically located heap leach and process facility. The conceptualized process plant is being evaluated to take the gold to carbon stage and then haul the carbon for processing at our ADR facility at Isabella Pearl for final doré production. Base line and background studies are being evaluated and budgeted alongside exploration efforts to move this property forward.

 

East Camp Douglas

 

In January 2017, we purchased a 100% interest in the East Camp Douglas gold property located in Nevada’s Walker Lane Mineral Belt.  The property covers an area of approximately 5,600 acres consisting of 289 unpatented claims, 16 patented claims and additional fee lands in Mineral County, Nevada. Precious metal epithermal mineralization at East Camp Douglas occurs as both widespread high sulfidation alteration areas and low sulfidation veins.  Modern exploration by several mining and exploration companies has established modest gold resource potential in five separate areas on the property, with over 3,000 meters of drill core and a large exploration database.  We believe this large property has numerous untested gold targets with open pit heap leach potential warranting an extensive exploration program.   We continued our review of historical geological, exploration and mining data on the East Camp Douglas property during 2019.  Field exploration activities included surface geologic mapping, rock chip sampling and collection of samples for spectral analysis in the vicinity of workings of the historic Kernick, Sunset, and Triumph mine areas. We also commenced initial 3D-modeling for the historic mine areas.  These historic mines and the lithocap area continue to be evaluated for surface drilling in the future. We initiated our first drill program to begin testing the very large lithocap area near the south end of the property during the third quarter of 2020.

 

Mina Gold

 

In August of 2016, we purchased 100% interest in the Mina Gold property located in Nevada’s Walker Lane Mineral Belt.  The property has the potential to be a future open pit heap leach gold operation.  Mina Gold reported a historic third-party estimate of mineralized material totaling 1,606,000 tonnes grading 1.88 g/t gold.  The property covers an area of approximately 1,200 acres consisting of 61 unpatented claims and 5 patented claims.  During 2018, we completed an 11-hole reverse circulation drilling program totaling 885 meters on the Mina Gold property.  This drilling targeted expansion along strike and to depth known surface high-grade gold mineralization on our patented claims.  In 2019, we reviewed results from previous surface drilling to guide follow-up drilling planned and other exploration activities for Mina Gold. During 2019, we expanded our land position at Mina Gold by leasing an additional 18 unpatented lode mining claims.  These claims will be evaluated along with our other claims at the Mina Gold property in preparation for future surface drilling programs. In 2020 and 2021, we plan to evaluate the known mineralized zone among a much larger conceptual plan of multiple open pits along a trend to the south east onto the Golden Mile property whereby feeding ore to a strategically located heap leach and process facility. The conceptualized process plant is being evaluated to take the gold to carbon stage and then haul the carbon for processing at our ADR facility at Isabella Pearl for final doré production. Base line and background studies are being evaluated and budgeted.

 

County Line

 

In March 2018, we purchased a 100% interest in the County Line property.  The property is located close to our other Nevada properties in central Nevada’s Walker Lane Mineral Belt in Mineral and Nye counties.  In addition, we staked additional unpatented claims around the property to strengthen the land position and exploration potential. The total land package is 2,400 acres consisting of 116 unpatented lode mining claims and 6 unpatented placer mining claims.  During 2018, we reviewed historical geological, exploration and mining data along with conducting surface mapping and rock chip sampling at County Line in preparation for a future initial surface drilling program.

 

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Proven and Probable Reserves

 

The term “proven (measured) reserves” means reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes, grade, and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling and measurements are spaced so closely and the geologic character is sufficiently defined that the size, shape, depth and mineral content of reserves is well established. The term “probable (indicated) reserves” means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.

 

 As of December 31, 2019, our estimate of Proven and Probable (“P&P”) reserves, all of which pertain to the Isabella Pearl project, was:

 

Description   Tonnes     Gold
g/t
    Silver
g/t
    Precious Metal
Gold
Equivalent
g/t
    Gold
Ounces
    Silver
Ounces
    Precious
Metal
Gold
Equivalent
Ounces
 
Isabella Pearl Project                                                        
Proven     893,300       5.39       35       5.82       154,800       998,000       167,300  
Probable     1,354,100       1.50       7       1.59       65,300       312,700       69,200  
Isabella Pearl Project Total     2,247,400       3.05       18       3.27       220,100       1,310,700       236,500  
Total     2,247,400       3.05       18       3.27       220,100       1,310,700       236,500  

 

Notes to the 2019 P&P reserves:

 

1. Metal prices used for P&P reserves were $1,306 per ounce of gold and $16.32 per ounce of silver. These prices reflect the three-year trailing average prices for gold and silver.
     
2. Precious metal gold equivalent is 80.03:1 determined by taking gold ounces produced or sold, plus silver ounces produced or sold converted to precious metal gold equivalent ounces using the gold to silver average price ratio for the period.
     
3. For the Isabella Pearl Mine, the quantities of material within the designed pits were calculated using a cutoff grade of 0.44 Au g/t.
     
4. Mining, processing, energy, administrative and smelting/refining costs were based on 2019 actual costs for the Isabella Pearl Mine.
     
5. Metallurgical gold recovery assumptions used for the Isabella Pearl project were 81% for crushed ore and 60% for ROM ore. These recoveries reflect predicted average recoveries from metallurgical test programs.
     
  6. Isabella Pearl P&P reserves are diluted and factored for expected mining recovery.
     
  7. Figures in tables are rounded to reflect estimate precision and small differences generated by rounding are not material estimates.

 

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For comparison, at December 31, 2018, our estimate of P&P reserves was:

 

Description   Tonnes     Gold
g/t
    Silver
g/t
    Precious
Metal
Gold
Equivalent
g/t
    Gold
Ounces
    Silver
Ounces
    Precious
Metal
Gold
Equivalent
Ounces
 
Isabella Pearl Project                                                        
Proven     719,800       5.65       35       6.10       130,700       801,600       141,300  
Probable     2,214,600       1.18       5       1.25       84,100       375,100       89,000  
Isabella Pearl Project Total     2,934,400       2.28       12       2.44       214,800       1,176,700       230,300  
Total     2,934,400       2.28       23       2.44       214,800       1,176,700       230,300  

 

Notes to the 2018 P&P reserves:

 

1. Metal prices used for P&P reserves were $1,258 per ounce of gold and $16.62 per ounce of silver. These prices reflect the three-year trailing average prices for gold and silver.

 

2. Precious metal gold equivalent is 75.69:1 determined by taking gold ounces produced or sold, plus silver ounces produced or sold converted to precious metal gold equivalent ounces using the gold to silver average price ratio for the period.

 

3. For the Isabella Pearl project, the quantities of material within the designed pits were calculated using a cutoff grade of 0.61 Au g/t for crushed ore and 0.38 Au g/t for Run-of-Mine (“ROM”) ore.

 

4. Mining, processing, energy, administrative and smelting/refining costs were based on 2018 cost estimates used for the Isabella Pearl project feasibility study.

 

5. Metallurgical gold recovery assumptions used for the Isabella Pearl project were 81% for crushed ore and 60% for ROM ore. These recoveries reflect predicted average recoveries from metallurgical test programs.

 

6. Silver is an economic mineral of interest but only a minor amount will be recovered. Silver recoveries were not considered in the Isabella Pearl project feasibility study.

 

7. Isabella Pearl P&P reserves are diluted and factored for expected mining recovery.

 

8. Figures in tables are rounded to reflect estimate precision and small differences generated by rounding are not material to estimates.

 

Our P&P Reserve estimates were prepared by Gold Resource Corporation’s technical staff under the direction of Fred H. Brown, Senior Resource Geologist, and Barry Devlin, Vice President of Exploration.  Mr. Brown graduated with a Bachelor of Science degree in Geology from New Mexico State University in 1987, obtained a Graduate Diploma in Engineering (Mining) in 1997 from the University of the Witwatersrand and a Master of Science in Engineering (Civil) from the University of the Witwatersrand in 2005.  He is registered with the Association of Professional Engineers and Geoscientists of British Columbia and as a Professional Geoscientist and the Society for Mining, Metallurgy and Exploration as a Registered Member.  Mr. Devlin holds a Bachelor of Science degree with honors in Geology, 1981, and a Masters in Geology, 1987, from the University of British Columbia, Vancouver, Canada. He is also a Professional Geologist registered with the Association of Professional Engineers and Geoscientists of British Columbia.

 

For a description of the key assumptions, parameters and methods used to estimate Proven and Probable Reserves included in this prospectus, as well as data verification procedures and a general discussion of the extent to which the estimates may be affected by any known environmental, permitting, legal, title, taxation, socio-political, marketing or other factors, investors may review the annual reserve report filed as Exhibit 99 to our registration statement on Form S-1, of which this prospectus is a part.

 

Future Exploration

 

During the twelve months ending September 30, 2021, we anticipate spending approximately $1.6 million for exploration activities.  Exploration expenditures may be modified depending on exploration results, metal market conditions and available capital.

 

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Condition of Physical Assets and Insurance

 

Our business is capital intensive and requires ongoing investment for the replacement, modernization or expansion of equipment and facilities. We maintain insurance policies against property loss and business interruption and insure against risks that are typical in the operation of our business in amounts that we believe to be reasonable. Such insurance, however, contains exclusions and limitations on coverage, particularly with respect to property loss, environmental liability, and political risk. There can be no assurance that claims would be paid under such insurance policies in connection with a particular event.

 

Environmental Matters 

 

We conduct our operations so as to protect the environment and believe our operations are in compliance with applicable laws and regulations in all material respects. Our operating mine has a reclamation plan in place that we believe meets all applicable legal and regulatory requirements. At June 30, 2020, $3.7 million was accrued on our consolidated balance sheet for reclamation costs relating to operating and development properties.

 

Competitive Business Conditions

 

The acquisition of gold and silver properties is subject to intense competition. Identifying and evaluating potential mining prospects is a costly and time-consuming endeavor. We may be at a competitive disadvantage compared to many other companies with regard to exploration and, if warranted, advancement of mining properties. We believe that competition for acquiring mineral prospects will continue to be intense in the future.

 

Government Regulations and Permits 

 

In the U.S., an unpatented mining claim on unappropriated federal land may be acquired pursuant to procedures established by the Mining Law of 1872 and other federal and state laws.  These acts generally provide that a citizen of the U.S. (including a corporation) may acquire a possessory right to develop and mine valuable mineral deposits discovered upon appropriate federal lands, provided that such lands have not been withdrawn from mineral location, e.g., national parks, military reservations and lands designated as part of the National Wilderness Preservation System.  The validity of all unpatented mining claims is dependent upon inherent uncertainties and conditions.  These uncertainties relate to such non-record facts as the sufficiency of the discovery of minerals, proper posting and marking of boundaries, and possible conflicts with other claims not determinable from descriptions of record.  Prior to discovery of a locatable mineral on an unpatented mining claim, a mining claim may be open to location by others unless the owner is in possession of the claim.  

 

To maintain an unpatented mining claims in good standing, the claim owner must file with the Bureau of Land Management (“BLM”) an annual maintenance fee ($165 for each claim, which may change year to year), a maintenance fee waiver certification, or proof of labor or affidavit of assessment work, all in accordance with the laws at the time of filing which may periodically change.

 

In connection with mining, milling and exploration activities, we are subject to United States federal, state and local laws and regulations governing the protection of the environment, including laws and regulations relating to protection of air and water quality, hazardous waste management and mine reclamation as well as the protection of endangered or threatened species. The departments responsible for the environmental regulation include the United States Environmental Protection Agency (“EPA”), the Nevada Department of Environmental Protection (NDEP), Bureau of Land Management (“BLM”) and the Nevada Department of Wildlife (“NDOW”).  Any of these regulators have broad authority to shut down and/or levy fines against facilities that do not comply with their environmental regulations or standards. Potential areas of environmental consideration for mining companies, including ours, include but are not limited to, acid rock drainage, cyanide containment and handling, contamination of water sources, dust, and noise.

 

We have obtained the permits necessary to develop, construct, and operate our Isabella Pearl project.   In connection with these permits and exploration activities in Nevada, we are subject to various federal, state and local laws and regulations governing protection of the environment, including, but not limited to, the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Endangered Species Act; the Federal Land Policy and Management Act; the National Environmental Policy Act; the Resource Conservation and Recovery Act; and related state laws. These laws and regulations are continually changing and are generally becoming more restrictive.

 

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Customers

 

For the year ended December 31, 2019 and for the six months ended June 30, 2020, one customer accounted for 100% and 95% of our revenue from our Isabella Pearl mine, respectively. In the event that our relationship with this customer is interrupted for any reason, we believe that we would be able to locate another entity to purchase our products. However, any interruption could temporarily disrupt the sale of our principal products and adversely affect our operating results. We periodically review our options for alternative sales outlets to mitigate the concentration of risk in case of any unforeseen disruptions.

 

Employees and Contractors

 

We have 56 full-time employees, one of which serves as our executive officer. These individuals devote all of their business time to our affairs.

  

We contract for the services of approximately 60 individuals employed by third parties in Nevada and also use various independent contractors for environmental permitting, mining, surface exploration drilling and trucking.

 

As discussed in the Relationship with Gold Resource Corp. Following the Spin-Off section of this prospectus, we will contract with GRC for the services described within the agreement.

 

Office Facilities 

 

Our executive and administrative headquarters are located at 2886 Carriage Manor Point, Colorado Springs, Colorado 80906 under a renewable one-year lease at a cost of $4,000 per month.

 

Mine Safety Disclosure 

 

The information concerning mine safety violations or other regulatory matters required by Item 104 of Regulation S-K is included as Exhibit 99.1 to the registration statement on Form S-1, of which this prospectus is a part.

 

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MANAGEMENT

 

Officers and Directors

 

Name   Age     Position
Jason D. Reid   47     Chief Executive Officer, President and Director
           
Bill M. Conrad   64     Chairman of the Board of Directors

 

Our directors serve in such capacity until the next annual meeting of our shareholders and until their successors have been duly elected and qualified. Our officers serve at the discretion of our directors. Our officers devote substantially all of their time to our business.

 

Jason D. Reid was appointed as our CEO, President and Director on August 11, 2020. Upon completion of the Spin-Off from GRC. Mr. Reid will step down from GRC where he will have previously served for over 14 years including CEO, President and Director positions. Mr. Reid joined GRC in 2006 when it was a private company and helped take it public with a self-underwritten IPO. Mr. Reid was part of a management team that took GRC from an exploration stage company, to a development stage company, to a gold and silver dividend paying producer. Under his tenure as President, GRC achieved 9 consecutive years of profitability, over a decade of production, generated over $1 billion in revenue and returned over $114 million in dividends to shareholders. At GRC, he also co-created and initiated the first known cash to physical gold and silver dividend program whereby shareholders could take delivery of precious metals. As an entrepreneur prior to GRC, Mr. Reid was the founder and president of two successful businesses, he ran for 13 years. He holds a Bachelor of Science degree from Fort Lewis College.

 

Our Board of Directors believes that Mr. Reid’s experience founding and operating his own business, as well as over fourteen years of mining industry experience, and significant participation in the development of business strategy and decision-making for the Company provides him with the appropriate experience and qualifications to serve as a member of our Board.

 

Bill M. Conrad was appointed Chairman of the Board of Directors on August 11, 2020. He also serves on the Board of Directors of GRC. Since June 2006, Mr. Conrad has held several positions on the GRC Board of Directors including Lead Independent Director, Audit Committee Chairman, Compensation Committee Chairman, and Nominating and Governance Committee Chairman. He currently serves as the Chairman of GRC’s Board, a position he has held since January 2014.

 

Over the past 35 years, Mr. Conrad has held executive suite positions with several public and private companies. These positions include CEO, President, Vice President, and CFO. In 1990, Mr. Conrad cofounded MCM Capital Management, Inc. a private management consulting firm which assisted private and public companies with management, financial needs, mergers, acquisitions, public and private markets, and funding and finance sources. MCM ceased operations in 2012 so that the principals could pursue other activities.

 

From August 2008 until March 2017, Mr. Conrad was a Director of Synergy Resources Corp. (NYSE American: SYRG & SRCI), an oil and gas company operating in the DJ Basin of Colorado. Mr. Conrad was a member of the Audit Committee, member of the Nominating Committee and Chairman of the compensation committee during his tenure at SYRG. From September 2013 until June of 2020, Mr. Conrad was the Chairman of the Board of Petroshare Corp., a publicly traded E&P company located in Denver, Colorado.

 

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Our Board believes that the management and corporate finance experience developed by Mr. Conrad over 35 years serving as an executive officer and director of numerous private and publicly-traded companies, his extractive industry experience, as well as his familiarity with relevant accounting principles and financial statement presentation, qualifies Mr. Conrad to serve as a director.

 

Our Board of Directors has the ultimate responsibility to evaluate and respond to risks facing us. Our Board of Directors fulfills its obligations in this regard by meeting on a regular basis and communicating, when necessary, with our officers.

 

We have adopted a Code of Ethics which is applicable to our principal executive, financial, and accounting officers and persons performing similar functions. The Code of Ethics is filed as Exhibit 14 to our registration on Form S-1, of which this prospectus is a part.

 

Holders of our common stock can send written communications to our entire Board of Directors, or to one or more Board members, by addressing the communication to “the Board of Directors” or to one or more directors, specifying the director or directors by name, and sending the communication to our corporate office in Colorado Springs, Colorado. Communications addressed to the Board of Directors as whole will be delivered to each Board member. Communications addressed to a specific director (or directors) will be delivered to the director (or directors) specified.

 

A security holder communication not sent to the Board of Directors as a whole is not relayed to Board members which did not receive the communication.

 

Executive Compensation

 

Our executive officers are compensated through the following three components:

 

· Base Salary

 

· Short-Term Incentives (cash bonuses)

 

· Long-Term Incentives (equity-based awards)

 

· Benefits

 

These components provide a balanced mix of base compensation and compensation that is contingent upon our executive officer’s individual performance. A goal of the compensation program is to provide executive officers with a reasonable level of security through base salary and benefits. We want to ensure that the compensation programs are appropriately designed to encourage executive officer retention and motivation to create shareholder value. We believe that our shareholders are best served when we can attract and retain talented executives by providing compensation packages that are competitive but fair.

 

Base Salaries

 

Base salaries generally have been targeted to be competitive when compared to the salary levels of persons holding similar positions in other publicly traded mining companies of comparable size. The executive officer’s respective responsibilities, experience, expertise, and individual performance are considered.

 

Short-Term Incentives

 

Cash bonuses may be awarded at the sole discretion of the Board of Directors based upon a variety of factors that encompass both individual and company performance.

 

Long-Term Incentives

 

Equity incentive awards help to align the interests of our employees with those of our shareholders.   Equity based awards are made under our Equity Incentive Plan.  Options are granted with exercise prices equal to the closing price of our common stock on the date of grant and may be subject to a vesting schedule as determined by the Board of Directors who administer the plan.  

 

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We believe that grants of equity-based compensation:

 

· enhance the link between the creation of shareholder value and long-term executive incentive compensation;

 

· provide focus, motivation, and retention incentive; and

 

· provide competitive levels of total compensation

 

In addition to cash and equity compensation programs, executive officers participate in the health and welfare benefit programs available to other employees.

 

Compensation Table

 

Since our inception on August 11, 2020, we have not compensated any person for acting as a director. The following table sets forth in summary form the compensation received by our Chief Executive Officer for each of the two fiscal years ended December 31, 2019 from GRC which, during the years presented, employed the person listed in the table. Following the Spin-Off, these persons will be employed by us and no longer compensated by GRC:

 

Name and
Principal Position
  Fiscal
Year
    Salary
(1)
    Bonus
(2)
    Stock
Awards
(3)
    Option
Awards
(4)
    Non-Equity
Incentive Plan
Compensation
(5)
    All Other
Compensation
(6)
    Total  
Jason Reid                                                                
CEO & President     2019     $ 630,000     $ 204,000     $ 378,548     $ 31,500       31,500     $ 9,727     $ 1,285,275  
      2018     $ 630,000       -     $ 157,499     $ 763,233       169,470     $ 9,508     $ 1,729,710  

 

(1) The dollar value of base salary (cash and non-cash) earned.

 

(2) The dollar value of bonus (cash and non-cash) earned.

 

(3) The value of all stock awarded during the periods covered by the table is calculated according to ASC 718-10-30-3 which represented the grant date fair value.

 

(4) The fair value of all stock options granted during the periods covered by the table are calculated on the grant date in accordance with ASC 718-10-30-3 which represented the grant date fair value.

 

(5) The dollar value of cash earned under the short-term incentive plan.

 

(6) All other compensation includes employer contributions to Mr. Reid’s 401(k) plan and the value of one gold and one silver round.

 

Employment Agreement

 

We have entered into an employment agreement with Jason Reid which will become effective after the Spin-Off. During the term of the agreement, we will pay Mr. Reid an annual salary of $500,000 as well as any increases approved by the Board of Directors during the term of the employment agreement.

 

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During the employment term, Mr. Reid will be entitled to receive any other benefits which are provided to our executive officers or other full-time employees in accordance with our policies and practices and subject to satisfaction of any applicable conditions of eligibility.

 

If Mr. Reid resigns within ninety (90) days of the occurrence of any of the following events: (i) a reduction in base salary (ii) a relocation (or demand for relocation) of Mr. Reid’s place of employment to a location more than ten (10) miles from his current place of employment, (iii) a significant and material reduction in Mr. Reid’s authority, job duties or level of responsibility or the imposition of significant and material limitations on the Mr. Reid’s autonomy in his position, or (iv) a Change in Control, then the employment agreement will be terminated and Mr. Reid will be entitled to receive a lump-sum payment from us equal to 24 months’ base salary plus other cash bonuses paid in the preceding 24 months and the unvested portion of any stock options or stock awards shall immediately vest. For purposes of the employment agreement a change in the control means: (1) our merger with another entity if after such merger our shareholders do not own at least 50% of voting capital stock of the surviving corporation; (2) the sale of 40% or more of our assets during any twelve-month period; (3) the acquisition by any person of more than 50% of our common stock; or (4) a change in a majority of our directors which has not been approved by the incumbent directors.

 

The employment agreement will also terminate upon the willful misconduct, an act of fraud against us, or a breach of the employment agreement by Mr. Reid, or his death in which case he will be paid the salary provided by the employment agreement through the date of termination.

 

Equity Incentive Plan

 

Our Board of Directors has adopted the 2020 Equity Incentive Plan (the “Plan”) that reserves five million shares of common stock for issuance to plan participants in the form of incentive and non-qualified stock options, stock appreciation rights (“SARs”), and stock grants and units.   Each stock option awarded allows the holder to purchase one share of our common stock.

 

The Plan is administered by our Board of Directors (or any committee subsequently appointed by the Board) and is vested with the authority to interpret the provisions of the Plan and supervise the administration of the Plan. In addition, the Board is empowered to select those persons who will participate in the Plan, to determine the number of shares subject to each award and to determine when, and upon what conditions, awards granted under the Plan will vest, terminate, or otherwise be subject to forfeiture and cancellation. The terms and conditions of any awards issued, including the price of the shares underlying each award are governed by the provisions of the Plan and any agreements with the Plan participants.

 

Incentive Stock Options

 

All of our employees are eligible to be granted incentive stock options pursuant to the Plan. Options granted pursuant to the Plan terminate at such time as may be specified when the option is granted.

 

The exercise price of each option cannot be less than 100% of the fair market value of our common stock at the time of the granting of the option provided, however, if the optionee, at the time the option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of our stock, the purchase price of the option shall not be less than 110% of the fair market value of the stock at the time of the granting of the option.

 

The total fair market value of the shares of common stock (determined at the time of the grant of the option) for which any employee may be granted options which are first exercisable in any calendar year may not exceed $100,000.

 

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At the discretion of the Board of Directors, options granted pursuant to the Plan may include installment exercise terms for any option such that the option becomes fully exercisable in a series of cumulating portions. The Board may also accelerate the date upon which any option (or any part of any option) is first exercisable. However, no option, or any portion thereof may be exercisable until one year following the date of grant. In no event shall an option granted to an employee then owning more than 10% of our common stock be exercisable by its terms after the expiration of five years from the date of grant, nor shall any other option granted pursuant to the Plans be exercisable by its terms after the expiration of ten years from the date of grant.

 

Non-Qualified Stock Options

 

Our employees, directors and officers, and consultants or advisors are eligible to receive non-qualified stock options pursuant to the Plan, provided however that bona fide services must be rendered by such consultants or advisors and such services must not be in connection with a capital-raising transaction or promoting our common stock.

 

At the discretion of our Board of Directors options granted pursuant to the Plan may include installment exercise terms for any option such that the option becomes fully exercisable in a series of cumulating portions. The Board may also accelerate the date upon which any option (or any part of any option) is first exercisable.

 

Stock Appreciation Rights

 

SARs give the participant the right to receive the appreciation in value of one share of common stock of the Company. Appreciation is calculated as the excess of (i) the fair market value of a share of common stock on the date of exercise over (ii) the base value fixed by the Board on the grant date, which may not be less than the fair market value of a share of common stock on the grant date.  Payment for SARs shall be made in cash, stock, or a combination thereof.  SARs are exercisable at the time and subject to the restrictions and conditions as the Board approves, provided that no SAR may be exercised more than ten (10) years following the grant date.  

 

Restricted Stock  

 

A restricted stock award gives the participant the right to receive a specified number of shares of common stock at a purchase price determined by the Board (including and typically zero).  Restrictions limit the participant’s ability to transfer the stock and subject the stock to a substantial risk of forfeiture until specific conditions or goals are met.  The restrictions will lapse in accordance with a schedule or other conditions as determined by the Board, which might include the achievement of specified performance targets and/or continued employment of the participant until a specified date.  As a general rule, if a participant terminates employment when the restricted stock is subject to restrictions, the participant forfeits the unvested restricted stock.

 

Restricted Stock Units ("RSU")

 

An RSU award gives the participant the right to receive common stock, or a cash payment equal to the fair market value of common stock (determined as of a specified date), in the future, subject to restrictions and a risk of forfeiture.  The restrictions typically involve the achievement of specified performance targets and/or the continued employment or service of the participant until a specified date.  Participants holding restricted stock units have no rights as a shareholder with respect to the shares of stock subject to their restricted stock unit award prior to the issuance of such shares pursuant to the award.

 

Stock Grants

 

A stock grant award gives the participant the right to receive (or purchase at such price as determined by the Board) shares of stock, free of any vesting restrictions.  The purchase price, if any, for a stock grant award shall be payable in cash or in any other form of consideration acceptable to the Board.  A stock grant award may be granted or sold in respect of past services or other valid consideration, or in lieu of any cash compensation owed to a participant.

 

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Stock Units

 

A stock unit award gives the participant the right to receive shares of stock, or a cash payment equal to the fair market value of a designated number of shares, in the future, free of any vesting restrictions.  A stock unit award may be granted or sold in respect of past services or other valid consideration, or in lieu of any cash compensation owed to a participant

 

Other Information Regarding the Plan

 

In the discretion of the Board, any option granted pursuant to the Plan may include installment exercise terms such that the option becomes fully exercisable in a series of cumulating portions. The Board may also accelerate the date upon which any option (or any part of any options) is first exercisable. Any shares issued pursuant to the Plan and any options granted pursuant to the Plan or will be forfeited if the "vesting" schedule established by the Board administering the Plan at the time of the grant is not met. For this purpose, vesting means the period during which the employee must remain as our employee or the period of time a non-employee must provide services to us. At the time an employee ceases working for us (or at the time a non-employee ceases to perform services for us), any shares or options not fully vested will be forfeited and cancelled. At the discretion of the Board payment for the shares of common stock underlying options may be paid through the delivery of shares of our common stock having an aggregate fair market value equal to the option price, provided such shares have been owned by the option holder for at least one year prior to such exercise. The exercise may be made through a "cashless" exercise or a combination of cash and shares of common stock at the discretion of the Board.

 

Awards are generally non-transferable except upon death of the recipient. Shares issued pursuant to the Plan will generally not be transferable until the person receiving the shares satisfies the vesting requirements imposed by the Board when the shares were issued.

 

Our Board of Directors may at any time, and from time to time, amend, terminate, or suspend one or more of the Plans in any manner it deems appropriate, provided that such amendment, termination or suspension will not adversely affect rights or obligations with respect to shares or options previously granted

 

As of the date of this prospectus, we have zero awards outstanding pursuant to this Plan.

 

PRINCIPAL SHAREHOLDERS

 

The following table provides information with respect to the expected beneficial ownership of our Common Stock, following the distribution of our shares in connection with the Spin-Off, (i) each person or entity that we believe, based on the assumptions described below, will be a beneficial owner of more than 5% of our outstanding Common Stock following the Spin-Off, (ii) each person who we expect will serve as a director following the Spin-Off and each named executive officer and (iii) all our expected directors and executive officers following the Spin-Off as a group.  We based the share amounts on (i) an estimated 20,000,000 shares of our common stock (subject to change prior to the effective date) being issued, (ii) each person or entity’s beneficial ownership of GRC common stock as of the date of this prospectus. The actual number of shares of our common stock outstanding following the Spin-Off will depend on the actual number of shares of GRC common stock outstanding on the Record Date.

 

To the extent our directors and officers own GRC common stock at the time of the Spin-Off, they will participate in the Spin-Off on the same terms as other shareholders of GRC stock. Each owner has sole voting and investment power over their shares of common stock.

 

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Name and Address of Beneficial Owner   Shares Owned     Percent of
Outstanding
Shares
 
Jason Reid
2886 Carriage Manor Point
Colorado Springs, CO 80906
    345,507 (1)     1.73 %
Bill M. Conrad
2886 Carriage Manor Point
Colorado Springs, CO 80906
    64,312       0.32 %
BlackRock Inc.
55 East 52nd St.
New York, NY 10055
    1,109,848       5.55 %
All officers and directors as a group (2 persons)     409,819       2.05 %

 

(1) Includes 153,373 shares owned indirectly by the reporting person.

 

Shares received by the foregoing persons as a result of the Spin-Off are considered “control securities.” In general, under Rule 144 as currently in effect, a person who beneficially owns control securities may not sell within any three-month period a number of shares in excess of the greater of: (i) 1% of the then outstanding shares of our common stock; or (ii) the average weekly reported trading volume in our common stock during the four calendar weeks preceding the sale. Sales under Rule 144 by the foregoing persons will also be subject to restrictions relating to manner of sale, notice and the availability of current public information about us and may only be made through unsolicited brokers’ transactions.

 

THE SPIN-OFF

 

On October 5, 2020, GRC announced its intention to spin-off its wholly owned subsidiary GRCN to its shareholders as a separate, publicly traded company named Fortitude Gold Corporation (“FGC”). The Spin-Off is subject to certain customary conditions, including the approval of Fortitude’s registration statement filed with the Securities and Exchange Commission and final approval by the Company’s Board of Directors and is targeted to be completed by year-end 2020 or the first quarter of 2021. The potential benefits and the reasons GRC pursued the Spin-Off include, but are not limited to the following:

 

· Allows GRCN to operate as a stand-alone company to employ a separate business strategy to maximize shareholder value.
     
· Allocation of capital and cashflow in a more efficient and effective manner for a business strategy targeting future dividends and potential market valuations based on yield.
     
· Unlock a value premium for GRCN through recognition of its operating location in one of the world’s premier mining jurisdictions.
     
· Optimize capital structure for specific business strategy.
     
· Allow GRCN to focus on open-pit, heap leach operations in Nevada

 

A total of approximately 20,000,000 shares of our common stock (subject to change prior to the effective date) will be distributed pro rata to the shareholders of Gold Resource Corporation (GRC) as a result of the Spin-Off. You will receive [___] shares of FGC for each share of GRC owned as of the record date. The shares to be distributed will represent 100% of our outstanding shares of common shares. Fractional shares of common stock will be distributed in connection with the Spin-Off.

 

No shareholder of GRC will be required to make any payment, exchange any shares or to take any other action in order to receive our shares.

 

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The record date for the distribution of our shares is [______], 2020. After the record date, GRC’s shares will trade "ex-dividend,” meaning that persons who buy GRC’s common shares after the ex-dividend date are not entitled to participate in the distribution.

 

All of our common stock will be delivered to Computershare, GRC’s transfer agent, on the record date. The distribution of our shares to the shareholders of GRC will be within 10 days following the record date. If you hold your GRC common shares in a brokerage account, your shares of our common stock will be credited to that account. If you hold GRC shares in a certificated form or in “book entry form” (shareholder does not receive a certificate, rather, their broker keeps a record of the owned security in their books), your shares will be held by Computershare in book entry form. While in book entry form your shares can be transferred electronically to your broker. You can also request Computershare to issue you a certificate for your shares.

 

Market for our Common Stock

 

There is currently no public market for our common stock. We do not expect a market for our common shares to develop until after the Spin-Off. Initially, our shares will not qualify for trading on any national or regional stock exchange or on the Nasdaq Stock Market. We will attempt to have one or more brokers agree to serve as market-makers and quote our shares on the over-the-counter market maintained by the OTC Market Group. However, we have no present agreement, arrangement or understanding with any broker to serve as a market-maker for our common shares. Eventually, we may apply for listing of our common stock on the NYSE American or Nasdaq. If a public trading market develops for our common stock, of which there can be no assurance, we cannot ensure that an active trading market will be available to you. Many factors will influence the market price of our common stock, including the depth and liquidity of the market which develops, investor perception of our business and growth prospects and general market conditions.

 

Tax Consequences of the Spin-Off

 

In connection with the Spin-Off, we expect that:

 

· no gain or loss will be recognized by, or be includible in the income of, a U.S. Holder as a result of the Spin-Off;

 

· the aggregate tax basis of the GRC common stock and our common stock held by each U.S. Holder immediately after the Spin-Off will be the same as the aggregate tax basis of the GRC common stock held by the U.S. Holder immediately before the Spin-Off, allocated between GRC common stock and our common stock in proportion to their relative fair market values on the date of the Spin-Off; and

 

· the holding period of our common stock received by each U.S. Holder will include the holding period of their GRC common stock, provided that such GRC common stock is held as a capital asset on the date of the Spin-Off.

 

U.S. Holders that have acquired different blocks of GRC common stock at different times or at different prices should consult their tax advisors regarding the allocation of their aggregate adjusted tax basis among, and the holding period of, shares of our common stock distributed with respect to such blocks of GRC common stock.

 

The foregoing does not address any U.S. state or local or foreign tax consequences of the Spin-Off.

 

We have not requested and do not intend to request a ruling from the Internal Revenue Service or an opinion of tax counsel that the distribution will qualify as a tax-free spin-off under the U.S. tax laws. As a result, the foregoing is not binding on the Internal Revenue Service or the courts, and we cannot assure you that the IRS or a court will not take a contrary position.

 

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If the Spin-Off was determined not to qualify for non-recognition of gain and loss, the above consequences would not apply and U.S. Holders could be subject to tax. In this case, each U.S. Holder who receives our common stock in the Spin-Off would generally be treated as receiving a distribution in an amount equal to the fair market value of our common stock received, which would generally result in:

 

· a taxable dividend to the U.S. Holder to the extent of that U.S. Holder’s pro rata share of GRC’s current and accumulated earnings and profits; and

 

· a reduction in the U.S. Holder’s basis (but not below zero) in the holder’s GRC common stock to the extent the amount received exceeds the holder’s share of GRC’s earnings and profits.

 

RELATIONSHIP WITH GOLD RESOURCE CORPORATION AFTER THE SPIN-OFF

 

Following the Spin-Off, the Company and GRC will operate separately, with each as an independent public company. Prior to the Spin-Off, the Company will enter into a separation agreement with GRC, which is referred to in this prospectus as the “Separation Agreement.” The Separation Agreement will provide for the allocation between the Company and GRC of the assets, employees, liabilities and obligations (including investments, property and employee benefits and tax-related assets and liabilities) of the Company and its subsidiaries attributable to periods prior to, at and after the Spin-Off and will govern the relationship between the Company and GRC subsequent to the completion of the Spin-Off. The Company will also enter into a Management Services Agreement with GRC which is described below.

 

Separation Agreement

 

Transfer of Assets and Assumption of Liabilities

 

The Separation Agreement will identify any assets to be transferred, the liabilities to be assumed and the contracts to be assigned to each of the Company and GRC as part of the separation of GRC into two companies, and will provide for when and how these transfers, assumptions and assignments will occur.

 

The Separation Agreement will also provide for the allocation between the parties of rights and obligations under existing insurance policies with respect to occurrences prior to the distribution date and will set forth procedures for the administration of insured claims and certain other insurance matters.

 

Claims

 

In general, each party to the separation agreement will assume liability for all pending, threatened and unasserted legal matters related to its own business or its assumed or retained liabilities and will indemnify the other party for any liability to the extent arising out of or resulting from such assumed or retained legal matters.

 

Other Matters

 

Other matters governed by the Separation Agreement will include each party's access to the financial and other information of the other party, confidentiality, provision of records and treatment of outstanding guarantees and similar credit arrangements.

 

Termination

 

The Separation Agreement will provide that it may be terminated, and the Spin-Off may be modified or abandoned, at any time prior to the Spin-Off in the sole discretion of the directors of GRC. In the event of a termination of the Separation Agreement, no party, nor any of its directors, officers, or employees, will have any liability of any kind to the other party or any other person. After the Spin-Off, the Separation Agreement may not be terminated, except by an agreement in writing signed by both parties.

 

37

 

Management Services Agreement

 

The Company and GRC will enter into a management services agreement prior to the Spin-Off pursuant to which GRC and its subsidiaries will provide certain services to the Company. The agreed upon charges for services rendered are based on market rates that align with the rates that an unaffiliated service provider would charge for similar services.

 

Historically, GRC and its subsidiaries have provided key services to us, including services related to technical services, treasury, accounting, procurement, legal services, information technology, among other services. Under the management services agreement, GRC will continue to provide us with certain of these key services.

 

DESCRIPTION OF SECURITIES

 

Common Stock

 

We are authorized to issue 200,000,000 shares of common stock. Holders of our common stock are each entitled to cast one vote for each share held of record on all matters presented to the shareholders. Cumulative voting is not allowed; hence, the holders of a majority of our outstanding common shares can elect all directors.

 

Holders of our common stock are entitled to receive such dividends as may be declared by our Board of Directors out of funds legally available and, in the event of liquidation, to share pro rata in any distribution of our assets after payment of liabilities. Our Board of Directors is not obligated to declare a dividend. It is not anticipated that dividends will be paid in the foreseeable future.

 

Holders of our common stock do not have preemptive rights to subscribe to additional shares if issued. There are no conversion, redemption, sinking fund or similar provisions regarding the common stock. All outstanding shares of common stock are fully paid and non-assessable.

 

Preferred Stock

 

We are authorized to issue 20,000,000 shares of preferred stock. Shares of preferred stock may be issued from time to time in one or more series as may be determined by our Board of Directors. The voting powers and preferences, the relative rights of each such series and the qualifications, limitations and restrictions of each series will be established by the Board of Directors. Our directors may issue preferred stock with multiple votes per share and dividend rights which would have priority over any dividends paid with respect to the holders of our common stock. The issuance of preferred stock with these rights may make the removal of management difficult even if the removal would be considered beneficial to shareholders generally, and will have the effect of limiting shareholder participation in transactions such as mergers or tender offers if these transactions are not favored by our management. As of the date of this prospectus, we had not issued any shares of preferred stock.

 

Shareholder Rights Agreement

 

The following pertains to what is commonly called a "Poison Pill."

 

On October 15, 2020, we declared a dividend of one Series A Right and one Series B Right, or collectively the Rights, for each share of our common stock which was outstanding on October 15, 2020. When the Rights become exercisable, each Series A Right will entitle the registered holder, subject to the terms of a Rights Agreement, to purchase from us one share of our common stock at a price equal to 20% of the market price of our common stock on the exercise date, although the price may be adjusted pursuant to the terms of the Rights Agreement. If after a person or group of affiliated persons has acquired 15% or more of our common stock or following the commencement of a tender offer for 15% or more of our outstanding common stock (i) we are acquired in a merger or other business combination and we are not the surviving corporation, (ii) any person consolidates or merges with us and all or part of our common shares are converted or exchanged for securities, cash or property of any other person, or (iii) 50% or more of our consolidated assets or earning power are sold, proper provision will be made so that each holder of a Series B Right will thereafter have the right to receive, upon payment of the exercise price of $100 (subject to adjustment), that number of shares of common stock of the acquiring company which at the time of such transaction has a market value that is twice the exercise price of the Series B Right.

 

38

 

 

The description and terms of the Rights are set forth in a Rights Agreement between the Company and Computershare Trust Company, N.A., as Rights Agent.

 

Distribution of Rights

 

Initially, shareholders will not receive separate certificates for the Rights as the Rights will be represented by outstanding common stock certificates. Until the exercise date, the Rights cannot be bought, sold, or otherwise traded separately from the common stock. Certificates for common stock carry a notation that indicates that Rights are attached to the common stock and incorporate the terms of the Rights Agreement.

 

Separate certificates representing the Rights will be distributed as soon as practicable after the earliest to occur of:

 

· 15 business days following a public announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of our outstanding common stock, or
     
· 15 business days (or such later date as may be determined by action of our board of directors prior to such time as any person or group of affiliated persons has acquired 15% or more of our common stock) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of our outstanding common stock.

 

The earlier of such dates described above is called the “distribution date.”

 

Until the distribution date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for common stock outstanding as of the record date, even without such notation, will also constitute the transfer of the Rights associated with the common stock represented by such certificate. As soon as practicable following the distribution date, separate certificates evidencing the Rights will be mailed to holders of record of the common stock as of the close of business on the distribution date and such separate right certificates alone will evidence the Rights.

 

Exercise and Expiration

 

The holders of the Rights are not required to take any action until the Rights become exercisable. The Rights are not exercisable until the distribution date. Holders of the Rights will be notified by us that the Rights have become exercisable. The Rights will expire on October 15, 2025, unless the expiration date is extended or unless the Rights are earlier redeemed by us as described below.

 

As of the date of this prospectus no certificates representing the right have been distributed.

 

Redemption

 

At any time prior to the distribution date, our board of directors may redeem the Rights in whole, but not in part, at a price of $0.0001 per Right. Subject to the foregoing, the redemption of the Rights may be made effective at such time, on such basis and with such conditions as our board of directors in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only entitlement of the holders of Rights will be to receive the redemption price.

 

39

 

 

Exchange Option

 

At any time after a person or group of affiliated persons has acquired 15% or more of our common stock or following the commencement of a tender offer for 15% or more of our outstanding common stock, and prior to the acquisition by such person of 50% or more of the outstanding common stock, our board of directors may exchange the Rights (other than Rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one share of common stock per Right (subject to adjustment).

 

Other Provisions

 

The terms of the Rights may be amended by our board of directors without the consent of the holders of the Rights, except that from and after such time a person or group of affiliated persons has acquired 15% or more of our common stock no such amendment may adversely affect the interests of the holders of the Rights.

 

Until a Right is exercised, the holder of the Right, as such, will not have any rights as a shareholder, including, without limitation, the right to vote or to receive dividends.

 

The Rights may have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our board of directors. However, the Rights should not interfere with any merger or other business combination approved by a majority of our board of directors because the Rights may be redeemed by us at any time prior to the distribution date. Thus, the Rights are intended to encourage persons who may seek to acquire control of us to initiate such an acquisition through negotiations with our board of directors. However, the effect of the Rights may be to discourage a third party from making a partial tender offer or otherwise attempting to obtain a substantial position in the equity securities of, or seeking to obtain control of, us. To the extent any potential acquisition is deterred by the Rights, the Rights may have the effect of preserving incumbent management in office.

 

Transfer Agent

 

Computershare

8742 Lucent Boulevard, Suite 225

Highlands Ranch, CO 80129

Phone: (303) 262-0625

 

LEGAL MATTERS

 

Hart and Hart, LLC, of Denver, Colorado, has passed upon the validity of our common stock to be distributed by GRC.

 

EXPERTS

 

The financial statements of GRC Nevada Inc. as of December 31, 2019 and 2018 and for the years then ended have been audited by Plante & Moran, PLLC, independent registered public accounting firm, as set forth in their report which is incorporated herein. Such financial statements have been incorporated herein in reliance on the report of such firm given upon their authority as experts in accounting and auditing.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC a Registration Statement on Form S-1 (together with all amendments and exhibits) under the Securities Act, as amended, with respect to the securities offered by this prospectus. This prospectus does not contain all of the information in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Securities and Exchange Commission. For further information, reference is made to the Registration Statement which may be read and copied at the Commission’s Public Reference Room.

 

40

 

 

The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Public Reference Room is located at 100 F. Street, N.E., Washington, D.C. 20549.

 

Our Registration Statement is also available at www.sec.gov, the website of the Securities and Exchange Commission.

 

GLOSSARY

 

The following terms used in this prospectus have the following meanings:

 

ADR An adsorption, desorption, and refining (“ADR”) facility which recovers gold from the leached pregnant solution.

 

Dore: Composite gold and silver bullion usually consisting of approximately 90% precious metals that will be further refined to separate pure metals.

 

Epithermal: Used to describe gold deposits found on or just below the surface close to vents or volcanoes, formed at low temperature and pressure.

 

Exploration: Prospecting, sampling, mapping, diamond-drilling and other work involved in locating the presence of economic deposits and establishing their nature, shape, and grade.

 

Grade: The concentration of an element of interest expressed as relative mass units (percentage, ounces per ton, grams per tonne (“g/t”), etc.).

 

Heap Leaching: Consists of stacking crushed or run-of-mine ore on impermeable pads, where a weak cyanide solution is applied to the surface of the heap to dissolve the gold.  The gold-bearing solution is then collected and pumped to process facilities to remove the gold by collection on carbon.

  

Net Smelter Return (“NSR”): The net revenue that the owner of a mining property receives from the sale of the mine's metal products less transportation and refining costs. As a royalty it refers to the fraction of net smelter return that a mine operator is obligated to pay the owner of the royalty agreement.

  

Mineral Deposit: Rocks that contain economic amounts of minerals in them and that are expected to be profitably mined.

 

Patented Claim: A mining claim for which the U.S. Federal Government has passed its title to the claimant, making it private land.  A person may mine and remove minerals from a mining claim without a mineral patent. However, a mineral patent gives the owner exclusive title to the locatable minerals and in most cases, grants title to the surface.
     
  Run-Off Mine ore: Common lower grade ore in the deposit that does not warrant crushing.

 

Ton: One ton equals 2,000 pounds.

 

Tonne: One tonne equals 2,204.62 pounds. 

 

Unpatented Claim: A particular parcel of U.S. Federal land, valuable or believed to be valuable for a specific mineral deposit or deposits. It is a parcel for which an individual has asserted a right of possession. The right is restricted to the extraction and development of a mineral deposit

 

41

 

 

 

 

FINANCIAL STATEMENTS

 

Fortitude Gold Corporation (the "Company") was formed as a Colorado Corporation on August 11, 2020. On August 18, 2020 GRC transferred all of the issued and outstanding shares of GRC Nevada Inc. (“GRCN”) to the Company. GRCN owns all of GRC’s former Nevada properties, including the Isabella Pearl project.

 

Since the Company's inception, the Company, as a stand-alone entity, has not had any operations or a material transactions. As a result, the Company's financial statements have been omitted from this prospectus.

 

The financial statements for GRC Nevada Inc. as of December 31, 2019 and 2018 (audited) and the six months ended June 30, 2020 (unaudited) follow.

 

F-1

 

 

AUDITED FINANCIAL STATEMENTS

 

TABLE OF CONTENTS

 

  Page
Index to Audited Financial Statements:  
     
  Report of Independent Registered Public Accounting Firm F-3
  Consolidated Balance Sheets at December 31, 2019 and 2018 F-4
  Consolidated Statements of Operations for the years ended December 31, 2019 and 2018 F-5
  Consolidated Statements of Changes in Shareholder’s Equity for the years ended December 31, 2019 and 2018 F-6
  Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018 F-7
  Notes to Consolidated Financial Statements F-8

 

F-2

 

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholder and Board of Directors of GRC Nevada Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of GRC Nevada Inc. (the “Company”) as of December 31, 2019 and 2018, the related statements of operations, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Adoption of New Accounting Standards

 

As discussed in Note 12 to the consolidated financial statements, the Company has changed its method for accounting for leases in 2019 due to the adoption of the new lease standard. The Company adopted the new lease standard using a modified retrospective approach.

 

Basis for Opinion

 

The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
 

/s/ Plante & Moran, PLLC

 

We have served as the Company’s auditor since 2017.

 

Denver, Colorado

 

June 23, 2020

 

F-3

 

 

GRC NEVADA INC.

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands, except share and per share amounts)

 

    December 31,     December 31,  
    2019     2018  
ASSETS                
Current assets:                
Cash and cash equivalents   $ 866     $ 70  
Inventories     10,624       721  
Prepaid expenses and other current assets     319       507  
Total current assets     11,809       1,298  
Property, plant and mine development, net     60,017       45,243  
Operating lease assets, net     7,125       -  
Other non-current assets     4,985       319  
Total assets   $ 83,936     $ 46,860  
LIABILITIES AND SHAREHOLDER'S EQUITY                
Current liabilities:                
Accounts payable   $ 5,406     $ 3,393  
Loans payable, current     879       765  
Finance lease liabilities, current     438       404  
Operating lease liabilities, current     7,125       -  
Other current liabilities     443       13  
Total current liabilities     14,291       4,575  
Reclamation and remediation liabilities     2,497       796  
Loans payable, long-term     782       1,378  
Finance lease liabilities, long-term     426       814  
Total liabilities     17,996       7,563  
Shareholder's equity:                
  Common stock - $0.001 par value, 10,000 shares authorized and outstanding at December 31, 2019 and 2018     -       -  
Additional paid-in capital     78,083       48,448  
Accumulated deficit     (12,143 )     (9,151 )
Total shareholder's equity     65,940       39,297  
Total liabilities and shareholder's equity   $ 83,936     $ 46,860  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4

 

 

GRC NEVADA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

for the years ended December 31, 2019 and 2018

(U.S. dollars in thousands, except share and per share amounts)

 

    2019     2018  
Sales, net   $ 15,065     $ -  
Mine cost of sales:                
Production costs     10,664       -  
Depreciation and amortization     3,884       -  
Reclamation and remediation     34       -  
Total mine cost of sales     14,582       -  
Mine gross profit     483       -  
Costs and expenses:                
General and administrative expenses     2,375       2,271  
Exploration expenses     932       2,315  
Other expense, net     168       177  
Total costs and expenses     3,475       4,763  
Loss before income taxes     (2,992 )     (4,763 )
Provision for income taxes     -       -  
Net loss   $ (2,992 )   $ (4,763 )
Net loss per common share:                
Basic and diluted   $ (299 )   $ (476 )
Weighted average shares outstanding:                
Basic and diluted     10,000       10,000  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5

 

 

GRC NEVADA INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY

for the years ended December 31, 2019 and 2018

(U.S. dollars in thousands, except share amounts)

 

    Number of
Common
Shares
    Par Value of
Common
Shares
    Additional Paid-
in Capital
    Accumulated Deficit     Total
Shareholders’
Equity
 
Balance, December 31, 2017     10,000     $ -     $ 26,048     $ (4,388 )   $ 21,660  
Capital contributions     -       -       22,400       -       22,400  
Net loss     -       -       -       (4,763 )     (4,763 )
Balance, December 31, 2018     10,000     $ -     $ 48,448     $ (9,151 )   $ 39,297  
Capital contributions     -       -       29,635       -       29,635  
Net loss     -       -       -       (2,992 )     (2,992 )
Balance, December 31, 2019     10,000     $ -     $ 78,083     $ (12,143 )   $ 65,940  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-6

 

 

 

GRC NEVADA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

for the years ended December 31, 2019 and 2018

(U.S. dollars in thousands)

 

    2019     2018  
Cash flows from operating activities:                
Net loss   $ (2,992 )   $ (4,763 )
Adjustments to reconcile net loss to net cash from operating activities:                
Depreciation and amortization     4,022       78  
Other operating adjustments     18       -  
Changes in operating assets and liabilities:                
Inventories     (6,490 )     (721 )
Prepaid expenses and other current assets     346       (192 )
Other non-current assets     (3,600 )     130  
Accounts payable and other accrued liabilities     3,617       126  
Net cash used in operating activities     (5,079 )     (5,342 )
                 
Cash flows from investing activities:                
Capital expenditures     (22,538 )     (16,028 )
Net cash used in investing activities     (22,538 )     (16,028 )
                 
Cash flows from financing activities:                
Contributions from GRC     29,635       22,391  
Repayment of loans payable     (812 )     (596 )
Repayment of capital leases     (410 )     (382 )
Net cash provided by financing activities     28,413       21,413  
                 
Net increase in cash and cash equivalents     796       43  
Cash and cash equivalents at beginning of period     70       27  
Cash and cash equivalents at end of period   $ 866     $ 70  
                 
Supplemental Cash Flow Information                
Interest expense paid   $ 139     $ 167  
Income and mining taxes paid   $ -     $ -  
Non-cash investing activities:                
Change in capital expenditures in accounts payable   $ (1,174 )   $ (2,865 )
Change in estimate for asset retirement costs   $ 1,726     $ 703  
Equipment contributed from GRC   $ -     $ 9  
Equipment purchased through loan payable   $ 330     $ 526  
Equipment purchased under finance leases   $ 56     $ -  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-7

 

 

GRC NEVADA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 31, 2019 and 2018

 

1. Nature of Operations and Summary of Significant Accounting Policies

 

Nature of Operations

 

GRC Nevada Inc. (the “Company”) was organized under the laws of the State of Nevada on February 7, 2014 as a wholly owned subsidiary of Gold Resource Corporation (“GRC” or “Parent”). The Company is a producer of doré containing gold and silver from its Isabella Pearl open-pit mine and performs exploration work on its portfolio of precious metal properties in Nevada, United States of America and continues to evaluate other properties for possible acquisition. The Isabella Pearl open-pit mine commenced production in 2019.

 

Significant Accounting Policies

 

Basis of Presentation

 

These financial statements have been prepared on a “carve-out” basis. The accompanying statements include allocations of certain expenses for human resources, accounting, and other services, plus share-based compensation allocated from GRC. The expense allocations have been determined on basis that the Company and its Parent consider to be reasonable reflections of the utilization of services or the benefits provided. In addition, the assets and liabilities include only those assigned to the carve-out entities. The allocations and related estimates and assumptions are described more fully in Note 2, Related Party Transactions.

 

The carve-out financial statements included herein are expressed in United States dollars, and conform to United States generally accepted accounting principles (“U.S. GAAP”). The carve-out financial statements include the accounts of the Company, its subsidiaries Walker Lane Minerals Corp. (“Walker Lane”), County Line Holdings, Inc., and County Line Minerals Corp. Intercompany accounts and transactions have been eliminated in consolidation.

 

Going Concern

 

The financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred a loss since inception resulting in an accumulated deficit of $12.1 million as of December 31, 2019 and further losses are anticipated in the development of its business.

 

The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with capital contributions from GRC and cash flows from operations. Based upon projected cash flows, management expects cash flows to be sufficient to meet future commitments and cash flow requirements for the coming year.

 

The accompanying consolidated financial statements do not contain any adjustment to reflect possible future effects on the classification of assets or the amounts and classification of liability that may result should the Company be unable to continue as going concern.

 

F-8

 

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount 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 periods. The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that are the basis for future cash flow estimates utilized in impairment calculations and units-of-production depreciation calculations; future metal prices; environmental remediation, reclamation and closure obligations; estimates of recoverable gold and other minerals in stockpile and leach pad inventories; estimates of fair value related to asset impairment assessments; write-downs of inventory, stockpiles and ore on leach pads to net realizable value; valuation allowances for deferred tax assets; provisional amounts related to income tax effects of newly enacted tax laws; and stock-based compensation. Management routinely makes judgments and estimates about the effects of matters that are inherently uncertain and bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of all cash balances and highly liquid investments with a remaining maturity of three months or less when purchased and are carried at cost.

 

Inventories

 

The major inventory categories are set forth below:

 

Stockpile Inventories: Stockpile inventories represent ore that has been mined and is available for further processing. Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, an estimate of the contained metals (based on assay data) and the estimated metallurgical recovery rates. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current mining costs incurred, including applicable overhead, depreciation and amortization relating to mining operations. Material is removed at each stockpile’s average cost per ounce. Stockpiles are carried at the lower of average cost or net realizable value. Net realizable value represents the estimated future sales price of the product based on current and long-term metals prices, less the estimated costs to complete production and bring the product to sale. The current portion of stockpiles is determined based on the expected amounts to be processed within the next 12 months. Stockpiles not expected to be processed within the next 12 months are classified as long-term. As of December 31, 2019, $0.7 million of stockpiles were classified as current and $4.7 million were classified as long-term. As of December 31, 2018, all stockpiles were classified as current.

 

Doré Inventory: Doré inventories includes gold and silver doré bars held at the Company’s facility. Doré inventories are carried at the lower of cost of production or net realizable value based on current metals prices.

 

Leach Pad: Ore on leach pad represents ore that has been mined and placed on the leach pad where a solution is applied to the surface of the heap to extract the gold or silver. Costs are added to ore on leach pads based on current mining costs, including applicable depreciation and amortization relating to mining operations. Costs are removed from ore on leach pads as ounces are recovered based on the average cost per estimated recoverable ounce of gold or silver on the leach pad.

 

Estimates of recoverable ore on the leach pad are calculated from the quantities of ore placed on the leach pad (measured tonnes added to the leach pad), the grade of ore placed on the leach pad (based on assay data) and a recovery

percentage (based on ore type).

 

Although the quantities of recoverable ore placed on the leach pad are reconciled by comparing the grades of ore placed on pads to the quantities of metal actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and estimates are refined based on actual results over time. Changes in assumptions and estimates are accounted for on a prospective basis.

 

Materials and Supplies Inventories: Materials and supplies inventories consist of chemical reagents, fuels, and other materials and supplies. Cost includes applicable taxes and freight. Materials and supplies inventory is carried at lower of average cost or net realizable value.

 

F-9

 

 

Write-downs of inventory are charged to expense.

 

Property, Plant and Mine Development

 

Land and Mineral Rights: The costs of acquiring land and mineral rights are considered tangible assets. Administrative and holding costs to maintain an exploration property are expensed as incurred. If a mineable mineral deposit is discovered, such capitalized costs are amortized when production begins using the units of production (“UOP”) method. If no mineable mineral deposit is discovered or such rights are otherwise determined to have diminished value, such costs are expensed in the period in which the determination is made.

 

Mine Development: The costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure. Costs incurred before mineralization is classified as proven and probable reserves are expensed and classified as exploration expenses. Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.

 

Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component of production costs. All other drilling and related costs are expensed as incurred.

 

Mine development costs are amortized using the UOP method based on estimated recoverable ounces in proven and probable reserves.

 

The cost of removing overburden and waste materials to access the ore body at an open pit mine prior to the production phase are referred to as “pre-stripping costs.” Pre-stripping costs are capitalized during the development of an open pit mine. Where multiple open pits exist at a mining complex utilizing common processing facilities, pre-stripping costs are capitalized at each pit. The removal, production, and sale of deminimis saleable materials may occur during the development phase of an open pit mine and are assigned incremental mining costs related to the removal of that material.

 

The production phase of an open pit mine commences when saleable minerals, beyond a de minimis amount, are produced. Stripping costs incurred during the production phase of a mine are variable production costs that are included as a component of inventory to be recognized in Costs applicable to sales in the same period as the revenue from the sale of inventory.

 

Property and Equipment: All items of property and equipment are carried at cost. Normal maintenance and repairs are expensed as incurred while expenditures for major maintenance and improvements are capitalized. Gains or losses on disposition are recognized in other (income) expense.

 

Construction in Progress: Expenditures for new facilities or equipment are capitalized and recorded at cost. Once completed and ready for its intended use, the asset is transferred to property and equipment to be depreciated or amortized.

 

F-10

 

 

Depreciation and Amortization: Capitalized costs are depreciated or amortized using the straight-line or UOP method at rates sufficient to depreciate such costs over the shorter of estimated productive lives of such assets or the useful life of the individual assets. The estimates for mineral reserves are a key component in determining the UOP depreciation rates. The estimates of reserves may change, possibly in the near term, resulting in changes to depreciation and amortization rates in future reporting periods. The following are the estimated economic lives of depreciable assets:

 

    Range of Lives
Asset retirement costs   UOP
Furniture, computer and office equipment   3 to 4 years
Light vehicles and other mobile equipment   4 years
Machinery and equipment   UOP to 4 years
Plant facilities, leach pad, and related infrastructure   UOP to 7 years
Mine development and mineral interests   UOP

 

Impairment of Long-Lived Assets

 

The Company evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Asset impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset. If an impairment is indicated, a determination is made whether an impairment has occurred and any impairment losses are measured as the excess of carrying value over the total discounted estimated future cash flows, or the application of an expected fair value technique in the absence of an observable market price and are charged to expense on the Company’s consolidated statements of operations. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups.

 

Existing reserves and other mineralized material are included when estimating the fair value in determining whether the assets are impaired. The Company’s estimates of future cash flows are based on numerous assumptions including expected gold and other commodity prices, production levels, capital requirements and estimated salvage values. It is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold and other commodity prices, production levels and costs and capital requirements are each subject to significant risks and uncertainties.

 

Fair Value of Financial Instruments

 

The recorded amounts of cash and cash equivalents, accounts payable, and loans payable approximate fair value because of the short maturity of those instruments. 

 

Revenue Recognition 

 

Doré sales are recognized upon the satisfaction of performance obligations, which occurs when control of the doré transfers to the customer and price and quantity are agreed upon. Transfer of control occurs once the customer takes possession of the doré. Doré sales are recorded using quoted metal prices, net of refining charges.

 

Production Costs

 

Production costs include labor and benefits, royalties, and doré shipping costs, mining subcontractors, fuel and lubricants, legal and professional fees related to mine operations, materials and supplies, repairs and maintenance, explosives, insurance, reagents, travel, medical services, security equipment, office rent, tools, and other costs that support mining operations.

 

Exploration Costs

 

Exploration costs are charged to expense as incurred. Costs to identify new mineral resources and to evaluate potential resources are considered exploration costs.

 

F-11

 

 

Reclamation and Remediation Costs

 

Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and remediation costs. Reclamation obligations are based in part on when the spending for an existing environmental disturbance will occur. The Company reviews, at least on an annual basis, the reclamation obligation.

 

Accounting for reclamation and remediation obligations requires management to make estimates unique to each mining operation of the future costs expected to be incurred to complete the reclamation and remediation work required to comply with existing laws and regulations. Actual costs incurred in future periods could differ from amounts estimated. Additionally, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required. Any such increases in future costs could materially impact the amounts charged to operations for reclamation and remediation.

 

Income Taxes

 

Income taxes are computed using the asset and liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes and the effect of net operating losses using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax assets are evaluated to determine if it is more likely than not that they will be realized. Please see Note 4 for additional information.

 

Earnings Per Share

 

Basic earnings per share is calculated based on the weighted average number of common shares outstanding for the period.  Diluted income per share reflects the dilution that could occur if potentially dilutive securities, as determined using the treasury stock method, are converted into common stock. Potentially dilutive securities are excluded from the calculation when their inclusion would be anti-dilutive, such as periods when a net loss is reported or when the exercise price of the instrument exceeds the average fair market value of the underlying common stock.

 

Concentration of Credit Risk

 

The Company has considered and assessed the credit risk resulting from its doré sales arrangements with its customers. In the event that the Company’s relationships with its customers are interrupted for any reason, the Company believes that it would be able to locate another entity to purchase its doré bars; however, any interruption could temporarily disrupt the Company’s sale of its products and adversely affect operating results.

 

The Isabella Pearl Mine in Nevada, U.S.A. accounted for 100% of the Company’s 2019 net sales with one customer accounting for all net sales.

 

Recently Adopted Accounting Pronouncements

 

Accounting Standards Update No. 2016-02—Leases (Topic 842). In February 2016, the Financial Accounting Standards Board (“FASB”) issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. Reporting entities are also required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified retrospective approach, with certain practical expedients available.

 

The Company adopted the standard effective January 1, 2019 and elected certain available practical expedients and implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

 

The standard had a material impact on the Company’s Consolidated Balance Sheets but did not have a material impact on its Consolidated Statements of Operations. The most significant impact was the recognition of ROU assets and the current and long-term components of lease liabilities for operating leases, while the Company’s accounting for finance leases remained substantially unchanged. See Note 12 for more information.

 

F-12

 

 

2. Related Party Transactions

 

GRC provides human resources, information technology, accounting, legal, technical, and other services to the Company. The Company obtains it business insurance under GRC. The accompanying financial statements include allocations of all of these expenses. The allocation method calculates the appropriate share of overhead cost to the Company by using time spent by GRC employees. The Company believes the allocation methodology used is reasonable, has been consistently applied, and results in an appropriate allocation of costs incurred. However, these allocations may not be indicative of the cost had the Company been a stand-alone entity or of future services. GRC allocated $2.4 million and $2.3 million for the years ended December 31, 2019 and 2018, respectively. These costs were treated as capital contributions from Parent in the accompanying financial statements. In addition, the Company also receives cash contributions from its Parent to help fund its operations and mine development, which are not expected to be repaid and are treated as capital contributions. For the years ended December 31, 2019 and 2018, the Company received total capital contributions from GRC of $29.6 million and $22.4 million, respectively, inclusive of allocated costs described above.

 

3. Revenue

 

The following table presents the Company’s net sales disaggregated by source:

 

    Year ended December 31,  
    2019     2018  
    (in thousands)  
Sales, net                
Gold doré sales   $ 15,084     $ -  
Less: Refining charges     (19 )     -  
Total sales, net   $ 15,065     $ -  

 

4. Inventories

 

At December 31, 2019 and 2018, current inventories consisted of the following:

 

    2019     2018  
    (in thousands)  
Stockpiles   $ 736     $ 345  
Leach pad     9,102       376  
Doré     742       -  
Subtotal - product inventories     10,580       721  
Materials and supplies     44       -  
Total   $ 10,624     $ 721  

 

In addition to the inventory above, as of December 31, 2019, the Company has $4.7 million of low-grade ore stockpile inventory included in other non-current assets on the accompanying Consolidated Balance Sheet.

 

During the year ended December 31, 2019, the Company recorded a net realizable value inventory adjustment of $2.9 million for inventories at its Isabella Pearl Mine.

 

F-13

 

 

5. Income Taxes

 

The Company files a consolidated U.S. income tax return. The Company does not file state income tax returns as all of its operations are in Nevada which does not have an income tax. For financial reporting purposes, net losses before income taxes is as follows:

 

    Years Ended December 31,  
    2019     2018  
    (in thousands)  
U.S. Operations   $ (2,992 )   $ (4,763 )
Total income before income taxes   $ (2,992 )   $ (4,763 )

 

The Company had no current or deferred income tax expense from continuing operations for the years ended December 31, 2019 and 2018 due to the losses generated in those years. At the federal level, the Company’s losses in the U.S. are taxed at 21%, while a 5% net proceeds of minerals tax applies to the Company’s operations in Nevada. No net proceeds tax was due in 2019 as the Company was in a loss position for purposes of the tax calculation.

 

The provision for income taxes for the years ended December 31, 2019 and 2018, differs from the amount of income tax determined by applying the applicable United States statutory federal income tax rate to pre-tax income from operations as a result of the following differences:

 

    Years Ended December 31,  
    2019     2018  
    (in thousands)  
Tax at statutory rates   $ (628 )   $ (1,000 )
Change in valuation allowance     656       997  
Other     (28 )     3  
Tax provision   $ -     $ -  

 

The following table sets forth deferred tax assets and liabilities:

 

    At December 31,  
    2019     2018  
    (in thousands)  
Non-current deferred tax assets:                
Tax loss carryforward - U.S.   $ 1,328     $ 1,629  
Property and equipment     214       -  
Inventory     521       -  
Total deferred tax assets     2,063       1,629  
Valuation allowance     (2,063 )     (1,407 )
Deferred tax assets after valuation allowance   $ -     $ 222  
                 
Deferred tax liability – Property and equipment     -       (222 )
                 
Net deferred tax asset   $ -     $ -  

 

Other Tax Disclosures

 

The Company evaluates the evidence available to determine whether a valuation allowance is required on the deferred tax assets. The Company determined that its deferred tax assets were not "more likely than not" to be realized as a result of net operating losses to date and thus a full valuation allowance was recorded as of December 31, 2019 and 2018.

 

F-14

 

 

 

At December 31, 2019, the Company has federal loss carryforwards of $1.3 million with no expiration date related to net operating losses.

 

As of both December 31, 2019 and 2018, the Company believes that it has no uncertain tax positions. If the Company were to determine there was an uncertain tax position, the Company would recognize the liability and related interest and penalties within income tax expense.

 

6. Prepaid Expenses and Other Current Assets

 

At December 31, 2019 and 2018, prepaid expenses and other current assets consisted of the following:

 

    2019     2018  
    (in thousands)  
Prepaid insurance   $ 132     $ 180  
Prepaid royalties     127       295  
Other current assets     60       32  
Total   $ 319     $ 507  

 

7. Property, Plant and Mine Development, net

 

At December 31, 2019 and 2018, property, plant and mine development consisted of the following:

 

    2019     2018  
    (in thousands)  
Asset retirement costs   $ 2,429     $ 703  
Construction-in-progress     9,545       21,679  
Furniture and office equipment     276       145  
Leach pad and ponds     5,649       -  
Land     13       13  
Light vehicles and other mobile equipment     432       403  
Machinery and equipment     14,048       3,832  
Mill facilities and infrastructure     7,555       761  
Mineral interests and mineral rights     18,228       17,958  
Mine development     11,049       -  
Software and licenses     65       65  
Subtotal (1) (2)     69,289       45,559  
Accumulated depreciation and amortization     (9,272 )     (276 )
Total   $ 60,017     $ 45,283  

 

 

(1) Includes $1.8 and $1.7 million of assets recorded under finance leases at December 31, 2019 and 2018, respectively. Please see Note 12 for additional information.
(2) Includes capital expenditures in accounts payable of $2.1 million and $3.3 at December 31, 2019 and 2018, respectively.

 

The Company recorded depreciation and amortization expense for the years ended December 31, 2019 and 2018 of $4.0 million and $0.1 million, respectively.

 

8. Other Current Liabilities

 

At December 31, 2019 and 2018, other current liabilities consisted of the following:

 

    2019     2018  
    (in thousands)  
Sales and use tax payable   $ 317     $ 13  
Accrued royalty payments     126       -  
Total   $ 443     $ 13  

 

F-15

 

 

9. Reclamation and Remediation

 

The following table presents the changes in the Company’s reclamation and remediation obligations for the years ended December 31, 2019 and 2018:

 

    2019     2018  
    (in thousands)  
Reclamation liabilities – balance at beginning of period   $ 93     $ 93  
Changes in estimate     (82 )     -  
Reclamation liabilities – balance at end of period     11       93  
                 
Asset retirement obligation – balance at beginning of period     703       -  
Changes in estimate     1,726       703  
Accretion     57       -  
Asset retirement obligation – balance at end of period     2,486       703  
Total period end balance   $ 2,497     $ 796  

 

The Company’s undiscounted reclamation liabilities are related to exploration properties in Nevada.

 

The Company’s asset retirement obligation was discounted using a credit adjusted risk-free rate of 8%.  As of December 31, 2019 and 2018, the Company recorded an asset retirement obligation of $2.5 million and $0.8 million, respectively, related to the Isabella Pearl project.

 

10. Loans Payable

 

The Company has financed certain equipment purchases.  The loans bear annual interest at rates ranging from 3% to 4.48%, are collateralized by the equipment, and require monthly principal and interest payments of $0.07 million.  As of December 31, 2019, there is an outstanding balance of $1.7 million which approximates fair value of the loans.  Scheduled minimum repayments are $0.9 million in 2020, $0.7 million in 2021, and $0.1 million in 2022. One of the loan agreements is subject to a prepayment penalty of 1% of the outstanding loan balance at time of full repayment. 

 

11. Commitments and Contingencies

 

The Company has a Contract Mining Agreement with a mining contractor relating to mining activities at its Isabella Pearl project.  Included in this Agreement is an embedded lease for the mining equipment for which the Company has recognized a right-of-use asset and corresponding operating lease liability. Please see Note 12 for more information.   In addition to the embedded lease payments, the Company pays the contract miner operational costs in the normal course of business.   These costs represent the remaining future contractual payments for the Contract Mining Agreement over its term.  The contractual payments are determined by rates within the Contract Mining Agreement, estimated tonnes moved and bank cubic yards for drilling and blasting.  As of December 31, 2019, total estimated contractual payments remaining, excluding embedded lease payments, are $8.1 million for the year ended December 31, 2020.

 

12. Leases

 

Operating Leases

 

As discussed in Note 1 to the consolidated financial statements (see "Recently Adopted Accounting Pronouncements"), the Company adopted the new lease accounting standard on January 1, 2019.  Upon adoption, the Company recognized operating lease assets and corresponding operating lease liabilities totaling $13.7 million.  The Company’s finance leases did not change from December 31, 2018.

 

F-16

 

 

Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases as incurred over the lease term.  For leases beginning in 2019 and later, the Company accounts for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the non-lease components (e.g., common-area maintenance costs).

 

The depreciable life of assets are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.  The weighted average remaining lease term for the Company’s operating leases as of December 31, 2019 is 0.83 years.

 

The discount rate implicit within the Company’s leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for the Company’s leases is determined based on the lease term adjusted for impacts of collateral. The weighted average discount rate used to measure the Company’s operating lease liabilities as of December 31, 2019 was 4.48%.

 

There are no material residual value guarantees and no restrictions or covenants imposed by the Company’s leases.

 

The Company has an embedded lease in its Contract Mining Agreement.  The Company’s lease payments for its mining equipment embedded lease are determined by tonnage hauled.  This embedded lease is within a Contract Mining Agreement entered into for the mining activities at the Company’s Isabella Pearl Mine.  The payments, amortization of the right-of-use asset, and interest vary immaterially from forecasted amounts due to variable conditions at the mine. During the year ended December 31, 2019, the Company capitalized variable lease costs of $2.4 million to Inventory and $4.7 million to Property, plant, and mine development, respectively.  

 

Maturities of operating lease liabilities as of December 31, 2019 are as follows (in thousands)

 

Year Ending December 31:      
2020   $ 7,257  
2021     -  
2022     -  
2023     -  
Thereafter     -  
Total lease payments     7,257  
Less imputed interest     (132 )
Present value of minimum payments     7,125  
Less: current portion     (7,125 )
Long-term portion of minimum payments   $ -  

 

Future minimum lease payments, including both the future minimum lease payments and the other non-lease element payments for the Contract Mining Agreement, as of December 31, 2018 are as follows (in thousands):

 

Year Ending December 31:      
2019   $ 16,151  
2020     14,765  
2021     -  
2022     -  
Thereafter     -  
Total lease payments   $ 30,916  

 

F-17

 

 

Finance Leases

 

The Company has finance lease agreements for certain equipment.  The leases bear annual imputed interest of 4.48% to 5.95% and require monthly principal, interest, and sales tax payments of $0.04 million.  The weighted average discount rate for the Company’s finance leases is 5.86%.  Scheduled minimum annual payments as of December 31, 2019 are as follows (in thousands):

 

Year Ending December 31:      
2020   $ 474  
2021     410  
2022     13  
2023     13  
Thereafter     3  
Total minimum obligations     913  
Less: interest portion     (49 )
Present value of minimum payments     864  
Less: current portion     (438 )
Long-term portion of minimum payments   $ 426  

 

 

Scheduled minimum annual payments as of December 31, 2018 were as follows (in thousands):

 

Year Ending December 31:      
2019   $ 461  
2020     461  
2021     398  
2022     -  
Thereafter     -  
Total minimum obligations     1,320  
Less: interest portion     (102 )
Present value of minimum payments     1,218  
Less: current portion     (404 )
Long-term portion of minimum payments   $ 814  

 

The weighted average remaining lease term for the Company’s finance leases as of December 31, 2019 is 2.01 years.

 

Supplemental cash flow information related to the Company’s operating and finance leases is as follows for the year ended December 31, 2019:

 

    Year ended
December 31,
 
    2019  
      (in thousands)  
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flows from operating leases   $ 2,378  
Operating cash flows from finance leases     59  
Investing cash flows from operating lease     4,719  
Financing cash flows from finance leases     410  

 

F-18

 

 

13. Other Expense, Net

 

During the years ended December 31, 2019 and 2018, other expense, net consisted of the following:

 

    Year ended December 31,  
    2019     2018  
    (in thousands)  
Interest expense   $ 149     $ 169  
Charitable contributions     19       7  
Other expense     -       1  
Total   $ 168     $ 177  

 

14. Fair Value Measurement

 

Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

 

Level 1  Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2   Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

 

Level 3   Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity.)

 

As required by accounting guidance, assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables set forth certain of the Company’s assets measured at fair value by level within the fair value hierarchy as of December 31, 2019 and 2018: 

 

    2019     2018     Input Hierarchy Level
    (in thousands)      
Cash and cash equivalents   $ 866     $ 70     Level 1
Loans payable   $ 1,661     $ 2,143     Level 2

 

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

 

Cash and cash equivalents consist primarily of cash deposits and are valued at cost, which approximates fair value.

 

Loans payable consist of obligations for equipment purchases financed on a long-term basis. Loans payable are recorded at amortized cost, which approximates fair value. See Note 10 for additional information.

 

F-19

 

 

15. Stock-Based Compensation

 

Stock-based compensation is included in general and administrative expenses in the accompanying Consolidated Statements of Operations. The Company recognizes stock-based compensation expenses allocated from GRC for options and restricted stock units granted under GRC’s equity incentive plan. Stock-based compensation charged to the Company from GRC was $0.4 million and $0.3 million for the years ended December 31, 2019 and 2018, respectively.

 

16. Subsequent Events

On March 11, 2020, the World Health Organization declared the outbreak of a respiratory disease caused by a new novel coronavirus (“COVID-19”) as a pandemic. The Isabella Pearl Mine in Nevada has continued to operate at full capacity. Precious metal mining is considered essential to support critical infrastructure under guidelines from the U.S. Department of Homeland Security and the State of Nevada.

 

As of the date of the issuance of these Consolidated Financial Statements, there have been no other significant impacts, including impairments, to the Company’s operations and financial statements. However, the long-term impact of the COVID-19 outbreak on the Company’s results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions. These developments and the impact of COVID-19 on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results of operations, financial position and cash flows may be materially adversely affected. The Company is not able to estimate the duration of the pandemic and potential impact on its business if disruptions or delays in business developments and shipments of product occur. In addition, a severe prolonged economic downturn could result in a variety of risks to the business, including a decreased ability to raise additional capital when and if needed on acceptable terms, if at all. As the situation continues to evolve, the Company will continue to closely monitor market conditions and respond accordingly. The Company has completed various scenario planning analyses to consider potential impacts of COVID-19 on its business, including volatility in commodity prices, temporary disruptions and/or curtailments of operating activities (voluntary or involuntary). The Company believes that its operations will be sufficient for the foreseeable future, although there is no assurance that will be the case.

 

F-20

 

 

 

UNAUDITED FINANCIAL STATEMENTS

 

TABLE OF CONTENTS

 

  Page
Index to Unaudited Financial Statements:  
   
Condensed Consolidated Balance Sheets at June 30, 2020 and December 31, 2019 F-22
Condensed Consolidated Statements of Operations for the six months ended June 30, 2020 and 2019 F-23
Condensed Consolidated Statements of Changes in Shareholder’s Equity for the six months ended June 30, 2020 and 2019 F-24
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 F-25
Notes to Condensed Consolidated Financial Statements F-26

 

F-21

 

 

GRC NEVADA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands, except share and per share amounts)

 

    June 30,     December 31,  
    2020     2019  
    (Unaudited)        
ASSETS                
Current assets:                
Cash and cash equivalents   $ 231     $ 866  
Accounts receivable     99       -  
Inventories     16,408       10,624  
Prepaid expenses and other current assets     330       319  
Total current assets     17,068       11,809  
Property, plant and mine development, net     60,691       60,017  
Operating lease assets, net     3,007       7,125  
Other non-current assets     4,299       4,985  
Total assets   $ 85,065     $ 83,936  
LIABILITIES AND SHAREHOLDER'S EQUITY                
Current liabilities:                
Accounts payable   $ 2,959     $ 5,406  
Loans payable, current     886       879  
Finance lease liabilities, current     449       438  
Operating lease liabilities, current     3,007       7,125  
Mining taxes payable     450       -  
Other current liabilities     428       443  
Total current liabilities     8,179       14,291  
Reclamation and remediation liabilities     3,694       2,497  
Loans payable, long-term     340       782  
Finance lease liabilities, long-term     198       426  
Total liabilities     12,411       17,996  
Shareholder's equity:                
Common stock - $0.001 par value, 10,000 shares authorized and outstanding at June 30, 2020 and December 31, 2019  
 
 
 
 
-
 
 
 
 
 
 
 
-
 
 
Additional paid-in capital     87,863       78,083  
Accumulated deficit     (15,209 )     (12,143 )
Total shareholder's equity     72,654       65,940  
Total liabilities and shareholder's equity   $ 85,065     $ 83,936  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-22

 

 

GRC NEVADA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the six months ended June 30, 2020 and 2019

(U.S. dollars in thousands, except share and per share amounts)

(Unaudited)

 

    2020     2019  
Sales, net   $ 14,433     $ 1,540  
Mine cost of sales:                
Production costs     11,957       585  
Depreciation and amortization     3,208       379  
Reclamation and remediation     (7 )     26  
Total mine cost of sales     15,158       990  
Mine gross (loss) profit     (725 )     550  
Costs and expenses:                
General and administrative expenses     1,188       1,188  
Exploration expenses     593       448  
Other expense, net     110       75  
Total costs and expenses     1,891       1,711  
Loss before income taxes     (2,616 )     (1,161 )
Provision for income taxes     450       -  
Net loss   $ (3,066 )   $ (1,161 )
Net loss per common share:                
Basic and diluted   $ (307 )   $ (116 )
Weighted average shares outstanding:                
Basic and diluted     10,000       10,000  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-23

 

 

GRC NEVADA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY

For the six months ended June 30, 2020 and 2019

(U.S. dollars in thousands, except share amounts)

(Unaudited)

 

Six Months Ended June 30, 2020 and 2019
    Number of
Common
Shares
    Par Value of
Common
Shares
    Additional Paid-
in Capital
    Accumulated
Deficit
    Total
Shareholders'
Equity
 
Balance, December 31, 2018     10,000     $ -     $ 48,448     $ (9,151 )   $ 39,297  
Capital contributions by Parent     -       -       21,071       -       21,071  
Net loss     -       -       -       (1,161 )     (1,161 )
Balance, June 30, 2019     10,000     $ -     $ 69,519     $ (10,312 )   $ 59,207  
                                         
Balance, December 31, 2019     10,000     $ -     $ 78,083     $ (12,143 )   $ 65,940  
Capital contributions by Parent     -       -       9,780       -       9,780  
Net loss     -       -       -       (3,066 )     (3,066 )
Balance, June 30, 2020     10,000     $ -     $ 87,863     $ (15,209 )   $ 72,654  

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-24

 

 

GRC NEVADA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the six months ended June 30, 2020 and 2019

(U.S. dollars in thousands)

(Unaudited)

    2020     2019  
Cash flows from operating activities:                
Net loss   $ (3,066 )   $ (1,161 )
Adjustments to reconcile net loss to net cash from operating activities:                
Depreciation and amortization     3,282       443  
Other operating adjustments     (6 )     26  
Changes in operating assets and liabilities:                
Accounts receivable     (99 )     (45 )
Inventories     (2,816 )     (7,175 )
Prepaid expenses and other current assets     (11 )     (111 )
Other non-current assets     (256 )     (2,011 )
Accounts payable and other accrued liabilities     (946 )     2,352  
Mining taxes payable     450       -  
Net cash used in operating activities     (3,468 )     (7,682 )
                 
Cash flows from investing activities:                
Capital expenditures     (6,195 )     (11,924 )
Net cash used in investing activities     (6,195 )     (11,924 )
                 
Cash flows from financing activities:                
Contributions from GRC     9,680       21,071  
Repayment of loans payable     (435 )     (385 )
Repayment of capital leases     (217 )     (200 )
Net cash provided by financing activities     9,028       20,486  
                 
Net (decrease) increase in cash and cash equivalents     (635 )     880  
Cash and cash equivalents at beginning of period     866       70  
Cash and cash equivalents at end of period   $ 231     $ 950  
                 
Supplemental Cash Flow Information                
Interest expense paid   $ 50     $ 74  
Income and mining taxes paid   $ -     $ -  
Non-cash investing activities:                
Change in capital expenditures in accounts payable   $ (1,517 )   $ (1,035 )
Change in estimate for asset retirement costs   $ 1,097     $ 638  
Equipment purchased through loan payable   $ -     $ 330  
Stock contributed from Parent   $ 100     $ -  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-25

 

 

 

GRC NEVADA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

 

1. Basis of Presentation

 

These interim Condensed Consolidated Financial Statements (“interim financial statements”) are unaudited and have been prepared in accordance with the rules of the Securities and Exchange Commission for interim statements. Certain information and footnote disclosures required by United States Generally Accepted Accounting Principles (“U.S. GAAP”) have been condensed or omitted as permitted by such rules, although the Company believes that the disclosures included are adequate to make the information presented not misleading. In the opinion of management, all adjustments (including normal recurring adjustments) and disclosures necessary for a fair presentation of these interim financial statements have been included. The results reported in these interim financial statements are not necessarily indicative of the results that may be reported for the entire year. These interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019 included in the Audited Financial Statement section above. The year-end balance sheet data was derived from the audited financial statements. Unless otherwise noted, there have been no material changes to the footnotes from those accompanying the audited consolidated financial statements contained in Audited Financial Statement section above.

 

These interim statements have been prepared on a “carve-out” basis and are unaudited. The accompanying statements include allocations of certain expenses for human resources, accounting, and other services, plus share-based compensation allocated from its parent Gold Resource Corporation (“GRC”). The expense allocations have been determined on bases that the Company and its Parent consider to be reasonable reflections of the utilization of services or the benefits provided. In addition, the assets and liabilities include only those assigned to the carve-out entities. The allocations and related estimates and assumptions are described more fully in Note 2, Related Party Transactions.

 

2. Related Party Transactions

 

GRC provides human resources, information technology, accounting, legal, technical, and other services to the Company. The Company obtains it business insurance under GRC. The accompanying financial statements include allocations of all of these expenses. The allocation method calculates the appropriate share of overhead cost to the Company by using time spent by GRC employees. The Company believes the allocation methodology used is reasonable, has been consistently applied, and results in an appropriate allocation of costs incurred. However, these allocations may not be indicative of the cost had the Company been a stand-alone entity or of future services. GRC allocated $1.2 million and $1.2 million for the six months ended June 30, 2020 and 2019, respectively. These costs were treated as capital contributions from Parent in the accompanying financial statements. In addition, the Company also receives cash contributions from its Parent to help fund its operations and mine development, which are not expected to be repaid and are treated as capital contributions. For the six months ended June 30, 2020 and 2019, the Company received total capital contributions from GRC of $9.8 million and $21.1 million, respectively, inclusive of allocated costs described above.

 

F-26

 

 

3. Revenue

 

The following table presents the Company’s net sales disaggregated by source:

 

    Six months ended June 30,  
    2020     2019  
    (in thousands)  
Sales, net                
Gold doré sales   $ 14,544     $ 1,542  
Less: Refining charges     (111 )     (2 )
Total sales, net   $ 14,433     $ 1,540  

 

4. Inventories

 

At June 30, 2020 and December 31, 2019, current inventories consisted of the following:

 

    2020     2019  
    (in thousands)  
Stockpiles   $ 237     $ 736  
Leach pad     15,227       9,102  
Doré     879       742  
Subtotal - product inventories     16,343       10,580  
Materials and supplies     65       44  
Total   $ 16,408     $ 10,624  

 

In addition to the inventory above, as of June 30, 2020 and December 31, 2019, the Company has $4.0 million and $4.7 million of low-grade ore stockpile inventory included in other non-current assets on the accompanying Condensed Consolidated Balance Sheet.

 

During the six months ended June 30, 2020, the Company recorded a net realizable value (“NRV”) inventory adjustment of $3.6 million. No NRV adjustments were made during the six months ended June 30, 2019.

 

5. Income Taxes

 

The Company files a consolidated U.S. income tax return, as well as an annual Net Proceeds of Minerals tax return in the state of Nevada.

 

The Company had no current or deferred federal income tax expense from continuing operations for the six months ended June 30, 2020 and for the year ended December 31, 2019 due to the losses generated in those years. At the federal level, the Company’s losses in the U.S. are taxed at 21%, while a 5% net proceeds of minerals tax applies to the Company’s operations in Nevada. The Company had a net proceeds of minerals tax of $0.5 million the six months ended June 30, 2020. No net proceeds tax was due in 2019 as the Company was in a loss position for purposes of the tax calculation.

 

The Company evaluates the evidence available to determine whether a valuation allowance is required on the deferred tax assets. The Company determined that its deferred tax assets were not "more likely than not" to be realized as a result of net operating losses to date and thus a full valuation allowance was recorded as of June 30, 2020 and December 31, 2019.

 

As of June 30, 2020, the Company believes that it has no uncertain tax positions. If the Company were to determine there was an uncertain tax position, the Company would recognize the liability and related interest and penalties within income tax expense.

 

F-27

 

 

6. Prepaid Expenses and Other Current Assets

 

At June 30, 2020 and December 31, 2019, prepaid expenses and other current assets consisted of the following:

 

    2020     2019  
    (in thousands)  
Prepaid insurance   $ 184     $ 132  
Prepaid royalties     39       127  
Other current assets     107       60  
Total   $ 330     $ 319  

 

7. Property, Plant and Mine Development, net

 

At June 30, 2020 and December 31, 2019, property, plant and mine development consisted of the following:

 

    2020     2019  
    (in thousands)  
Asset retirement costs   $ 3,526     $ 2,429  
Construction-in-progress (1)     98       9,545  
Furniture and office equipment     284       276  
Leach pad and ponds     5,649       5,649  
Land     13       13  
Light vehicles and other mobile equipment     435       432  
Machinery and equipment     14,183       14,048  
Mill facilities and infrastructure     7,669       7,555  
Mineral interests and mineral rights     18,878       18,228  
Mine development (2)     24,365       11,049  
Software and licenses     65       65  
Subtotal (3) (4)     75,165       69,289  
Accumulated depreciation and amortization     (14,474 )     (9,272 )
Total   $ 60,691     $ 60,017  

 

 

(1) Includes Nevada construction-in-progress and pre-production stripping costs of $0.1 million and $9.6 million at June 30, 2020 and December 31, 2019, respectively.
(2) Pearl Mine development of $13.3 million was put into service on April 1, 2020.
(3) Includes $1.8 million of assets recorded under finance leases at June 30, 2020 and December 31, 2019. Please see Note 12 for additional information.
(4) Includes capital expenditures in accounts payable of $0.6 million and $2.1 at June 30, 2020 and December 31, 2019, respectively.

 

For the six months ended June 30, 2020 and 2019, the Company recorded depreciation and amortization expense of $3.3 million and $0.4 million, respectively.

 

8. Other Current Liabilities

 

At June 30, 2020 and December 31, 2019, other current liabilities consisted of the following:

 

    2020     2019  
    (in thousands)  
Accrued royalty payments   $ 197     $ 126  
Accrued property taxes     225       -  
Sales and use tax payable     6       317  
Total   $ 428     $ 443  

 

F-28

 

 

9. Reclamation and Remediation

 

The following table presents the changes in the Company’s reclamation and remediation obligations for the six months ended June 30, 2020 and year ended December 31, 2019:

 

    2020     2019  
    (in thousands)  
Reclamation liabilities – balance at beginning of period   $ 11     $ 93  
Changes in estimate     -       (82 )
Reclamation liabilities – balance at end of period     11       11  
                 
Asset retirement obligation – balance at beginning of period     2,486       703  
Changes in estimate     1,097       1,726  
Accretion     100       57  
Asset retirement obligation – balance at end of period     3,683       2,486  
Total period end balance   $ 3,694     $ 2,497  

 

The Company’s undiscounted reclamation liabilities are related to exploration properties in Nevada.

 

The Company’s asset retirement obligation was discounted using a credit adjusted risk-free rate of 8%.  As of June 30, 2020 and December 31, 2019, the Company recorded an asset retirement obligation of $3.7 million and $2.5 million, respectively, related to the Isabella Pearl project.

 

10. Loans Payable

 

The Company has financed certain equipment purchases.  The loans bear annual interest at rates ranging from 3% to 4.48%, are collateralized by the equipment, and require monthly principal and interest payments of $0.08 million.  As of June 30, 2020, and December 31, 2019, there was an outstanding balance of $1.2 million and $1.7 million, respectively.  Scheduled minimum repayments are $0.4 million in 2020, $0.7 million in 2021, and $0.1 million in 2022. One of the loan agreements is subject to a prepayment penalty of 1% of the outstanding loan balance at time of repayment.  The fair value of the loans payable, based on Level 2 inputs, approximated the outstanding balance at both June 30, 2020 and December 31, 2019. See Note 14 for the definition of a Level 2 input. 

 

11. Commitments and Contingencies

 

The Company has a Contract Mining Agreement with a mining contractor relating to mining activities at its Isabella Pearl project.  Included in this Agreement is an embedded lease for the mining equipment for which the Company has recognized a right-of-use asset and corresponding operating lease liability. Please see Note 13 for more information.  In addition to the embedded lease payments, the Company pays the contract miner operational costs in the normal course of business.  These costs represent the remaining future contractual payments for the Contract Mining Agreement over its term.  The contractual payments are determined by rates within the Contract Mining Agreement, estimated tonnes moved and bank cubic yards for drilling and blasting.  As of June 30, 2020, total estimated contractual payments remaining, excluding embedded lease payments, are $2.9 million for the year ended December 31, 2020.

 

12. Leases

 

Operating Leases

 

Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases as incurred over the lease term.  For leases beginning in 2019 and later, the Company accounts for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the non-lease components (e.g., common-area maintenance costs).

 

F-29

 

 

The depreciable life of assets are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.  The weighted average remaining lease term for the Company’s operating leases as of June 30, 2020 is 0.33 years.

 

The discount rate implicit within the Company’s leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for the Company’s leases is determined based on the lease term adjusted for impacts of collateral. The weighted average discount rate used to measure the Company’s operating lease liabilities as of June 30, 2020 was 4.48%.

 

There are no material residual value guarantees and no restrictions or covenants imposed by the Company’s leases.

 

The Company has an embedded lease in its Contract Mining Agreement.  The Company’s lease payments for its mining equipment embedded lease are determined by tonnage hauled.  This embedded lease is within a Contract Mining Agreement entered into for the mining activities at the Company’s Isabella Pearl Mine.  The payments, amortization of the right-of-use asset, and interest vary immaterially from forecasted amounts due to variable conditions at the mine. During the six months ended June 30, 2020, the Company capitalized variable lease costs of $2.7 million to Inventory and $1.5 million to Property, plant, and mine development, respectively. During the six months ended June 30, 2019, the Company capitalized variable lease costs of $1.5 million to Inventory and $1.8 million to Property, plant, and mine development, respectively.

 

Maturities of operating lease liabilities as of June 30, 2020 are as follows (in thousands)

 

Year Ending December 31:      
2020   $ 3,032  
2021     -  
2022     -  
2023     -  
Thereafter     -  
Total lease payments     3,032  
Less imputed interest     (25 )
Present value of minimum payments     3,007  
Less: current portion     (3,007 )
Long-term portion of minimum payments   $ -  

 

Finance Leases

 

The Company has finance lease agreements for certain equipment.  The leases bear annual imputed interest of 4.48% to 5.95% and require monthly principal, interest, and sales tax payments of $0.04 million.  The weighted average discount rate for the Company’s finance leases is 5.85%.  Scheduled minimum annual payments as of June 30, 2020 are as follows (in thousands):

 

Year Ending December 31:      
2020   $ 237  
2021     410  
2022     13  
2023     13  
Thereafter     3  
Total minimum obligations     676  
Less: interest portion     (29 )
Present value of minimum payments     647  
Less: current portion     (449 )
Long-term portion of minimum payments   $ 198  

 

The weighted average remaining lease term for the Company’s finance leases as of June 30, 2020 is 1.54 years.

 

F-30

 

 

Supplemental cash flow information related to the Company’s operating and finance leases is as follows for the six months ended June 30, 2020 and 2019:

 

    Six months ended June 30,  
    2020     2019  
    (in thousands)  
Cash paid for amounts included in the measurement of lease liabilities:                
Operating cash flows from operating leases   $ 2,749     $ 1,538  
Operating cash flows from finance leases     21       32  
Investing cash flows from operating lease     1,452       1,788  
Financing cash flows from finance leases     217       200  

 

13. Other Expense, Net

 

For the six months ended June 30, 2020 and 2019, other expense, net consisted of the following:

 

    Six months ended June 30,  
    2020     2019  
    (in thousands)  
Interest expense   $ 62     $ 75  
Charitable contributions     56       3  
Other income     (8 )     (3 )
Total   $ 110     $ 75  

 

14. Fair Value Measurement

 

Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

 

Level 1    Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2   Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

 

Level 3   Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

As required by accounting guidance, assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables set forth certain of the Company’s assets measured at fair value by level within the fair value hierarchy as of June 30, 2020 and December 31, 2019: 

 

    2020     2019     Input Hierarchy Level
    (in thousands)      
Cash and cash equivalents   $ 231     $ 866     Level 1
Accounts receivable     99       -     Level 2
Loans payable   $ 1,226     $ 1,661     Level 2

 

F-31

 

 

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

 

Cash and cash equivalents consist primarily of cash deposits and are valued at cost, which approximates fair value.

 

Accounts receivable include amounts due to the Company for deliveries of doré sold to customers.

 

Loans payable consist of obligations for equipment purchases financed on a long-term basis.  Loans payable are recorded at amortized cost, which approximates fair value. See Note 10 for additional information.

 

15. Stock-Based Compensation

 

Stock-based compensation is included in general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. The Company recognizes stock-based compensation expenses allocated from GRC for options and restricted stock units granted under GRC’s equity incentive plan. Stock-based compensation charged to the Company from GRC was $0.2 million and $0.2 million for the six months ended June 30, 2020 and 2019, respectively.

 

16. COVID-19

 

On March 11, 2020, the World Health Organization declared the outbreak of a respiratory disease caused by a new novel coronavirus (“COVID-19”) as a pandemic. The Isabella Pearl Mine in Nevada has continued to operate at full capacity. Precious metal mining is considered essential to support critical infrastructure under guidelines from the U.S. Department of Homeland Security and the State of Nevada.

 

As of the date of the issuance of these unaudited Condensed Consolidated Financial Statements, there have been no other significant impacts, including impairments, to the Company’s operations and financial statements. However, the long-term impact of the COVID-19 outbreak on the Company’s results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions. These developments and the impact of COVID-19 on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results of operations, financial position and cash flows may be materially adversely affected. The Company is not able to estimate the duration of the pandemic and potential impact on its business if disruptions or delays in business developments and shipments of product occur. In addition, a severe prolonged economic downturn could result in a variety of risks to the business, including a decreased ability to raise additional capital when and if needed on acceptable terms, if at all. As the situation continues to evolve, the Company will continue to closely monitor market conditions and respond accordingly. The Company has completed various scenario planning analyses to consider potential impacts of COVID-19 on its business, including volatility in commodity prices, temporary disruptions and/or curtailments of operating activities (voluntary or involuntary). The Company believes that its operations will be sufficient for the foreseeable future, although there is no assurance that will be the case.

 

17. Subsequent Event

 

On October 5, 2020, GRC announced its intention to spin-off its wholly owned subsidiary GRCN to its shareholders as a separate, publicly traded company named Fortitude Gold Corporation (“Fortitude”). The spin-off is subject to certain customary conditions, including the approval of Fortitude’s registration statement filed with the Securities and Exchange Commission and final approval by the Company’s Board of Directors. The transaction is targeted to be completed by year-end 2020 or the first quarter of 2021.

 

F-32

 

 

FORTITUDE GOLD PROSPECTUS

 

No dealer, salesperson or other person has been authorized to give any information or to make any representation not contained in this prospectus, and if given or made, such information or representations must not be relied upon as having been authorized by us. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any of our securities in any jurisdiction to any person to whom it is unlawful to make an offer by means of this prospectus.

 

Until [__], 2020, all dealers that trade our common stock, whether or not participating in the Spin-Off, may be required to deliver a prospectus.

 

 

 

 

PART II INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution.

 

The following table shows the costs and expenses payable by the Company in connection with this registration statement.

 

SEC Filing Fee   $ 7,463  
Legal Fees and Expenses     40,000  
Accounting Fees and Expenses     80,000  
Miscellaneous Expenses     7,531  
Total*   $ 134,994  

 

*All expenses other than the SEC filing fee are estimated.

 

Item 14. Indemnification of Officers and Directors

 

The Colorado Business Corporation Act and the Company’s articles of Incorporation and Bylaws provide that the Company may indemnify any and all of its officers, directors, employees or agents or former officers, directors, employees or agents, against expenses actually and necessarily incurred by them, in connection with the defense of any legal proceeding or threatened legal proceeding, except as to matters in which such persons shall be determined to not have acted in good faith and in the Company’s best interest.

 

Our Bylaws authorize indemnification of a director, officer, employee or agent against expenses incurred by him in connection with any action, suit, or proceeding to which he is named a party by reason of his having acted or served in such capacity, except for liabilities arising from his own misconduct or negligence in performance of his duty. In addition, even a director, officer, employee, or agent found liable for misconduct or negligence in the performance of his duty may obtain such indemnification if, in view of all the circumstances in the case, a court of competent jurisdiction determines such person is fairly and reasonably entitled to indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers, or controlling persons pursuant to these provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable.

 

Item 15. Recent Sales of Unregistered Securities.

 

None.

 

  II-1  

 

 

Item 16. Exhibits and Financial Statement Schedules

 

The following exhibits are filed with or incorporated by referenced in this report:  
 
Item No.   Description
     
3.1   Articles of Incorporation.
     
3.2   Bylaws of the Company
     
4.1.1   Equity Incentive Plan
     
4.1.2   Form of Stock Option Award Agreement
     
4.1.3   Form of RSU Award Agreement
     
4.2   Shareholder Rights Agreement
     
5   Opinion of Counsel
     
10.1   Separation Agreement
     
10.2   Management Services Agreement
     
10.3   Employment Agreement with Jason Reid
     
14   Code of Ethics
     
21   Subsidiaries of the Company
     
23.1   Consent of Hart & Hart, LLC
     
23.2   Consent of Plante & Moran PLLC, Independent Registered Public Accounting Firm
     
99.1   Mine Safety Disclosures
     
99.2   Reserve Reports

 

Item 17. Undertakings

 

The undersigned registrant hereby undertakes:

 

1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
     
i. To include any prospectus required by Section l0 (a)(3) of the Securities Act:
     
ii. To reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

 

  II-2  

 

 

iii. To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

     
2) That, for the purpose of determining any liability under the Securities Act of 1933 (the “Act”), each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

3) To remove from registration by means of a post-effective amendment any of the securities that remain unsold at the termination of the offering.


Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
     
i. If the registrant is relying on Rule 430B:
     
A. Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

B. Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or
     
ii. If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

  II-3  

 

 

5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

 

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

i. Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
     
ii. Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
     
iii. The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
     
iv. Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of l933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Colorado Springs, CO on the 16th day of October, 2020.

 

  FORTITUDE GOLD CORPORATION
   
  /s/ Jason D. Reid
  By: Jason D. Reid, Chief Executive, Financial and Accounting Officer

 

In accordance with the requirements of the Securities Act of l933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

/s/ Jason D. Reid   Chief Executive Officer, President and Director   October 16, 2020  
Jason D. Reid   (Principal Executive Officer)      
           
/s/ Bill M. Conrad   Chairman of the Board of Directors   October 16, 2020  
Bill M. Conrad          

 

  II-4  

 

Exhibit 3.1

 

Colorado Secretary of State

Date and Time: 08/11/2020 02:32 PM

ID Number: 20201694564

 

Document Number: 20201694564

 

Articles of Incorporation for a Profit Corporation

filed pursuant to § 7-102-101 and § 7-102-102 of the Colorado Revised Statutes (C.R.S.)

 

1.        The domestic entity name for the corporation is:

 

Fortitude Gold Corporation

 

2.        The principal office address of the corporation’s initial principal office is:

 

2886 Carriage Manor Point

Colorado Springs, CO, 80906

 

3. The registered agent name and registered agent address of the corporation’s initial registered agent are:

 

Name                    Hart & Hart, LLC

1624 Washington Street

Denver, CO 80203

 

x The person appointed as registered agent above has consented to being so appointed.
     

4.        The true name and mailing address of the incorporator is

 

William Hart

1624 Washington Street

Denver, CO 80203

 

5.        The classes of shares and number of shares of each class that the corporation is authorized to issue are as follows.

 

x Additional information regarding shares as required by section 7-106-101, C.R.S., is included in an attachment.

 

6. x This document contains additional information provided by law.

 

7.        N/A

 

8.        The true name and mailing address of the individual causing the document to be delivered for filing are

 

William Hart

1624 Washington Street

Denver, CO 80203

 

 

 

 

FORTITUDE GOLD CORPORATION

 

Capital Stock

 

The authorized capital stock of the Corporation shall consist of 200,000,000 shares of common stock, $0.01 par value, and 20,000,000 shares of preferred stock, $0.01 par value.

 

No share of the common stock shall have any preference over or limitation in respect to any other share of such common stock. All shares of common stock shall have equal rights and privileges, including the following:

 

1.       All shares of common stock shall share equally in dividends. Subject to the applicable provisions of the laws of this State, the Board of Directors of the Corporation may, from time to time, declare and the Corporation may pay dividends in cash, property, or its own shares, except when the Corporation is insolvent or when the payment thereof would render the Corporation insolvent or when the declaration or payment thereof would be contrary to any restrictions contained in this Certificate of Incorporation. When any dividend is paid or any other distribution is made, in whole or in part, from sources other than unreserved and unrestricted earned surplus, such dividend or distribution shall be identified as such, and the source and amount per share paid from each source shall be disclosed to the stockholder receiving the same concurrently with the distribution thereof and to all other stockholders not later than six months after the end of the Corporation's fiscal year during which such distribution was made.

 

2.       All shares of common stock shall share equally in distributions in partial liquidation. Subject to the applicable provisions of the laws of this State, the Board of Directors of the Corporation may distribute, from time to time, to its stockholders in partial liquidation, out of stated capital or capital surplus of the Corporation, a portion of its assets in cash or property, except when the Corporation is insolvent or when such distribution would render the Corporation insolvent. Each such distribution, when made, shall be identified as a distribution in partial liquidation, out of stated capital or capital surplus, and the source and amount per share paid from each source shall be disclosed to all stockholders of the Corporation concurrently with the distribution thereof. Any such distribution may be made by the Board of Directors from stated capital without the affirmative vote of any stockholders of the Corporation.

 

3.      a.       Each outstanding share of common stock shall be entitled to one vote at stockholders' meetings, either in person or by proxy.

 

b.       The designations, powers, rights, preferences, qualifications, restrictions and limitations of the preferred stock shall be established from time to time by the Corporation's Board of Directors, in accordance with Colorado Law.

 

c.      i)     Cumulative voting shall not be allowed in elections of directors or for any purpose.

 

ii) No holders of shares of capital stock of the Corporation shall be entitled, as such, to any preemptive or preferential right to subscribe to any unissued stock or any other securities which the Corporation may now or hereafter be authorized to issue. The Board of Directors of the Corporation, however, in its discretion by resolution, may determine that any unissued securities of the Corporation shall be offered for subscription solely to the holders of common stock of the Corporation, or solely to the holders of any class or classes of such stock, which the Corporation may now or hereafter be authorized to issue, in such proportions based on stock ownership as said board in its discretion may determine.

 

 

 

 

iii) The Board of Directors may restrict the transfer of any of the Corporation's stock issued by giving the Corporation or any stockholder "first right of refusal to purchase" the stock, by making the stock redeemable, or by restricting the transfer of the stock under such terms and in such manner as the directors may deem necessary and as are not inconsistent with the laws of this State. Any stock so restricted must carry a conspicuous legend noting the restriction and the place where such restriction may be found in the records of the Corporation.

 

iv) The judgment of the Board of Directors as to the adequacy of any consideration received or to be received for any shares, options, or any other securities which the Corporation at any time may be authorized to issue or sell or otherwise dispose of shall be conclusive in the absence of fraud, subject to the provisions of these Articles of Incorporation and any applicable law.

 

d.       Any action required or permitted by the Colorado Business Corporation Act to be taken at a shareholders’ meeting may be taken without a meeting if the shareholders holding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting, at which all of the shares entitled to vote thereon were present and voted, consent to such action in writing.

 

e.       The presence in person, or by proxy, of one-third of the votes entitled to be cast on any matter by a voting group at any shareholders’ meeting constitutes a quorum of that voting group for action on that matter.

 

Transactions with Directors and Other Interested Parties

 

No contract or other transaction between the Corporation and any other corporation, whether or not a majority of the shares of the capital stock of such other corporation is owned by the Corporation, and no act of the Corporation shall in any way be affected or invalidated by the fact that any of the directors of the Corporation are pecuniarily or otherwise interested in, or are directors or officers of, such other corporation. Any director of the corporation, individually, or any firm with which such director is affiliated may be a party to or may be pecuniarily or otherwise interested in any contract or transaction of the Corporation; provided, however, that the fact that he or such firm is so interested shall be disclosed or shall have been known to the Board of Directors of the Corporation, or a majority thereof, at or before the entering into such contract or transaction; and any director of the Corporation who is also a director or officer of such other corporation, or who is so interested, may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the Corporation which shall authorize such contract or transaction, with like force and effect as if he were not such director or officer of such other corporation or not so interested.

 

 

 

 

Limitation of Director Liability and Indemnification

 

No director of the Corporation shall have liability to the Corporation or to its stockholders or to other security holders for monetary damages for breach of fiduciary duty as a director; provided, however, that such provisions shall not eliminate or limit the liability of a director to the Corporation or to its shareholders or other security holders for monetary damages for: (i) any breach of the director's duty of loyalty to the Corporation or to its shareholders or other security holders; (ii) acts or omissions of the director not in good faith or which involve intentional misconduct or a knowing violation of the law by such director; (iii) acts by such director as specified by Colorado law; or (iv) any transaction from which such director derived an improper personal benefit.

 

No officer or director shall be personally liable for any injury to person or property arising out of a tort committed by an employee of the Corporation unless such officer or director was personally involved in the situation giving rise to the injury or unless such officer or director committed a criminal offense. The protection afforded in the preceding sentence shall not restrict other common law protections and rights that an officer or director may have.

 

The word "director" shall include at least the following, unless limited by Colorado law: an individual who is or was a director of the Corporation and an individual who, while a director of a Corporation is or was serving at the Corporation's request as a director, officer, partner, trustee, employee or agent of any other foreign or domestic corporation or of any partnership, joint venture, trust, other enterprise or employee benefit plan. A director shall be considered to be serving an employee benefit plan at the Corporation's request if his duties to the Corporation also impose duties on or otherwise involve services by him to the plan or to participants in or beneficiaries of the plan. To the extent allowed by Colorado law, the word "director" shall also include the heirs and personal representatives of all directors.

 

This Corporation shall be empowered to indemnify its officers and directors to the fullest extent provided by law, including but not limited to the provisions set forth in the Colorado Business Corporation Act, or any successor provision.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 3.2

 

BYLAWS

OF

FORTITUDE GOLD CORPORATION

 

ARTICLE I

OFFICES

 

Section l. Offices:

 

The principal office of the Corporation shall be determined by the Board of Directors, and the Corporation shall have other offices at such places as the Board of Directors may from time to time determine.

 

ARTICLE II

STOCKHOLDER'S MEETINGS

 

Section l. Place:

 

The place of stockholders' meetings shall be the principal office of the Corporation unless another location shall be determined and designated from time to time by the Board of Directors.

 

Section 2. Annual Meeting:

 

The annual meeting of the stockholders of the Corporation for the election of directors to succeed those whose terms expire, and for the transaction of such other business as may properly come before the meeting, shall be held no later than one year after the end of the Corporation’s fiscal year on a date to be determined by the Board of Directors.

 

Section 3. Special Meetings:

 

Special meetings of the stockholders for any purpose or purposes may be called by the President, the Board of Directors, or the holders of ten percent (l0%) or more of all the shares entitled to vote at such meeting, by the giving of notice in writing as hereinafter described.

 

Section 4. Voting:

 

At all meetings of stockholders, voting may be viva vote; but any qualified voter may demand a stock vote, whereupon such vote shall be taken by ballot and the Secretary shall record the name of the stockholder voting, the number of shares voted, and, if such vote shall be by proxy, the name of the proxy holder. Voting may be in person or by proxy appointed in writing, manually signed by the stockholder or his or her duly authorized attorney-in-fact.

 

Each stockholder shall have such rights to vote as the Articles of Incorporation provide for each share of stock registered in his or her name on the books of the Corporation. The Corporation may establish a record date, not to exceed, in any case, 70 days preceding the meeting, for the determination of stockholders entitled to vote. The Secretary of the Corporation shall make, at least ten (l0) days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten (l0) days prior to such meeting, shall be kept on file at the principal office of the Corporation and shall be subject to inspection by any stockholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting.

 

 

 

 

Beneficial owners of this Corporation’s common stock registered in the name of Depository Trust & Clearing Corporation or any other clearing organization will be recognized as stockholders entitled to vote in person or by proxy at any meeting provided that the following procedures are followed.

 

· If the stockholder is voting at the meeting, the stockholder provides a valid government issued identification document and brokerage statement identifying the stockholder as the holder of shares of this Corporation’s common stock.

 

· If a person is voting on behalf of a stockholder at the meeting, the person provides a signed proxy card and brokerage statement identifying the stockholder voting by proxy as the holder of shares of this Corporation’s common stock.

 

· If the stockholder is voting by proxy, the stockholder sends a signed proxy card and brokerage statement identifying the stockholder as the holder of shares of this Corporation’s common stock.

 

Each share of this Corporation’s common stock that is listed on any brokerage statement provided in person or by proxy will be entitled to one vote at any meeting.

 

Section 5. Order of Business:

 

The order of business at any meeting of stockholders shall be as follows, unless otherwise determined by the Corporation’s Chief Executive Officer:

 

l.       Call the meeting to order.

 

2.       Report of a corporate officer as to the number of shares represented at the meeting and the existence or lack of a quorum.

 

3.       Election of directors, if appropriate.

 

4.       Reports of officers or committees, if any.

 

5.       Old or new business.

 

6.       Adjournment.

 

To the extent that these Bylaws do not apply, Roberts' Rules of Order shall prevail.

 

 

 

 

Section 6. Notices:

 

Written or printed notice stating the place, day, and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than l0 nor more than 70 days before the date of the meeting, either personally or by mail, by or at the direction of the President, the Secretary, or the officer or persons calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his or her address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid.

 

Section 7. Quorum:

 

A quorum at any annual or special meeting shall consist of the representation in person or by proxy of 33 1/3% of the issued and outstanding capital stock of the Corporation entitled to vote at such meeting. In the event a quorum be not present, the meeting may be adjourned by those present for a period not to exceed sixty (60) days at any one adjournment; and no further notice of the meeting or its adjournment shall be required.

 

ARTICLE III

BOARD OF DIRECTORS

 

Section l. Organization and Powers:

 

The Board of Directors shall constitute the policy-making or legislative authority of the Corporation. Management of the affairs, property, and business of the Corporation shall be vested in the Board of Directors, which shall consist of not less than one nor more than ten members, who shall be elected at the annual meeting of stockholders by a plurality vote for a term of one (l) year, and shall hold office until their successors are elected and qualify. The number of directors shall be established from time-to-time by a resolution of the directors. Directors need not be stockholders. Directors shall have all powers with respect to the management, control, and determination of policies of the Corporation that are not limited by these Bylaws, the Articles of Incorporation, or by statute, and the enumeration of any power shall not be considered a limitation thereof.

 

Section 2. Vacancies:

 

Any vacancy in the Board of Directors, however caused or created, shall be filled by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board, or at a special meeting of the stockholders called for that purpose. The directors elected to fill vacancies shall hold office for the unexpired term and until their successors are elected and qualify.

 

Section 3. Regular Meetings:

 

A regular meeting of the Board of Directors shall be held, without other notice than this Bylaw, immediately after and at the same place as the annual meeting of stockholders or any special meeting of stockholders at which a director or directors shall have been elected. The Board of Directors will meet quarterly.

 

 

 

 

Section 4. Special Meetings:

 

Special meetings of the Board of Directors may be held at the principal office of the Corporation, or such other place as may be fixed by resolution of the Board of Directors for such purpose, at any time on call of the President or of any member of the Board, or may be held at any time and place without notice, by unanimous written consent of all the members, or with the presence and participation of all members at such meeting. A resolution in writing signed by all the directors shall be as valid and effectual as if it had been passed at a meeting of the directors duly called, constituted, and held.

 

Section 5. Notices:

 

Notices of both regular and special meetings, except when held by unanimous consent or participation, shall be sent by the Secretary to each member of the Board not less than three days before any such meeting and notices of special meetings may state the purposes thereof. No failure or irregularity of notice of any regular meeting shall invalidate such meeting or any proceeding thereat.

 

Section 6. Quorum and Manner of Acting:

 

A quorum for any meeting of the Board of Directors shall be a majority of the Board of Directors as then constituted. Any act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Any action of such majority, although not at a regularly called meeting, and the record thereof, if assented to in writing by all of the other members of the Board, shall always be as valid and effective in all respects as if otherwise duly taken by the Board of Directors.

 

Section 7. Order of Business:

 

The order of business at any regular or special meeting of the Board of Directors, unless otherwise prescribed for any meeting by the Board, shall be as follows:

 

l.       Reading and disposal of any unapproved minutes.

 

2.       Reports of officers and committees.

 

3.       New business.

 

4.       Adjournment.

 

To the extent that these Bylaws do not apply, Roberts' Rules of Order shall prevail.

 

 

 

 

ARTICLE IV

OFFICERS

 

Section 1. Officers:

 

The officers of the Corporation shall be those designated by the Board of Directors. The officers shall have the powers, responsibilities and duties as may be designed by the Board or the Corporation’s Chief Executive Officer. In the discretion of the Board, one person may hold more than one office and two or more persons may serve in any one office.

 

Notwithstanding the above, the Chief Executive Officer or the Secretary will have responsibility for the preparation and maintenance of minutes of the directors’ and shareholders’ meetings and other records and information required to be kept by the Corporation pursuant to C.R.S. 7-116-101 and for authenticating records of the Corporation.

 

Section 2. Vacancies or Absences:

 

If a vacancy in any office arises in any manner, the directors then in office may choose, by a majority vote, a successor to hold office for the unexpired term of the officer. If any officer shall be absent or unable for any reason to perform his or her duties, the Board of Directors, to the extent not otherwise inconsistent with these Bylaws, may direct that the duties of such officer during such absence or inability shall be performed by such other officer or subordinate officer as seems advisable to the Board.

 

ARTICLE V

STOCK

 

Section 1. Regulations:

 

The Board of Directors shall have power and authority to take all such rules and regulations as they deem expedient concerning the issue, transfer, and registration of certificates for shares of the capital stock of the Corporation. The Board of Directors may appoint a Transfer Agent and/or a Registrar and may require all stock certificates to bear the signature of such Transfer Agent and/or Registrar.

 

Section 2. Restrictions on Stock:

 

The Board of Directors may restrict any stock issued by giving the Corporation or any stockholder "first right of refusal to purchase" the stock, by making the stock redeemable or by restricting the transfer of the stock, under such terms and in such manner as the directors may deem necessary and as are not inconsistent with the Articles of Incorporation or by statute. Any stock so restricted must carry a stamped legend setting out the restriction or conspicuously noting the restriction and stating where it may be found in the records of the Corporation.

 

 

 

 

ARTICLE VI

DIVIDENDS AND FISCAL YEAR

 

Section l. Dividends:

 

Dividends may be declared by the directors and paid out of any funds legally available therefor, as may be deemed advisable from time to time by the Board of Directors of the Corporation. Before declaring any dividends, the Board of Directors may set aside out of net profits or earned or other surplus such sums as the Board may think proper as a reserve fund to meet contingencies or for other purposes deemed proper and to the best interests of the Corporation.

 

Section 2. Fiscal Year:

 

The Board of Directors by resolution shall determine the fiscal year of the Corporation.

 

ARTICLE VII

AMENDMENTS

 

These Bylaws may be altered, amended, or repealed by the Board of Directors by resolution of a majority of the Board.

 

ARTICLE VIII

INDEMNIFICATION

 

The Corporation shall indemnify any and all of its directors or officers, or former directors or officers, or any other person, to the fullest extent provided by the laws of Colorado.

 

ARTICLE IX

CONFLICTS OF INTEREST

 

No contract or other transaction of the Corporation with any other persons, firms or corporations, or in which the Corporation is interested, shall be affected or invalidated by the fact that any one or more of the directors or officers of the Corporation is interested in or is a director or officer of such other firm or corporation; or by the fact that any director or officer of the Corporation, individually or jointly with others, may be a party to or may be interested in any such contract or transaction.

 

ARTICLE X

SHAREHOLDER CLAIMS

 

In the event that any shareholder initiates or asserts a claim against the Corporation, or any officer or director of the Corporation, including any derivative claim or claim purportedly filed on behalf of the Corporation, and the shareholder does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, then such shareholder shall be obligated (jointly and severally in the event the claim us brought by more than one shareholder) to reimburse the Corporation and any officer or director of the Corporation for all fees, costs and expenses of every kind and description (including, but not limited to, all reasonable attorney’s fees and other litigation expenses) that the Corporation or its officers or directors may incur in connection with such claim. Any shareholder claim against the Corporation, or any officer or director of the Corporation, including any derivative claim or claim purportedly filed on behalf of the Corporation, must be brought in the U.S. District Court for the district of Colorado.

 

 

 

 

 

Exhibit 4.1.1

 

FORTITUDE GOLD CORPORATION

2020 EQUITY INCENTIVE PLAN

EFFECTIVE DATE: OCTOBER 15, 2020

TERMINATION DATE: OCTOBER 15, 2030

 

ARTICLE 1
ESTABLISHMENT, PURPOSE, EFFECTIVE DATE, EXPIRATION DATE

 

1.1              ESTABLISHMENT. Fortitude Gold Corporation, a Colorado corporation (the “Company”), hereby establishes the Fortitude Gold Corporation 2020 Equity Incentive Plan (the “Plan”).

 

1.2              PURPOSE. The purpose of the Plan is to advance the interests of the Company and its shareholders by enhancing the Company’s ability to attract and retain qualified persons to perform services for the Company, by providing incentives to such persons to put forth maximum efforts for the Company and by rewarding persons who contribute to the achievement of the Company’s economic objectives. To further these objectives, the Plan provides for the grant of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Stock Grants, and Stock Units.

 

1.3              EFFECTIVE DATE. The Plan will become effective on the date it is approved by the Company's Board of Directors and its shareholders (the “Effective Date”).

 

1.4              EXPIRATION DATE. The Plan will expire on, and no Award may be granted under the Plan after, the tenth (10th) anniversary of the Effective Date (the “Expiration Date”). Any Awards that are outstanding on the Expiration Date shall remain in force according to the terms of the Plan and the applicable Award Agreement.

 

ARTICLE 2
GLOSSARY; CONSTRUCTION

 

2.1              GLOSSARY. When a word or phrase appears in this Plan document with the initial letter capitalized, and the word or phrase does not commence a sentence, the word or phrase will generally be given the meaning ascribed to it in Article 1 or in the attached Glossary, which is incorporated into and is part of the Plan. All of these key terms are listed in the Glossary. Whenever these key terms are used, they will be given the defined meaning unless a clearly different meaning is required by the context.

 

2.2              CONSTRUCTION. The masculine gender, where appearing in the Plan, shall include the feminine gender (and vice versa), and the singular shall include the plural, unless the context clearly indicates to the contrary. If any provision of this Plan is determined to be for any reason invalid or unenforceable, the remaining provisions shall continue in full force and effect.

 

ARTICLE 3
ELIGIBILITY AND PARTICIPATION

 

3.1              GENERAL ELIGIBILITY. Persons eligible to participate in this Plan include all employees, officers, Directors of, and Consultants to, the Company or any Affiliate. Awards may also be granted to prospective employees or Directors but no portion of any such Award will vest, become exercisable, be issued, or become effective prior to the date on which such individual begins to provide services to the Company or its Affiliates.

 

 

 

 

3.2              ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the Committee may, from time to time, select from among all eligible individuals, those to whom Awards will be granted and will determine the nature and amount of each Award.

 

ARTICLE 4
ADMINISTRATION

 

4.1              GENERAL. The Plan shall be administered by the Board or a committee appointed by the Board. All references in the Plan to the “Committee” shall refer to the Committee or Board, as applicable. The Committee, by majority action thereof, is authorized to interpret the Plan, to prescribe, amend, and rescind rules and regulations as it may deem necessary or advisable to administer the Plan, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company, and to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. Determinations, interpretations, or other actions made or taken by the Committee in good faith pursuant to the provisions of the Plan shall be final, binding and conclusive for all purposes of the Plan.

 

4.2              COMMITTEE RESPONSIBILITIES. Subject to the provisions of the Plan, the Committee shall have the authority to: (a) designate the Participants who are entitled to receive Awards under the Plan; (b) determine the types of Awards and the times when Awards will be granted; (c) determine the number of Awards to be granted and the number of shares of Stock to which an Award will relate; (d) determine the terms and conditions of any Award, including, but not limited to, the purchase price or exercise price or base value, the grant price, the period(s) during which such Awards shall be exercisable (whether in whole or in part); (e) any restrictions or limitations on the Award, any schedule for lapse of restrictions or limitations, and accelerations or waivers thereof, based in each case on such considerations as the Committee determines; (f) determine whether, to what extent, and in what circumstances an Award may be settled in, or the exercise price or purchase price of an Award may be paid in cash, Stock, or other Awards, or other property, or whether an Award may be canceled, forfeited, exchanged or surrendered; (g) prescribe the form of each Award Agreement, which need not be the same for each Participant; (h) decide all other matters that must be determined in connection with an Award; (i) interpret the terms of, and determine any matter arising pursuant to, the Plan or any Award Agreement; and (j) make all other decisions or determinations that may be required pursuant to the Plan or an Award Agreement as the Committee deems necessary or advisable to administer the Plan. The Committee shall also have the authority to modify existing Awards to the extent that such modification is within the power and authority of the Committee as set forth in the Plan.

 

4.3              DECISIONS FINAL. The Committee shall have the authority to interpret the Plan and subject to the provisions of the Plan, any Award Agreement, and all decisions and determinations by the Committee with respect to the Plan are final, binding and conclusive on all parties. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted under the Plan.

 

2 

 

 

ARTICLE 5
SHARES AVAILABLE FOR GRANT

 

5.1              NUMBER OF SHARES. Subject to adjustment as provided in Section 5.4, the aggregate number of shares of Stock reserved and available for grant pursuant to the Plan shall be 5,000,000. The shares of Stock delivered pursuant to any Award may consist, in whole or in part, of authorized by unissued Stock, treasury Stock not reserved for any other purposes, or Stock purchased on the open market.

 

5.2              SHARE COUNTING. The following rules shall apply solely for purposes of determining the number of shares of Stock available for grant under the Plan at any given time:

 

(a)               In the event any Award granted under the Plan is terminated, expired, forfeited, or canceled for any reason, the number of shares of Stock subject to such Award will again be available for grant under the Plan (i.e., any prior charge against the limit set forth in Section 5.1 shall be reversed).

 

(b)              If shares of Stock are not delivered in connection with an Award because the Award may only be settled in cash rather than in Stock, no shares of Stock shall be counted against the limit set forth in Section 5.1. If any Award may be settled in cash or Stock, the rules set forth in Section 5.2(a) shall apply until the Award is settled, at which time the underlying shares of Stock will be added back to the shares available for grant pursuant to Section 5.1 but only if the Award is settled in cash.

 

(c)               The exercise of a stock-settled SAR or broker-assisted “cashless” exercise of an Option (or a portion thereof) will reduce the number of shares available for grant under Section 5.1 by the entire number of shares of Stock subject to that SAR or Option (or applicable portion thereof), even though a smaller number of shares of Stock will be issued upon such an exercise.

 

(d)              Shares of Stock tendered to pay the exercise price of an Option or tendered, withheld or otherwise relinquished by a Participant to satisfy a tax withholding obligation arising in connection with an Award will not again become Stock available for grant under the Plan. Moreover, shares of Stock purchased on the open market with cash proceeds generated by the exercise of an Option will not increase or replenish the number of shares available for grant under Section 5.1.

 

(e)               If the provisions of this Section 5.2 are inconsistent with the requirements of any regulations issued pursuant to Section 422 of the Code, the provisions of such regulations shall control over the provisions of this Section 5.2, but only as this Section 5.2 relates to Incentive Stock Options.

 

(f)               The Committee may adopt such other reasonable rules and procedures as it deems to be appropriate for determining the number of shares of Stock that are available for grant under Section 5.1.

 

5.3              AWARD LIMITS. Notwithstanding any other provision in the Plan, and subject to adjustment as provided in Section 5.4:

 

(a)               The maximum number of shares of Stock that may be issued as Incentive Stock Options under the Plan shall be the same numeric limit set forth in Section 5.1.

 

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5.4              ADJUSTMENT IN CAPITALIZATION. In the event of any change in the outstanding shares of Stock by reason of a Stock dividend or split, recapitalization, liquidation, merger, consolidation, combination, exchange of shares, or other similar corporate change, the Committee shall make a proportionate adjustment in: (a) the number and class of shares of Stock made available for grant pursuant to Section 5.1; (b) the number of shares of Stock set forth in Section 5.3, 11.9, and any other similar numeric limit expressed in the Plan; (c) the number and class of and/or price of shares of Stock subject to then outstanding Awards; or (d) any other terms of an Award that are affected by the event. Moreover, in the event of such transaction or event, the Committee, in its discretion may provide in substitution for any or all outstanding awards under the Plan such alternative consideration (including cash) as it, in good faith, may determine to be equitable under the circumstances and may require in connection therewith the surrender of all Awards so replaced. Any action taken pursuant to this Section 5.4 shall be taken in a manner consistent with the requirements of Section 409A of the Code and, in the case of Incentive Stock Options, in accordance with the requirements of Section 424(a) of the Code.

 

5.5              REPLACEMENT AWARDS. In the event of any corporate transaction in which the Company or an Affiliate acquires a corporate entity which, at the time of such transaction, maintains an equity compensation plan pursuant to which awards of stock options, stock appreciation rights, restricted stock, or any other form of equity based compensation are then outstanding (the “Acquired Plan”), the Committee may make Awards to assume, substitute or convert such outstanding awards in such manner as may be determined to be appropriate and equitable by the Committee; provided, however, that the number of shares of Stock subject to any Award shall always be a whole number by rounding any fractional share to the nearest whole share. Options or SARs issued pursuant to this Section 5.5 shall not be subject to the requirement that the exercise price of such Award not be less than the Fair Market Value of Stock on the date the Award is granted. Shares used in connection with an Award granted in substitution for an award outstanding under an Acquired Plan under this Section 5.5 shall not be counted against the number of shares of Stock available for grant under Section 5.1.

 

5.6              FRACTIONAL SHARES. No fractional shares of Stock shall be issued pursuant to the Plan. Unless the Committee specifies otherwise in the Award Agreement, or pursuant to any policy adopted by the Committee, cash will be given in lieu of fractional shares. In the event of adjustment as provided in Section 5.4 or the issuance of replacement awards as provided in Section 5.5, the total number of shares of Stock subject to any affected Award shall always be a whole number by rounding any fractional share to the nearest whole share.

 

ARTICLE 6
STOCK OPTIONS

 

6.1              OPTIONS. Subject to the terms and provisions of the Plan the Committee, at any time and from time to time, may grant Options to one or more Participants upon such terms and conditions and in such amounts, as shall be determined by the Committee. Options are also subject to the following additional terms and conditions:

 

(a)               Exercise Price. No Option shall be granted at an exercise price that is less than the Fair Market Value of one share of Stock on the Grant Date.

 

(b)               Exercise of Option. Options shall be exercisable at such times and in such manner, and shall be subject to such restrictions or conditions, as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant.

 

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(c)               Term of Option. Each Option shall expire at such time as determined by the Committee; provided, however, that no Option shall be exercisable later than the tenth (10th) anniversary the Grant Date.

 

(d)               Payment. The exercise price for any Option shall be paid in cash or shares of Stock held for longer than six (6) months (through actual tender or by attestation). In the Award Agreement, the Committee also may prescribe other methods by which the exercise price of an Option may be paid and the form of payment including, without limitation, any net-issuance arrangement or other property acceptable to the Committee (including broker-assisted “cashless exercise” arrangements), and the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants. The Committee, in consideration of applicable accounting standards and applicable law, may waive the six (6) month share holding period described in the first sentence of this paragraph (d) in the event payment of an Option is made through the tendering of shares.

 

(e)               Repricing of Options. Notwithstanding any other provision in the Plan to the contrary, without approval of the Company’s shareholders, an Option may not be amended, modified or repriced to reduce the exercise price after the Grant Date. Except as otherwise provided in Section 5.4 with respect to an adjustment in capitalization, an Option also may not be surrendered in consideration of a new Option having an exercise price below the exercise price of the Option being surrendered or exchanged.

 

(f)                Nontransferability of Options. No Option may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all Options granted to a Participant shall be exercisable during his or her lifetime only by such Participant or his or her legal representative. Notwithstanding the foregoing, the Committee may, in its discretion, permit the transfer of an Option to a Family Member, trust or partnership, or to a charitable organization, provided that no value or consideration is received by the Participant with respect to such transfer.

 

6.2              INCENTIVE STOCK OPTIONS. Incentive Stock Options shall be granted only to Participants who are employees and the terms of any Incentive Stock Options granted pursuant to the Plan must comply with the following additional provisions of this Section 6.2:

 

(a)               Exercise Price. Subject to Section 6.2(e), the exercise price per share of Stock pursuant to any Incentive Stock Option shall be set by the Committee, provided that the exercise price for any Incentive Stock Option shall not be less than the Fair Market Value of one share of Stock as of the Grant Date.

 

(b)               Term of Incentive Stock Option. In no event may any Incentive Stock Option be exercisable for more than ten (10) years from the Grant Date.

 

(c)               Lapse of Option. An Incentive Stock Option shall lapse in the following circumstances:

 

(1)               The Incentive Stock Option shall lapse ten (10) years from the Grant Date, unless an earlier time is set in the Award Agreement;

 

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(2)               The Incentive Stock Option shall lapse upon a Termination of Employment for any reason other than the Participant’s death or Disability, unless otherwise provided in the Award Agreement; and

 

(3)               If the Participant incurs a Termination of Employment on account of Disability or death before the Option lapses pursuant to paragraph (i) or (ii) above, the Incentive Stock Option shall lapse, unless it is previously exercised, on the earlier of: (a) the scheduled termination date of the Option; or (b) twelve months after the date of the Participant’s Termination of Employment on account of death or Disability. Upon the Participant’s death or Disability, any Incentive Stock Options exercisable at the Participant’s death or Disability may be exercised by the Participant’s legal representative or representatives, by the person or persons entitled to do so pursuant to the Participant’s last will and testament, or, if the Participant fails to make testamentary disposition of such Incentive Stock Option or dies intestate, by the person or persons entitled to receive the Incentive Stock Option pursuant to the applicable laws of descent and distribution.

 

(d)               Individual Dollar Limitation. The aggregate Fair Market Value (determined as of the time an Award is made) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision. To the extent that Incentive Stock Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Stock Options.

 

(e)               Ten Percent Owners. An Incentive Stock Option may be granted to any individual who, at the Grant Date, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of Stock of the Company only if such Option is granted at a price that is not less than 110% of Fair Market Value on the Grant Date and the Option is exercisable for no more than five (5) years from the Grant Date.

 

(f)                Right to Exercise. Except as provided in Section 6.2(c)(iii), an Incentive Stock Option may be exercised only by the Participant during the Participant’s lifetime.

 

(g)               Limitation on Number of Shares Subject to Awards. In accordance with Section 5.3(a), but subject to adjustment as provided in Section 5.4, the maximum number of shares of Stock that may be issued as Incentive Stock Options under the Plan shall be the same numeric limit set forth in Section 5.1.

 

ARTICLE 7
STOCK APPRECIATION RIGHTS

 

7.1              STOCK APPRECIATION RIGHTS. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant SARs to one or more Participants upon such terms and conditions and in such amounts, as shall be determined by the Committee. SARs may be granted in connection with the grant of an Option, in which case the exercise of such SARs will result in the surrender of the right to purchase the shares under the Option as to which the SARs were exercised. When SARs are granted in connection an Incentive Stock Option, the SARs shall have such terms and conditions as shall be required by Section 422 of the Code. Alternatively, SARs may be granted independently of Options. SARs are also subject to the following additional terms and conditions:

 

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(a)               Base Value. No SAR shall be granted at a base value that is less than the Fair Market Value of one share of Stock on the Grant Date.

 

(b)               Exercise of SARs. SARs shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall, in each instance approve, which need not be the same for all Participants.

 

(c)               Term of SARs. Each SAR shall expire at such time as determined by the Committee; provided, however, that no SAR shall be exercisable later than the tenth (10th) anniversary the Grant Date.

 

(d)               Payment of SAR Amount. Upon the exercise of a SAR, the Participant shall be entitled to receive the payment of an amount determined by multiplying: (i) the excess, if any, of the Fair Market Value of a share of Stock on the date of exercise, over the base value fixed by the Committee on the Grant Date; by (ii) the number of shares with respect to which the SAR is exercised. Payment for SARs shall be made in manner and at the time specified by the Committee in the Award Agreement. At the discretion of the Committee, the Award Agreement may provide for payment of SARs in cash, shares of Stock of equivalent value, or in a combination thereof.

 

(e)               Repricing of SARs. Notwithstanding any other provision in the Plan to the contrary, without approval of the Company’s shareholders, a SAR may not be amended, modified or repriced to reduce the base value after the Grant Date. Except as otherwise provided in Section 5.4 with respect to an adjustment in capitalization, a SAR also may not be surrendered in consideration of or exchanged for cash, other Awards or a new SAR having a base value below the base value of the SAR being surrendered or exchanged.

 

(f)                Nontransferability of SARs. No SAR may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all SARs granted to a Participant shall be exercisable during his or her lifetime only by such Participant or his or her legal representative. Notwithstanding the foregoing, the Committee may, in its discretion, permit the transfer of a SAR to a Family Member, trust or partnership, or to a charitable organization, provided that no value or consideration is received by the Participant with respect to such transfer.

 

ARTICLE 8
RESTRICTED STOCK AND RESTRICTED STOCK UNITS

 

8.1              RESTRICTED STOCK. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Restricted Stock to one or more Participants upon such terms and conditions, and in such amounts, as shall be determined by the Committee. Restricted Stock Awards are also subject to the following additional terms and conditions:

 

(a)               Issuance and Restrictions. Restricted Stock shall be subject to such conditions and/or restrictions as the Committee may impose (including, without limitation, limitations on transferability, the right to receive dividends, or the right to vote the Restricted Stock), which need not be the same for each grant or for each Participant. These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as determined by the Committee. Except as otherwise provided in the Award Agreement, Participants holding shares of Restricted Stock may not exercise voting rights with respect to the shares of Restricted Stock during the period of restriction.

 

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(b)               Forfeiture. Except as otherwise provided in the Award Agreement, upon a Termination of Employment (or Termination of Service in the case of a Consultant or Director) during the applicable period of restriction, Restricted Stock that is at that time subject to restrictions shall be forfeited.

 

(c)               Evidence of Ownership for Restricted Stock. Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Committee shall determine, which may include an appropriate book entry credit on the books of the Company or a duly authorized transfer agent of the Company. If certificates representing shares of Restricted Stock are registered in the name of the Participant, the certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may, in its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse.

 

8.2              RESTRICTED STOCK UNITS. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Restricted Stock Units to one or more Participants upon such terms and conditions, and in such amounts, as shall be determined by the Committee. Restricted Stock Unit Awards are also subject to the following additional terms and conditions:

 

(a)               Issuance and Restrictions. Restricted Stock Unit Awards grant a Participant the right to receive a specified number of shares of Stock, or a cash payment equal to the Fair Market Value (determined as of a specified date) of a specified number of shares of Stock, subject to such conditions and/or restrictions as the Committee may impose, which need not be the same for each grant or for each Participant. These restrictions may lapse separately or in combination at such times, in such circumstances, in such installments, or otherwise, as determined by the Committee.

 

(b)               Forfeiture. Except as otherwise provided in the Award Agreement, upon a Termination of Employment (or Termination of Service in the case of a Consultant or Director) during the applicable period of restriction, Restricted Stock Units that are at that time subject to restrictions shall be forfeited.

 

(c)               Form and Timing of Payment. Payment for vested Restricted Stock Units shall be made in the manner and at the time designated by the Committee in the Award Agreement. In the Award Agreement, the Committee may provide that payment will be made in cash or Stock, or in a combination thereof.

 

ARTICLE 9
STOCK GRANT AND STOCK UNITS

 

9.1              STOCK GRANTS. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Stock Awards to one or more Participants upon such terms and conditions, and in such amounts, as shall be determined by the Committee. Subject to Section 5.3(e), a Stock Grant Award grants the Participant the right to receive (or purchase at such price as determined by the Committee) a designated number of shares of Stock free of any vesting restrictions. The purchase price, if any, for a Stock Grant Award shall be payable in cash or other form of consideration acceptable to the Committee. A Stock Grant Award may be granted or sold as described in the preceding sentence in respect of past services or other valid consideration, or in lieu of any cash compensation due to such Participant.

 

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9.2              STOCK UNITS. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Stock Unit Awards to one or more Participants upon such terms and conditions, and in such amounts, as shall be determined by the Committee. Subject to Section 5.3(e), a Stock Unit Award grants the Participant the right to receive a designated number of shares of Stock, or a cash payment equal to the Fair Market Value (determined as of a specified date) of a designated number of shares of Stock, in the future free of any vesting restrictions. A Stock Unit Award may be granted as described in the preceding sentence in respect of past services or other valid consideration, or in lieu of any cash compensation due to such Participant.

 

ARTICLE 10
CHANGE IN CONTROL

 

10.1            DOUBLE TRIGGER VESTING. Notwithstanding any other provision in the Plan to the contrary, and except as otherwise provided in the applicable Change in Control transaction documents, in the event that an employee Participant incurs a Termination of Employment without Cause or for Good Reason within 12 months following a Change in Control, any Awards that are still outstanding following such Change in Control shall become fully vested and exercisable and all restrictions on such Awards shall lapse as of the date of the Participant’s Termination of Employment without Cause or Termination of Employment for Good Reason. To the extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Section 422(d) of the Code or any successor provision, the excess Options shall be deemed to be Non-Qualified Stock Options.

 

10.2            PARTICIPANT CONSENT NOT REQUIRED. Nothing in this Section 10 or any other provision of this Plan is intended to provide any Participant with any right to consent to or object to any transaction that might result in a Change in Control and each provision of this Plan shall be interpreted in a manner consistent with this intent. Similarly, nothing in this Section 10 or any other provision of this Plan is intended to provide any Participant with any right to consent to or object to any action taken by the Board or Committee in connection with a Change in Control transaction.

 

ARTICLE 11
OTHER PROVISIONS APPLICABLE TO AWARDS

 

11.1            AWARD AGREEMENTS. All Awards shall be evidenced by an Award Agreement. The Award Agreement shall include such terms and provisions as the Committee determines appropriate. The terms of the Award Agreement may vary depending on the type of Award, the employee or classification of the employee to whom the Award is made and such other factors as the Committee deems appropriate.

 

11.2            TERMINATION OF EMPLOYMENT OR SERVICE. Subject to the provisions of this Plan, the Committee shall determine and set forth in the applicable Award Agreement the extent to which a Participant shall have the right to retain and/or exercise an Award following a Termination of Employment or (Termination of Service in the context of a Consultant or Director). Such provisions need not be uniform among all types of Awards and may reflect distinctions based on the reasons for such terminations, including, but not limited to, death, Disability, a termination for Cause or reasons relating to the breach or threatened breach of restrictive covenants.

 

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11.3            FORM OF PAYMENT. Subject to the provisions of this Plan, the Award Agreement and any applicable law, payments or transfers to be made by the Company or any Affiliate on the grant, exercise, or settlement of any Award made be made in such form as determined by the Committee including, without limitation, cash, Stock, other Awards, or other property, or any combination thereof, and may be made in a single payment or transfer, in installments, or any combination thereof, in each case determined by rules adopted by the Committee.

 

11.4            LIMITS ON TRANSFER.

 

(a)               General. Except as provided in Section 6.1(f), Section 7.1(f), Section 11.4(b) or Section 11.5, no Award granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution or pursuant to a domestic relations order (that would otherwise qualify as a qualified domestic relations order as defined in the Code or Title I of ERISA but for the fact that the order pertains to an Award) in favor of a spouse or, if applicable, until the expiration of any period during which any restrictions are applicable as determined by the Committee.

 

(b)               Transfer to Family Members. The Committee shall have the authority to adopt a written policy that is applicable to existing Awards, new Awards, or both, which permits a Participant to transfer Awards during his or her lifetime to any Family Member. In the event an Award is transferred as permitted by such policy, such transferred Award may not be subsequently transferred by the transferee (other than another transfer meeting the conditions set forth in the policy) except by will or the laws of descent and distribution. A transferred Award shall continue to be governed by and subject to the terms and limitations of the Plan and relevant Award Agreement, and the transferee shall be entitled to the same rights as the Participant, as if the transfer had not taken place.

 

11.5            BENEFICIARIES. Notwithstanding Section 11.4(a), a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death, and in accordance with Section 6.2(c)(iii), upon the Participant’s Disability. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is provided to the Committee.

 

11.6            EVIDENCE OF OWNERSHIP. Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates, make any book entry credits, or take any other action to evidence shares of Stock pursuant to the exercise of any Award, unless and until the Company has determined, with advice of counsel, that the issuance and delivery of such certificates, book entry credits, or other evidence of ownership is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange or quotation system on which the shares of Stock are listed, quoted or traded. All Stock certificates, book entry credits, or other evidence of ownership delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Company deems necessary or advisable to comply with Federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Company may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Company may require that a Participant make such reasonable covenants, agreements, and representations as the Company, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements.

 

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11.7            CLAWBACK. Every Award issued pursuant to this Plan is subject to potential forfeiture or recovery to the fullest extent called for by law, any applicable listing standard, or any current or future clawback policy that may be adopted by the Company from time to time. By accepting an Award, each Participant consents to the potential forfeiture or recovery of his or her Awards pursuant to the Company clawback policy, and agrees to be bound by and comply with the clawback policy and to return the full amount required by the clawback policy. As a condition to the receipt of any Award, a Participant may be required to execute any requested additional documents consenting to and agreeing to abide by the Company clawback policy as it may be amended from time to time.

 

ARTICLE 12
AMENDMENT, MODIFICATION, AND TERMINATION

 

12.1            AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN. The Board may at any time, and from time to time, terminate, amend or modify the Plan; provided however, that any such action of the Board shall be subject to approval of the shareholders to the extent required by law or regulation. Notwithstanding the above, to the extent permitted by law, the Board may delegate to the Committee or the CEO the authority to approve non-substantive amendments to the Plan. Except as provided in Section 5.4, neither the Board, the CEO, nor the Committee may, without the approval of the shareholders: (a) reduce the exercise price or base value of any outstanding Award, including any Option or SAR; (b) increase the number of shares available under the Plan; (c) grant Options or SARs with an exercise price or base value that is below Fair Market Value on the Grant Date; (d) reprice previously granted Options or SARs or take any action relative to any Options or SARs that would be treated as a repricing; (e) cancel any Option or SARs in exchange for cash or any other Award or in exchange for any Option or SAR with an exercise price or base value that is less than the exercise price or base value for the original Option or SAR; (f) extend the exercise period or term of any Option or SAR beyond 10 years from the Grant Date; (g) expand the types of Award available for grant under the Plan; or (h) expand the class of individuals eligible to participant in the Plan.

 

12.2            AWARDS PREVIOUSLY GRANTED. No amendment, modification, or termination of the Plan or any Award under the Plan shall in any manner adversely affect in any material way the rights of the holder under any Award previously granted pursuant to the Plan without the prior written consent of the holder of the Award. Such consent shall not be required if the change: (a) is required by law or regulation; (b) does not adversely affect in any material way the rights of the holder; (c) is required to cause the benefits under the Plan to comply with the requirements of Section 409A of the Code; or (d) is made pursuant to any adjustment described in Section 5.4.

 

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ARTICLE 13
TAX WITHHOLDING

 

The Company shall have the power to withhold, or require a Participant to remit to the Company, the minimum amount necessary to satisfy federal, state, and local withholding tax requirements on any Award under the Plan. The Company may permit the Participant to satisfy a tax withholding obligation by: (a) directing the Company to withhold shares of Stock to which the Participant is entitled pursuant to the Award in an amount necessary to satisfy the Company’s applicable federal, state, local or foreign income and employment tax withholding obligations with respect to such Participant; (b) tendering previously-owned shares of Stock held by the Participant for six (6) months or longer to satisfy the Company’s applicable federal, state, local, or foreign income and employment tax withholding obligations with respect to the Participant (which holding period may be waived in accordance with Section 6.1(d)); (c) a broker-assisted “cashless” transaction; or (d) personal check or other cash equivalent acceptable to the Company.

 

ARTICLE 14
INDEMNIFICATION

 

Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his or her behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such person may be entitled under the Company’s articles of incorporation, bylaws, resolution or agreement, as a matter of law, or otherwise.

 

ARTICLE 15
GENERAL PROVISIONS

 

15.1            NO RIGHTS TO AWARDS. No Participant or other person shall have any claim to be granted any Award and neither the Company nor the Committee is obligated to treat Participants and other persons uniformly.

 

15.2            CONTINUED EMPLOYMENT. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Company or any Affiliate to terminate any Participant’s employment or service at any time, nor confer upon any Participant any right to continue in the employ or service of the Company.

 

15.3            FUNDING. The Company shall not be required to segregate any of its assets to ensure the payment of any Award under the Plan. Neither the Participant nor any other persons shall have any interest in any fund or in any specific asset or assets of the Company or any other entity by reason of any Award, except to the extent expressly provided hereunder. The interests of each Participant and former Participant hereunder are unsecured and shall be subject to the general creditors of the Company.

 

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15.4            EXPENSES. The expenses of administering the Plan shall be borne by the Company.

 

15.5            NO SHAREHOLDERS RIGHTS. No Award gives the Participant any of the rights of a shareholder of the Company unless and until shares of Stock are in fact issued to such person in connection with such Award.

 

15.6            TITLES AND HEADINGS. The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.

 

15.7            SUCCESSORS AND ASSIGNS. The Plan shall be binding upon and inure to the benefit of the successors and permitted assigns of the Company, including without limitation, whether by way of merger, consolidation, operation of law, assignment, purchase, or other acquisition of substantially all of the assets or business of the Company, and any and all such successors and assigns shall absolutely and unconditionally assume all of the Company’s obligations under the Plan.

 

15.8            SURVIVAL OF PROVISIONS. The rights, remedies, agreements, obligations and covenants contained in or made pursuant to this Plan, any Agreement, and any other notices or agreements in connection therewith, shall survive the execution and delivery of such notices and agreements and the delivery and receipt of such shares of Stock.

 

15.9            REQUIREMENTS OF LAW. The granting of Awards and the issuance of shares and/or cash under the Plan shall be subject to all applicable laws, rules, and regulations as may be required. The Company shall be under no obligation to register pursuant to the Securities Act of 1933, any of the shares of Stock paid pursuant to the Plan. If the shares of Stock paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act of 1933, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption. The Committee shall impose such restrictions on any Award as it may deem advisable, including without limitation, restrictions under applicable federal securities law, and under any other blue sky or state securities law applicable to such Award.

 

15.10          GOVERNING LAW. The place of administration of the Plan shall be conclusively deemed to be within the State of Colorado, and the rights and obligations of any and all persons having or claiming to have had an interest under the Plan or any Award Agreement shall be governed by and construed exclusively and solely in accordance with the laws of the State of Colorado without regard to the conflict of laws provisions of any jurisdictions. All parties agree to submit to the jurisdiction of the state and federal courts of Colorado with respect to matters relating to the Plan and agree not to raise or assert the defense that such forum is not convenient for such party. The Plan is an unfunded performance-based bonus plan for a select group of management or highly compensated employees and is not intended to be either an employee pension or welfare benefit plan subject to ERISA.

 

15.11          SECTION 409A OF THE CODE.

 

(a)               General Compliance. Some of the Awards that may be granted pursuant to the Plan (including, but not necessarily limited to, Restricted Stock Units Awards, and Stock Unit Awards) may be considered to be “nonqualified deferred compensation” subject to Section 409A of the Code. If an Award is subject to Section 409A of the Code, the Company intends (but cannot and does not guarantee) that the Award Agreement and this Plan comply with and meet all of the requirements of Section 409A of the Code or an exception thereto and the Award Agreement shall include such provisions, in addition to the provisions of this Plan, as may be necessary to assure compliance with Section 409A of the Code or an exception thereto.

 

13 

 

 

(b)               Prohibition on Acceleration or Deferral. Under no circumstances may the time or schedule of any payment for any Award that is subject to the requirements of Section 409A of the Code be accelerated or subject to further deferral except as otherwise permitted or required pursuant to regulations and other guidance issued pursuant to Section 409A of the Code. If the Company fails to make any payment pursuant to the payment provisions applicable to an Award that is subject to Section 409A of the Code, either intentionally or unintentionally, within the time period specified in such provisions, but the payment is made within the same calendar year, such payment will be treated as made within the specified time period. In addition, in the event of a dispute with respect to any payment, such payment may be delayed in accordance with the regulations and other guidance issued pursuant to Section 409A of the Code.

 

  FORTITUDE GOLD CORPORATION
   
  By: /s/ Bill Conrad
  Its: Chairman of the Board

 

14 

 

 

GLOSSARY

 

(a)              “Affiliate” means any member of a “controlled group of corporations” (within the meaning of Section 414(b) of the Code as modified by Section 415(h) of the Code) that includes the Company as a member of the group. In applying Section 1563(a)(1), (2) and (3) of the Code for purposes of determining the members of a controlled group of corporations under Section 414(b) of the Code, the language “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears in Section 1563(a)(1), (2) and (3).

 

(b)               “Award” means any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Stock Grant, or Stock Unit Award granted to a Participant under the Plan.

 

(c)              “Award Agreement” means any written agreement, contract, or other instrument or document, including an electronic agreement or document, evidencing an Award.

 

(d)               “Board” means the Company’s Board of Directors, as constituted from time to time.

 

(e)               “Cause” means any of the following:

 

(1)               Participant’s commission of, or assistance to or conspiracy with others to commit, fraud, misrepresentation, theft or embezzlement of Company assets;

 

(2)                Participant’s material intentional violations of law or of material Company policies;

 

(3)                Participant’s repeated insubordination or willful failure to substantially perform his or her employment duties or duties as a Director; or

 

(4)                Participant’s willful engagement in conduct that is demonstrably and materially injurious to the Company or any Affiliate.

 

(f)               “CEO” means the Chief Executive Officer of the Company.

 

(g)              “Change in Control” means any of the following:

 

(1)                The sale, lease, exchange or other transfer of all or substantially all of the Company’s assets in one transaction or in a series of related transactions;

 

(2)                any person (as such term is used in Section 13(d) and 14(d) of the Exchange Act) becoming directly or indirectly the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), of securities representing 50% or more of the combined voting power of the Company’s outstanding securities ordinarily having the right to vote at the elections of directors; or

 

(3)                individuals who constitute the Board as of the Effective Date cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors comprising or deemed pursuant hereto to comprise the Board as of the Effective Date (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director) shall be, for purposes of this clause, considered as though such person were a member of the Board as of the Effective Date of the Plan.

 

15 

 

 

(4)                For sake of clarity, a “Change in Control” will not be deemed to have occurred for purposes of the Plan until the transaction (or services of transactions) that would otherwise be considered a “Change in Control” closes. The transfer of Stock or assets of the Company in connection with a bankruptcy filing by or against the Company under Title 11 of the United States Code will not be considered to be a “Change in Control” for purposes of this Plan. Notwithstanding the foregoing a “Change in Control” shall not occur for purposes of this Plan in the case of Awards that are subject to the requirements of Section 409A of the Code unless such “Change in Control” constitutes a “change in control event” as defined in Section 409A of the Code and the regulations thereunder.

 

(h)              “Code” means the Internal Revenue Code of 1986, as amended. All references to the Code shall be interpreted to include a reference to any applicable regulations, rulings or other official guidance promulgated pursuant to such section of the Code.

 

(i)               “Committee” except as set forth in Section 4.1, means the Committee appointed by the Board.

 

(j)               “Company” means Fortitude Gold Corporation, a Colorado Company.

 

(k)              “Consultant” means a consultant or adviser that provides bona fide services to the Company or an Affiliate as an independent contractor and not as an employee; provided, however that such person may become a Participant in the Plan only if the Consultant: (i) is a natural person; and (ii) does not provide services in connection with the offer or sale of the Company’s securities in a capital-raising transaction and do not promote or maintain a market for the Company’s securities.

 

(l)               “Disability” means the inability of a Participant to engage in any substantially gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. The permanence and degree of impairment shall be supported by medical evidence. For purposes of an Incentive Stock Option, “Disability” shall have the meaning ascribed to it in Section 22(e)(3) of the Code.

 

(m)             “Effective Date” means the date the Plan is approved by the Board.

 

(n)              “ERISA” means the Employee Retirement Income Security Act of 1974, as amended. All references to a section of ERISA shall be interpreted to include a reference to any applicable regulations, rulings or other official guidance promulgated pursuant to such section of ERISA.

 

(o)              “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time. All references to the Exchange Act shall be interpreted to include a reference to any applicable regulations, rulings or other official guidance promulgated pursuant to such section of the Exchange Act.

 

16 

 

 

(p)               “Expiration Date” means the tenth (10th) anniversary of the Effective Date.

 

(q)              “Fair Market Value” means, the fair market value of Stock on a particular date determined by the reasonable application of reasonable valuation methods or procedures as may be established from time to time by the Board. The Board shall use such procedures to determine fair market value in compliance with Section 409A of the Code and the regulations issued thereunder. Notwithstanding anything in the Plan to the contrary, the Board may not delegate its authority to determine fair market value.

 

(r)               “Family Member” means a Participant’s spouse and any parent, stepparent, grandparent, child, stepchild, or grandchild, including adoptive relationships or a trust or any other entity in which these persons (or the Participant) have more than 50% of the beneficial interest.

 

(s)               “Good Reason” means any of the following:

 

(1)                A material reduction of Participant’s duties, authority or responsibilities, in effect immediately prior to such reduction;

 

(2)                A material reduction of Participant’s then-existing base salary; or

 

(3)                The Company’s decision to relocate a Participant’s principal place of work by more than 50 miles.

 

(t)               “Grant Date” means the date the Committee approves the Award or a date in the future on which the Committee determines the Award will become effective.

 

(u)              “Incentive Stock Option” means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

 

(v)               “Director” means a member of the Company’s Board.

 

(w)              “Non-Qualified Stock Option” means an Option that is not intended to be an Incentive Stock Option.

 

(x)              “Option” means a right granted to a Participant under Section 7. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option.

 

(y)               “Participant” means a person who has been granted an Award under the Plan.

 

(z)               “Plan” means this Fortitude Resource Corporation 2020 Stock Incentive Plan, as amended from time to time.

 

(aa)             “Restricted Stock” means Stock granted to a Participant under Section 9.

 

(bb)             “Restricted Stock Unit” means a right granted to a Participant under Section 9.

 

17 

 

 

(cc)             “Securities Act” means the Securities Act of 1933, as amended from time to time. All references to the Securities Act shall be interpreted to include a reference to any applicable regulations, rulings or other official guidance promulgated pursuant to such section of the Securities Act.

 

(dd)             “Separation from Service” is a term that applies only in the context of an Award that the Company concludes is subject to Section 409A of the Code. In that limited context, the term “Separation from Service” means either: (i) the termination of a Participant’s employment with the Company and all Affiliates due to death, retirement or other reasons; or (ii) a permanent reduction in the level of bona fide services the Participant provides to the Company and all Affiliates to an amount that is less than 50% of the average level of bona fide services the Participant provided to the Company and all Affiliates in the immediately preceding 36 months, with the level of bona fide service calculated in accordance with Treasury Regulation Section 1.409A-1(h)(1)(ii). Solely for purposes of determining whether a Participant has a “Separation from Service,” a Participant’s employment relationship is treated as continuing while the Participant is on military leave, medical or sick leave, or other bona fide leave of absence (if the period of such leave does not exceed six (6) months, or if longer, so long as the Participant’s right to reemployment with the Company or a Affiliate is provided either by statute or contract). If the Participant’s period of leave exceeds six (6) months and the Participant’s right to reemployment is not provided either by statute or by contract, the employment relationship is deemed to terminate on the first day immediately following the expiration of such six (6) month period. Whether a Termination of Employment has occurred will be determined based on all of the facts and circumstances and in accordance with Section 409A of the Code.

 

In the case of a Director, Separation from Service means that such member has ceased to be a member of the Board. Whether an independent contractor consultant has incurred a Separation from Service will be determined in accordance with Treasury Regulation Section 1.409A-1(h).

 

(ee)             “Stock” means the common stock of the Company and such other securities of the Company that may be substituted for Stock pursuant to Section 5.

 

(ff)              “Stock Appreciation Right” or “SAR” means a right granted to a Participant under Section 7.

 

(gg)            “Stock Grant Award” means a right granted to a Participant under Section 9.

 

(hh)            “Stock Unit” means a right granted to a Participant under Section 9.

 

(ii)              “Termination of Employment” or Termination of Service” means the cessation of performance of services for the Company. For this purpose, the transfer of a Participant among the Company and any Affiliate, or transfer from a position as a member of the Board to Employee, shall not be considered a Termination of Service or a Termination of Employment with the Company. In the context of an Award that is subject to the requirements of Section 409A of the Code, the terms “Termination of Service” and “Termination of Employment” mean a Separation from Service.

 

18 

 

 

 

 

 

 

 

 

 

 

Exhibit 4.1.2

 

FORTITUDE GOLD CORPORATION

2020 EQUITY INCENTIVE PLAN

NOTICE OF GRANT OF NON-QUALIFIED STOCK OPTIONS

 

This Non-Qualified Stock Option Agreement consists of this Notice of Grant of Non-Qualified Stock Options (the “Grant Notice”) and the Non-Qualified Stock Option Award Agreement immediately following. The Non-Qualified Stock Option Agreement sets forth the specific terms and conditions governing Non-Qualified Stock Option Awards under the Fortitude Gold Corporation 2020 Equity Incentive Plan (the “Plan”). All of the terms of the Plan are incorporated herein by reference.

 

Name of Optionee:  
   
Total No. of shares of Stock subject to the Option:  
   
Grant Date:  
   
Expiration Date:  
   
Exercise Price:  
   
Vesting Schedule: [Insert Schedule]

 

by executing this NON-QUALIFIED stock option AGREEMENT, optionee accepts participation in the plan, acknowledges that he or she has read and understands the provisions of this grant NOTICE and the plan, and agrees that this grant NOTICE, the award agreement AND THE pLAN shall govern the terms and conditions of thIS AWARD.

 

IN WITNESS WHEREOF, the Company and the Optionee have duly executed this Non-Qualified Stock Option Agreement, and this Non-Qualified Stock Option Agreement shall be effective as of the Grant Date set forth above.

 

FORTITUDE GOLD CORPORATION

OPTIONEE

   
By:  
   
   
Print Name:   Signature
 

Its: CEO and President  
   
  Print Name

 

1

 

 

NON-QUALIFIED STOCK OPTION AWARD AGREEMENT

UNDER THE FORTITUDE GOLD CORPORATION

2020 EQUITY INCENTIVE PLAN

 

This Non-Qualified Stock Option Award Agreement (this “Agreement”) is between Fortitude Gold Corporation, a Colorado corporation (the “Company”) and the individual (the “Optionee”) identified in the Notice of Grant of Non-Qualified Stock Options (the “Grant Notice”), and is effective as of the date of grant referenced in the Grant Notice (the “Grant Date”). This Agreement supplements the Grant Notice to which it is attached, and, together, with the Grant Notice, constitutes the “Non-Qualified Stock Option Agreement” referenced in the Grant Notice.

 

RECITALS

 

A.             The Board of Directors of the Company (the “Board”) has adopted and the shareholders have approved the Fortitude Gold Corporation 2020 Equity Incentive Plan (the “Plan”) to promote the success an enhance the value of the Company by linking the personal interests of the Plan’s participants to those of the Company’s shareholders by providing such individuals with an incentive for outstanding performance.

 

B.            The Committee and/or the Board has approved the grant of Non-Qualified Stock Options to Optionee pursuant to Section 6.1 of the Plan.

 

C.            To the extent not specifically defined in this Agreement, all capitalized terms used in this Agreement shall have the meaning set forth in the Plan.

 

D.            In consideration of the mutual covenants and conditions hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Optionee agree as follows:

 

AGREEMENT

 

1.              Grant of Option. Subject to the terms of this Agreement and Section 6.1 of the Plan, the Company grants to Optionee the right and option to purchase from the Company all or any part of the aggregate number of shares of Stock specified in the Grant Notice (“Option”). The Option granted under this Agreement is not intended to be an “Incentive Stock Option” under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

 

2.             Exercise Price. The exercise price under this Agreement is the exercise price per share of Stock specified in the Grant Notice, as determined by the Committee, which shall not be less than the Fair Market Value of a share of Stock on the Grant Date.

 

3.             Vesting of Option. The Option shall vest and become exercisable according to the vesting schedule set forth in the Grant Notice.

 

4.             Exercise of Option. This Option may be exercised in whole or in part at any time after it vests in accordance with Section 3 and before the Option expires by delivery of a written notice of exercise (under Section 5 below) and payment of the exercise price. The exercise price may be paid in cash, or shares of Stock held for longer than six months (through actual tender or by attestation), or such other method permitted by the Committee (including broker-assisted “cashless exercise” and “net-exercise” arrangements) and communicated to the Optionee before the date the Optionee exercises the Option.

 

2

 

 

5.             Method of Exercising Option. Subject to the terms of this Agreement, the Option may be exercised by timely delivery to the Company of written notice in the form of Exhibit A attached hereto, which notice shall be effective on the date received by the Company. The notice shall state the Optionee’s election to exercise the Option and the number of underlying shares in respect of which an election to exercise has been made. Such notice shall be signed by the Optionee, or if the Option is exercised by a person or persons other than the Optionee because of the Optionee’s death, such notice must be signed by such other person or persons and shall be accompanied by proof acceptable to the Committee of the legal right of such person or persons to exercise the Option.

 

6.             Term of Option. The Option granted under this Agreement expires, unless sooner terminated, ten (10) years from the Grant Date, through and including the normal close of business of the Company on the tenth (10th) anniversary of the Grant Date (the “Expiration Date”).

 

7.             Termination of Employment (or Service).

 

(a)              If the Optionee terminates employment (or service) for any reason other than death, Disability, or Cause, the Option shall lapse on the earlier of: (i) the Expiration Date; or (ii) ninety (90) days after the date the Optionee terminates employment (or service). The Option may be exercised following the Optionee’s termination of employment (or service) only if the Option was exercisable by Optionee immediately prior to his or her termination of employment (or service). In no event shall the Option be exercisable after the Expiration Date.

 

(b)             If the Optionee terminates employment (or service) by reason of death or Disability, the Option shall lapse on the earlier of: (i) the Expiration Date; or (ii) twelve (12) months after the date the Optionee terminates employment (or service) due to death or Disability. The Option may be exercised following the death or Disability of Optionee only if the Option was exercisable by Optionee immediately prior to his or her death or Disability. In no event shall the Option be exercisable after the Expiration Date.

 

(c)              If the Optionee terminates employment (or service) for Cause, the Option shall immediately terminate and lapse, which means that the Option shall not be exercisable by the Optionee regardless of whether it is already vested.

 

8.             Withholding. As described in Article 13 of the Plan, the Company shall have the right to deduct or withhold, or to require the Optionee to remit to the Company, an amount necessary to satisfy any federal, state or local taxes (including the Optionee’s FICA obligation) as are required by law to be withheld with respect to the Options granted pursuant this Agreement.

 

9.             Nontransferability of Options. The Options granted by this Agreement shall not be transferable by the Optionee or any other person claiming through the Optionee, either voluntarily or involuntarily, except by will or the laws of descent and distribution or as otherwise provided by the Committee pursuant to Section 6.1(f) and Article 11 of the Plan.

 

10.          No Right to Continued Employment (or Service). This Agreement shall not be construed to confer upon the Optionee any right to continue employment (or service) with the Company and shall not limit the right of the Company, in its sole and absolute discretion, to terminate Optionee’s employment (or service) at any time.

 

3

 

 

11.          Administration. This Agreement shall at all times be subject to the terms and conditions of the Plan and the Plan shall in all respects be administered by the Committee in accordance with the terms of and as provided in the Plan. The Committee shall have the sole and complete discretion with respect to all matters reserved to it by the Plan and decisions of the Committee with respect thereto and to this Agreement shall be final and binding upon the Optionee and the Company. In the event of any conflict between the terms and conditions of this Agreement and the Plan, the provisions of the Plan shall control.

 

12.           Adjustments. The number of shares of Stock issued to Optionee pursuant to this Agreement shall be adjusted by the Committee pursuant to Section 5.4 of the Plan, in its discretion, in the event of a change in the Company’s capital structure.

 

13.           Securities Laws Compliance. The Company shall not be required to deliver any shares of Stock pursuant to the exercise of the Option if, in the opinion of counsel for the Company, such issuance would violate the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, or any other applicable federal or state securities laws or regulations.

 

14.           No Shareholders Rights. The Optionee will have no voting rights or any other rights as a shareholder of the Company with respect to the Option until the Company issues the stock certificates representing the shares of Stock underlying the Option.

 

15.           Copy of Plan. By the execution of this Agreement, the Optionee acknowledges receipt of a copy of the Plan.

 

16.           Governing Law. This Agreement shall be interpreted and administered under the laws of the State of Colorado.

 

17.           Amendment. Except as otherwise provided in the Plan, this Agreement may be amended only by a written agreement executed by the Company and the Optionee. The provisions of this Agreement may not be waived or modified unless such waiver or modification is in writing and signed by a representative of the Committee.

 

18.           Clawback. Pursuant to Section 11.7 of the Plan, every Award issued pursuant to the Plan is subject to potential forfeiture or “clawback” to the fullest extent called for by applicable federal or state law or any policy of the Company. By accepting this Award, Optionee agrees to be bound by, and comply with, the terms of any such forfeiture or “clawback” provision imposed by applicable federal or state law or prescribed by any policy of the Company.

 

MANY OF THE PROVISION OF THIS AWARD AGREEMENT ARE SUMMARIES OF SIMILAR PERTINENT PROVISIONS OF THE PLAN. TO THE EXTENT THAT THIS AGREEMENT IS SILENT ON AN ISSUE OR THERE IS A CONFLICT BETWEEN THE PLAN AND THIS AGREEMENT, THE PLAN PROVISIONS SHALL CONTROL.

 

4

 

 

EXHIBIT A

 

NOTICE AND AGREEMENT OF EXERCISE OF

NON-QUALIFIED STOCK OPTION AWARD UNDER THE

2020 EQUITY INCENTIVE PLAN

 

 

I hereby exercise my Fortitude Gold Corporation Stock Option granted pursuant to that Non-Qualified Stock Option Award Agreement dated ______ (the “Agreement”) as to _______________ shares of Fortitude Gold Corporation Common Stock (the “Option Shares”).

 

Enclosed are the documents and payment specified in Paragraphs 5 and 8 of the Agreement.

 

I understand that no Option Shares will be issued unless and until, in the opinion of Fortitude Gold Corporation (the “Corporation”), any applicable registration requirements of the Securities Act of 1933, as amended (the “Act”), and any applicable listing requirements of any securities exchange on which stock of the same class is then listed, and any other requirements of law or any regulatory bodies having jurisdiction over such issuance and delivery, shall have been fully complied with. I hereby acknowledge, represent, warrant and agree, to and with the Corporation as follows:

 

a.     Unless the shares have been registered, the Option Shares I am purchasing are being acquired for my own account for investment purposes only and with no view to their resale or other distribution of any kind, and no other person (except, if I am married, my spouse) will own any interest therein.

 

b.     I will not sell or dispose of my Option Shares in violation of the Act or any other applicable federal or state securities laws.

 

c.     If and so long as I am subject to reporting requirements under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), I recognize that any sale by me or my immediate family of the Corporation’s Common Stock within six months before the date of grant of my stock option may create liability for me under Section 16(b) of the Exchange Act.

 

d.     I have consulted with counsel regarding the application of Section 16(b) to this exercise of my option.

 

e.     I will consult with counsel before I make any sale of the Corporation’s Common Stock, including the Option Shares.

 

f.      I agree that the Company may, without liability for its good faith actions, place legend restrictions upon my Option Shares and issue “stop transfer” instructions requiring compliance with applicable securities laws and the terms of the Agreement.

 

5

 

 

The number of Option Shares specified above are to be issued in the following registration:

 

   
    (Date)
     
     
(Print Full Name)   (Signature)
     
     
(Optional—Spouse’s full name if you wish joint registration)   (Address)
 
     

 

6

 

 

Exhibit 4.1.3

 

FORTITUDE GOLD CORPORATION

2020 EQUITY INCENTIVE PLAN

NOTICE OF GRANT OF RESTRICTED STOCK UNITS

 

This Restricted Stock Unit Agreement consists of this Notice of Grant of Restricted Stock Units (the “Grant Notice”) and the Restricted Stock Unit Award Agreement immediately following. The Restricted Stock Unit Agreement sets forth the specific terms and conditions governing Restricted Stock Unit Awards under the Fortitude Gold Corporation 2020 Equity Incentive Plan (the “Plan”). All of the terms of the Plan are incorporated herein by reference.

 

Name of Grantee:  
   
Total No. of Restricted Stock Units:  
   
Grant Date:  
   
Vesting Schedule:   

 

by executing this RESTRICTED STOCK UNIT AGREEMENT, GRANTEE accepts participation in the plan, acknowledges that he or she has read and understands the provisions of this grant NOTICE and the plan, and agrees that this grant NOTICE, the award agreement AND THE pLAN shall govern the terms and conditions of thIS AWARD.

 

IN WITNESS WHEREOF, the Company and Grantee have duly executed this Restricted Stock Unit Agreement, and this Restricted Stock Unit Agreement shall be effective as of the Grant Date set forth above.

 

FORTITUDE GOLD CORPORATION

GRANTEE

   
By:  
   
Print Name:  
 

Signature

Its: CEO and President  
   
  Print Name

 

1

 

 

RESTRICTED STOCK UNIT AWARD AGREEMENT

UNDER THE FORTITUDE GOLD CORPORATION

2020 EQUITY INCENTIVE PLAN

 

This Restricted Stock Unit Award Agreement (this “Agreement”) is between Fortitude Gold Corporation, a Colorado corporation (the “Company”) and the individual (the “Grantee”) identified in the Notice of Grant of Restricted Stock Units (the “Grant Notice”), and is effective as of the date of grant referenced in the Grant Notice (the “Grant Date”). This Agreement supplements the Grant Notice to which it is attached, and, together, with the Grant Notice, constitutes the “Restricted Stock Unit Agreement” referenced in the Grant Notice.

 

RECITALS

 

A.                The Board of Directors of the Company (the “Board”) has adopted and the shareholders have approved the Fortitude Gold Corporation 2020 Equity Incentive Plan (the “Plan”) to promote the success an enhance the value of the Company by linking the personal interests of the Plan’s participants to those of the Company’s shareholders by providing such individuals with an incentive for outstanding performance.

 

B.                 The Committee and/or the Board has approved the grant of Restricted Stock Units to Grantee pursuant to Section 8.2 of the Plan.

 

C.                 To the extent not specifically defined in this Agreement, all capitalized terms used in this Agreement shall have the meaning set forth in the Plan.

 

D.                 In consideration of the mutual covenants and conditions hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Grantee agree as follows:

 

AGREEMENT

 

1.                  Grant of Restricted Stock Units. Subject to the terms of this Agreement and Section 8.2 of the Plan, the Company grants to Grantee the aggregate number of Restricted Stock Units specified in the Grant Notice.

 

2.                  Vesting of Restricted Stock Units. Subject to Grantee’s continued employment (or service) with the Company, the Restricted Stock Units shall vest and become nonforfeitable according to the vesting schedule set forth in the Grant Notice.

 

3.                  Payment of Restricted Stock Units. The Restricted Stock Units that become vested and nonforfeitable pursuant to Section 2 above will be paid in whole unrestricted and fully transferable shares of Stock within 30 days of each Vesting Date identified in the Grant Notice unless Grantee has signed a timely election to defer the payment of Stock pursuant to the attached Restricted Stock Unit Deferral Election.

 

4.                  No Shareholder Rights. During the restriction period and until the date of payment of Restricted Stock Units pursuant to Section 3, the Grantee will not have any of the rights of a shareholder of the Company with respect to the Restricted Stock Units.

 

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5.                  Withholding. As described in Article 13 of the Plan, the Company shall have the right to deduct or withhold, or to require Grantee to remit to the Company, an amount necessary to satisfy any federal, state or local taxes (including Grantee’s FICA obligation) as are required by law to be withheld with respect to the Restricted Stock Units granted pursuant this Agreement.

 

6.                  No Right to Continued Employment (or Service). This Agreement shall not be construed to confer upon Grantee any right to continue employment (or service) with the Company and shall not limit the right of the Company, in its sole and absolute discretion, to terminate Grantee’s employment (or service) at any time.

 

7.                  Administration. This Agreement shall at all times be subject to the terms and conditions of the Plan and the Plan shall in all respects be administered by the Committee in accordance with the terms of and as provided in the Plan. The Committee shall have the sole and complete discretion with respect to all matters reserved to it by the Plan and decisions of the Committee with respect thereto and to this Agreement shall be final and binding upon Grantee and the Company. In the event of any conflict between the terms and conditions of this Agreement and the Plan, the provisions of the Plan shall control.

 

8.                  Adjustments. The number of shares of Stock subject to the Restricted Stock Units issued to Grantee pursuant to this Agreement shall be adjusted by the Committee pursuant to Section 5.4 of the Plan, in its discretion, in the event of a change in the Company’s capital structure.

 

9.                  Copy of Plan. By the execution of this Agreement, Grantee acknowledges receipt of a copy of the Plan.

 

10.               Governing Law. This Agreement shall be interpreted and administered under the laws of the State of Colorado.

 

11.               Amendment. Except as otherwise provided in the Plan, this Agreement may be amended only by a written agreement executed by the Company and Grantee. The provisions of this Agreement may not be waived or modified unless such waiver or modification is in writing and signed by a representative of the Committee.

 

12.               Clawback. Pursuant to Section 11.7 of the Plan, every Award issued pursuant to the Plan is subject to potential forfeiture or “clawback” to the fullest extent called for by applicable federal or state law or any policy of the Company. By accepting this Award, Grantee agrees to be bound by, and comply with, the terms of any such forfeiture or “clawback” provision imposed by applicable federal or state law or prescribed by any policy of the Company.

 

13.              Section 409A Compliance. The Restricted Stock Units, if any, that become payable pursuant to this Notice may be considered “nonqualified deferred compensation” that is subject to the requirements of Section 409A of the Code. The Company intends, but does not and cannot warrant or guaranty, that the Restricted Stock Units will be paid in compliance with Section 409A of the Code or an applicable exception. Neither the time nor the schedule of the payment of the Restricted Stock Units may be accelerated or subject to a further deferral except as permitted pursuant to (i) Section 409A of the Code and the applicable regulations and (ii) the Grantee’s timely election to defer the payment of Stock in accordance with the attached Restricted Stock Unit Deferral Election. Payment of the Restricted Stock Units may be delayed only in accordance with Section 409A of the Code and the applicable regulations. This Notice shall be administered in compliance with Section 409A of the Code or an exception thereto and each provision shall be interpreted, to the extent possible, to comply with Section 409A of the Code and the applicable regulations.

 

MANY OF THE PROVISION OF THIS AWARD AGREEMENT ARE SUMMARIES OF SIMILAR PERTINENT PROVISIONS OF THE PLAN. TO THE EXTENT THAT THIS AGREEMENT IS SILENT ON AN ISSUE OR THERE IS A CONFLICT BETWEEN THE PLAN AND THIS AGREEMENT, THE PLAN PROVISIONS SHALL CONTROL.

 

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Exhibit 4.2

 

SHAREHOLDER RIGHTS AGREEMENT

 

FORTITUDE gOLD Corporation

2886 Carriage Manor Point,

Colorado Springs, Colorado 80906

 

 

 

 

TABLE OF CONTENTS

 

SECTION   PAGE
     
1 Certain Definitions 3
2 Appointment of Rights Agent 7
3 Issue of Right Certificates 7
4 Form of Right Certificates 9
5 Countersignature and Registration 9
6 Transfer, Split-Up, Combination and Exchange of Rights Certificates; Lost, Stolen, Destroyed or Mutilated Right Certificates 9
7 Exercise of Rights; Purchase Price; Expiration Date of Rights  10
8 Cancellation and Destruction of Right Certificates 11
9 Reservation and Availability of Common Shares 12
10 Common Shares Record Date 13
11 Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights  13
12 Certificate of Adjusted Purchase Price or Number of Shares  21
13 Consolidation, Merger, Statutory Share Exchange or Sale or Transfer of Assets or Earning Power  21
14 Fractional Rights and Fractional Shares 24
15 Rights of Action 24
16 Agreement of Right Holders 25
17 Right Certificate Holder Not Deemed a Shareholder 25
18 Concerning the Rights Agent 26
19  Merger or Consolidation or Change of Name of Rights Agent  26
20 Duties of Rights Agent 27
21 Change of Rights Agent 29
22 Issuance of New Right Certificates 29
23 Redemption 30
24 Exchange 30
25 Notice of Certain Events 32
26 Notices 32
27 Supplements and Amendments 33
28 Successors 33
29 Benefits of this Agreement 33
30 Severability 34
31 Governing Law 34
32 Counterparts 34
33 Descriptive Headings 34

 

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SHAREHOLDER RIGHTS AGREEMENT

 

Agreement, dated as of October 15, 2020, between Fortitude Gold Corporation, a Colorado corporation (the "Company"), and Computershare Trust Company, N.A.. (the “Rights Agent”).

 

The Board of Directors of the Company has authorized and declared a dividend of one Series A Right and one Series B Right (individually a "Series A Right" or a "Series B Right" and collectively the "Rights" for each Common Share (as defined in this Agreement) of the Company outstanding on October 15, 2020 (the “Record Date”). Each Series A Right initially represents the right to purchase one share of the Company's Common Stock (as defined in this Agreement), upon the terms and subject to the conditions set forth in this Agreement. Each Series B Right is initially exercisable at $100 (the "Purchase Price" for the Series B Right). The Board of Directors has further authorized the issuance of one Series A Right and one Series B Right (as such number may hereafter be adjusted) with respect to each Common Share that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date (as such terms are defined in this Agreement).

 

Accordingly, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:

 

Section 1. Certain Definitions. For purposes of this Agreement, the following terms have the meanings indicated:

 

(a)       "Acquiring Person" shall mean any Person (as such term is defined in this Agreement) who or which, together with all Affiliates and Associates (as such terms are defined in this Agreement) of such Person, shall be the Beneficial Owner (as such terms are defined in this Agreement) of 15% or more of the Common Shares of the Company then outstanding, but shall not include (i) the Company, (ii) any wholly owned Subsidiary (as such term is defined in this Agreement) of the Company, or (iii) any employee benefit plan of the Company or of any Subsidiary of the Company. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of Common Shares by the Company which, by reducing the number of Common Shares Outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more of the Common Shares of the Company then outstanding; provided, however, that if a Person shall, together with all Affiliates or Associates of such Person, become the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding by reason of share acquisitions by the Company and if such Person or such Person's Affiliates or Associates shall, after such share acquisitions by the Company, become the Beneficial Owner of any additional Common Shares of the Company, and, immediately after becoming the Beneficial Owner of such additional Common Shares, such Person shall, together with all Affiliates and Associates of such Person, be the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding, then such Person (unless such Person shall be (1) the Company, (2) any wholly owned subsidiary of the Company, or (3) any employee benefit plan of the Company or of any Subsidiary of the Company) shall be deemed an "Acquiring Person".

 

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(b)       "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date of this Agreement. Notwithstanding anything in this definition of "Affiliate" or "Associate" to the contrary, no trustee or other Person holding Common Shares for or pursuant to the terms of any employee benefit plan of the Company or of any Subsidiary of the Company (and no Affiliate or Associate of such trustee or other Person), and no member of any investment committee for any such employee benefit plan (and no Affiliate or Associate of such member) shall be deemed an Affiliate or Associate of any such employee benefit plan with respect to which such Person (or such Person's Affiliate or Associate) is trustee, holder, beneficiary or member of any investment committee and any such employee benefit plan shall not be deemed an Affiliate or Associate of such trustee, beneficiary, member of any investment committee or other Person (or of any Affiliate or Associate of such trustee, beneficiary, member of any investment committee or other Person).

 

(c)       A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "beneficially own" or have "beneficial ownership" of, any securities:

 

(i)       which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly, including without limitation securities with respect to which such Person or any of such Person's Affiliates or Associates has "beneficial ownership" pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act;

 

(ii)       which such Person or any of such Person's Affiliates or Associates has, directly or indirectly, (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, whether or not in writing (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, other rights (other than the Rights), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, or to have beneficial ownership of, any securities pursuant to subparagraph (i), (ii) or (iii) of this paragraph (c) solely because such securities are tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote or dispose of (including without limitation pursuant to any agreement, arrangement or understanding, whether or not in writing); provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, or to have beneficial ownership of, any securities pursuant to subparagraph (i), (ii) or (iii) of this paragraph (c) solely because of the right to vote such securities pursuant to an agreement, arrangement or understanding if the agreement, arrangement or understanding to vote such securities (1) arises solely from a revocable proxy or consent given to such Person or any of such Person's Affiliates or Associates in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act and (2) is not also then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report) as being beneficially owned by such person; or

 

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(iii)       which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subparagraph (ii) of this paragraph (c)) or disposing of any voting securities of the Company.

 

Notwithstanding anything in these definitions to the contrary, the phrase "then outstanding", when used with reference to a Person's beneficial ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to beneficially own under this Agreement.

 

Notwithstanding anything in these definitions to the contrary, no trustee or other Person holding Common Shares for or pursuant to the terms of any employee benefit plan of the Company or of any Subsidiary of the Company (and no Affiliate or Associate of such trustee or other Person), and no member of any investment committee for any such employee benefit plan (an no Affiliate or Associate of such member) shall be deemed the Beneficial Owner of, or to beneficially own, or to have beneficial ownership of, any Common Share of the Company beneficially owned by any employee benefit plan of the Company or of any Subsidiary of the Company with respect to which such Person (or such Person's Affiliate or Associate) is trustee, holder, beneficiary or member of any investment committee (including without limitation Common Shares held of record by such trustee, beneficiary member of any investment committee or other Person for or pursuant to the terms of any such employee benefit plan) and any such employee benefit plan shall not be deemed to be the Beneficial Owner of, or to beneficially own, or to have beneficial ownership of, any Common Shares of the Company beneficially owned by such trustee, beneficiary, member of any investment committee or other Person.

 

(d)       "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York or Colorado are authorized or obligated by law or executive order to close.

 

(e)       "Close of Business" on any given date shall mean 5:00 P.M., Denver, Colorado time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., Denver, Colorado time, on the next succeeding Business Day.

 

(f)       "Common Shares", when used with reference to the Company, shall mean Common Shares of the Company. "Common Shares", when used with reference to any Person other than the Company, shall mean the capital stock (or equity interest) with the greatest voting power of such other Person.

 

(g)       "Continuing Director" shall mean any Person who is a member of the Board of Directors of the Company, while such Person is a member of the Board of Directors, who is not an Acquiring Person, a Tender Offer Person or an Affiliate or Associate of an Acquiring Person or a Tender Offer Person, or a representative or nominee of an Acquiring Person or a Tender Offer Person or of any such Affiliate or Associate, and who was a member of the Board of Directors of the Company on the date of this Agreement. A “Continuing Director” shall also mean any Person who subsequently becomes a member of the Board of Directors of the Company, while such Person is a member of the Board of Directors, who is not an Acquiring Person or a Tender Offer Person, or an Affiliate or Associate, or a representative or nominee of any such Person or of any such Affiliate or Associate, if such Person's initial nomination for election or initial election to the Board of Directors is recommended or approved by the Board of Directors (at a time when a majority of the directors then serving are Continuing Directors).

 

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(h)       “Distribution Date” shall have the meaning set forth in Section 3.

 

(i)       “Final Expiration Date” shall be __________.

 

(j)       “Person” shall mean an individual, firm, corporation, partnership or other entity, and shall include any successor (by merger or otherwise) of any such entity.

 

(k)       "Preferred Shares" shall mean any Preferred Shares or any series or class of Preferred Shares which may be issued or designated by the Company's Board of Directors.

 

(l)       "Redemption Date" shall have the meaning set forth in Section 7.

 

(m)       "Section 11(a)(ii) Event" shall mean any event described in Section 11(a)(ii)(A) or (B).

 

(n)       "Section 13 Event" shall mean any event described in clauses (w), (x), (y) or (z) of Section 13(a).

 

(o)       "Share Acquisition Date" shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such.

 

(p)       "Subsidiary" of any Person shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or other equity interests entitled to vote in the election of directors (or Persons with comparable responsibilities if the entity has no directors) is beneficially owned, directly or indirectly, by such Person, or otherwise controlled by such Person.

 

(q)       "Tender Offer Person" shall mean any person who commences, or publicly announces the intention to commence (which intention shall not have been withdrawn within five Business Days after the commencement of such tender offer or such public announcement), a tender or exchange offer the consummation of which would result in beneficial ownership by a Person (other than the Company, any wholly owned Subsidiary of the Company or any employee benefit plan of the Company or of any Subsidiary of the Company) of 15% or more of the Company's then outstanding Common Shares.

 

(r)       "Trading Day" shall have the meaning set forth in Section 11(d).

 

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Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3, shall prior to the Distribution Date also be the holders of the Common Shares) in accordance with the terms and conditions of this Agreement, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable.

 

Section 3. Issue of Right Certificates. (a) Until the earlier of (i) the Close of Business on the 15th business day after the Share Acquisition Date or (ii) the Close of Business on the 15th business day (or such later date as may be determined by action of the Board of Directors prior to such time as any Person becomes an Acquiring Person) after the date of the commencement of, or first public announcement of the intention of any Person to commence (which intention shall not have been withdrawn within five Business Days after such public announcement), a tender or exchange offer the consummation of which would result in beneficial ownership by a Person (other than the Company, any wholly owned Subsidiary of the Company or any employee benefit plan of the Company or of any Subsidiary of the Company) of 15% or more of the then outstanding Common Shares (including any such date that is after the date of this Agreement and prior to the issuance of the Rights) the earlier of such dates being herein referred to as the "Distribution Date", (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section) by the certificates for Common Shares registered in the names of the holders thereof (which certificates shall also be deemed to be Right Certificates where the context so requires ) and not by separate Right Certificates, and (y) the right to receive Right Certificates will be transferable only in connection with the transfer of Common Shares. As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the Company will send or cause to be sent (and the Rights Agent will, if requested, send) by first-class, postage-prepaid mail, to each record holder of Common Shares as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, Right Certificates, in substantially the form of Exhibit A (the "Right Certificates"), evidencing one Series A Right and one Series B Right for each Common Share so held. In the event that an adjustment has been made pursuant to Section 11, at the time Right Certificates are distributed, the Company may, to the extent provided in Section 14(a), make the necessary and appropriate rounding adjustments (as set forth in Section 14(a)) so that Right Certificates are distributed representing only whole numbers of Rights and pay cash in lieu of fractional Rights pursuant to Section 14(a). As of and after the Distribution Date, the Rights will be evidenced solely by such Right Certificates.

 

Notwithstanding the above, the Distribution Date may be deferred indefinitely by action of the Board of Directors if an Acquiring Person becomes such pursuant to a transaction at a price and on terms approved by the Board of Directors of the Company at a time when a majority of directors the serving are Continuing Directors.

 

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(b)               On the Record Date, or as soon as practicable thereafter, the Company will send a copy of a Summary of Rights to Purchase Common Shares, in substantially the form of Exhibit B (the "Summary of Rights"), to each record holder of Common Shares as of the close of business on the Record Date, at the address of such holder shown on the records of the Company. With respect to certificates for Common Shares outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates registered in the names of the holders thereof and the registered holders of the Common Shares shall also be registered holders of the associated Rights. Until the Distribution Date (or the earlier of the Redemption Date or the Final Expiration Date), the surrender for transfer of any certificate for Common Shares, with or without a copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights associated with the Common Shares represented thereby.

 

(c)               Rights shall be issued in respect of all Common Shares that are issued after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date. Certificates for Common Shares which become outstanding after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date shall have impressed on, printed on, written on or otherwise affixed to them the following legend:

 

This certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between the Company and Computershare Trust Company, N.A.., dated as of __________, 2020 (the "Rights Agreement"), the terms of which (including restrictions on the transfer of such Rights) are incorporated herein by reference and a copy of which is on file with the Secretary at the principal executive offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor to its Secretary from such holder. Under certain circumstances, as set forth in the Rights Agreement, Rights issued to or held by a Person who is, was or becomes an Acquiring Person or any Associate or Affiliate thereof (as such terms are defined in the Rights Agreement), or certain transferees of such Person, may become null and void.

 

With respect to certificates containing this legend, until the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date, the Rights associated with the Common Shares represented by such certificates shall be evidenced by such certificates alone, the registered holders of the Common Shares shall also be the registered holders of the associated Rights and the surrender for transfer of any such certificate shall also constitute the transfer of the Rights associated with the Common Shares represented thereby. In the event that the Company purchases or acquires any Common Shares after the Record Date but prior to the Distribution Date, any rights associated with such Common Shares shall be deemed cancelled and retired so that the Company shall not be entitled to exercise any Rights associated with the Common Shares which are no longer outstanding.

 

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Section 4. Form of Right Certificates. The Right Certificates (and the forms of election and of assignment to be printed on the reverse thereof) shall be in substantially the form of Exhibit A and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law, rule or regulation or to conform to usage. Subject to the provisions of Section 11 and 22, the initial Right Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such securities as shall be set forth therein at the price set forth therein (the "Purchase Price"), but the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price shall be subject to adjustment as provided in this Agreement.

 

Section 5. Countersignature and Registration.

 

(a)       The Right Certificates shall be executed on behalf of the Company by its Chairman, Chief Executive Officer, President, any Vice President or Secretary, either manually or by facsimile signature. The Right Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the signing of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer.

 

(b)       Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office or the office or offices designated as the appropriate place for surrender of Right Certificates upon exercise or transfer, books for registration and transfer of the Right Certificates. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates.

 

Section 6. Transfer, Split-Up, Combination and Exchange of Rights Certificates; Lost, Stolen, Destroyed or Mutilated Right Certificates.

 

(a)       Subject to the provisions of Section 14, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the earlier of the Redemption Date or the Final Expiration Date, any Right Certificate or Right Certificates (other than Right Certificates representing Rights that have become void pursuant to Section 11(a)(ii) or that have been exchanged pursuant to Section 24) may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of securities as the Right Certificate or Right Certificates surrendered then entitled such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Rights Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the office or offices of the Rights Agent designated for such purpose. Thereupon the Rights Agent shall, subject to Section 14, countersign and deliver to the Person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment by the registered holder of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split-up, combination or exchange of Right Certificates. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Right Certificate until the registered holder shall have duly completed and executed the form of assignment on the reverse side of such Right Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) of such Right Certificate or Affiliates or Associates thereof as the Company shall reasonably request.

 

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(b)       Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Right Certificate so lost, stolen, destroyed or mutilated.

 

Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.

 

(a)       Subject to Section 11(a)(ii), the registered holder of any Series A Right may exercise the Rights evidenced thereby (except as otherwise provided in this Agreement) in whole or in part at any time after the Distribution Date upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly completed and executed, to the Rights Agent at the office or offices of the Rights Agent designated for such purpose, together with payment of the Purchase Price for which the Rights are exercised, at or prior to the earliest of (i) the close of business on the Final Expiration Date, (ii) the time at which the Rights are redeemed as provided in Section 23 (the "Redemption Date"), or (iii) the time at which such Rights are exchanged as provided in Section 24.

 

(b)       The Purchase Price for each Common Share issuable pursuant to the exercise of a Series A Right shall initially be 20% (the "Purchase Price Percentage") of the current per share market price of the Company's Common Shares computed as of the Distribution Date and in accordance with Section 11(d) of this Agreement. The Purchase Price Percentage shall be subject to adjustment from time to time as provided in this Agreement and the Purchase Price shall be payable in lawful money of the United States in accordance with paragraph (c) below.

 

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(c)       Upon receipt of a Right Certificate representing exercisable Series A Rights, with the form of election to purchase duly completed and executed, accompanied by payment of the Purchase Price for the shares to be purchased and an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with Section 9 in cash, or by certified check or bank cashier check or money order payable to the order of the Company, the Rights Agent shall, subject to Section 20(k), thereupon promptly (i) (A) requisition from any transfer agent of the Common Shares (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the number of Common Shares to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company shall have elected to deposit the total number of Common Shares issuable upon exercise of the Series A Rights under this Agreement with a depositary agent, requisition from the depositary agent depositary receipts representing such number of Common Shares as are to be purchased (in which case certificates for the Common Shares represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company hereby directs the depositary agent to comply with such request, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional interests in shares in accordance with Section 14, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) when appropriate, after receipt, deliver such cash for fractional interests in Common Shares to or upon the order of the registered holder of such Right Certificate.

 

(d)       In case the registered holder of any Series A Right Certificate shall exercise less than all the Series A Rights evidenced thereby, a new Right Certificate evidencing Series A Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to the registered holder of such Right Certificate or to such holder's duly authorized assigns, subject to the provisions of Section 14.

 

(e)       Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section unless such registered holder shall have (i) duly completed and executed the form of election to purchase set forth on the reverse side of the Right Certificate surrendered for such exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) of such Right Certificate or Affiliates or Associates thereof as the Company shall reasonably request.

 

Section 8. Cancellation and Destruction of Right Certificates. All Right Certificates surrendered for the purpose of exercise, transfer, split-up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Rights Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Right Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Right Certificates after any retention period required by the Securities and Exchange Commission has lapsed, and in such case shall deliver a certificate of destruction thereof to the Company.

 

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Section 9. Reservation and Availability of Common Shares.

 

(a)       The Company covenants and agrees that it will use its best efforts to reserve and keep available out of its authorized and unissued Common Shares, the number of Common Shares Shares that will be sufficient to permit the exercise in full of all outstanding Rights.

 

(b)       At such time, if any, as the Common Shares issuable upon the exercise of Rights may be listed on any national securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable (but only to the extent that it is reasonably likely that the Rights will be exercised), all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise.

 

(c)       The Company will prepare and file, as soon as practicable following the Share Acquisition Date or any announcement of a Tender Offer or Exchange Offer as contemplated by Section 3, a registration statement under the Securities Act of 1933, as amended (the "Act"), with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and use its best efforts to cause such registration statement to (i) become effective as soon as practicable after such filing, and (ii) remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities or (B) the Final Expiration Date. The company will also take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend, for a period of time not to exceed 90 days after the date the registration statement is filed, the exercise of the Rights in order to permit the registration statement to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercise of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction if the requisite qualification in such jurisdiction shall not have been obtained or the exercise thereof is not permitted under applicable law.

 

(d)       The Company covenants and agrees that it will take all such action as may be necessary to ensure that all Common Shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such Common Shares (subject to payment of the Purchase Price and any applicable transfer taxes), be duly and validly authorized and issued and fully paid and nonassessable shares.

 

(e)       The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges that may be payable in respect of the issuance or delivery of the Right Certificates or of any Common Shares upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax that may be payable in respect of any transfer or delivery of Right Certificates to a person other than, or the issuance or delivery of certificates or depositary receipts for the Common Shares in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise, or to issue or deliver any certificates or depositary receipts for Common Shares upon the exercise of any Rights, until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due.

 

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Section 10. Common Shares Record Date. Each person in whose name any certificate for Common Shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Common Shares represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate as such shall not be entitled to any rights of a holder of Common Shares for which the Rights shall be exercisable, including without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein.

 

Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights. The Purchase Price, the number and kind of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11.

 

(a)         (i)         In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Common Shares payable in Common Shares, (B) subdivide the outstanding Common Shares, (C) combine the outstanding Common Shares into a smaller number of Common Shares or (D) issue any shares of its capital stock in a reclassification of the Common Shares (including any such reclassification in connection with a consolidation, merger or statutory share exchange in which the Company is the continuing, surviving or acquiring corporation), except as otherwise provided in this Section 11(a), the Purchase Price and/or Purchase Price Percentage in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date pursuant to the exercise of the Rights, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the Purchase Price then in effect (and any applicable transfer taxes), the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the transfer books of the Company were open, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. If an event occurs which would require an adjustment under both Section 11(a)(i) and Section 11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to any adjustment required pursuant to Section 11(a)(ii).

 

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(ii)        Subject to Section 24 of this Agreement, in the event:

 

(A)       any Person shall become an Acquiring Person or a Tender Offer Person other than (1) pursuant to any transaction set forth in Section 13(a) or (2) as a result of an acquisition of Common Shares of the Company pursuant to a tender offer or an exchange offer for all outstanding Common Shares of the Company at a price and on terms determined by the Board of Directors of the Company, at a time when a majority of the directors then serving are Continuing Directors and after receiving advice from one or more investment banking firms, to be (a) fair to shareholders (taking into account all factors which the Board of Directors deems relevant), and (b) otherwise in the best interests of the Company and its shareholders and which the Board of Directors determines to recommend to the shareholders of the Company, or

 

(B)       during such time as there is an Acquiring Person or a Tender Offer Person, there shall be any reclassification of securities (including any reverse stock split) or recapitalization or reorganization of the Company or other transaction or series of related transactions involving the Company (whether or not with or into or otherwise involving an Acquiring Person, or a Tender Offer Person or any of their Affiliates or Associates) which has the effect, directly or indirectly, of increasing by more than 1% the proportionate share of the outstanding shares of any class of equity securities or of securities exercisable for or convertible into equity securities of the Company or any of its Subsidiaries that is directly or indirectly beneficially owned in the aggregate by any Acquiring Person or a Tender Offer Person or any of their Associates or Affiliates, then, from and after the first occurrence of a Section 11(a)(ii) Event, any Rights that are beneficially owned by (i) any Acquiring Person or Tender Offer Person or any Associate or Affiliate of such Acquiring Person or Tender Offer Person, (ii) a transferee of an Acquiring Person or Tender Offer Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person or Tender Offer Person becomes such, or (iii) a transferee of an Acquiring Person or Tender Offer Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person or Tender Offer Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person or Tender Offer Person to holders of equity interests in such Acquiring Person or Tender Offer Person or to any Person with whom the Acquiring Person or Tender Offer Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is a part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this paragraph, shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to insure that the provisions hereof are complied with, but shall have no liability to any holder of a Right Certificate or other Person as a result of its failure to make any determinations with respect to an Acquiring Person, a Tender Offer Person or its Affiliates, Associates or Transferrees.

 

(iii)       If, on the date of the first occurrence of a Section 11(a)(ii) Event (the "Adjustment Date"), the Company does not have sufficient authorized, unissued and unreserved Common Shares available to permit the exercise in full of all Series A Rights that are exercisable on the Adjustment Date for the number of Common Shares provided by such Series A Rights, then the Exercise Price (as defined below) and the number of Common Shares to be delivered by the Company upon exercise of a Series A Right shall be further adjusted as provided in this subparagraph (iii).

 

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(1)       Definitions:

 

(A)       "Remaining Rights" are the number of Rights remaining outstanding immediately prior to the Adjustment Date (which number shall not include the Rights that are or were beneficially owned by any Acquiring Person or Tender Offer Person (or any Associate or Affiliate or certain transferees thereof) that shall have become void pursuant to Section 11(a)(ii)).

 

(B)       The "Available Shares" are all unreserved Common Shares which are authorized and unissued immediately prior to the Adjustment Date.

 

(C)       The "Exercise Price" is the amount of the payment that must be made by the holder of a Series A Right in connection with the exercise of one Series A Right immediately prior to the Adjustment Date.

 

(2)         (A)       The number of Common Shares to be delivered by the Company upon exercise of a Series A Right shall be adjusted to equal the number obtained by multiplying (i) the number of Common Shares issuable upon the exercise of all remaining Series A Rights on the Adjustment Date by (ii) the ratio obtained by dividing the Available Shares by the number of Common Shares issuable upon the exercise of all remaining Series A Rights on the Adjustment Date;

 

(B)       the New Exercise Price shall equal the Exercise Price multiplied by the ratio described in (2)(A) above; and

 

(C)       in lieu of issuing Common Shares (in whole or in part upon the exercise of Rights) the Company may issue, upon the exercise of Rights, other equity securities of the Company (including, without limitation, shares, or units or fractions of shares, or preferred stock which the Board of Directors of the Company has determined to have substantially the same value as Common Shares (such equity securities are herein called "common share equivalents")). To the extent that such common share equivalents (or fractions thereof) are substituted for Common Shares upon exercise of the Rights following the occurrence of a Section 11(a)(ii) Event, they shall be substituted on a pro-rata basis with respect to all Rights (other than Rights that are or were beneficially owned by any Acquiring Person or Tender Offer Person (or any Associate or Affiliate or certain transferees thereof) that shall have become void pursuant to Section 11(a) (ii)). Such common share equivalents shall not be included in Available Shares, and all of the Available Shares shall be reserved, as of the Adjustment Date, for issuance, on a pro-rata basis, upon exercise of the Rights and may not be substituted for common share equivalents upon the exercise of any Right except to the extent that the number of Common Shares required to be delivered upon the exercise of such Rights exceeds the number of Available Shares.

 

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(3)        If, at the time any adjustment is required pursuant to this Section 11(a)(iii), the Common Shares shall have no par value, then for the purposes of this Section 11(a)(iii) the par value of the Common Shares shall be deemed to be $.001 per share.

 

(4)        In the event that there shall not be sufficient authorized but unissued and unreserved Common Shares (or common share equivalents the issuance of which is permitted under Section 11(a)(iii)(2)(C)) to permit the exercise in full of the Rights in accordance with this subparagraph, the Company shall use its best efforts to cause the authorization of sufficient additional Common Shares or common share equivalents to permit such exercise, and if the Board of Directors of the Company shall determine in good faith that it is likely that sufficient additional Common Shares or common share equivalents could be authorized to permit such exercise, the Company may suspend the exercisability of the Series A Rights for a period not to exceed 90 days in order to seek any authorization of additional Common Shares or other common share equivalents. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect.

 

(b)       In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Common Shares entitling them to subscribe for or purchase Common Shares (or shares having the same rights, privileges and preferences as the Common Shares ("equivalent common shares")) or securities convertible into Common Shares or equivalent common shares at a price per Common Share or equivalent common share (or having a conversion price per share, if a security convertible into Common Shares or equivalent common shares) less than the current per share market price of the Common Shares (as determined pursuant to Section 11(d)) on such record date, the Purchase Price Percentage to be in effect after such record date shall be determined by multiplying the Purchase Price Percentage in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Common Shares outstanding on such record date, plus the number of Common Shares which the aggregate offering price of the total number of Common Shares and/or equivalent common shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase, at such current per share market price, and the denominator of which shall be the number of Common Shares outstanding on such record date, plus the number of additional Common Shares and/or equivalent common shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible); provided, however, that in no event shall the consideration to be paid upon the exercise of one Series A Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Series A Right. In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by a majority of the Continuing Directors (or, if there are no Continuing Directors, by the Board of Directors of the Company), whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Common Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights or warrants are not so issued; the Purchase Price Percentage shall again be adjusted to be the Purchase Price Percentage which would then be in effect if such record date had not been fixed.

 

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(c)       In case the Company shall fix a record date for the making of a distribution to all holders of the Common Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation or in a statutory share exchange) of evidences or indebtedness or cash or non-cash assets (other than a regular cash dividend or a dividend payable in Common Shares) or subscription rights or warrants (excluding those referred to in Section 11(b)), the Purchase Price Percentage to be in effect after such record date shall be determined by multiplying the Purchase Price Percentage in effect immediately prior to such record date by a fraction, the numerator of which shall be the current per share market price of the Common Shares (as determined pursuant to Section 11(d)) on such record date, less the fair market value (as determined in good faith by a majority of the Continuing Directors or, if there are no Continuing Directors, the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the evidences of indebtedness or cash or non-cash assets so to be distributed on, or the fair market value of such subscription rights or warrants applicable to, one Common Share, and the denominator of which shall be such current per share market price of the Common Shares; provided, however, that in no event shall the consideration to be paid upon the exercise of one Series A Right be less than the aggregate par value of the shares of capital stock of the Company to be issued upon exercise of one Series A Right. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price Percentage shall again be adjusted to be the Purchase Price Percentage that would then be in effect if such record date had not been fixed.

 

(d)         (1)       For the purpose of any computation hereunder, the "current per share market price" of the Common Shares on any date shall be deemed to be the average of the daily closing prices per share of such Common Shares for the five consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that the current per share market price of the Common Shares is determined during a period following the announcement by the issuer of such Common Shares of (A) a dividend or distribution on such Common Shares payable in such Common Shares or securities convertible into such Common Shares (other than the Rights) or (B) any subdivision, combination or reclassification of such Common Shares, and prior to the expiration of five Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the current per share market price shall be appropriately adjusted to reflect the current market price per common share equivalent. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Shares are listed or admitted to trading or, if the Common Shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use, or, if on any such day the Common shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Shares selected by a majority of the Continuing Directors (or, if there are no Continuing Directors, the Board of Directors of the Company). If on any such day no market maker is making a market in the Common Shares, the fair value of such shares on such day as determined in good faith by a majority of the Continuing Directors (or, if there are no Continuing Directors, the Board of Directors of the Company) shall be used in lieu of the closing price for such day. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the Common Shares are listed or admitted to trading is open for the transaction of business or, if the Common Shares are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Shares are not publicly held or not so listed or traded, the current per share market price shall mean the fair value per share as determined in good faith by a majority of the Continuing Directors (or, if there are no Continuing Directors, the Board of Directors of the Company), whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes.

 

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(e)       Except as provided below, no adjustment in the Purchase Price Percentage shall be required unless such adjustment would require an increase or decrease of at least one-half of 1% in the Purchase Price Percentage; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11, but for the first sentence of this Section 11(e), shall be made no later than the earlier of (i) three days from the date of the transaction that requires such adjustment or (ii) the Final Expiration Date.

 

(f)       If as a result of an adjustment made pursuant to Section 11(a) or Section 13(a), the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Common Shares, thereafter the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions contained in Section 11(a) through (c), inclusive and the provisions of Sections 7, 9, 10, 13 and 14 with respect to the Common Shares shall apply on like terms to any such other shares.

 

(g)       All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price Percentage under this Agreement shall evidence the right to purchase, at the adjusted Purchase Price Percentage, the number of Common Shares (or other securities) purchasable from time to time under this Agreement upon exercise of the Rights, all subject to further adjustment as provided in this Agreement.

 

(h)       Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Section 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of Common Shares (calculated to the nearest one onetenth of a Common Share) obtained by (i) multiplying (x) the number of one Common Share covered by a Series A Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price.

 

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(i)       The Company may elect on or after the date of any adjustment of the Purchase Price or Purchase Price Percentage to adjust the number of Series A Rights, in substitution for any adjustment in the number of Common Shares purchasable upon the exercise of a Series A Right. Each of the Series A Rights outstanding after such adjustment of the number of Series A Rights shall be exercisable for the number of Common Shares for which a Series A Right was exercisable immediately prior to such adjustment. Each Series A Right held of record prior to such adjustment of the number of Series A Rights shall become that number of Rights (calculated to the nearest one tenthousandth) obtained by multiplying the number one by the Purchase Price in effect immediately prior to adjustment of the Purchase Price and then dividing such amount by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Series A Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Series A Right Certificates have been issued on or after the Distribution Date, shall be at least three days later than the date of the public announcement. If Series A Right Certificates have been issued on or after the Distribution Date, upon each adjustment of the number of Series A Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Series A Right Certificates on such record date Series A Right Certificates evidencing, subject to Section 14, the additional Series A Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Series A Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Series A Right Certificates evidencing all the Series A Rights to which such holders shall be entitled after such adjustment. Series A Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for in this Agreement, may bear, at the option of the Company, the adjusted Purchase Price or Purchase Price Percentage, and shall be registered in the names of the holders of record of Series A Right Certificates on the record date specified in the public announcement.

 

(j)       Irrespective of any adjustment or change in the Purchase Price, the Purchase Price Percentage or the number of Common Shares issuable upon the exercise of the Rights and the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price, the Purchase Price Percentage and the number of Common Shares which were expressed in the initial Right Certificates issued under this Agreement.

 

(k)       Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the Common Shares issuable upon exercise of the Rights, the Company shall take such corporate action, if any, which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Common Shares at such adjusted Purchase Price.

 

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(l)       In any case in which this Section 11 shall require that an adjustment in the Purchase Price or Purchase Price Percentage be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date the Common Shares and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Common Shares and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price or Purchase Price Percentage in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment.

 

(m)       Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price or Purhase Price Percentage, in addition to those adjustments expressly required by this Section 11, as and to the extent that in their sole discretion a majority of the Continuing Directors (or, if there are no Continuing Directors, the Board of Directors of the Company) shall determine to be advisable in order that any (i) consolidation or subdivision of the Common Shares, (ii) issuance wholly for cash of any of the Common Shares at less than the current market price, (iii) issuance wholly for cash of Common Shares or securities which by their terms are convertible into or exchangeable for Common Shares, (iv) dividends on Common Shares payable in Common Shares or (v) issuance of rights, options or warrants referred to in paragraph (b) of this Section 11, hereafter made by the Company to holders of its Common Shares shall not be taxable to such shareholders.

 

(n)       The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23, 24 or 27, take (or permit any Subsidiary of the Company to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights unless such action is approved by the Board of Directors of the Company at a time when a majority of the directors then serving are Continuing Directors.

 

(o)       Anything in this Agreement or the Rights to the contrary notwithstanding, in the event that at any time after the date of this Agreement and prior to the Distribution Date, the Company shall (i) declare or pay any dividend on the Common Shares payable in Common Shares or (ii) effect a subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise) into a greater or lesser number of Common Shares, then in any such case (x) the number of Common Shares purchasable after such event upon proper exercise of each Series A Right shall be determined by multiplying the number of Common Shares so purchasable immediately prior to such event by a fraction, the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares outstanding immediately before such event and (y) each Common Share outstanding immediately before such event shall have issued with respect to it that number of Rights which each Common Share outstanding immediately prior to such event had issued with respect to it. The adjustments provided for in this Section 11(o) shall be made successively whenever such a dividend is declared or paid or such a subdivision, combination or consolidation is effected. If an event occurs which would require an adjustment under Section 11(a)(ii) and this Section 11(o), the adjustments provided for in this Section 11(o) shall be in addition and prior to any adjustment required pursuant to Section 11(a)(ii).

 

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(p)       If any adjustment in the Purchase Price pursuant to this Section 11 would not be permitted by law or under the Company's Articles of Incorporation, no issuance of securities or distribution of evidences of indebtedness or other assets or subscription rights or warrants, as the case may be, that would require such an adjustment but for the limitations established by law or the Company's Articles of Incorporation shall be made by the Company.

 

Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in this Agreement, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent and with the transfer agent for the Common Shares a copy of such certificate and (c) at any time after the Distribution Date, mail a brief summary thereof to each holder of record of a Right Certificate in accordance with Section 25. The Rights Agent shall be fully protected in relying on such certificate and on any adjustment therein contained.

 

Section 13. Consolidation, Merger, Statutory Share Exchange or Sale or Transfer of Assets or Earning Power.

 

(a)       In the event, after the Distribution Date or within 15 days prior thereto, directly or indirectly,

 

(w)       the Company shall consolidate with, or merge with an into, any other Person (other than a Subsidiary of the Company), and the Company shall not be the continuing or surviving corporation of such consolidation or merger,

 

(x)       any Person (other than a Subsidiary of the Company) shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such consolidation or merger, all or part of the outstanding Common Shares of the Company held by existing shareholders of the Company shall be changed into or exchanged for stock or other securities of any other Person (or the Company) or money or any other property,

 

(y)       The Company shall effect a statutory share exchange with the outstanding Common Shares of the Company being exchanged for stock or other securities of any other Person, money or other property, or

 

(z)       the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or a series of related transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or one or more of its wholly owned Subsidiaries), then, and in each such case (except as may be contemplated by Section 13(e)), proper provision shall be made so that (i) each holder of a Series B Right (except as otherwise provided herein) shall thereafter have the right to receive, upon the exercise thereof by payment of the then current Purchase Price in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, nonassessable and freely tradeable Common Shares (and/or fraction of shares thereof) of the Principal Party (as hereinafter defined), not subject to any liens, encumbrances, rights of first refusal or adverse claims, as shall be equal to the result obtained by dividing the then current Purchase Price for the Series B Right by 50% of the then current per share market price of the Common Shares of such Principal Party (determined pursuant to Section 11(d)) on the date of consummation of such Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such merger, consolidation, statutory share exchange, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such Principal Party; and (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Shares to permit the exercise of all outstanding Rights) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its Common Shares thereafter deliverable upon the exercise of the Rights.

 

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(b)       "Principal Party" shall mean:

 

(i)       in the case of any transaction described in clauses (w), (x) or (y) of Section 13(a), the Person that is the issuer of any securities into which Common Shares of the Company are converted in such merger, consolidation or exchange, or if no securities are so issued, the Person that is the other party to such merger, consolidation or exchange; and

 

(ii)       in the case of any transaction described in clause (z) of Section 13(a), the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions; provided, however, that in any such case, (1) if the Common Shares of such Person are not at such time or have not been continuously over the preceding 12 month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Shares of which are and have been so registered, "Principal Party" shall refer to such other Person, and (2) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Shares of two or more of which are and have been so registered, "Principal Party" shall refer to whichever of such Persons is the issuer of the Common Shares having the greatest aggregate market value.

 

(c)       The Company shall not consummate any Section 13 Event unless the Principal Party shall have a sufficient number of authorized, unreserved Common Shares which have not been issued or are held in treasury to permit the exercise in full of the Rights in accordance with this Agreement and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of any Section 13 Event, the Principal Party will:

(i)       prepare and file a registration statement under the Act, with respect to the Rights and the securities purchasable upon exercise of the Rights, on an appropriate form, and use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (1) the date as of which the Rights are no longer exercisable for such securities or (2) the Final Expiration Date;

 

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(ii)       take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights; and

 

(iii)       deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 under the Exchange Act.

 

(d)       The Company shall not enter into any transaction of the kind referred to in this Section 13 if at the time of such transaction there are any rights, warrants, instruments or securities outstanding or any agreements or arrangements which, as a result of the consummation of such transaction, would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights. Without limiting the generality of the preceding sentence, in case the Principal Party which is to be a party to a transaction of the kind referred to in this Section 13 has a provision in any of its authorized securities or in its articles of incorporation or by-laws or other instrument governing its corporate affairs, which provision would have the effect of (i) causing such Principal party to issue, in connection with, or as a consequence of, the consummation of a transaction of the kind referred to in this Section 13, Common Shares of such Principal Party at less than the then current per share market price (determined pursuant to Section 11(d)) or securities exercisable for or convertible into Common Shares of such Principal Party at less than such then current market price (other than to holders of Rights pursuant to this Agreement) or (ii) providing for any special payment, tax or similar provisions in connection with the issuance of Common Shares of such Principal Party pursuant to the provisions of Section 13; then, in such event, the Company shall not consummate any such transaction unless prior thereto the provision in question of such Principal Party shall have been cancelled, waived or amended so as to avoid any of the effects referred to in clauses (i) and (ii), or the authorized securities shall have been redeemed, so that the applicable provision will have no effect in connection with, or as a consequence of, the consummation of the proposed transaction.

 

(e)       Notwithstanding anything in this Agreement to the contrary, Section 13 shall not be applicable to a transaction described in Section 13(a) if (i) such transaction is consummated with a Person or Persons who acquired Common Shares pursuant to a tender offer or exchange offer for all outstanding Common Shares which complies with the provisions of clause (2) of Section 11(a)(ii)(A) (or a wholly owned Subsidiary of any such Person or Person), (ii) the price per Common Share offered in such transaction is not less than the price per Common Share paid to all holders of Common Shares whose shares were purchased pursuant to such tender offer or exchange offer and (iii) the form of consideration being offered to the remaining holders of Common Shares pursuant to such transaction is the same as the form of consideration paid pursuant to such tender offer or exchange offer. Upon consummation of any such transaction contemplated by this Section 13(e), all Rights not yet exercised hereunder shall expire.

 

The provisions of this Section 13 shall similarly apply to successive mergers, consolidations, statutory share exchanges or sales or other transfers.

 

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Section 14. Fractional Rights and Fractional Shares.

 

(a)       The Company may, but shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there may be paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by a majority of the Continuing Directors (or if there are no Continuing Directors, the Board of Directors of the Company). If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined in good faith by a majority of the Continuing Directors (or if there are no Continuing Directors, the Board of Directors of the Company) shall be used in lieu of the closing price for such day.

 

(b)       The Company may, but shall not be required to issue fractions of Common Shares upon exercise of the Series A Rights or to distribute certificates which evidence fractions of Common Shares. In lieu of fractional Common Shares, the Company may pay to the registered holders of Series A Rights at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one Common Share. For purposes of this Section 14(b), the current market value of a Common Share shall be the closing price of a Common Share (as determined pursuant to Section 11(d)(ii)) for the Trading Day immediately prior to the date of such exercise.

 

(c)       The holder of a Right by the acceptance of the Rights expressly waives such holder's right to receive any fractional Rights or any fractional shares (except as provided above) upon exercise of a Right.

 

Section 15. Rights of Action. All rights of action in respect of this Agreement, excepting the rights of action given to the Rights Agent under Section 18, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of any Common Share), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Shares), may, in such holder's own behalf and for such holder's own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, such holder's right to exercise the Rights evidenced by such Right Certificate (or, prior to the Distribution Date, the Common Shares certificate) in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of this Agreement.

 

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Section 16. Agreement of Right Holders. Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that:

 

(a)       prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Shares;

 

(b)       after the Distribution date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer;

 

(c)       the Company and the Rights Agent may deem and treat the person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Shares certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificate or the associated Common Shares certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary;

 

(d)       the Company may issue Rights after the Record Date but prior to the Distribution Date as provided in this Agreement; and

 

(e)       notwithstanding anything in this Agreement or the Rights Certificates to the contrary, the Company, the Rights Agent, the Board of Directors of the Company and the Continuing Directors shall not have any liability to any holder of a Right or other Person as a result of the inability of the Company or the Rights Agent to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority prohibiting or otherwise restraining performance of such obligation.

 

Section 17. Right Certificate Holder Not Deemed a Shareholder. No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the Common Shares or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained in this Agreement or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in Section 25), or to receive dividends or subscriptions rights, or otherwise, until the Right or Rights evidenced by such Right Certificates shall have been exercised in accordance with the provisions of this Agreement.

 

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Section 18. Concerning the Rights Agent.

 

(a)       The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it under this Agreement and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties under this Agreement. Prior to transmitting to the Company the Purchase Price derived from the exercise of the Right Certificates, the Rights Agent is authorized to deduct therefrom an amount sufficient to pay in full any outstanding fees and expenses incurred in the performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability or expense (including the costs and expenses of defending against any claim of liability), incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement.

 

(b)       The Rights Agent shall be protected and shall incur no liability for, or in respect of any action taken, suffered or omitted by it in connection with, its administration of this Agreement in reliance upon any Right Certificate or certificate for the Common Shares or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons, or otherwise upon the advise of its counsel as set forth in Section 20.

 

Section 19. Merger or Consolidation or Change of Name of Rights Agent.

 

(a)       Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties to this Agreement; provided, however, that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21. If at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement.

 

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(b)       In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement.

 

Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and holders of Right Certificates (or, prior to the Distribution Date, the Common Shares certificates), by their acceptance of the Rights, shall be bound:

 

(a)       The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion.

 

(b)       Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation , the identify of any Acquiring Person and the determination of the "current per share market price") be proved or established by the Company prior to taking or suffering any action under this Agreement, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman, the Chief Executive Officer, the President, any Vice President or the Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate.

 

(c)       The Rights Agent shall be liable hereunder to the Company and any other Person only for its own gross negligence, bad faith or willful misconduct.

 

(d)       The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only.

 

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(e)       The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery of this Agreement (except the due execution by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to this Agreement) or any adjustment in the terms of the Rights (including the manner, method or amount thereof), or the ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after actual notice that such change or adjustment is required); nor shall it by any act under this Agreement be deemed to make any representation or warranty as to the authorization or reservation of any securities to be issued pursuant to this Agreement or any Right Certificate or as to whether any Common Shares or other security will, when issued, be validly authorized and issued, fully paid and nonassessable.

 

(f)       The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement.

 

(g)       The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties under this Agreement from any one of the Chairman, the Chief Executive Officers, the President, any Vice President or the Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer or for delay in acting while waiting for those instructions.

 

(h)       The Rights Agent and any shareholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company or its Subsidiaries may be interested, or contract with or lend money to the Company or its Subsidiaries or otherwise act as fully and freely as though it were not the Rights Agent under this Agreement. Nothing in this Agreement shall preclude the Rights Agent from acting in any other capacity for the Company or its Subsidiaries or for any other legal entity.

 

(i)       The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty under this Agreement either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof.

 

(j)       No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under this Agreement or in the exercise of its rights or powers if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it.

 

(k)       If, with respect to any Right Certificate surrendered to the Rights Agent for exercise or transfer, the form of assignment or form of election to purchase, as the case may be, has either not been duly completed and executed or indicates an affirmative response to enumerated clause 1 and/or 2 on the reverse side of the applicable Right Certificate, the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company.

 

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Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Shares by registered or certified mail, and, after the Distribution Date, to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares by registered or certified mail, and, after the Distribution Date, to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit such holder's Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a corporation organized and doing business under the laws of the United States or of the States of Colorado or New York (or of any other state of the United States so long as such corporation is authorized to do business in the States of Colorado or New York), in good standing, having an office in the States of Colorado or New York which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority or (b) an affiliate of a corporation described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it under this Agreement, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares and, after the Distribution Date, mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.

 

Section 22. Issuance of New Right Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in the such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price, the Purchase Price Percentage or the number or kind or class of Common Shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement.

 

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Section 23. Redemption.

 

(a)       Subject to the provisions of Section 27, the Board of Directors of the Company may, at its option, at any time prior to the Close of Business on the Distribution Date redeem all but not less than all of the then outstanding Series A Rights or Series B Rights, or all outstanding Series A and Series B Rights at a redemption price of $.0001 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date of this Agreement (such redemption price being hereinafter referred to as the "Redemption Price"); provided, however, that for the purposes hereof the Board of Directors of the Company shall be entitled to so redeem the Rights after the time at which any Person first becomes an Acquiring Person only if a majority of the directors then serving are Continuing Directors. The Company may, at its option, pay the Redemption Price in cash, Common Shares of the Company (based on the current per share market price of the Common Shares at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors. The redemption of the Rights by the Board of Directors may be made effective at such time and on such basis and with such conditions as the Board of Directors and the Company shall not have any liability to any person as a result of the redemption of Rights pursuant to the terms of this Section 23.

 

(b)       Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights pursuant to paragraph (a) of this Section 23, and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held. Promptly after the action of the Board of Directors ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to all such holders at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares; provided, however, that the failure to give, or any defect in, any such notice shall not affect the validity of such redemption. Any notice which is mailed in the manner provided in this paragraph shall be deemed given whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Neither the Company nor any of its Affiliates or Associates may redeem, acquire or purchase for value any Rights at any time except as specifically set forth in this Section or in Section 24 or in connection with the purchase of Common Shares prior to the Distribution Date.

 

Section 24. Exchange.

 

(a)       The Board of Directors of the Company may (at a time when a majority of the directors then serving are Continuing Directors), at its option, at any time after a Person becomes an Acquiring Person or a Tender Offer Person, exchange all or part of the then outstanding and exercisable Series A Rights and/or Series B. Rights (which shall not include Rights that have become void pursuant to the provisions of Section 11(a) (ii)) for Common Shares, with each Right to be exchanged for one Common Share (such number of shares being hereinafter referred to as the "Exchange Ratio"). The Exchange Ratio shall be appropriately adjusted to reflect any stock split, stock dividend or similar transaction affecting the Common Shares that occurs after the Adjustment Date. Notwithstanding the foregoing, the Board of Directors of the Company shall not be empowered to effect such exchange at any time after any Person (other than (1) the Company, (2) any wholly owned Subsidiary of the Company or (3) any employee benefit plan of the Company or of any Subsidiary of the Company), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Common Shares then outstanding.

 

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(b)       Immediately upon the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of Common Shares equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the Common Shares for Rights will be effected and, in the event of any partial exchange, the number of Rights will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 11(a)(ii)) held by each holder of Rights.

 

(c)       In any exchange pursuant to this Section 24, the Company, at its option, may substitute common share equivalents, as such term is defined in Section 11(a)(iii)(3)(C)), for Common Shares exchangeable for Rights, at the initial rate of one common share equivalent for each Common Share, as appropriately adjusted to reflect stock splits, stock dividends or similar transactions affecting the Common Shares that occur after the date of this Agreement.

 

(d)       In the event that there shall not be sufficient Common Shares or common share equivalents, authorized, unissued and unreserved to permit any exchange or Rights as contemplated in accordance with this Section 24, the Company shall take all such action as may be necessary to authorize additional Common Shares or common share equivalents for issuance upon exchange of the Rights.

 

(e)       The Company may, but shall not be required to issue fractions of Common Shares or to distribute certificates which evidence fractional Common Shares. In lieu of such fractional Common Shares, the Company may pay to the registered holders of the Right Certificates with regard to which such fractional Common Shares would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole Common Share. For the purposes of this paragraph (e), the current market value of a whole Common Share shall be the closing price of a Common Share (as determined pursuant to Section 11) for the Trading Day immediately prior to the date of exchange pursuant to this Section. The Board of Directors and the Company shall not have any liability to any Person as a result of the exchange of Rights pursuant to the terms of this Section.

 

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Section 25. Notice of Certain Events.

 

(a)       In case the Company shall propose, at any time after the Distribution Date, (i) to pay any dividend payable in stock of any class to the holders of its Common Shares or to make any other distribution to the holders of its Common Shares, or (ii) to offer to the holders of its Common Shares rights or warrants to subscribe for or to purchase any additional Common Shares or shares of stock of any class or any other securities, rights or options, or (iii) to effect any reclassification of its Common Shares (other than a reclassification involving only the subdivision of outstanding Common Shares), or (iv) to effect any consolidation or merger into or with any other Person (other than a wholly owned Subsidiary of the Company), or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), on one or a series of related transactions, of 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person or Persons (other than the Company and/or any of its wholly owned Subsidiaries), or (v) to effect any statutory share exchange with the outstanding Common Shares of the Company being exchanged for stock or other securities of any other corporation or money or other property, or (vi) to effect the liquidation, dissolution or winding up of the Company, or (vii) to declare or pay any dividend on the Common Shares payable in Common Shares or to effect a subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise), then, in each such case, the Company shall give to each holder of a Right Certificate, to the extent feasible and in accordance with Section 26, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, exchange, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the Common Shares, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of the Common Shares for purposes of such action, and in the case of any such other action, at least l0 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Shares, whichever shall be the earlier.

 

(b)       In case any Section ll(a)(ii) Event shall occur, then, in any such case, the Company shall as soon as practicable thereafter give to each holder of a Right Certificate, in accordance with Section 26, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section ll(a) (ii).

 

Section 26. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage-prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows:

 

FORTITUDE GOLD CORPORATION

2886 Carriage Manor Point,

Colorado Springs, Colorado 80906

 

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Subject to the provisions of Section 2l, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage-prepaid, addressed (until another address is filed in writing with the Company) as follows:

 

Computershare Trust Company, N.A..

350 Indiana St., Suite 800

Golden, CO 80401-5099

 

Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postageprepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company.

 

Section 27. Supplements and Amendments. The Company may and the Rights Agent shall, if so directed by the Company, from time to time supplement or amend this Agreement, provided that at the time of such supplement or amendment no Person has become an Acquiring Person or a majority of the directors are Continuing Directors, without the approval of any holders of Common Shares or Right Certificates in order (i) to extend the Final Expiration Date or the period during which the Rights may be redeemed, notwithstanding anything to the contrary provided in clause (iv) hereof, (ii) to cure any ambiguity, or to correct or supplement any provision contained in this Agreement which may be defective or inconsistent with any other provisions in this Agreement, (iii) prior to the Distribution Date, to otherwise change or supplement any provision in this Agreement in any manner which the Company may deem necessary or desirable, or (iv) following the Distribution Date, to otherwise change or supplement any provision in this Agreement in any manner which the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Right Certificates (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person). Without limiting the foregoing, the Company may at any time prior to such time as any Person becomes an Acquiring Person or a Tender Offer Person amend this Agreement to change the thresholds set forth in Sections l(a) and 3(a) of this Agreement.

 

Section 28. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.

 

Section 29. Benefits of this Agreement.

 

(a)            Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of Common Shares) any legal or equitable right, remedy or claim under this Agreement. This Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of Common Shares).

 

33

 

 

(b)            The Board of Directors of the Company (and/or, as provided for in this Agreement, the Continuing Directors) shall have the exclusive power and total and complete authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board of Directors or the Company (and/or, as provided for in this Agreement, a majority of the Continuing Directors, as the case may be) or necessary or advisable in the administration of this Agreement, including without limitation the right and power to interpret this Agreement and to make conclusively all determinations deemed necessary or advisable for the administration of this Agreement. All such acts, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) that are done or made by the Board of Directors and/or a majority of the Continuing Directors, as the case may be, in good faith shall (x) be final, conclusive and binding on the Company, the Rights Agent and the holders of the Rights and all other parties and (y) not subject the Board of Directors or the Continuing Directors to any liability to the holders of the Rights or any other party.

 

Section 30. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; provided, however, that notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board of Directors of the Company determines, at a time when a majority of the directors then serving are Continuing Directors, in their good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 shall be reinstated and shall not expire until the close of business on the tenth day following the date of such determination by the Board of Directors.

 

Section 3l. Governing Law. This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Colorado and for all purposes shall be governed by and construed in accordance with the laws of the State of Colorado.

 

Section 32. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

 

Section 33. Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Agreement.

 

34

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

 

  FORTITUDE GOLD CORPORATION
   
  By                  
    Jason Reid, President
   
  COMPUTERSHARE TRUST COMPANY, N.A..
   
  By  

 

35

 

 

SERIES A RIGHTS CERTIFICATE

 

FORTITUDE GOLD CORPORATION

 

Certificate No. R -              Rights

 

NOT EXERCISABLE AFTER _________, OR SUCH EARLIER DATE AS THE BOARD OF DIRECTORS ORDERS REDEMPTION OR EXCHANGE OF THE RIGHTS. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.000l PER RIGHT (SUBJECT TO ADJUSTMENT) AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENHT. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY A PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND SUBSEQUENT HOLDERS OF SUCH RIGHTS MAY BECOME NULL AND VOID.

 

This certifies that                     , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement dated as of September __, 2020 (the “Rights Agreement”) between Fortitude Gold Corporation, a Colorado corporation (the "Company"), and Computershare Trust Company, N.A.. (the “Rights Agent”), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 p.m. (Denver, Colorado) on _______ at the office of or offices of the Rights Agent designated for such purpose, or of its successor as Rights Agent, one share of the Common Stock (the "Common Shares") of the Company, at a purchase price equal to 20% of the current per share market price of the Company's Common Stock, computed in accordance with the Rights Agreement (the "Purchase Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly completed and executed.

 

As provided in the Rights Agreement, the number of Rights evidenced by this Rights Certificate, the Purchase Price and the number of shares of Common Stock which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events.

 

This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and which contains a full description of the rights, limitations, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates (which limitations of rights include the suspension of the exercisability of such Rights under certain circumstances specified in the Rights Agreement). Copies of the Rights Agreement are on file with the Secretary at the principal executive office of the Company and will be mailed without charge by the Company or the Rights Agent to the holder of this certificate promptly following receipt by the Company or the Rights Agent of a written request therefor.

 

 

  

Upon the occurrence of a Section ll(a)(ii) Event (as such term is defined in the Rights Agreement), any Rights evidenced by this Right Certificate that are beneficially owned by (i) an Acquiring Person, a Tender Offer Person or an Associate or Affiliate of such Acquiring Person or Tender Offer Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any such Acquiring Person, Tender Offer Person or Associate or Affiliate who becomes a transferee after the Acquiring Person or Tender Offer Person becomes such or (iii) under certain circumstances specified in the Rights Agreement, a transferee of such Acquiring Person, Tender Offer Person or Associate or Affiliate who becomes a transferee prior to or concurrently with the Acquiring Person or Tender Offer Person becoming such, shall be null and void from and after the occurrence of such Section ll(a)(ii) Event.

 

This Right Certificate, with or without other Right Certificates, upon surrender at the office or offices of the Rights Agent designated for such purpose, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of shares of Common Stock as the Rights evidenced by the Right Certificate or Right Certificates surrendered. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of Rights not exercised.

 

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (i) may, but are not required to, be redeemed by the Company (but, in certain events, only if a majority of the directors then serving are Continuing Directors, as defined in the Rights Agreement) at a redemption price of $.000l per Right, subject to adjustment as provided in the Rights Agreement, payable in cash, Common Shares (as such term is defined in the Rights Agreement) or any other form of consideration deemed appropriate by the Board of Directors, and (ii) may, but are not required to, be exchanged by the Company (if a majority of the directors then serving are Continuing Directors) in whole or in part for Common Shares or other property. The Board of Directors of the Company and the Company shall not have any liability to any person as a result of the redemption or exchange of the Rights pursuant to the provisions of the Rights Agreement.

 

Fractional Shares, if required, may be issued upon the exercise of any Right or Rights evidenced hereby. In the alternative, the Company may, in lieu of issuing Fractional Shares, redeem the Fractional Shares for cash or other property as provided in the Rights Agreement.

 

 

 

 

No holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Common Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement.

 

This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.

 

WITNESS the manual or facsimile signature of the proper officer of the Company.

 

   Dated:_______________________

 

  FORTITUDE GOLD CORPORATION
   
  By:                   

 

Title: ____________________________________

 

Countersigned:

 

Computershare Trust Company, N.A..

  

By:    
     Authorized Signature  

 

 

 

  

FORM OF ASSIGNMENT

  

(To be executed by the registered holder if such

holder desires to transfer the Right Certificate)

  

FOR VALUE RECEIVED____________________________________ hereby sells, assigns and transfers unto:

 

__________________________________________

(Please print name and address of transferee)

 

__________________________________________

 

__________________________________________

  

Rights represented by this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ___________________________ Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution.

 

Please insert social security or other identifying number of Transferee: _________________

  

Dated: ___________

 

   
  Signature

  

Signature Guaranteed:

  

The signature must be medallion guaranteed by a financial institution (commercial bank, stockbroker, savings and loan, credit union or trust company) that is a participant in the Securities Transfer Agents Medallion Program, pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended. A notary public is not sufficient.).

 

 

 

 

CERTIFICATE

  

The undersigned hereby certifies (after due inquiry and to the best of its knowledge) by checking the appropriate boxes that:

 

(l) this Right Certificate

 

[    ] is

[    ] is not

 

being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); and

 

(2) the undersigned

 

[    ] did

[    ] did not

 

acquire the Rights evidenced by this Right Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.

  

   
  Signature

 

NOTICE

 

The signature of the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever.

 

 

 

 

FORM OF ELECTION TO EXERCISE

 

(To be executed if holder desires to exercise

Rights represented by the Right Certificate)

  

To FORTITUDE GOLD CORPORATION

 

The undersigned hereby irrevocably elects to exercise __________ Rights represented by this Right Certificate to purchase the Common Shares issuable upon the exercise of such Rights (or such other securities of the Company or of any other person which may be issuable upon exercise of the Rights) and requests that certificates for such shares be issued in the name of:

 

__________________________________________

(Please print name and address of transferee)

 

__________________________________________

 

__________________________________________

 

If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to:

__________________________________________

(Please print name and address of transferee)

 

__________________________________________

 

__________________________________________

 

Please insert social security

or other identifying number: ______________

 

Dated: ______________

 

   
  Signature

  

Signature Guaranteed:

  

The signature must be medallion guaranteed by a financial institution (commercial bank, stockbroker, savings and loan, credit union or trust company) that is a participant in the Securities Transfer Agents Medallion Program, pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended. A notary public is not sufficient.)

 

 

 

 

CERTIFICATE

  

The undersigned hereby certifies (after due inquiry and to the best of its knowledge) by checking the appropriate boxes that:

 

(l) the Rights evidenced by this Right Certificate

 

[    ] are

[    ] are not

 

being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); and

 

(2) the undersigned

 

[    ] did

[    ] did not

 

acquire the Rights evidenced by this Right Certificate from any Person who is, was or subsequently became an Acquiring Person or an affiliate or Associate of an Acquiring Person.

 

   
  Signature

  

NOTICE

 

The signature of the foregoing Election to Exercise and Certificate must correspond to the name as written upon the face of this Right Certificate in every particular, without alternation or enlargement or any change whatsoever.

  

 

 

 

 

SERIES B RIGHTS CERTIFICATE

 

FORTITUDE GOLD CORPORATION

 

Certificate No. R-               Rights

 

NOT EXERCISABLE AFTER __________, OR SUCH EARLIER DATE AS THE BOARD OF DIRECTORS ORDERS REDEMPTION OR EXCHANGE OF THE RIGHTS. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.000l PER RIGHT (SUBJECT TO ADJUSTMENT) AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENHT. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY A PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND SUBSEQUENT HOLDERS OF SUCH RIGHTS MAY BECOME NULL AND VOID.

 

This certifies that  , or registered assigns, is the registered owner of the number of Rights set forth above. The Rights are subject to the terms, provisions and conditions of the Rights Agreement dated September __, 2020 (the “Rights Agreement”) between Fortitude Gold Corporation, a Colorado corportaion (the “Company”), and Computershare Trust Company, N.A.. (the “Rights Agent”). The Rights may be exercised at the office or offices of the Rights Agent designated for such purpose, or of its successor as Rights Agent, or any other office designated by the Company, by payment of $100 for each Right exercised (the Purchase Price) upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly completed and executed.

 

The Rights represented by this Certificate, if not exercised, redeemed or exchanged in accordance with the Rights Agreement, will expire at 5:00 p.m. (Mountain Time) on __________.

 

In the event, after the Distribution Date (as that term is defined in the Rights Agreement) or within 15 days prior thereto, directly or indirectly,

 

(a)       the Company shall consolidate with, or merge with an into, any other Person (other than a Subsidiary of the Company), and the Company shall not be the continuing or surviving corporation of such consolidation or merger,

 

(b)       any Person (other than a Subsidiary of the Company) shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such consolidation or merger, all or part of the outstanding Common Shares of the Company held by existing shareholders of the Company shall be changed into or exchanged for stock or other securities of any other Person (or the Company) or money or any other property,

 

 

 

(c)       The Company shall effect a statutory share exchange with the outstanding Common Shares of the Company being exchanged for stock or other securities of any other Person, money or other property, or

 

(d)       the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or a series of related transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or one or more of its wholly owned Subsidiaries),

 

then, and in each such case, proper provision shall be made so that the holder of this Series B Right Certificate (except as otherwise provided in the Rights Agreement) shall thereafter have the right to receive, upon the exercise thereof by payment of the then current Purchase Price in accordance with the terms of the Rights Agreement, such number of validly authorized and issued, fully paid, non-assessable and freely tradeable Common Shares (and/or fraction of shares thereof) of the Principal Party, not subject to any liens, encumbrances, rights of first refusal or adverse claims, as shall be equal to the result obtained by dividing the Purchase Price for each Series B Right represented by this Certificate by 50% of the then current per share market price of the Common Shares of such Principal Party (determined pursuant to the Rights Agreement) on the date of such consolidation, merger or other event specified above.

 

Principal Party (except as otherwise provided in the Rights Agreement means (i) in the case of any transaction described in clauses (a), (b) or (c) above, the Person that is the issuer of any securities into which Common Shares of the Company are converted in such merger, consolidation or exchange, or if no securities are so issued, the Person that is the other party to such merger, consolidation or exchange; and (ii) in the case of any transaction described in (d) above, the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions.

 

Notwithstanding the above, the Rights evidenced by this Certificate may not be exercised if a transaction described in (a), (b), (c), or (d) above is with a person who acquired Common Shares through a tender offer or exchange offer for all outstanding Common Shares approved by the Board of Directors of the Company in accordance with the terms of the Rights Agreement.

 

As provided in the Rights Agreement, the number of Rights evidenced by this Rights Certificate, the Purchase Price and the securities which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events.

 

 

 

This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and which contains a full description of the rights, limitations, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates (which limitations of rights include the suspension of the exercisability of such Rights under certain circumstances specified in the Rights Agreement). Copies of the Rights Agreement are on file with the Secretary at the principal executive office of the Company and will be mailed without charge by the Company or the Rights Agent to the holder of this certificate promptly following receipt by the Company or the Rights Agent of a written request therefor.

 

Upon the occurrence of a Section ll(a)(ii) Event (as such term is defined in the Rights Agreement), any Rights evidenced by this Right Certificate that are beneficially owned by (i) an Acquiring Person, a Tender Offer Person or an Associate or Affiliate of such Acquiring Person or Tender Offer Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any such Acquiring Person, Tender Offer Person or Associate or Affiliate who becomes a transferee after the Acquiring Person or Tender Offer Person becomes such or (iii) under certain circumstances specified in the Rights Agreement, a transferee of such Acquiring Person, Tender Offer Person or Associate or Affiliate who becomes a transferee prior to or concurrently with the Acquiring Person or Tender Offer Person becoming such, shall be null and void from and after the occurrence of such Section ll(a)(ii) Event.

 

This Right Certificate, with or without other Right Certificates, upon surrender at the office or offices of the Rights Agent designated for such purpose, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of shares of Common Stock as the Rights evidenced by the Right Certificate or Right Certificates surrendered. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of Rights not exercised.

 

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (i) may, but are not required to, be redeemed by the Company (but, in certain events, only if a majority of the directors then serving are Continuing Directors, as defined in the Rights Agreement) at a redemption price of $.000l per Right, subject to adjustment as provided in the Rights Agreement, payable in cash, Common Shares (as such term is defined in the Rights Agreement) or any other form of consideration deemed appropriate by the Board of Directors, and (ii) may, but are not required to, be exchanged by the Company (if a majority of the directors then serving are Continuing Directors) in whole or in part for Common Shares or other property. The Board of Directors of the Company and the Company shall not have any liability to any person as a result of the redemption or exchange of the Rights pursuant to the provisions of the Rights Agreement.

 

Fractional Shares, if required, may be issued upon the exercise of any Right or Rights evidenced hereby. In lieu of issuing Fractional Shares, cash or other property may be paid as provided in the Rights Agreement.

 

 

 

No holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Common Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement.

 

This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.

 

WITNESS the manual or facsimile signature of the proper officer of the Company.

 

Dated:        
      FORTITUDE GOLD CORPORATION
       
       
      By:                        
       
      Title:   

 

   
Countersigned:  
   
Computershare Trust Company, N.A..  
   
   
By:                      
  Authorized Signature  

 

 

 

[Form of Reverse Side of Right Certificate]

 

FORM OF ASSIGNMENT

 

(To be executed by the registered holder if such

holder desires to transfer the Right Certificate)

 

FOR VALUE RECEIVED                               hereby sells, assigns and transfers unto:

 

   
  (Please print name and address of transferee)  
 

 

 

 
     
     

 

 

Rights represented by this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ______________________ Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution.

 

Please insert social security or other identifying number of Transferee:                           

 

Dated:                   

 

          
  Signature

 

Signature Guaranteed:

 

The signature must be medallion guaranteed by a financial institution (commercial bank, stockbroker, savings and loan, credit union or trust company) that is a participant in the Securities Transfer Agents Medallion Program, pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended. A notary public is not sufficient.)

 

 

 

 

CERTIFICATE

 

The undersigned hereby certifies (after due inquiry and to the best of its knowledge) by checking the appropriate boxes that:

 

(l) this Right Certificate

 

[    ] is

[    ] is not

 

being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); and

 

(2) the undersigned

 

[    ] did

[    ] did not

 

acquire the Rights evidenced by this Right Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.

 

 

          
  Signature

 

NOTICE

 

The signature of the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever.

 

 

 

FORM OF ELECTION TO EXERCISE

 

(To be executed if holder desires to exercise

Rights represented by the Right Certificate)

 

To FORTITUDE GOLD CORPORATION

 

The undersigned hereby irrevocably elects to exercise __________ Rights represented by this Right Certificate to purchase the Common Shares issuable upon the exercise of such Rights (or such other securities of the Company or of any other person which may be issuable upon exercise of the Rights) and requests that certificates for such shares be issued in the name of:

 

   
  (Please print name and address of transferee)  
 

 

 

 
     
     

 

If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to:

 

 

   
  (Please print name and address of transferee)  
 

 

 

 
     
     

 

Please insert social security or other identifying number:    

 

Dated:    

 

          
  Signature

 

Signature Guaranteed:

 

The signature must be medallion guaranteed by a financial institution (commercial bank, stockbroker, savings and loan, credit union or trust company) that is a participant in the Securities Transfer Agents Medallion Program, pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended. A notary public is not sufficient.).

 

 

 

CERTIFICATE

 

The undersigned hereby certifies (after due inquiry and to the best of its knowledge) by checking the appropriate boxes that:

 

(l) the Rights evidenced by this Right Certificate

 

[    ] are

[    ] are not

 

being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); and

 

(2) the undersigned

 

[    ] did

[    ] did not

 

acquire the Rights evidenced by this Right Certificate from any Person who is, was or subsequently became an Acquiring Person or an affiliate or Associate of an Acquiring Person.

 

          
  Signature

 

NOTICE

 

The signature of the foregoing Election to Exercise and Certificate must correspond to the name as written upon the face of this Right Certificate in every particular, without alternation or enlargement or any change whatsoever.

 

 

 

EXHIBIT B

 

FORTITUDE GOLD CORPORATION

SUMMARY OF SHAREHOLDER RIGHTS PLAN

 

On September __, 2020, the Board of Directors of Fortitude Gold Corporation (the “Company”) declared a dividend of one Series A Right and one Series B Right (collectively the “Rights”) for each outstanding share of Common Stock (the “Common Shares”), of the Company. The dividend is payable on September __, 2020 (the “Record Date”) to the shareholders of record as of that date. When the Rights become exercisable, each Series A Right will entitle the registered holder, subject to the terms of the Rights Agreement, to purchase from the Company one Common Share at a purchase price equal to 20% (the “Purchase Price Percentage”) of the market price of the Company's Common Stock on the exercise date (the “Purchase Price”), although the price may be adjusted as described below. If after a person becomes an Acquiring Person or a Tender Offer Person (i) the Company is acquired in a merger or other business combination transaction and the Company is not the surviving corporation, (ii) any person consolidates or merges with the Company and all or part of the Company's Common Shares are converted or exchanged for securities, cash or property of any other person, or (iii) 50% or more of the Company's consolidated assets or earning power are sold, proper provision will be made so that each holder of a Series B Right will thereafter have the right to receive, upon the exercise thereof at the exercise price of $100 (subject to adjustment), that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value that is twice the exercise price of the Series B Right.

 

The description and terms of the Rights are set forth in a Rights Agreement (the “Rights Agreement”) between the Company and Computershare Trust Company, N.A as Rights Agent (the "Rights Agent").

 

Trading and Distribution of Rights

 

Initially, shareholders will not receive separate certificates for the Rights as the Rights will be represented by outstanding Common Share certificates. Until the Exercise Date, the Rights cannot be bought, sold or otherwise traded separately from the Common Shares. Certificates for Common Shares issued after the Record Date will carry a notation that indicates that Rights are attached to the Common Shares and incorporate the terms of the Rights Agreement.

 

Separate certificates representing the Rights will be distributed as soon as practicable after the earliest to occur of:

 

 

 

(1)       15 business days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired beneficial ownership of 15% or more of the outstanding Common Shares, or

 

(2)       15 business days (or such later date as may be determined by action of the Board of Directors prior to such time as any Person becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of such outstanding Common Shares.

 

The earlier of such dates described above is called the "Distribution Date".

 

Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for Common Shares outstanding as of the Record Date, even without such notation, will also constitute the transfer of the Rights associated with the Common Shares represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Right Certificates") will be mailed to holders of record of the Common Shares as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights.

 

Exercise and Expiration

 

The holders of the Rights are not required to take any action until the Rights become exercisable. The Rights are not exercisable until the Distribution Date. Holders of the Rights will be notified by the Company that the Rights have become exercisable. The Rights will expire on ________ (the "Final Expiration Date"), unless the Final Expiration Date is extended or unless the Rights are earlier redeemed by the Company as described below.

 

Adjustments

 

In order to protect the value of the Rights to the holders, the Purchase Price payable, and the number of Common Shares or other securities or property issuable upon exercise of the Rights are subject to adjustment from time to time (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Common Shares, (ii) upon the grant to holders of the Common Shares of certain rights or warrants to subscribe for or purchase Common Shares at a price, or securities convertible into Common Shares with a conversion price, less than the then current market price of Common Shares, or (iii) upon the distribution to holders of the Common Shares of evidences of indebtedness or assets (excluding regular periodic cash dividends paid out of earnings or retained earnings or dividends payable in Common Shares) or of subscription rights or warrants (other than those referred to above.

 

The foregoing adjustments are intended to ensure that a holder of the Rights will not be adversely affected by the occurrence of certain events. With certain exceptions, the Company is not required to adjust the Purchase Price Percentage until cumulative adjustments require a change of at least 1% in the Purchase Price Percentage. The Company may elect not to issue fractional Common Shares upon the exercise of the Rights and in lieu thereof, an adjustment in cash or other property will be made based on the market price of the Common Shares on the last trading day prior to the date of exercise.

 

 

 

Redemption

 

At any time prior to the Distribution Date, the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $.0001 per Right (the "Redemption Price"). Subject to the foregoing, the redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only entitlement of the holders of Rights will be to receive the Redemption Price.

 

Exchange Option

 

At any time after a person becomes an Acquiring Person or a Tender Offer Person, and prior to the acquisition by such Acquiring Person of 50% or more of the outstanding Common Shares, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one Common Share per Right (subject to adjustment).

 

Other Provisions

 

The terms of the Rights may be amended by the Board of Directors of the Company without the consent of the holders of the Rights, except that from and after such time as any person becomes an Acquiring Person no such amendment may adversely affect the interests of the holders of the Rights.

 

Until a Right is exercised, the holder of the Right, as such, will not have any rights as a shareholder of the Company, including, without limitation, the right to vote or to receive divideds.

 

As of September __, 2020 ______ shares of the Company's Common Stock were issued and outstanding. Each outstanding share on September __, 2020 will receive one Series A Right and one Series B Right. As long as the Rights are attached to the Common Shares, the Company will issue one Series A Right and one Series B Right for each Common Share issued between the Record Date and the Distribution Date.

 

The Rights may have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Board of Directors. However, the Rights should not interfere with any merger or other business combination approved by a majority of the Board of Directors since the Rights may be redeemed by the Company at any time prior to the Distribution Date. Thus, the Rights are intended to encourage persons who may seek to acquire control of the Company to initiate such an acquisition through negotiations with the Board of Directors. However, the effect of the Rights may be to discourage a third party from making a partial tender offer or otherwise attempting to obtain a substantial position in the equity securities of, or seeking to obtain control of, the Company. To the extent any potential acquisition is deterred by the Rights, the Rights may have the effect of preserving incumbent management in office.

 

In certain events specified in the Rights Agreement, the Company is permitted to temporarily suspend the exercisability of the Rights.

 

A copy of the Rights Agreement is available free of charge from the Company by contacting the Secretary at Fortitude Gold Corporation, 2866 Carriage Manor Point, Colorado Springs, Colorado 80906. This summary description of the Rights does not purport to be complete and is qualifed in its entirety by reference to the Rights Agreement, which is hereby incorporated herein by reference.

 

Exhibit 5

 

HART & HART, LLC

ATTORNEYS AT LAW

1624 Washington Street

Denver, CO 80203

________

William T. Hart, P.C. (303) 839-0061 harttrinen@aol.com
Will Hart   Fax: (303) 839-5414

 

October 16, 2020

 

This letter will constitute an opinion upon the legality of the issuance by Gold Resource Corporation of 20,000,000 shares of common stock of Fortitude Gold Corporation (the “Company”) all as referred to in the Registration Statement on Form S-1 filed by the Company with the Securities and Exchange Commission.

 

We have examined the Articles of Incorporation, the Bylaws, and the minutes of the Board of Directors of Gold Resource Corporation, the Company, and the applicable laws of Colorado, all reported judicial decisions interpreting the same, and a copy of the Registration Statement.

 

In our opinion, the 20,000,000 shares of the Company’s common stock to be distributed by Gold Resource Corporation have been legally issued and represent fully paid and non-assessable shares of the Company’s common stock.

 

Very Truly Yours,
     
  HART & HART, LLC
     
  By /s/ William T. Hart
    William T. Hart

 

 

 

 

Exhibit 10.1

 

SEPARATION AGREEMENT

 

by and between

 

GOLD RESOURCE CORPORATION

 

and

 

FORTITUDE GOLD CORPORATION

 

1

 

 

TABLE OF CONTENTS

 

    Page
     
ARTICLE I
Definitions
     
ARTICLE II
The Separation
     
SECTION 2.01. Transfer of Assets and Assumption of Liabilities 9
SECTION 2.02. Shared Contracts 10
SECTION 2.03. Disclaimer of Representations and Warranties 11
     
ARTICLE III
Credit Support
     
SECTION 3.01. Replacement of Credit Support 11
SECTION 3.02. Continuing Credit Support 12
     
ARTICLE IV
Actions Pending the Spin-Off
     
SECTION 4.01. Actions Prior to the Spin-Off 13
SECTION 4.02. Conditions Precedent to Consummation of the Spin-Off 14
     
ARTICLE V
The Distribution
     
SECTION 5.01. The Distribution 14
SECTION 5.02. Sole Discretion of GRC 15
     
ARTICLE VI
Mutual Releases; Indemnification
     
SECTION 6.01. Indemnification by FGC 15
SECTION 6.02. Indemnification by GRC 15

 

2

 

 

SECTION 6.03.   Indemnification Obligations Net of Insurance Proceeds and Third-Party Proceeds 16
SECTION 6.08. Survival of Indemnities 16
SECTION 6.09. Limitation on Liability 16
     
ARTICLE VII
Access to Information; Litigation; Confidentiality
     
SECTION 7.01. Agreement for Exchange of Information; Archives 17
SECTION 7.02. Ownership of Information 17
SECTION 7.03. Compensation for Providing Information 18
SECTION 7.04. Record Retention 18
SECTION 7.05. Accounting Information 18
SECTION 7.06. Limitations of Liability 19
SECTION 7.07. Conduct of Pending Litigation Matters 19
SECTION 7.08. Production of Witnesses; Records; Cooperation 19
SECTION 7.09. Confidential Information 20
     
ARTICLE VIII
Insurance
     
SECTION 8.01. Insurance 21
     
ARTICLE IX
Tax Matters
     
SECTION 9.01. Indemnification 23
SECTION 9.02. Allocation of Transaction Tax 24
SECTION 9.03. Allocation of Transfer Tax 24
SECTION 9.04. Refunds, Credits and Offsets 24
SECTION 9.05. Carrybacks 24
SECTION 9.06. Responsibility for Preparing Tax Returns 25
SECTION 9.07. Information Packages 25
SECTION 9.08. Filing of Tax Returns and Payment of Taxes 25
SECTION 9.09. Tax Contests 26
SECTION 9.10. Mutual Representations Relating to the Distribution 26
SECTION 9.11. Mutual Covenants 26
SECTION 9.12. Restricted Actions 28
SECTION 9.13. Consent to Take Certain Restricted Actions 28
SECTION 9.14. Notification and Certification Regarding Certain Acquisition Transactions 28
SECTION 9.15. Expenses 29

 

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ARTICLE X
Ongoing Commercial Matters
     
SECTION 10.01. Use of Facilities and Services 29
SECTION 10.02. Repairs 29
     
ARTICLE XI
Further Assurances and Additional Covenants
     
SECTION 11.01. Further Assurances 29
     
ARTICLE XII
Termination
     
SECTION 12.01. Termination 30
SECTION 12.02. Effect of Termination 30
     
ARTICLE XIII
Miscellaneous
     
SECTION 13.01. Counterparts; Entire Agreement; Corporate Power 31
SECTION 13.02. Governing Law; Jurisdiction 31
SECTION 13.03. Assignability 31
SECTION 13.04. Third-Party Beneficiaries 31
SECTION 13.05. Notices 31
SECTION 13.06. Severability 32
SECTION 13.07. Publicity 32
SECTION 13.08. Expenses 32
SECTION 13.09. Headings 32
SECTION 13.10. Survival of Covenants 32
SECTION 13.11. Waivers of Default 32
SECTION 13.12. Specific Performance 34
SECTION 13.13. Amendments 34
SECTION 13.14. Interpretation 34

 

4

 

 

SEPARATION AGREEMENT dated as of [_], 2020, by and between Gold Resource Corporation, (“GRC”), and Fortitude Gold Corporation (“FGC”).

 

RECITALS

 

WHEREAS the Board of Directors of GRC has determined that it is in the best interests of GRC and its shareholders to separate the FGC Business (as defined below) and the GRC Business (as defined below) and to distribute its entire interest in its wholly owned subsidiary, FGC, by way of a dividend of stock to be made to the holders of GRC’s common stock (the “Spin-Off” or the “Distribution”);

 

WHEREAS in furtherance of the foregoing it is appropriate and desirable to effect the Spin-Off as more fully described in this Agreement;

 

WHEREAS it is the intention of the Parties that, for United States federal income tax purposes, the Distribution is intended to qualify as a tax-free reorganization pursuant to Section 355 of the Code (the “Intended Tax Treatment”);

 

WHEREAS FGC has prepared, and has filed with the Commission, a Form S-1 Registration Statement, which includes a Prospectus (“Registration Statement”); and

 

WHEREAS it is appropriate and desirable to set forth the principal corporate transactions required to effect the Spin-Off and certain other agreements that will govern certain matters relating to the Spin-Off and the relationship of GRC and FGC following the Spin-Off.

 

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the Parties, intending to be legally bound, hereby agree as follows:

 

ARTICLE I

Definitions

 

For the purposes of this Agreement, the following terms shall have the following meanings:

 

Action” means any claim, demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any governmental authority or any Federal, state, local, foreign or international arbitration or mediation tribunal.

 

Agent” means Computershare Trust Company, N.A.

 

Asset” or “Assets” means all assets, properties and rights (including goodwill), wherever located (including in the possession of vendors or other third parties or elsewhere), whether real, personal or mixed, tangible or intangible, or accrued or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person, including the following:

 

(a) all accounting and other books, records and files, whether in paper, microfilm, microfiche, computer tape or disc, magnetic tape, electronic recording or any other form;

 

5

 

 

(b) all apparatus, computers and other electronic data processing equipment, fixtures, machinery, furniture, office and other equipment, including hardware systems, circuits and other computer and telecommunication assets and equipment, automobiles, trucks, aircraft, motor vehicles and other transportation equipment, special and general tools, test devices, prototypes and models and other tangible personal property;

 

(c) all inventories of goods and products;

 

(d) all interests in real property of whatever nature, including mining claims and easements, whether as owner, mortgagee or holder of a Security Interest in real property, lessor, sublessor, lessee, sublessee or otherwise;

 

(e) all interests in any capital stock or other equity interests of any Subsidiary or any other Person; all bonds, notes, debentures or other securities issued by any Subsidiary or any other Person; all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other Person; all other investments in securities of any Person; and all rights as a partner, joint venturer or participant;

 

(f) all license agreements, leases of personal property, open purchase orders for goods, products or services, unfilled orders for goods and products and other contracts, agreements or commitments and all rights arising thereunder;

 

(g) all deposits, letters of credit, performance bonds and other surety bonds;

 

 (h) all written technical information, data, specifications, research and development information, operating and maintenance manuals and materials and analyses prepared by consultants and other third parties;

 

(i) all United States, state, multinational and foreign intellectual property, including patents, copyrights, trade names, trademarks, service marks, slogans, logos, trade dresses and other source indicators and the goodwill of the business symbolized thereby; all registrations, applications, recordings, disclosures, renewals, continuations, continuations-in-part, divisions, reissues, reexaminations, foreign counterparts and other legal protections and rights related to any of the foregoing; mask works, trade secrets, inventions and other proprietary information, including know-how, processes, formulae, techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals, discoveries, inventions, licenses from third parties granting the right to use any of the foregoing and all tangible embodiments of the foregoing in whatever form or medium;

 

(j) all computer applications, programs, software and other code (in object and source code form), including operating software, network software, firmware, middleware, design software, design tools, systems documentation, instructions, ASP, HTML, DHTML, SHTML and XML files, cgi and other scripts, APIs, web widgets, algorithms, models, methodologies, files, documentation related to any of the foregoing and all tangible embodiments of the foregoing in whatever form or medium now known or yet to be created;

 

(k) all Internet URLs, domain names, social media handles and Internet user names;

 

6

 

 

(l) all websites, databases, content, text, graphics, images, audio, video, data and other copyrightable works or other works of authorship including all translations, adaptations, derivations and combinations thereof;

 

(m) all cost information, sales and pricing data, customer prospect lists, supplier records, customer and supplier lists, subscriber, customer and vendor data, correspondence and lists, product literature and other advertising and promotional materials, artwork, design and development files, vendor and customer drawings, formulations and specifications, server and traffic logs, quality records and reports and other books, records, studies, surveys, reports, plans, business records and documents;

 

(n) all prepaid expenses, trade accounts and other accounts and notes receivable (whether current or non-current), including any and all deferred tax assets;

 

(o) all claims or rights against any Person arising from the ownership of any other Asset, all rights in connection with any bids or offers, all claims, causes in action, lawsuits, judgments or similar rights, all rights under express or implied warranties, all rights of recovery and all rights of setoff of any kind and demands of any nature, in each case whether accrued or contingent, whether in tort, contract or otherwise and whether arising by way of counterclaim or otherwise;

 

(p) all rights under insurance policies and all rights in the nature of insurance, indemnification or contribution;

 

(q) all licenses (including radio and similar licenses), permits, approvals and authorizations that have been issued by any Governmental Authority and all pending applications therefor;

 

(r) Cash, bank accounts, lock boxes and other deposit arrangements;

 

(s) interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements; and

 

(t) all goodwill as a going concern and other intangible properties.

 

Code” means the Internal Revenue Code of 1986, as amended.

 

FGC Business” means the business and operations conducted by FGC and its Subsidiaries from time to time, whether before, at or after the Distribution, including, without limitation, the business and operations conducted by Fortitude Gold Corp. as more fully described in the Registration Statement.

 

FGC Capital Stock” means (i) all classes or series of capital stock of FGC, (ii) all options, warrants and other rights to acquire interests described in clause (i) and (iii) all other instruments properly treated as equity of FGC for U.S. Federal income Tax purposes.

 

FGC Tax Group” means FGC and any subsidiary of FGC at any time prior or subsequent to the Spin-Off.

 

7

 

 

GRC Business” shall mean all businesses and operations of GRC and any Subsidiaries of GRC other than the FGC Business.

 

GRC Consolidated Group” means any consolidated, combined, unitary or similar group of which (i) any member of the GRC Tax Group is or was a member and (ii) any member of the FGC Tax Group is or was a member.

 

GRC Tax Group” means GRC and any Subsidiary other than FGC and Subsidiaries of FGC at any time prior or subsequent to the Spin-Off.

 

Information” means information, whether or not patentable, copyrightable or protectable as a trade secret, in written, oral, electronic or other tangible or intangible forms, stored in any medium now known or yet to be created, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product) and other technical, financial, employee or business information or data, documents, correspondence, materials and files.

 

Insurance Proceeds” means those monies:

 

(a) received by an insured (or its successor-in-interest) from an insurance carrier;

 

(b) paid by an insurance carrier on behalf of the insured (or its successor-in-interest); or

 

(c) received (including by way of setoff) from any third party in the nature of insurance, contribution or indemnification in respect of any Liability;

 

Liability” or “Liabilities” means any and all claims, debts, demands, actions, causes of action, suits, damages, obligations, accruals, accounts payable, deferred taxes, reckonings, bonds, indemnities and similar obligations, agreements, promises, guarantees, make-whole agreements and similar obligations, and other liabilities and requirements, including all contractual obligations, whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and including those arising under any law, action, threatened or contemplated action or any award of any arbitrator or mediator of any kind, and those arising under any contract, commitment or undertaking, including those arising under this Agreement, in each case, whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person.

 

Ordinary Taxes” means Taxes other than (i) Transaction Taxes and (ii) Transfer Taxes.

 

Party” means either party hereto, and “Parties” means both parties hereto. Unless the context otherwise requires, the term party includes any Subsidiary or affiliate of the Party.

 

Proposed Acquisition Transaction” has the meaning set forth in Section 9.12(b).

 

Prospectus” means the prospectus contained in the Registration Statement.

 

Retained Information” has the meaning set forth in Section 7.04.

 

8

 

 

Security Interest” means any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer or other encumbrance of any nature whatsoever.

 

Shared Contract” means any contract or agreement of GRC or FGC that relates in any material respect to both GRC and FGC; provided that the Parties may, by mutual consent, elect to include in, or exclude from, this definition any contract or agreement.

 

Subsidiary” of any Party means any corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization, is directly or indirectly owned or controlled by such Party or by any one or more of its Subsidiaries, or by such Party and one or more of its Subsidiaries.

 

Taxes” means all forms of taxation or duties imposed by any governmental authority, or required by any governmental authority to be collected or withheld, including charges, together with any related interest, penalties and other additional amounts.

 

Transaction Taxes” means all (i) Taxes imposed on GRC, FGC or any of their respective Subsidiaries resulting from the failure of the Distribution to qualify for its Intended Tax Treatment, (ii) Taxes imposed on any third party resulting from the failure of the Distribution to qualify for its Intended Tax Treatment for which GRC, FGC or any of their respective Subsidiaries is or becomes liable for any reason and (iii) reasonable, out-of-pocket legal, accounting and other advisory or court fees incurred in connection with liability for Taxes described in clause (i) or (ii).

 

Transfer Taxes” means all transfer, sales, use, excise, stock, stamp, stamp duty, stamp duty reserve, stamp duty land, documentary, filing, recording, registration, value-added and other similar Taxes (excluding, for the avoidance of doubt, any income, gains, profit or similar Taxes, however assessed) incurred by the GRC Tax Group and FGC Tax Group as a result of the Spin-Off.

 

Third-Party Claim” means any assertion by a person (including any governmental authority) other than GRC or FGC of any claim, or the commencement by any such person of any Action, against GRC or FGC.

 

9

 

 

ARTICLE II

The Separation

 

SECTION 2.01         Transfer of Assets and Assumption of Liabilities. 

 

(a) Subject to Section 2.01(d), prior to the Spin-Off, the Parties shall execute such instruments of assignment and transfer and take such other corporate actions as are necessary to (i) transfer and convey to FGC all of the right, title and interest of GRC in, to and under all Assets of FGC not already owned by FGC, (ii) transfer and convey to GRC all of the right, title and interest of FGC in, to and under all Assets of GRC not already owned by GRC, (iii) cause FGC to assume all Liabilities of FGC to the extent such Liabilities would otherwise remain obligations of GRC and (iv) cause GRC to assume all Liabilities of GRC to the extent such Liabilities would otherwise remain obligations of FGC.

 

(b) In the event that it is discovered after the Spin-Off that there was an omission of (i) the transfer or conveyance by FGC or the acceptance or assumption by GRC of any Asset or Liability of GRC, (ii) the transfer or conveyance by GRC or the acceptance or assumption by FGC of any Asset or Liability of FGC, or (iii) the transfer or conveyance by one Party to, or the acceptance or assumption by, the other Party of any Asset or Liability, that should belong to the other Party as described in subsection (a) above, that would have otherwise been so transferred, conveyed, accepted or assumed, the Parties shall use reasonable best efforts to promptly effect such transfer, conveyance, acceptance or assumption of such Asset or Liability. Any transfer, conveyance, acceptance or assumption made pursuant to this Section 2.01(b) shall be treated by the Parties for all purposes as if it had occurred immediately prior to the Distribution, except as otherwise required by applicable law.

 

(c) In the event that it is discovered after the Spin-Off that there was a transfer or conveyance (i) by FGC to GRC or the acceptance or assumption by GRC of any Asset or Liability that should belong to FGC, or (ii) by GRC to FGC or the acceptance or assumption by FGC of any Asset or Liability that should belong to GRC, the Parties shall use reasonable best efforts to promptly transfer or convey such Asset or Liability back to the transferring or conveying Party or to rescind any acceptance or assumption of such Asset or Liability, as the case may be. Any transfer or conveyance made or acceptance or assumption rescinded pursuant to this Section shall be treated by the Parties for all purposes as if such Asset or Liability had never been originally transferred, conveyed, accepted or assumed, as the case may be, except as otherwise required by applicable law.

 

(d) In the event that after the Spin-Off (i) FGC receives any funds properly belonging to GRC, or (ii) GRC receives any funds properly belonging to FGC, the relevant Party shall use reasonable best efforts to promptly advise the other party, segregate and hold such funds in trust for the benefit of such other Party and promptly deliver such funds, together with any interest earned thereon, to an account or accounts designated in writing by such other Party.

 

(e) In the event that after the Spin-Off (i) FGC receives any communications, notices or inquiries relating to GRC, or (ii) GRC receives any communications, notices or inquiries relating to FGC, the relevant Party shall use reasonable best efforts to notify the other Party thereof as promptly as reasonably practicable.

 

10

 

 

 (f) To the extent that any transfer or conveyance of any Asset or acceptance or assumption of any Liability required by this Agreement to be so transferred, conveyed, accepted or assumed shall not have been completed prior to the Spin-Off, of if the document of transfer or assignment was insufficient to properly vest title in the relevant Party, the Parties shall use reasonable best efforts to effect such transfer, conveyance, acceptance or assumption as promptly following the Spin-Off as shall be practicable. Nothing in this Agreement shall be deemed to require the transfer or conveyance of any Assets or the acceptance or assumption of any Liabilities which by their terms or operation of law cannot be so transferred, conveyed, accepted or assumed; providedhowever, that the Parties shall use reasonable best efforts to obtain any necessary consents for the transfer, conveyance, acceptance or assumption (as applicable) of all Assets and Liabilities required by this Agreement to be so transferred, conveyed, accepted or assumed. In the event that any such transfer, conveyance, acceptance or assumption (as applicable) has not been completed as of and after the Spin-Off, the Party retaining such Asset or Liability shall thereafter hold such Asset for the use and benefit of the Party entitled thereto (at the expense of the Party entitled thereto) and retain such Liability for the account, and at the expense, of the Party by whom such Liability should have been assumed or accepted pursuant to this Agreement, and take such other actions as may be reasonably requested by the Party to which such Asset should have been transferred or conveyed, or by whom such Liability should have been assumed or accepted, in order to place such Party, insofar as reasonably possible, in the same position as would have existed had such Asset or Liability been transferred, conveyed, accepted or assumed as contemplated by this Agreement, including possession, use, risk of loss, potential for gain and control over such Asset or Liability. As and when any such Asset or Liability becomes transferable, the Parties shall use reasonable best efforts to promptly effect such transfer, conveyance, acceptance or assumption. Any transfer, conveyance, acceptance or assumption made pursuant to this Section 2.01(f) shall be treated by the Parties for all purposes as if it had occurred immediately prior to the Spin-Off, except as otherwise required by applicable law.

 

(g) The Party retaining any Asset or Liability due to the deferral of the transfer and conveyance of such Asset or the deferral of the acceptance and assumption of such Liability pursuant to this Section 2.01 or otherwise shall not be obligated by this Agreement, in connection with this Section 2.01, to expend any money or take any action that would require the expenditure of money unless and to the extent the Party entitled to such Asset or the Party intended to assume such Liability advances or agrees to reimburse it for the applicable expenditures.

 

Each Party shall, at the reasonable request of the other Party, take, or cause to be taken, such other actions as may be necessary to effect the forgoing.

 

SECTION 2.02.            Shared Contracts. The Parties shall use their respective reasonable best efforts to work together (and, if necessary and desirable, to work with the third party to any Shared Contract) in an effort to divide, partially assign, modify and/or replicate (in whole or in part) the respective rights and obligations under and in respect of any Shared Contract, such that (a) FGC is the beneficiary of the rights and is responsible for the obligations related to that portion of such Shared Contract relating to FGC, which rights shall be an FGC Asset and which obligations shall be an FGC Liability and (b) GRC is the beneficiary of the rights and is responsible for the obligations related to that portion of such Shared Contract relating to GRC, which rights shall be a GRC Asset and which obligations shall be an GRC Liability. If the Parties are not able to enter into an arrangement to formally divide, partially assign, modify and/or replicate such Shared Contract prior to the Spin-Off as contemplated by the previous sentence, then the Parties shall cooperate in any lawful arrangement to provide that, following the Spin-Off and until such time as the formal division, partial assignment, modification and/or replication of such Shared Contract as contemplated by the previous sentence is effected, FGC shall receive the interest in the benefits and obligations of the FGC portion under such Shared Contract and GRC shall receive the interest in the benefits and obligations of the GRC portion under such Shared Contract.

 

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SECTION 2.03.             Disclaimer of Representations and Warranties.  Each of FGC and GRC understands and agrees that, except as expressly set forth in this Agreement, no party to this Agreement, or any other agreement or document contemplated by this Agreement, is representing or warranting in any way as to any Assets or Liabilities transferred or assumed as contemplated hereby or thereby, as to the sufficiency of the Assets or Liabilities transferred or assumed hereby or thereby for the conduct and operations of FGC or GRC, as to any governmental approvals or other consents required in connection therewith or in connection with any past transfers of the Assets or assumptions of the Liabilities, as to the value or freedom from any Security Interests of, or any other matter concerning, any Assets or Liabilities, or as to the absence of any defenses or rights of setoff or freedom from counterclaim with respect to any claim or other Asset, including any accounts receivable, of any such Party, or as to the legal sufficiency of any assignment, document or instrument delivered hereunder to convey title to any Asset or thing of value upon the execution, delivery and filing hereof or thereof. Except as may expressly be set forth herein, any such Assets are being transferred on an “as is”, “where is” basis and the respective transferees shall bear the economic and legal risks that (a) any conveyance shall prove to be insufficient to vest in the transferee good and marketable title, free and clear of any Security Interest, and (b) any necessary governmental approvals or other consents are not obtained or that any requirements of laws or judgments are not complied with.

 

Each Party shall, at the reasonable request of the other Party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing.

 

ARTICLE III

Credit Support

 

SECTION 3.01.             Replacement of Credit Support. (a)  FGC shall use reasonable best efforts to arrange, at its sole cost and expense and effective on or prior to the Spin-Off, the replacement of all guarantees, covenants, indemnities, surety bonds, letters of credit or similar assurances or credit support (“Credit Support Instruments”) provided by or through GRC for the benefit of FGC (“the Surviving Credit Support Instruments”), other than any of the Credit Support Instruments set forth on Schedule 3.01(a) with alternate arrangements that do not require any credit support from GRC, and shall use reasonable best efforts to obtain from the beneficiaries of such Credit Support Instruments written releases (which in the case of a letter of credit or bank guarantee would be effective upon surrender of the original Credit Support Instrument to the originating bank and such bank’s confirmation to GRC of cancelation thereof) indicating that GRC will, effective upon the consummation of the Spin-Off, have no liability with respect to such Credit Support Instruments, in each case reasonably satisfactory to GRC; providedhowever, that (i) in the event that FGC shall not have obtained all such releases on or prior to the Spin-Off, Section 3.02 shall govern all such Surviving Credit Support Instruments and (ii) Section 3.02 shall also govern all Surviving Credit Support Instruments, and (iii) any Credit Support Instrument provided by or through FGC for the benefit of GRC shall terminate as of the date of the Spin-Off and shall be governed by Section 3.02.

 

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(b) FGC and GRC shall provide each other with written notice of the existence of all Credit Support Instruments within a reasonable period prior to the Spin-Off.

 

SECTION 3.02.            Continuing Credit Support. (a) GRC hereby agrees that until _____ and any subsequent period that a particular Credit Support Instrument remains outstanding despite FGC’s having used its reasonable best efforts to cause such Credit Support Instrument to be replaced pursuant to Section 3.01(a), for the benefit of FGC, it will maintain, continue, satisfy and comply in full with, and will not take any action, to terminate (other than at the request of FGC), any Credit Support Instrument. GRC shall not be required to renew or extend any Credit Support Instrument (i) beyond the expiration date of the relevant Credit Support Instrument in support or guarantee of which such Credit Support Instrument has been provided or (ii) which has been released or replaced pursuant to Section 3.01(a). GRC shall be permitted to terminate and shall not be required to renew or extend any Surviving Credit Support Instrument so long as concurrently with such termination or expiration, it replaces such Surviving Credit Support Instrument with another guarantee, letter of credit, surety bond or similar instrument or other arrangement in support of the relevant Surviving Credit Support Instrument in form and substance reasonably satisfactory to the beneficiary of such Surviving Credit Support Instrument.

 

(b) Additional Credit Support Instruments. If at any time either of GRC or FGC shall identify a credit instrument of FGC and corresponding guarantee or similar credit instrument of GRC in respect of such Credit Support Instrument that existed prior to the Spin-Off and that, had GRC and FGC been aware of such Credit Support Instrument and prior to the Spin-Off, would have been identified as a Credit Support Instrument, (i) such Credit Support Instrument shall be deemed to be a Credit Support Instrument for all purposes hereunder and (ii) FGC shall pay to GRC all amounts in respect of such Credit Support Instrument which it would have been obligated to pay pursuant to this Section 3.02 (including amounts payable pursuant to Section 3.02 (c) hereof) since the Spin-Off had such Credit Support Instrument been identified as a Credit Support Instrument hereunder prior to the date of the Spin-Off.

 

(c) Reimbursement, Expenses, Indemnity.

 

(i) If GRC shall make any payment in respect of or in connection with any Credit Support Instrument, including any payment in the form of collateral delivered by GRC in respect of any Credit Support Instrument, FGC shall promptly, but in any event within ten business days of written demand therefor, reimburse GRC in full for the amount of such payment, together with any interest accrued thereon. FGC’s reimbursement obligations hereunder shall not be construed to limit or waive the rights of subrogation that GRC may have in respect of any such payment and FGC hereby acknowledges and affirms that GRC and its Subsidiaries have not waived their rights of subrogation.

 

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(ii) FGC shall pay all reasonable and actual out-of-pocket expenses incurred by GRC (including the reasonable and actual fees, charges and disbursements of counsel for GRC) after the Spin-Off in connection with (i) any Surviving Credit Support Instruments (including the continuation, extension or renewal of any Surviving Credit Support Instrument) and any agreement entered into in connection with any of the foregoing or any amendments or other modifications to any of the foregoing (whether or not the transactions contemplated hereby or thereby shall be consummated) or (ii) the enforcement or protection of GRC’s rights in connection with any of the foregoing, including its rights under this Section 3.02(c); provided that FGC shall not be required to pay any such expenses incurred in connection with the voluntary replacement by GRC of a Surviving Credit Support Instrument.

 

(iii) FGC shall defend, hold harmless, and indemnify GRC from and against any charges, suits, damages, costs, expenses, judgments, penalties, claims, liabilities or losses of any kind or nature whatsoever, including reasonable attorney fees and expenses, that may be sustained or suffered by or secured against GRC arising out of, in connection with, or as a result of this Section 3.02 or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby (including the continuation, extension or renewal of any Surviving Credit Support Instrument), or the use of, or the proposed use of, any Surviving Credit Support Instruments, or any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether GRC is a party thereto; provided that such indemnity shall not, as to GRC, be available to the extent that such losses, claims, damages, liabilities or related expenses are found in a judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of GRC or GRC’s breach of its obligations hereunder.

 

(iv) All amounts due under this Section 3.02(c) shall be payable promptly after written demand therefor, and in any event within ten business days following such demand, in immediately available funds in U.S. Dollars to an account of GRC specified in writing and shall not be subject to reduction by way of setoff or counterclaim. If any payment hereunder would be due and payable on a day that is not a business day, such payment shall instead be due on the immediately preceding business day.

 

(v) The provisions of this Section 3.02 shall survive and remain in full force and effect regardless of the consummation of the Spin-Off or by any of the agreements referred to herein or the termination of this Agreement or any such other agreements or any provision hereof or thereof.

 

ARTICLE IV

Actions Pending the Spin-Off

 

SECTION 4.01.             Actions Prior to the Spin-Off. (a) Subject to the conditions specified in Section 4.02, GRC and FGC shall use reasonable best efforts to consummate the Spin-Off. Such efforts shall include taking the actions specified in this Section 4.01.

 

(b) Prior to the Spin-Off, GRC shall cause the Prospectus to be delivered to the holders of GRC’s common stock in the manner required or permitted by the rules of the Securities and Exchange Commission.

 

(c) GRC and FGC shall take all such action as may be necessary or appropriate under the securities or blue sky laws of the states or other political subdivisions of the United States or of other foreign jurisdictions in connection with the Spin-Off.

 

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(d) FGC shall prepare and file, and shall use reasonable best efforts to have approved prior to the Spin-Off, an application for the listing of the FGC common stock to be distributed in the Spin-Off on the OTCQB.

 

SECTION 4.02.            Conditions Precedent to Consummation of the Spin-Off.  As soon as practicable after the date of this Agreement, the Parties shall use reasonable best efforts to satisfy the following conditions prior to the consummation of the Spin-Off. The obligations of the Parties to consummate the Spin-Off shall be conditioned on the satisfaction or waiver by GRC, of the following conditions: 

(a) The board of directors of GRC shall have authorized and approved the Spin-Off and not withdrawn such authorization and approval for the Distribution of FGC common stock to GRC shareholders.

 

(b) The Commission shall have declared effective the Form S-1 under the Securities Act of 1933 and no stop order suspending the effectiveness of the Form S-1 shall be in effect and no proceedings for that purpose shall be pending before or threatened by the Commission.

 

(c) No order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Spin-Off shall be in effect, and no other event outside the control of GRC shall have occurred or failed to occur that prevents the consummation of the Spin-Off.

 

(d) All material consents required for consummation of the Spin-Off have been received or waived by the relevant party.

 

(e) No other events or developments shall have occurred prior to the Spin-Off that, in the judgment of the board of directors of GRC, would result in the Spin-Off having a material adverse effect on GRC or its shareholders.

 

ARTICLE V

The Spin-Off

 

SECTION 5.01.            The Spin-Off. (a) FGC shall cooperate with GRC to accomplish the Spin-Off and shall use its reasonable best efforts to promptly take any and all actions necessary or desirable to effect the Spin-Off. GRC shall enter into a distribution agreement with the Agent or other suitable party and will provide, or cause to be provided to the Agent, all share certificates and any information required in order to complete the Spin-Off.

 

(b) Subject to the terms and conditions set forth in this Agreement, on or prior to the Spin-Off, for the benefit of and distribution to the holders of GRC’s common stock, and as of the record date to be determined by GRC (the “Record Holders”), (i) GRC will deliver to the Agent certificates or other evidence acceptable to the Agent representing all of the issued and outstanding shares of FGC then owned by GRC and book-entry authorizations for such shares, and (ii) GRC shall instruct the Agent to distribute, by means of a pro rata distribution of FGC shares based on the aggregate number of shares of GRC common stock held by each applicable Record Holder, to each Record Holder (or such Record Holder’s bank or brokerage firm on such Record Holder’s behalf) electronically, by direct registration in book-entry form, the number of shares of FGC common stock to which such Record Holder is entitled based on a distribution ratio to be determined by GRC in its sole discretion. On or as soon as practicable after the Spin-Off, the Agent will mail to each Record Holder an account statement indicating the number of shares of FGC common stock that have been registered in book-entry form in the name of such Record Holder.

 

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SECTION 5.02.      Sole Discretion of GRC. GRC shall, in its sole and absolute discretion, determine the record date for the Distribution and all terms of the Spin-Off, including the form, structure and terms of any transactions and/or offerings to effect the Spin-Off and the timing of and conditions to the consummation thereof. In addition and notwithstanding anything to the contrary in this Agreement, GRC may at any time and from time to time until the Distribution decide to abandon the Spin-Off or accelerate or delay the timing of the consummation of all or part of the Spin-Off or modify or change the terms of the Spin-Off if, at any time, the GRC board of directors determines, in its sole and absolute discretion, that the Spin-Off is not in the best interests of GRC or its shareholders or is otherwise not advisable.

 

ARTICLE VI

Indemnification

 

SECTION 6.01.     Indemnification by FGC. Subject to Section 6.03, FGC shall indemnify, defend and hold harmless GRC, the GRC Tax Group, and each of their directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “GRC Indemnitees”), from and against any and all Liabilities relating to, arising out of or resulting from any of the following items (without duplication):

 

(a) the Liabilities of FGC (including with respect to Shared Contracts), including the failure of FGC to pay, perform or otherwise promptly discharge any Liability of FGC in accordance with its terms;

 

(b) any breach by FGC of this Agreement;

 

(c) any breach by FGC of any of the representations and warranties made by FGC on behalf of itself; and

 

(d) any misstatements or omissions of material fact in the Registration Statement or Prospectus.

 

SECTION 6.02.     Indemnification by GRC. Subject to Section 6.03, GRC shall indemnify, defend and hold harmless FGC, the FGC Tax Group, and each of their directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “FGC Indemnitees”), from and against any and all Liabilities relating to, arising out of or resulting from any of the following items (without duplication):

 

(a) the GRC Liabilities (including with respect to Shared Contracts), including the failure of GRC to pay, perform or otherwise promptly discharge any GRC Liability in accordance with its terms;

 

(b) any breach by GRC of this Agreement; and

 

(c) any breach by GRC of any of the representations and warranties made by GRC on behalf of itself.

 

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SECTION 6.03.      Indemnification Obligations Net of Insurance Proceeds and Third-Party Proceeds. (a) The Parties intend that any Liability subject to indemnification or reimbursement pursuant to this Agreement will be net of (i) insurance proceeds that actually reduce the amount of, or are paid to the applicable Indemnitee in respect of such Liability or (ii) other amounts recovered from any third party that actually reduce the amount of, or are paid to the applicable Indemnitee in respect of, such Liability (“Third-Party Proceeds”). Accordingly, the amount that either Party (an “Indemnifying Party”) is required to pay to any person entitled to indemnification or reimbursement pursuant to this Agreement (an “Indemnitee”) will be reduced by any Insurance Proceeds or Third-Party Proceeds theretofore actually recovered by or on behalf of the Indemnitee from a third party in respect of the related Liability. If an Indemnitee receives a payment required by this Agreement from an Indemnifying Party in respect of any Liability (an “Indemnity Payment”) and subsequently receives Insurance Proceeds or Third-Party Proceeds in respect of such Liability, then the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if such Insurance Proceeds or Third-Party Proceeds had been received, realized or recovered before the Indemnity Payment was made.

 

(b) An insurer that would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or have any subrogation rights with respect thereto by virtue of the indemnification provisions hereof, it being expressly understood and agreed that no insurer or any other third party shall be entitled to a “wind-fall” (i.e., a benefit they would not be entitled to receive in the absence of the indemnification provisions) by virtue of the indemnification provisions hereof. GRC and FGC shall use reasonable best efforts to seek to collect or recover any Insurance Proceeds and any Third-Party Proceeds to which such person is entitled in connection with any Liability for which such person seeks indemnification pursuant to this Article VI; providedhowever, that such person’s inability to collect or recover any such Insurance Proceeds or Third-Party Proceeds shall not limit the Indemnifying Party’s obligations hereunder.

 

SECTION 6.04.     Survival of Indemnities. The rights and obligations of each of GRC and FGC and their respective Indemnitees under this Article VI shall survive the sale or other transfer by any Party or its Affiliates of any Assets or businesses or the assignment by it of any Liabilities.by or resulting from negligence or breach of obligations hereunder.

 

SECTION 6.05.     Limitation on Liability. Except as may expressly be set forth in this Agreement, neither GRC nor FGC shall in any event have any Liability to the other, or to any other GRC Indemnitee or FGC Indemnitee, as applicable, under this Agreement (i) with respect to any matter to the extent that such Party seeking indemnification has engaged in any knowing violation of Law or fraud in connection therewith or (ii) for any punitive or exemplary damages (except to the extent payable to a third party), whether or not caused by or resulting from negligence or breach of obligations hereunder.

 

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ARTICLE VII

 

Access to Information; Litigation; Confidentiality

 

SECTION 7.01.     Agreement for Exchange of Information; Archives. (a) Except in the case of an adversarial Action or threatened adversarial Action by either GRC or FGC against the other Party, and subject to Section 7.01(b), each of GRC and FGC, shall provide, or cause to be provided, to the other Party, at any time after the Spin-Off, as soon as reasonably practicable after written request therefor, any Information relating to time periods on or prior to the Spin-Off in the possession or under the control of the other Party, which GRC or FGC, as applicable, reasonably needs (i) to comply with reporting, disclosure, filing or other requirements imposed on GRC or FGC (including under applicable securities laws), by any national securities exchange or any governmental authority having jurisdiction over GRC or FGC, (ii) for use in any judicial, regulatory, administrative or other proceeding or in order to satisfy audit, accounting, regulatory, litigation or other similar requirements or (iii) to comply with its obligations under this Agreement. The receiving Party shall use any Information received pursuant to this Section 7.01(a) solely to the extent reasonably necessary to satisfy the applicable obligations or requirements described in clause (i), (ii) or (iii) of the immediately preceding sentence.

 

(b) In the event that either GRC or FGC determines that the exchange of any Information pursuant to Section 7.01(a) could violate any Law or agreement or waive or jeopardize any attorney-client privilege or attorney work product protection, such Party shall not be required to provide access to or furnish such Information to the other Party; providedhowever, that both GRC and FGC shall take all commercially reasonable measures to permit the compliance with Section 7.01(a) in a manner that avoids any such harm or consequence. Both GRC and FGC intend that any provision of access to or the furnishing of Information pursuant to this Section 7.01 that would otherwise be within the ambit of any legal privilege shall not operate as waiver of such privilege.

 

(c) Each of GRC and FGC agrees not to disclose or otherwise waive any privilege or protection attaching to any privileged Information relating the other or relating to or arising in connection with the relationship between the Parties prior to the Spin-Off, without providing prompt written notice to and obtaining the prior written consent of the other (not to be unreasonably withheld or delayed).

 

(d) GRC and FGC each agree that it will only process personal data provided to it by the other Party in accordance with all applicable privacy and data protection law obligations and will implement and maintain at all times appropriate technical and organizational measures to protect such personal data against unauthorized or unlawful processing and accidental loss, destruction, damage, alteration and disclosure. In addition, each Party agrees to provide reasonable assistance to the other Party in respect of any obligations under privacy and data protection legislation affecting the disclosure of such personal data to the other Party and will not knowingly process such personal data in such a way to cause the other Party to violate any of its obligations under any applicable privacy and data protection legislation.

 

SECTION 7.02.     Ownership of Information. Any Information owned by one Party that is provided to the requesting Party hereunder shall be deemed to remain the property of the providing Party. Except as specifically set forth herein, nothing herein shall be construed as granting or conferring rights of license or otherwise in any such Information.

 

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SECTION 7.03.      Compensation for Providing Information. GRC and FGC shall reimburse each other for the reasonable costs, if any, in complying with a request for Information pursuant to this Article VII. Except as may be otherwise specifically provided elsewhere in this Agreement, such costs shall be computed in accordance with GRC’s or FGC’s, as applicable, standard methodology and procedures.

 

SECTION 7.04.     Record Retention. To facilitate the possible exchange of Information pursuant to this Article VII and other provisions of this Agreement, each Party shall use its reasonable best efforts to retain all Information in such Party’s possession relating to the other Party or its businesses, Assets or Liabilities, this Agreement or the Ancillary Agreements (the “Retained Information”) in accordance with its respective record retention policy as in effect on the date hereof or such longer or shorter period as required by law or, this Agreement.

 

SECTION 7.05.     Accounting Information. Without limiting the generality of Section 7.01 but subject to Section 7.01(b):

 

(a) Until the end of the first full fiscal year of GRC occurring after the Spin-Off (and for a reasonable period of time afterwards as required by law for GRC to prepare consolidated financial statements or complete a financial statement audit for any period during which the financial results of FGC were consolidated with those of GRC), FGC shall use its reasonable best efforts to enable GRC to meet its timetable for dissemination of its financial statements and to enable GRC’s auditors to timely complete their annual audit and quarterly reviews of financial statements. As part of such efforts, to the extent reasonably necessary for the preparation of financial statements or completing an audit or review of financial statements or an audit of internal control over financial reporting, (i) FGC shall authorize and direct its auditors to make available to GRC’s auditors, within a reasonable time prior to the date of GRC’s auditors’ opinion or review report, both (x) the personnel who performed or will perform the annual audits and quarterly reviews of FGC and (y) work papers related to such annual audits and quarterly reviews, to enable GRC’s auditors to perform any procedures they consider reasonably necessary to take responsibility for the work of FGC’s auditors as it relates to GRC’s auditors’ opinion or report and (ii) until all governmental audits or other inquiries are complete, FGC shall provide GRC’s internal auditors, counsel and other designated representatives reasonable access during normal business hours to (x) the premises of FGC and all Information (and duplicating rights) within the knowledge, possession or control of FGC, (y) the officers and employees of FGC, so that GRC may conduct reasonable audits relating to the financial statements provided by FGC, and (z) the Information Technology systems of FGC, so that GRC may conduct reasonable testing of such Information Technology systems in connection with the audits of its financial statements; providedhowever, that such access shall not be unreasonably disruptive to the business and affairs of FGC.

 

(b) Until the end of the first full fiscal year of FGC occurring after the Spin-Off (and for a reasonable period of time afterwards or as required by law), GRC shall use its reasonable best efforts to enable FGC to meet its timetable for dissemination of its financial statements and to enable FGC’s auditors to timely complete their annual audit and quarterly reviews of financial statements. As part of such efforts, to the extent reasonably necessary for the preparation of financial statements or completing an audit or review of financial statements or an audit of internal control over financial reporting, (i) GRC shall authorize and direct its auditors to make available to FGC’s auditors, within a reasonable time prior to the date of FGC’s auditors’ opinion or review report, both (x) the personnel who performed or will perform the annual audits and quarterly reviews of GRC and (y) work papers related to such annual audits and quarterly reviews, to enable FGC’s auditors to perform any procedures they consider reasonably necessary as it relates to FGC’s auditors’ opinion or report and (ii) until all governmental audits or other inquires are complete, GRC shall provide reasonable access during normal business hours for FGC’s internal auditors, counsel and other designated representatives to (x) the premises of GRC and all Information (and duplicating rights) within the knowledge, possession or control of GRC and (y) the officers and employees of GRC, so that FGC may conduct reasonable audits relating to the financial statements provided by GRC (z) the Information Technology systems of GRC, so that FGC may conduct reasonable testing of such Information Technology systems in connection with the audits of its financial statements; providedhowever, that such access shall not be unreasonably disruptive to the business and affairs of GRC.

 

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(c) In order to enable the principal executive officer(s) and principal financial officer(s) (as such terms are defined in the rules and regulations of the Commission) of GRC to make any certifications required of them under Section 302 or 906 of the Sarbanes-Oxley Act of 2002, FGC shall, within a reasonable period of time following a request from GRC in anticipation of filing such reports, cause its principal executive officer(s) and principal financial officer(s) to provide GRC with certifications of such officers in support of the certifications of GRC’s principal executive officer(s) and principal financial officer(s) required under Section 302 or 906 of the Sarbanes-Oxley Act of 2002 with respect to GRC’s Quarterly Report on Form 10-Q filed with respect to the fiscal quarter during which the Spin-Off occurs (unless such quarter is the fourth fiscal quarter), each subsequent fiscal quarter through the third fiscal quarter of the year in which the Spin-Off occurs and GRC’s Annual Report on Form 10-K filed with respect to the fiscal year during which the Spin-Off occurs. Such certifications shall be provided in substantially the same form and manner as such FGC officers provided prior to the Distribution (reflecting any changes in certifications necessitated by the Spin-Off or any other transactions related thereto) or as otherwise agreed upon between GRC and FGC.

 

SECTION 7.06.      Limitations of Liability. Neither GRC nor FGC shall have any Liability to the other Party in the event that any Information exchanged or provided pursuant to this Agreement that is an estimate or forecast, or that is based on an estimate or forecast, is found to be inaccurate in the absence of willful misconduct by the providing Person. Neither GRC nor FGC shall have any Liability to the other Party if any Information is destroyed after reasonable best efforts by FGC or GRC to comply with the provisions of Section 7.04.

 

SECTION 7.07.      Conduct of Pending Litigation Matters. If necessary, FGC and GRC shall enter into one or more joint defense agreements with respect to litigation matters pending as of the date hereof that involve both GRC and FGC.

 

SECTION 7.08.      Production of Witnesses; Records; Cooperation. (a) After the Distribution and until the third anniversary thereof, except in the case of an adversarial Action or threatened adversarial Action by either GRC or FGC against the other Party, each of GRC and FGC shall take all reasonable steps to make available, upon written request, the former, current and future directors, officers, employees, other personnel and agents of each other (whether as witnesses or otherwise) and any books, records or other documents within their control or that they otherwise have the ability to make available, (giving consideration to business demands of such directors, officers, employees, other personnel and agents) as may reasonably be required by GRC or FGC in connection with any Action or threatened or contemplated Action (including preparation for such Action) in which GRC or FGC, as applicable, may from time to time be involved, regardless of whether such Action is a matter with respect to which indemnification may be sought hereunder. The requesting Party shall bear all reasonable out-of-pocket costs and expenses in connection therewith.

 

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(b) Without limiting the foregoing, GRC and FGC shall use their reasonable best efforts to cooperate and consult to the extent reasonably necessary with respect to any Actions or threatened or contemplated Actions, other than an adversarial Action against the other Party.

 

(c) The obligation of GRC and FGC to make available former, current and future directors, officers, employees and other personnel and agents or provide witnesses and experts pursuant to this Section 7.08 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to make available employees and other officers without regard to whether such individual or the employer of such individual could assert a possible business conflict (subject to the exception set forth in the first sentence of Section 7.08(a)). Without limiting the foregoing, each of GRC and FGC agrees that it will not take any adverse action against any of their respective employees based on such employee’s provision of assistance or information to each other pursuant to this Section 7.08.

 

(d) Upon the reasonable request of GRC or FGC, in connection with any Action contemplated by this Article VII, GRC and FGC will enter into a mutually acceptable common interest agreement so as to maintain to the extent practicable any applicable attorney-client privilege or work product immunity of any member of either Party.

 

SECTION 7.09.     Confidential Information. (a) Each of GRC and FGC, shall hold, and cause its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives to hold, in strict confidence and not release or disclose, with at least the same degree of care, but no less than a reasonable degree of care, that it applies to its own confidential and proprietary information pursuant to policies in effect as of the Spin-Off, all Information concerning the other Party or its business that is either in its possession (including Information in its possession prior to the Spin-Off) or furnished by the other Party or its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives at any time pursuant to this Agreement, and shall not use any such Information other than for such purposes as shall be expressly permitted hereunder, except, in each case, to the extent that such Information is (i) in the public domain through no fault of GRC or FGC, as applicable, or any of their respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives, (ii) later lawfully acquired from other sources by GRC or FGC or their, employees, directors or agents, accountants, counsel and other advisors and representatives, as applicable, which sources are not themselves bound by a confidentiality obligation to GRC or FGC as applicable, (iii) independently generated without reference to any proprietary or confidential Information of GRC or FGC, as applicable, or (iv) required to be disclosed by law; providedhowever, that any Party required to disclose such Information gives the other Party prompt, and to the extent reasonably practicable, prior notice of such disclosure and an opportunity to contest such disclosure and shall use commercially reasonable efforts to cooperate, at the expense of the requesting Party, in seeking any reasonable protective arrangements requested by such other Party. In the event that such appropriate protective order or other remedy is not obtained, the Party that is required to disclose such Information shall furnish, or cause to be furnished, only that portion of such Information that is legally required to be disclosed and shall take commercially reasonable steps to ensure that confidential treatment is accorded such Information. Notwithstanding the foregoing, each of GRC and FGC may release or disclose, or permit to be released or disclosed, any such Information concerning the other Party to their respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives who need to know such Information (who shall be advised of the obligations hereunder with respect to such Information).

 

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(b) Without limiting the foregoing, when any Information concerning the other Party or its business is no longer needed for the purposes contemplated by this Agreement, each of GRC and FGC will, promptly after request of the other Party, either return all Information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or certify to the other Party, as applicable, that it has destroyed such Information and used commercially reasonable efforts to destroy all such Information electronically preserved or recorded within any computerized data storage device or component (including any hard-drive or database).

 

ARTICLE VIII

 

Insurance

 

SECTION 8.01.     Insurance. (a) Until the Spin-Off, GRC shall (i) cause FGC and its employees, officers and directors to continue to be covered as insured parties under GRC’s policies of insurance in a manner which is no less favorable than the coverage provided for GRC and (ii) permit FGC and its employees, officers and directors to submit claims arising from or relating to facts, circumstances, events or matters that occurred prior to the Spin-Off to the extent permitted under such policies. With respect to policies currently procured by FGC for the sole benefit of FGC, FGC shall continue to maintain such insurance coverage through the Spin-Off in a manner no less favorable than currently provided. Without limiting any of the rights or obligations of the parties pursuant to Sections 8.01(b)-(e), GRC and FGC acknowledge that, as of the Distribution, GRC intends to take such action as it may deem necessary or desirable to remove FGC and its employees, officers and directors as insured parties under any policy of insurance issued to GRC by any insurance carrier. Except to the extent otherwise provided below or otherwise mutually agreed, FGC will not be entitled from and after the Distribution to make any claims for insurance under any GRC policy to the extent such claims are based upon facts, circumstances, events or matters occurring on or after the Spin-Off or to the extent any claims are made pursuant to any GRC claims-made policies on or after the Spin-off. GRC shall not be deemed to have made any representation or warranty as to the availability of any coverage under any such insurance policy.

 

(b) Effective as of the Spin-Off, all existing Director and Officer (“D&O”) Policies of GRC shall be converted to run off policies, and each of GRC and FGC shall purchase D&O Policies with respect to claims arising after the Spin-Off. From and after the Spin-Off, to the extent that any pre-distribution claims have been duly reported on the D&O Policies maintained by GRC, GRC shall not take any action that would limit the coverage of the individuals who acted as directors or officers of FGC prior to the Spin-Off under any D&O Policies maintained by GRC. GRC shall continue to be responsible for the deductible or retention related to any such pre-distribution claim under the D&O Policies, in an aggregate amount not to exceed the applicable deductible. GRC shall reasonably cooperate with the individuals who acted as directors and officers of GRC on or prior to the Spin-Off in their pursuit of any coverage claims under such D&O Policies which could inure to the benefit of such individuals.

 

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(c) Existing primary casualty policies will remain in effect for GRC and FGC until the Spin-Off. Effective as of the Spin-Off, FGC shall purchase workers compensation, commercial general liability, automobile liability policies and any other policy which the business of FGC shall require with respect to claims arising after the Spin-Off. GRC shall not take any action that would limit the coverage available to FGC prior to the Spin-Off under any existing primary casualty policies maintained by GRC. Any claim fees associated with a claim occurring prior to the Distribution under the existing primary casualty policies will be assumed by GRC.

 

(d) Effective as of the Spin-Off, FGC shall purchase property policies in respect of real and personal property, excess liability and umbrella policies with respect to claims arising from and after the Spin-Off. After the Spin-Off, to the extent that any claim occurring prior to the Distribution has been duly reported as having occurred prior to the Spin-Off, under property policies in respect of real and personal property, excess liability and umbrella policies maintained by GRC, GRC shall not, and shall cause FGC not to, take any action that would limit the coverage available to FGC prior to the Spin-Off under any such policies maintained by GRC. Any claim settlement funds owed to FGC under any such policies will be distributed at the conclusion of the claim.

 

(e) Effective as of the Spin-Off, all fiduciary policies (including those relating to errors and omissions) of GRC shall continue and FGC shall purchase fiduciary policies (including those relating to errors and omissions) with respect to claims arising after the Spin-Off. From and after the Spin-Off, to the extent that any claim occurring prior to the Distribution has been duly reported on or before the Spin-Off under any insurance policies with respect to such policies, maintained by GRC, GRC shall not take any action that would limit the coverage available under the such policies. GRC shall continue to be responsible for the deductible or retention related to such pre-distribution claims under the fiduciary policies. Any claim settlement funds owed to FGC will be distributed to FGC at the conclusion of the claim.

 

(f) GRC shall provide such cooperation as is reasonably requested by FGC in order for FGC to have in effect from and after the Spin-Off such new insurance policies as FGC deems appropriate with respect to claims reported on or after the Spin-Off. In accordance with Sections 8.01(c)-(e), GRC shall reasonably cooperate with FGC in its pursuit of any coverage claims under any such policies which could inure to the benefit of FGC. Except (i) (as otherwise provided in this Agreement) (ii) for the policies referred to herein and (iii) to the extent otherwise required under Sections 8.01(b)-(e), GRC may, at any time, without liability or obligation to FGC, amend, commute, terminate, buy-out, or extinguish liability under or otherwise modify any insurance policy (and such claims will be subject to any such amendments, commutations, terminations, buy-outs, extinguishments and modifications); providedhowever, that GRC will immediately notify FGC of any termination of any insurance policy.

 

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(g) With respect to insurance claims solely of FGC, FGC shall control the conduct of the resolution of any dispute with the applicable insurer and GRC shall cooperate in good faith in the resolution of any such dispute, and FGC shall reimburse GRC for all out-of-pocket costs and expenses incurred by GRC in connection therewith. In the event that insurable claims of both GRC and FGC exist relating to the same occurrence, the Parties shall jointly defend and waive any conflict of interest necessary to the conduct of the joint defense and shall not settle or compromise any such claim without the consent of the other (which consent shall not be unreasonably withheld or delayed subject to the terms and conditions of the applicable insurance policy). Nothing in this Section 8.01 shall be construed to limit or otherwise alter in any way the obligations of the Parties, including those created by this Agreement, by operation of law or otherwise.

 

(h) The parties shall use reasonable best efforts to cooperate with respect to the various insurance matters contemplated by this Section 8.01.

 

ARTICLE IX

 

Tax Matters

 

SECTION 9.01. Indemnification. (a) GRC Indemnification of FGC. Notwithstanding anything to the contrary in Section 6.02, after the Distribution, GRC shall be liable for, and indemnify and hold FGC harmless from, the following Taxes, whether incurred directly by FGC or indirectly through any Subsidiary of FGC:

 

(i) Ordinary Taxes of GRC and Subsidiaries of GRC for any taxable period;

 

(ii) Transfer Taxes that GRC is required to pay under Section 9.03; and

 

(iii) Transaction Taxes;

 

in each case, other than Taxes for which FGC is liable under Section 9.01(b).

 

(b) FGC Indemnification of GRC. Notwithstanding anything to the contrary in Section 6.01, after the Distribution, FGC shall be liable for, and shall indemnify and hold GRC harmless from, the following Taxes, whether incurred directly by GRC or indirectly through a Subsidiary of GRC:

 

(i) Ordinary Taxes of FGC or any Subsidiary of FGC (or a consolidated, combined, unitary or similar group, other than a GRC Consolidated Group, of which FGC or its Subsidiary is a member);

 

(ii) Transfer Taxes that FGC is required to pay under Section 9.03; and

 

(iii) Transaction Taxes attributable to:

 

(A) any action or omission taken after the Distribution by FGC or any Subsidiary of FGC in breach of the covenants set forth herein (including those in Section 9.12);

 

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(B) the application of Section 355(e) or 355(f) of the Code to the Spin-Off by virtue of any acquisition of FGC Capital Stock or assets of FGC or any Subsidiary of FGC made after the Distribution; or

 

(C) any other action or omission taken after the Distribution by FGC or any Subsidiary of FGC that could give rise to Transaction Taxes, except to the extent such action or omission is otherwise expressly required or permitted by this Agreement;

 

SECTION 9.02.         Allocation of Transaction Tax. provided, that Transaction Taxes that are described in Section 9.01(iii) but also would not have been imposed but for an action, omission or acquisition taken or omitted after the Distribution by any member of the GRC Tax Group, such Transaction Taxes shall be allocated between GRC and FGC in proportion to the relative degree of fault of the members of the GRC Tax Group, on the one hand, and the members of the FGC Tax Group, on the other hand. In determining the relative degree of fault for purposes of the immediately preceding provison, only actions, omissions or acquisitions occurring after the Distribution shall be taken into account with consideration of Sections 9.12, 9.13 and 9.14.

 

SECTION 9.03.         Allocation of Transfer Taxes. GRC and FGC shall each pay 50% of all Transfer Taxes; provided, that if applicable law imposes any Transfer Taxes solely on one or more members of the GRC Tax Group, GRC shall pay 100% of such Transfer Taxes, and if applicable law imposes any Transfer Taxes solely on one or more members of the FGC Tax Group, FGC shall pay 100% of such Transfer Taxes.

 

SECTION 9.04.         Refunds, Credits and Offsets. Subject to Section 9.05, if GRC, FGC or any of their respective Subsidiaries receives any refund of any Taxes for which the other Party is liable under this Article IX (a “Refund Recipient”), such Refund Recipient shall pay to the other Party the entire amount of the refund (including interest, but net of any Taxes imposed with respect to such refund) within 10 business days of receipt or accrual; provided, however, that the other Party, upon the request of such Refund Recipient, shall repay the amount paid to the other Party (plus any penalties, interest or other charges imposed by the relevant taxing authority) in the event such Refund Recipient is required to repay such refund. In the event a Party would be a Refund Recipient but for the fact it elected to apply a refund to which it would otherwise have been entitled against a Tax liability arising in a subsequent taxable period, then such Party shall be treated as a Refund Recipient and the economic benefit of so applying the refund shall be treated as a refund, and shall be paid within 10 business days of the due date of the tax return to which such refund is applied to reduce the subsequent Tax liability.

 

SECTION 9.05.         Carrybacks. If a tax return of FGC or any of its Subsidiaries for any taxable period ending after the date of the Distribution reflects any net operating loss, net capital loss, excess Tax credit or other Tax attribute (a “Tax Attribute”), then FGC or its applicable Subsidiary shall waive the right to carry back any such Tax Attribute to a pre-Distribution tax period to the extent permissible under applicable law. In the event that FGC or any of its Subsidiaries does carry back a Tax Attribute to a pre-Distribution tax period, then (i) no payment with respect to such carryback shall be due to FGC or any of its Subsidiaries from GRC and (ii) if FGC or any of its Subsidiaries receives any refund, credit or offset of any Taxes in connection with such carryback, FGC shall promptly pay to GRC the full amount of such refund or the economic benefit of the credit or offset (including interest, but net of any Taxes imposed with respect to such refund).

 

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SECTION 9.06.         Responsibility for Preparing Tax Returns. (a) Except as provided in Section 9.06(b), GRC shall timely prepare any tax returns of the GRC Consolidated Group for any taxable period beginning before the date of the Distribution. If FGC is responsible for filing any such tax return prior to the Distribution, GRC shall, subject to Section 9.06(b), promptly deliver such prepared tax return to FGC reasonably in advance of the applicable filing deadline.

 

(b) To the extent that any tax return described in Section 9.06(a) directly relates to matters for which another Party may have an indemnification obligation to the tax return preparer, or that may give rise to a refund to which that other Party would be entitled under this Agreement, the tax return preparer shall (i) prepare the relevant portions of the tax return on a basis consistent with past practice (or refrain from amending such tax return if it has already been filed with the taxing authority), except (A) as required by applicable law or to correct any clear error, (B) as a result of changes or elections made on any tax return of a consolidated tax group that do not relate primarily to FGC, or (C) as mutually agreed by the Parties; (ii) notify the other Party of any such portions not prepared on a basis consistent with past practice; (iii) provide the other Party a reasonable opportunity to review the relevant portions of the tax return; and (iv) consider in good faith any reasonable comments made by the other Party. The Parties shall attempt in good faith to resolve any issues arising out of the review of any such Tax.

 

SECTION 9.07.         Information Packages. Each Party (i) shall provide to the other Party (in the format reasonably determined by the other Party) all information and assistance requested by the other Party as reasonably necessary to prepare any tax return described in Section 9.06(a) on a timely basis consistent with the current practices of GRC and its Subsidiaries in preparing tax returns, and (ii) in so providing such information and assistance, shall use any systems and third party service providers as are consistent with the current practices of GRC and its Subsidiaries in preparing tax returns.

 

SECTION 9.08.         Filing of Tax Returns and Payment of Taxes. (a) Each Party shall execute and timely file each tax return that it is responsible for filing under applicable law and shall timely pay to the relevant taxing authority any amount shown as due on each such tax return; provided, that neither FGC or any of its Subsidiaries shall file, amend, withdraw, revoke or otherwise alter any tax return of any GRC Consolidated Group, in each case without the prior written consent of GRC, which shall not be unreasonably withheld or delayed. The obligation to make payments pursuant to this Section 9.08(a) shall not affect a Party’s right, if any, to receive payments under Section 9.08(b) or otherwise be indemnified under this Agreement.

 

(b) In addition to its obligations under Section 9.08(b), the relevant tax return preparer shall, no later than 5 business days before the due date (including extensions) of any tax return described in Section 9.06(a), notify the other Party of any amount (or any portion of any such amount) shown as due on that tax return for which the other Party must indemnify the tax return preparer under this Agreement. The other Party shall pay such amount to the tax return preparer no later than the due date (including extensions) of the relevant tax return. A failure by an Indemnitee to give notice as provided in this Section 9.08(b) shall not relieve the Indemnifying Party’s indemnification obligations under this Agreement, except to the extent that the Indemnifying Party shall have been actually prejudiced by such failure.

 

SECTION 9.09.         Tax Contests. (a) GRC or FGC, as applicable, shall, within 10 business days of becoming aware of any Tax contest (including a Transaction Tax contest) that could reasonably be expected to cause the other Party to have an indemnification obligation under this Agreement, notify the other Party of such Tax contest and thereafter promptly forward or make available to the Indemnifying Party copies of notices and communications relating to the relevant portions of such Tax contest. A failure by an Indemnitee to give notice as provided in this Section 9.09(a) (or to promptly forward any such notices or communications) shall not relieve the Indemnifying Party’s indemnification obligations under this Agreement, except to the extent that the Indemnifying Party shall have been actually prejudiced by such failure.

 

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(b) GRC and FGC each shall have the exclusive right to control the conduct and settlement of any Tax contest, other than a Transaction Tax contest, relating to any tax return that it is responsible for preparing pursuant to Section 9.06. Notwithstanding the foregoing, if the conduct or settlement of any portion or aspect of any such Tax contest could reasonably be expected to cause a Party to have an indemnification obligation under this Agreement, then (i) the Indemnifying Party shall have the right to share joint control over the conduct and settlement of that portion or aspect, and (ii) whether or not the Indemnifying Party exercises that right, the Indemnitee shall not accept or enter into any settlement without the consent of the Indemnifying Party, which shall not be unreasonably withheld or delayed.

 

(c) GRC and FGC shall have the right to control jointly the conduct and settlement of any Transaction Tax contest. Notwithstanding the foregoing, GRC shall be entitled to control exclusively the conduct and settlement of any Transaction Tax contest if GRC notifies FGC that (notwithstanding the rights and obligations of the Parties under this Agreement) GRC agrees to pay (and indemnify FGC against) any Transaction Taxes resulting from such Transaction Tax contest.

 

(d) In any case where the Parties control jointly the conduct and settlement of any Tax contest (or portion or aspect thereof): (i) neither Party shall accept or enter into any settlement of such Tax contest (or the relevant portion or aspect thereof) without the consent of the other Party, which shall not be unreasonably withheld or delayed, (ii) both Parties shall have a right to review and consent, which consent shall not be unreasonably withheld or delayed, to any correspondence or filings to be submitted to any taxing authority with respect to such Tax contest (or the relevant portion or aspect thereof), and (iii) both Parties shall have the right to attend any formally scheduled meetings with any taxing authority or hearings or proceedings before any judicial authority, in each case with respect to such Tax contest (or the relevant portion or aspect thereof).

 

SECTION 9.10.         Mutual Representations Relating to the Distribution. Each Party represents that it knows of no fact, and has no plan or intention to take any action, that it knows or reasonably should expect, after consultation with a tax advisor, is inconsistent with the qualification of the Distribution for its Intended Tax Treatment.

 

SECTION 9.11.         Mutual Covenants.  Except as otherwise expressly required or permitted by this Agreement, after the Distribution neither Party shall take or fail to take, or cause or permit its respective Subsidiaries to take or fail to take, any action, if such action or omission would be inconsistent with the Intended Tax Treatment.

 

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SECTION 9.12.         Restricted Actions. For purposes of the continuity of the business enterprise and changes in control, (a) subject to Section 9.13, during the period beginning on the date of the Distribution and ending on, and including, the last day of the two-year period following the date of the Distribution (the “Restricted Period”), FGC shall not (and shall not cause or permit any of its Subsidiaries to), in a single transaction or a series of transactions:

 

(i) enter into any Proposed Acquisition Transaction as per Section 9.12(b)(i);

 

(ii) take any affirmative action that permits a Proposed Acquisition Transaction to occur by means of an agreement to which neither FGC nor any of its Subsidiaries is a party (including by (A) redeeming rights under a shareholder rights plan, (B) making a determination that a tender offer is a “permitted offer” under any such plan or otherwise causing any such plan to be inapplicable or neutralized with respect to any Proposed Acquisition Transaction, or (C) approving any Proposed Acquisition Transaction, whether for purposes of the Colorado Business Corporation Act or any similar corporate statute;

 

(iii) liquidate or partially liquidate FGC, whether by merger, consolidation or otherwise;

 

(iv) cause or permit FGC to cease to engage in its active trade or business;

 

(v) sell or transfer 50% or more of the gross assets of the active trade or business or 50% or more of the consolidated gross assets that FGC held immediately before the Distribution; or

 

(vi) redeem or otherwise repurchase (directly or indirectly) any FGC Capital Stock, except to the extent such redemptions or repurchases meet the requirements of Section 4.05(1)(b) of Revenue Procedure 96-30 (as in effect prior to its amendment by Revenue Procedure 2003-48).

 

(b) (i) For purposes of this Agreement, “Proposed Acquisition Transaction” means any known transaction or series of transactions (or any agreement, understanding or arrangement to enter into a transaction or series of transactions) as determined for purposes of Section 355(e) of the Code, in connection with which one or more Persons would (directly or indirectly) acquire, or have the right to acquire, from any other Person or Persons, an interest in FGC Capital Stock that, when combined with any other acquisitions of FGC Capital Stock that occur after the Distribution (but excluding any other acquisition described in clause (ii)) comprises 25% or more of the value or the total combined voting power of all interests that are treated as outstanding equity in FGC for U.S. Federal income Tax purposes immediately after such transaction or, in the case of a series of related transactions, immediately after any transaction in such series. For this purpose, any recapitalization, repurchase or redemption of FGC Capital Stock and any amendment to the certificate of incorporation (or other organizational documents) of FGC shall be treated as an indirect acquisition of FGC Capital Stock by any shareholder to the extent such shareholder’s percentage interest in interests that are treated as outstanding equity in FGC for U.S. Federal income Tax purposes increases by vote or value.

 

(ii) Notwithstanding the foregoing, a Proposed Acquisition Transaction shall not include (x) the adoption by FGC of a shareholder rights plan that meets the requirements of IRS Revenue Ruling 90-11, (y) transfers on an established market of FGC Capital Stock that are described in Safe Harbor VII of Section 1.355-7(d) of the Regulations or (z) issuances of FGC Capital Stock that satisfy Safe Harbor VIII (relating to acquisitions in connection with a Person’s performance of services) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Section 1.355-7(d) of the IRC Regulations; provided, that such transaction or series of transactions shall constitute a Proposed Acquisition Transaction if meaningful factual diligence is necessary to establish that Section 9.12(b)(ii)(x), (y) or (z) applies.

 

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(c) If FGC merges or consolidates with another entity to form a new entity, references in this Agreement to FGC shall be to that new entity and FGC Capital Stock shall refer to the capital stock or other relevant instruments or rights of that new entity.

 

(d) The provisions of this Section 9.12, including the definition of “Proposed Acquisition Transaction”, are intended to monitor compliance with Section 355 of the Code and shall be interpreted accordingly. Any clarification of, or change in, Section 355 of the Code or the IRC Regulations thereunder shall be incorporated into this Section 9.12 and its interpretation.

 

SECTION 9.13.         Consent to Take Certain Restricted Actions. For purposes of the continuity of the business enterprise and changes in control, (a) FGC may (and may cause or permit its Subsidiaries to) take an action otherwise prohibited under Section 9.12(a) if GRC consents. GRC shall consent if FGC has provided it with Satisfactory Guidance.

 

(b) For purposes of this Agreement, “Satisfactory Guidance” means either a tax opinion or other independent third party advice, reasonably satisfactory to GRC in both form and substance, including with respect to any underlying assumptions or representations and any legal analysis contained therein, and concluding that the proposed action will not cause the Distribution to fail to qualify for its Intended Tax Treatment.

 

SECTION 9.14.          Notification and Certification Regarding Certain Acquisition Transactions. For purposes of monitoring potential changes in control, if FGC proposes to enter into any 10% Acquisition Transaction or takes any affirmative action to permit any 10% Acquisition Transaction to occur at any time during the 24-month period following the date of the Distribution, FGC shall undertake in good faith to provide GRC, no later than 10 business days following the signing of any written agreement with respect to such 10% Acquisition Transaction or obtaining knowledge of the occurrence of any such 10% Acquisition Transaction that takes place without written agreement, with a written description of such transaction (including the type and amount of FGC Capital Stock to be acquired) and a brief explanation as to why FGC believes that such transaction does not result in the application of Section 355(e) or 355(f) of the Code to the Transactions. For purposes of this Section 9.14, a “10% Acquisition Transaction” means any transaction or series of transactions that would be a Proposed Acquisition Transaction if the percentage specified in the definition of Proposed Acquisition Transaction in section 9.12(b)(i) were 10% instead of 25%.

 

SECTION 9.15. Expenses. Each Party shall bear its own expenses in the course of any Tax contest, other than expenses included in the definition of Transaction Taxes, which shall be governed by Article IX.

 

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ARTICLE X

 

Ongoing Commercial Matters

 

SECTION 10.01.       Use of Facilities and Services. After the Spin-Off, and until facilities and services can be transferred to FGC, GRC shall provide FGC, its officers, directors, and its employees office space at 2866 Carriage Manor Point, Colorado Springs, Colorado 80906 and will provide FGC office equipment, email and internet access required for FGC’s normal operations. GRC will bill FGC the actual expenses incurred per month.

 

SECTION 10.02.       Repairs. For so long as the services contemplated by Section 10.01 are provided, GRC will make all necessary repairs such that FGC will be able to use such facilities and services for the normal conduct of its operations

 

ARTICLE XI

 

Further Assurances and Additional Covenants

 

SECTION 11.01.       Further Assurances. (a) In addition to the actions specifically provided for elsewhere in this Agreement, and except as otherwise provided, each of the Parties shall use reasonable best efforts, prior to, on and after the Spin-Off, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws and agreements to consummate and make effective the transactions contemplated by this Agreement.

 

(b) Without limiting the foregoing, prior to, on and after the Spin-Off, each Party shall cooperate with the other Party, without any further consideration, but at the expense of the requesting Party, (i) to execute and deliver, or use reasonable best efforts to execute and deliver, or cause to be executed and delivered, all instruments, including any instruments of conveyance, assignment and transfer as may reasonably be requested by the other Party, (ii) to make, or cause to be made, all filings with, and to obtain, or cause to be obtained, all consents of any governmental authority or any other person under any permit, license, agreement, indenture or other instrument, (iii) to obtain, or cause to be obtained, any governmental approvals or other consents required to effect the Spin-Off, and (iv) to take, or cause to be taken, all such other actions as may reasonably be requested by the other Party from time to time, consistent with the terms of this Agreement, in order to effectuate the provisions and purposes of this Agreement and any transfers of Assets or assignments and assumptions of Liabilities hereunder and the other transactions contemplated hereby.

 

(c) On or prior to the Spin-Off, GRC and FGC, in their respective capacities as direct and indirect shareholders of their respective Subsidiaries, shall each ratify any actions that are reasonably necessary or desirable to be taken by GRC or FGC to effectuate the transactions contemplated by this Agreement.

 

(d) Prior to the Spin-Off, if either Party identifies any commercial or other service that is needed to ensure a smooth and orderly transition of its business in connection with the consummation of the transactions contemplated hereby, and that is not otherwise governed by the provisions of this Agreement, the Parties will cooperate in determining whether there is a mutually acceptable arm’s-length basis on which the other Party will provide such service.

 

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(e) As soon as reasonably possible following the Spin-Off, the Parties agree to determine and settle the final amounts of any payables between the Parties to the extent such amounts have not previously been settled.

 

ARTICLE XII

 

Termination

 

SECTION 12.01.       Termination. Subject to the other provisions of this Agreement, this Agreement may be terminated by GRC at any time, in its sole discretion, prior to the Spin-Off.

 

SECTION 12.02.       Effect of Termination. In the event of any termination of this Agreement prior to the Spin-Off, neither Party (nor any of its directors or officers) shall have any Liability or further obligation to the other Party under this Agreement.

 

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ARTICLE XIII

 

Miscellaneous

 

SECTION 13.01.       Counterparts; Entire Agreement; Corporate Power. (a) This Agreement may be executed in one or more counterparts, all of which counterparts shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each Party and delivered to the other Party. This Agreement may be executed by facsimile or PDF signature and a facsimile or PDF signature shall constitute an original for all purposes.

 

(b) This Agreement contains the entire agreement between the Parties with respect to the subject matter hereof and supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties with respect to the subject matter hereof other than those set forth or referred to herein or therein.

 

(c) GRC represents on behalf of itself and FGC represents on behalf of itself, as follows:

 

(i) each such Party has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; and

 

(ii) this Agreement has been duly executed and delivered by it and constitutes a valid and binding agreement enforceable in accordance with the terms thereof.

 

SECTION 13.02.       Governing Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of Colorado, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Each Party irrevocably consents to the exclusive jurisdiction, forum and venue of the District Court of El Paso County, Colorado and the United States District Court for the District of Colorado over any and all claims, disputes, controversies or disagreements between the Parties under or related to this Agreement or any document executed pursuant to this Agreement or any of the transactions contemplated hereby or thereby.

 

SECTION 13.03.       Assignability. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by either Party without the prior written consent of the other Party. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns. No assignment permitted by this Section 13.03 shall release the assigning Party from liability for the full performance of its obligations under this Agreement.

 

SECTION 13.04.       Third-Party Beneficiaries. Except for the indemnification rights under this Agreement (a) the provisions of this Agreement are solely for the benefit of the Parties hereto and are not intended to confer upon any person except the Parties hereto any rights or remedies hereunder and (b) there are no third-party beneficiaries of this Agreement and this Agreement shall not provide any third person with any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.

 

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SECTION 13.05.       Notices. All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person, (b) on the date received, if sent by a nationally recognized delivery or courier service or (c) upon the earlier of confirmed receipt or the fifth business day following the date of mailing if sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

 

If to GRC, to:

 

Gold Resource Corporation

2000 S. Colorado Blvd. Suite 10200,

Denver, Colorado

80222

Attn: Chief Executive Officer

Facsimile: ______

 

If to FGC, to:

 

Fortitude Gold Corporation

2866 Carriage Manor Point

Colorado Springs, Colorado

80906

Attn: Chief Executive Office

Facsimile: _____

 

Either Party may, by notice to the other Party, change the address to which such notices are to be given.

 

SECTION 13.06.       Severability. If any provision of this Agreement or the application thereof to any Party or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to the Parties or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon any such determination, any such provision, to the extent determined to be invalid, void or unenforceable, shall be deemed replaced by a provision that such court determines is valid and enforceable and that comes closest to expressing the intention of the invalid, void or unenforceable provision.

 

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SECTION 13.07.       Publicity. Each of GRC and FGC shall consult with the other, and shall provide the other Party the opportunity to review and comment upon, any press releases or other public statements in connection with the Spin-Off or any of the other transactions contemplated hereby and any filings with any governmental authority or national securities exchange with respect thereto, in each case prior to the issuance or filing thereof, as applicable (including the Registration Statement, GRC’s Current Report on Form 8-K to be filed with respect to the Spin-Off, GRC’s Quarterly Report on Form 10-Q filed with respect to the fiscal quarter during which the Spin-Off occurs, or if such quarter is the fourth fiscal quarter, GRC’s Annual Report on Form 10-K filed with respect to the fiscal year during which the Spin-Off occurs (each such Quarterly Report on Form 10-Q or Annual Report on Form 10-K, a “First Post-Distribution Report”)). Each Party’s obligations pursuant to this Section 13.07 shall terminate on the date on which GRC’s First Post-Distribution Report is filed with the Securities and Exchange Commission.

 

SECTION 13.08.        Expenses. Except as expressly set forth in this Agreement all third-party fees, costs and expenses paid or incurred in connection with the Spin-Off will be paid by GRC, whether or not the Spin-Off is consummated, or as otherwise agreed by the Parties. GRC shall bear the costs and expenses in connection with the Spin-Off.

 

SECTION 13.09.       Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

SECTION 13.10.       Survival of Covenants. Except as expressly set forth in this Agreement, the covenants in this Agreement and the liabilities for the breach of any obligations in this Agreement shall survive the Spin-Off and shall remain in full force and effect.

 

SECTION 13.11.       Waivers of Default. No failure or delay of any Party in exercising any right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, or any course of conduct, preclude any other or further exercise thereof or the exercise of any other right or power. Waiver by any Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default.

 

SECTION 13.12.      Specific Performance. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the affected Party shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The other Party shall not oppose the granting of such relief on the basis that money damages are an adequate remedy. The Parties agree that the remedies at law for any breach or threatened breach hereof, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived.

 

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SECTION 13.13.       Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by any Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of each Party.

 

SECTION 13.14.       Interpretation. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms “hereof,” “herein” “and “herewith” and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. Article or Section references are to the articles, sections to this Agreement unless otherwise specified. Any reference herein to this Agreement, unless otherwise stated, shall be construed to refer to this Agreement as amended, supplemented or otherwise modified from time to time, as permitted by Section 13.13. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless the context otherwise requires or unless otherwise specified. The word “or” shall not be exclusive.

 

IN WITNESS WHEREOF, the Parties have caused this Separation to be executed by their duly authorized representatives.

 

  GOLD RESOURCE CORP
   
   
  By:                            
  Name:  
  Title:  
   
   
  FORTITUDE GOLD CORPORATION
   
   
  By:  
  Name:  
  Title:  

 

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Exhibit 10.2

 

MANAGEMENT SERVICES AGREEMENT

 

MANAGEMENT SERVICES AGREEMENT (“Agreement”), dated as of October 14, 2020, by and between GOLD RESOURCE CORPORATION, a Colorado corporation (“GRC”), and FORTITUDE GOLD CORPORATION, a Colorado corporation (“Fortitude” and, together with GRC, the “Parties”).

 

RECITALS

 

WHEREAS, Fortitude was previously a wholly owned subsidiary of GRC for which GRC and its employees (“Employees”) provided expertise, software and computer systems, and other technical, human and other resources to ensure achievement of Fortitude’s corporate purposes;

 

WHEREAS, following the spin-off of Fortitude into a separately owned corporation, Fortitude desires to retain, and GRC desires to provide, certain management and administrative support services and certain computer systems infrastructure previously provided by Employees upon the terms and conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the foregoing, the terms and conditions hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

 

 

1. SERVICES

 

1.1 GRC and its Employees (including any future or replacement employee) shall provide to Fortitude the strategic, technical, management and administrative support services (“Services”) set out below, including but not limited to, and as may be amended from time to time:

 

(a) Operational and technical services including: assistance with managerial and technical supervision, advisory and consultation of mining operations and exploration; long-term strategic planning, modeling, and other technical planning aspects of the mine site; mapping and site analysis including geophysical and geochemical surveying; review and implementation of exploration and interpretation programs; identification and testing of drilling targets; consultation regarding relationships with local government and communities; and consultation regarding environmental, safety and sustainability matters.

 

(b) Administrative, information technology, accounting and financial strategic advisory and shared services including but not limited to: budgeting and forecasting; cash and treasury management policies and procedures; commercial and market analysis; evaluation of potential corporate transactions; execution of agreed shared accounting and information technology shared services; financial and managerial reporting preparation; implementation and oversight of internal controls and assistance with internal audit functions; insurance program analysis; and providing related tax and audit support.

 

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(c) Legal and consulting services including: consultation, advice and recommendations regarding compliance with local, state and federal law; review and consultation regarding third-party litigation and strategies; review and implementation of corporate governance policies and compliance programs; human resources; executive compensation and equity plan administration.

 

(d) Investor relations and advisement services including assistance with public interface and shareholder communications; preparation of marketing or promotional materials; consultation and review of development of investor relations strategies; identification and review of corporate development opportunities.

 

2. RELATIONSHIP OF THE PARTIES

 

2.1 This Agreement is not one of agency between GRC and Fortitude, but one in which GRC is engaged to provide management oversight and administrative support services as an independent contractor and nothing contained in this Agreement shall be constructed as constituting GRC a partner of, a fiduciary of, or in joint venture with Fortitude. At no time shall the Employees of, any independent contractors engaged by GRC and/or the employees of any independent contractor be considered employees of Fortitude. GRC shall be responsible for complying with all federal, state, and local labor and tax laws and regulations with respect to Employees.

 

2.2 At all times GRC shall use its reasonable best efforts to provide Services to Fortitude; however, the Parties acknowledge and agree that from time to time Employee availability to perform Services is limited by GRC business needs and commitments. This Agreement is non-exclusive with respect to the Parties whereby GRC may for good reason decline to provide Services in such circumstances and Fortitude is not precluded from seeking assistance from other providers.

 

3. DUTIES OF GRC

 

3.1 GRC will perform, or cause to be performed, the Services with not less than the degree of care, skill and diligence with which it performs or would perform similar services for itself consistent with past practices (including without limitation, with respect to the type, quantity, quality and timeliness of such services.) If GRC is required to engage third parties to perform one or more of the Services required in this Agreement, GRC shall use all commercially reasonable efforts to cause such third parties to deliver such Services in a competent and timely fashion. GRC shall not engage any third-party service provider without the prior consultation and consent of Fortitude.

 

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3.2 GRC shall keep and maintain, at a location designated from time to time by Fortitude, fully detailed and proper records regarding all services provided to Fortitude and shall forward to Fortitude on or before the 5th business day of each month, evidence of receipts and disbursements in a form acceptable to the Parties. All such records shall be made available to Fortitude and its representatives at reasonable times whenever requested.

 

4. DUTIES OF FORTITUDE

 

4.1 Fortitude shall furnish GRC from time to time as required all information and all written authorizations or other documents necessary for GRC to perform its duties hereunder.

 

5. TERM

 

5.1 The term of this Agreement shall commence on November 1, 2020 and shall terminate on October 31, 2021, and year to year thereafter, unless cancelled by 30 days written notice by one party to the other.

 

6. FEES

 

6.1 GRC shall prepare and deliver to Fortitude a monthly invoice as soon as practicable at the end of each month setting forth with sufficient detail the Services performed by Employees and the applicable fees for such Services based on the rates set forth in Schedule 1 of this Agreement (“Fees”). Fortitude shall also reimburse GRC for all costs and expenses reasonably incurred by GRC in connection with providing the services (“Expenses”) (e.g. travel, miscellaneous office equipment, insurance, etc.) which shall be set forth in reasonable detail in the same monthly invoice as the Fees or in a separate invoice.

 

6.2 Fortitude shall pay the Fees and Expenses within 30 days of receipt of the invoice(s); provided, however, that in the event there is a dispute between the Parties regarding any invoice, the Parties shall cooperate amicably to promptly determine the correct amount of such Fees and/or Expenses owed to GRC. After 30 days, interest at the rate of 5% per annum, compounded monthly, shall accrue and will be payable with respect to any such amounts determined to be due and not paid by Fortitude until funds are received. Should default extend past 90 days, the affected party has the right to terminate the agreement.

 

6.3 The Fees will be established based on market rates. The Parties shall review annually the fee rates for Services and may amend Schedule 1 to reflect any revised rates.

 

7. CONFIDENTIALITY

 

7.1 All Confidential Information furnished to, or developed by, GRC or any of its officers, directors, principals, members, employees (including the Employees) pursuant to carrying out its duties under this Agreement shall be the property of Fortitude, and shall be kept confidential by GRC and its representatives and shall not be disclosed by GRC without prior express consent of Fortitude. For purposes of this provision “Confidential Information” shall mean information relating to the business of Fortitude as well as all know-how of which the Employees become aware or generates in the course of or in connection with the performance of the Services.

 

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7.2 Confidential Information does not include information which is required to be disclosed by law or pursuant to court order or has become public knowledge otherwise than as a result of the conduct of GRC.

 

7.3 The duty to maintain such Confidential Information shall expressly survive the termination of this Agreement.

 

8. INDEMNIFICATION

 

8.1 Each Party shall indemnify, defend and hold harmless the other Party, its parent, subsidiaries and their respective officers, directors, shareholders and employees, from and against all damages, liabilities, actions, causes of action, suits, claims, demands, losses, cost and expenses (including without limitation, reasonable attorney's fees, disbursements and court costs) to the extent arising in connection of performance of the Services (except if due to the negligence of the other Party or those for which it is responsible by law), with respect to the performance of its duties hereunder.

 

8.2 The indemnifying Party shall be notified promptly of the existence of the claims, demands, actions or rights of action and shall be given reasonable opportunity to defend the same in which defense the indemnified Party shall cooperate. If the indemnifying Party fails forthwith upon notice to assume such defense, then the indemnified Party may proceed with the defense thereof, including any settlement, in which case the indemnifying Party shall bear the costs of defense including attorneys’ fees and shall pay the amount of any judgment or settlement.

 

8.3 This indemnification provision shall not be deemed exclusive of any other rights which those seeking indemnification may be entitled under any statute or agreement, and shall survive the termination of this Agreement.

 

9. TERMINATION

 

9.1 Upon the termination of this Agreement GRC shall:

 

(a) within 90 days thereafter, render a final accounting to Fortitude which accounting shall include all unbilled Fees and Expenses.

 

(b) immediately surrender to Fortitude, or to such person as Fortitude may direct, all property, books, and records of Fortitude then in the custody of GRC.

 

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10. GENERAL

 

10.1 The Parties shall take all such further actions and execute all such further documents as shall be reasonably required in order to fully perform and carry out the terms of this Agreement.

 

10.2 This Agreement shall be constructed and interpreted in accordance with the laws of Colorado and the laws of the United States of America applicable therein.

 

10.3 This Agreement may be executed in one or more counterparts each of which when so executed shall be deemed to be an original and such counterparts together shall constitute but one of the same instrument.

 

10.4 Except as expressly provided to the contrary herein, each article, term, condition and provision of this Agreement shall be considered severable, and if, for any reason whatsoever, any such article, term, condition or provision herein is deemed to be invalid, illegal or incapable of being enforced as being contrary to, or in conflict with, any existing or future law or regulation by any court or agency having valid jurisdiction, such shall not impair the operation, or have any other effect upon such other articles, terms, conditions and provisions of this Agreement, and the latter shall continue to be given full force and effect by the parties hereto, and shall be construed as if such invalid, illegal or unenforceable article, term, condition or provision were omitted.

 

10.5 All captions, titles, headings and article numbers herein have been inserted and are intended solely for the convenience of the parties, and none such shall be construed or deemed to affect the meaning or construction of any provisions hereof, or to limit the scope of the provision to which they refer.

 

10.6 This Agreement, together with the Schedules hereto, constitute the entire, full, and complete Agreement between the Parties concerning the subject matter hereof, and shall supersede all prior and contemporaneous agreements, understandings, negotiations, and discussion whether oral or written. No representation, inducement, promises or agreements, oral or otherwise, between the Parties not included herein or attached hereto, unless of subsequent date, have been made by either Party and none shall be of any force or effect with reference to this Agreement or otherwise.

 

10.7 No amendment, change or variance of this Agreement shall be binding upon either party, unless mutually agreed to by the Parties and executed by them, or by their respective authorized employees, officers, or agents in writing.

 

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10.8 Any notice or payment to be given under this Agreement shall be in writing and delivered by hand or, except in the event of disruption of postal service, mailed by prepaid registered mail to the party at the address shown below and such notice shall be deemed to have been given on the day of delivery or on the fifth business day after mailing as aforesaid, as the case may be. In the case of a notice alone, such notice may also be sent by email to the relevant party to the email address set out below.

 

If to Fortitude Gold Corporation:

 

Fortitude Gold Corporation

 

2866 Carriage Manor Point,

Colorado Springs, Colorado

80906

Attention:______________

Email:_____________

 

If to Gold Resource Corporation;

2000 S. Colorado Blvd. Suite 10200

Denver, Colorado

80222

Attention:______________

Email:_____________

 

Notice of change of address or email address may be given by any party in the same manner.

 

10.9 Any dispute arising out of, connected with, or relating to this Agreement shall be resolved by final and binding arbitration before a single independent and impartial arbitrator in Denver, Colorado pursuant to the Commercial Arbitration Rules of the American Arbitration Association (“AAA”). If the Parties are unable to agree on a mutually acceptable arbitrator within 30 days of submission of the dispute to arbitration, an arbitrator will be appointed by the AAA. The arbitrator shall have the authority to assess the costs and expenses of the arbitration proceeding (including the fees and expenses of the arbitrator and the AAA) against any or all of the Parties. The arbitrator shall also have the authority to award reasonable attorneys’ fees and expenses to the prevailing Party. This agreement to arbitrate shall not preclude the Parties from engaging in parallel voluntary, non-binding settlement efforts including mediation.

 

(Signature page follows)

 

6

 

 

FORTITUDE GOLD CORPORATION   GOLD RESOURCE CORPORATION
     
/s/ Jason Reid    /s/ Kim Perry 
Authorized Signature   Authorized Signature
     
Jason Reid, Chief Executive Officer    Kim Perry, Chief Executive Officer
Print Name and Title   Print Name and Title

 

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SCHEDULE 1

 

GRC shall prepare and deliver to Fortitude a monthly invoice as soon as practicable at the end of each month setting forth with sufficient detail the Services performed by Employees and the applicable fees for such Services based on the below hourly rates:

 

Service Tier     Level of Services   Hourly Rate  
1     Executive   $ 345  
2     Senior Management   $ 210  
3     Transactional   $ 100  

 

8

 

Exhibit 10.3

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”), is entered into as of the 15th day of October 2020, between Jason Reid (the “Executive”) and Fortitude Gold Corporation (the “Company”).

 

In consideration of the mutual covenants contained herein and other valid consideration, the sufficiency of which is acknowledged, the Company and Executive agree as follows:

 

1.     Employment; Devotion to Duties.

 

(a) General. The Company will employ Executive as its Chief Executive Officer reporting to the Company’s Board of Directors (the “Board”), and Executive accepts employment to serve in this capacity, all upon the terms and conditions in this Agreement. Executive will have those duties and responsibilities that are consistent with Executive’s position as Chief Executive Officer, as determined by the Board. The Company reserves the right, in its sole discretion, to change or modify Executive’s position, title and duties during the term of this Agreement.

 

(b) Devotion to Duties. During the Term, Executive (i) will devote all of his business time and efforts to the performance of his duties on the Company’s behalf, and (ii) will not at any time or place or to any extent whatsoever, either directly or indirectly, without the express written consent of the Company, engage in any outside employment, or in any activity competitive with or adverse to the Company’s business, practice or affairs, whether alone or as partner, manager, officer, director, employee, shareholder of any entity or as a trustee, fiduciary, consultant or other representative. This is not intended to prohibit Executive from engaging in nonprofessional activities such as personal investments or conducting to a reasonable extent private business affairs which may include other boards of directors’ activity, as long as they do not conflict with the Company and, in the case of positions on boards of directors or similar bodies, receive the prior written approval of the Board. Participation to a reasonable extent in civic, social or community activities is encouraged. Notwithstanding anything herein to the contrary, any non-Company activities will be conducted in compliance with the Company’s corporate governance policies and other policies and procedures as in effect from time to time.

 

2.     Term.

 

(a) Initial Term. Executive will begin employment as the Chief Executive Officer of the Company under the terms of this Agreement starting on the date the Company’s Registration Statement on Form S-1 is declared effective by the Securities and Exchange Commission (the “Commencement Date”). Executive will be employed under this Agreement until one year after the Commencement Date (the “Initial Term”). The term is automatically extended under Section 2(b) unless Executive’s employment is terminated earlier pursuant to Section 7.

 

(b) Renewal Term. The term of this Agreement and the Executive’s employment renew automatically for successive one-year periods (each, a “Renewal Term”), unless at least 60 days before the end of the Initial Term or any Renewal Term, either party gives notice to the other party that this Employment Agreement will terminate at the end of the Initial Term or any Renewal Term (the Initial Term, together with any Renewal Terms, the “Term”). Notwithstanding the above, the Executive’s employment is subject to earlier termination under Section 7. Except as otherwise agreed by Executive, if the Company timely elects not to renew this Agreement at the end of the Initial Term or any Renewal Term, the Executive’s termination of employment will be characterized as a termination without Cause under Section 7(b).

 

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3.     Location. The location of Executive’s principal place of employment will be at the Company’s offices; but the Executive understands that he may be required to travel and perform services outside of this area as reasonably required to properly perform his duties under this Agreement.

 

4.     Base Salary. The Company will pay Executive an annual base salary (“Base Salary”) in the amount of $500,000, subject to future modification in accordance with the Company’s executive compensation review policies and practices. The Base Salary will be paid in accordance with the Company’s payroll practices in effect from time to time.

 

5.     Incentive Compensation.

 

(a) Short-term Incentive Compensation. Executive will be entitled from time to time to annual short-term incentive compensation which may consist of cash bonuses up to a maximum of 100% of the Executive’s base salary and/or short-term equity awards based on incentive compensation plans or other criteria established by, and payable in the sole discretion of the Board or one of its committees. Unless deferred pursuant to a plan that complies with Section 409A of the Internal Revenue Code of 1986, as amended (“Code”), this bonus, if any, will be paid to the Executive no later than two and one-half months following the end of the relevant fiscal year in which the services are performed.

 

(b) Long-term Incentive Compensation. Executive will be entitled to receive equity grants pursuant to the Company’s Equity Incentive Plan(s) based on incentive compensation plans or other criteria established by, and payable in the sole discretion of the Board or one of its committees.

 

(c) Clawback. The compensation and benefits provided pursuant to this Agreement may be subject to the Company’s compensation recoupment policy or policies (and related Company practices) that may be adopted by the Company and in effect from time-to-time, including, but not limited to, any policy or policies that may be adopted in response to applicable law (each, a “Clawback Policy”). By signing this Agreement Executive agrees to fully cooperate with the Company in assuring compliance with such policies and the provisions of applicable law, including, but not limited to, promptly returning any compensation subject to recovery by the Company pursuant to such Clawback Policies and applicable law.

 

6.     Executive Benefits.

 

(a) Fringe Benefits; Paid Time Off. The Company will provide Executive with those fringe benefits and other executive benefits on the same terms and conditions as generally available to senior management from time to time (e.g., health and other insurance programs, etc.); provided, however, that the Company reserves the right to amend or terminate any employee or executive benefit plan or program. Executive is entitled to paid time off (PTO) during each calendar year, with the amount and scheduling of the vacation to be determined under the Company’s PTO policies as in effect from time to time.

 

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(b) Reimbursement of Expenses. Executive is entitled to be reimbursed by the Company for reasonable business expenses incurred in performing his duties under the Company’s expense reimbursement policies as in effect from time to time or as otherwise approved by the CEO or the Board.

 

7.     Termination of Employment During the Term of the Agreement. Upon, and as of, the date of the Executive’s termination of employment with the Company for any reason, the Executive will be deemed to have resigned from all positions he then holds as an officer or employee of the Company. The Executive’s employment may be terminated during the Term of this Agreement pursuant to the following terms and conditions:

 

(a) Company Terminates Executive’s Employment for Cause.

 

(i) Definition. For purposes of this Agreement, Cause means (A) the Executive’s failure to substantially perform his reasonably assigned duties (other than on account of Disability); (B) the Executive is convicted of criminal conduct having the effect of materially adversely affecting the Company, after all rights of appeal have expired or such appeals have been exhausted; (C) the Executive engages in the use of alcohol or narcotics to the extent that the performance of his duties is materially impaired; (D) the Executive materially breaches the terms of this Agreement; (E) the Executive engages in willful misconduct that is materially injurious to the Company, other than business decisions made in good faith; or (F) the Executive commits any act or omission not described above that constitutes material and willful misfeasance, malfeasance, fraud or gross negligence in the performance of his duties to the Company.

 

(ii) Effective Date of Termination. Executive’s employment will terminate immediately upon written notice by the Company to Executive stating that Executive’s employment is being terminated for Cause.

 

(iii) Compensation and Benefits. If the Company terminates the Executive’s employment for Cause, the Company will pay Executive (A) any earned but unpaid Base Salary through the effective date of termination, and (B) any other unpaid benefit to which he has earned under the applicable terms of any applicable plan, program, agreement or arrangement of the Company or its affiliates (the amounts in (A) and (B) above are referred to elsewhere in this Agreement as “Accrued Amounts”).

 

(b) Company Terminates Executive’s Employment without Cause.

 

(i) Effective Date of Termination. Executive’s employment will terminate (A) on the 30th day after the Company gives written notice to Executive stating that Executive’s employment is being terminated without Cause or (B) upon expiration of the Term of this Agreement as set forth in Section 2(b) above. The Company may, at its discretion, place Executive on a paid administrative leave during all or any part of the notice period. During the administrative leave, the Company may bar Executive’s access to its offices or facilities or may provide Executive with access subject to such terms and conditions as the Company chooses to impose.

 

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(ii) Compensation and Benefits. If the Company terminates the Executive’s employment without Cause, Executive shall be entitled to compensation as set forth in Section 7(f).

 

(c) Executive Voluntarily Resigns.

 

(i) Effective Date of Termination. Executive’s employment will terminate on the 30th day after Executive gives written notice to the Company stating that Executive is resigning his employment with the Company for any reason, unless the Company waives in writing all or part of this notice period (in which case the termination of employment is effective as of the date of the waiver).

 

(ii) Compensation and Benefits. If the Executive voluntarily resigns, the Company will pay Executive the Accrued Amounts.

 

(d) Disability.

 

(i) Definition. For purposes of this Agreement, Disability or Disabled means the Executive (A) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (B) is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, is receiving income replacement benefits for a period of not less than three months under an accident and health plan covering the Company’s employees.

 

(ii) Effective Date of Termination. Executive’s employment will terminate on the first day the Company makes a determination that the Executive is Disabled.

 

(iii) Compensation and Benefits. Upon a determination that the Executive is Disabled, the Company will pay to Executive any Accrued Amounts plus a lump sum equal to 6 months of Executive’s then Base Salary, reduced by any disability insurance maintained by the Company to be received by Executive for 6 months following his termination of employment, payable within 30 days following the date of Executive’s termination of employment.

 

(e) Death.

 

(i) Effective Date of Termination. Executive’s employment will terminate immediately upon the Executive’s death.

 

(ii) Compensation and Benefits. If the Executive dies during the Term, the Company will pay Executive’s designated beneficiary, or his estate if there is no designated beneficiary, the Accrued Amounts. Any amounts payable under this Section 7(e)(ii) are in addition to any payments which the Executive’s designated beneficiary or estate may be entitled to receive pursuant to any pension plan, profit sharing plan, employee benefit plan, or life insurance policy maintained by the Company.

 

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(f) Other Termination.

 

(i) Compensation and Benefits. If the Executive resigns in connection with or within a period of 12 months following a Change in Control, the Company terminates Executive’s employment pursuant to Section 7(b) of this Agreement, or the Executive terminates his employment for Good Reason:

 

· The Company will pay to Executive 24 months of Executive’s then current Base Salary plus an amount equal to all short-term incentive compensation received for each of the two calendar years prior to the Change in Control, payable in a lump sum no later than the 60th day following the termination date (unless otherwise delayed under Section 7(h) below).

 

· all stock options which Executive holds at the time of such termination shall become fully vested;

 

· the Company will extend the expiration date of the stock options held by the Executive to a date which is four years after the effective date of the Executive’s termination or resignation, unless the expiration date is after such four-year period, in which case the original expiration date will control;

 

· all shares of restricted stock then held by the Executive shall immediately vest and all restrictions pertaining to any such shares of restricted stock will lapse and have no further force or effect.

 

· to the extent permissible under the terms of the Company’s welfare benefit plans, the continuation of all Company welfare benefits, including medical, dental, vision, life and disability benefits pursuant to plans maintained by the Company under which the Executive and/or the Executive’s family were receiving benefits and/or coverage, or otherwise reimburse Executive for the cost of continuation of state health coverage for the Executive and/or the Executive’s family, for the 18-month period following the date of the Executive’s termination, and the Executive shall pay any portion of such cost as was required to be borne by key executives of the Company generally on the date of termination; provided, however, that, the coverage for any plan subject to COBRA or state continuation of coverage will discontinue if such coverage terminates under Section 4980B of the Code.

 

For purposes of this Agreement, the term Change in Control means (A) the sale of 50% or more of the outstanding voting securities of the Company in a single transaction or a series of transaction occurring during a 12-month period; (B) A majority of the members of the Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the Company’s Board of Directors prior to the date of the appointment or election; (C) the Company is merged or consolidated with another corporation and as a result of such merger or consolidation less than 50% of the outstanding securities of the surviving or resulting corporation is owned in the aggregate by the shareholders of the Company that existed immediately prior the merger or consolidation; (D) the Company sells more than 40% of the fair market value of its assets to another corporation that is not a wholly owned subsidiary of the Company during a 12-month period or (E) the acquisition by any individual, entity or group having beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of 50% or more of the Company’s either (1) the then outstanding shares of common stock of the Company or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote in the election of directors.

 

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For purposes of this Agreement, “Good Reason” means assigning the Executive to any duties that are materially inconsistent with his position as described in Section 1, a reduction of Executive’s Base Salary without the prior written consent of the Executive, or a relocation of Executive’s primary job duties to a location more than 50 miles from the location described in Section 3. The foregoing notwithstanding, a condition is not considered “Good Reason” unless (A) Executive gives the Company written notice of such condition within 30 days after the condition comes into existence; (B) the Company fails to cure the condition within 30 days after receiving Executive’s written notice; and (C) Executive terminates his employment within 12 months following a Change in Control.

 

(ii) Release. The Company will not make any payment to Executive or furnish any benefit under this Section 7(f) unless Executive signs (and does not revoke) a legal release (“Release Agreement”), in the form and substance reasonably requested by the Company. The Release Agreement will require Executive to release the Company, directors, officers, employees, agents and other affiliates with the Company from any and all claims, including claims relating to Executive’s employment with the Company and the termination of Executive’s employment. The Release Agreement must be executed and returned to the Company within the 21 or 45 day (as applicable) period described in the Release Agreement and it must not be revoked by Executive within the seven-day revocation period described in the Release Agreement. Notwithstanding anything in this Agreement to the contrary, (A) the Company will provide the Release Agreement to the Executive in a timely manner to comply with the provisions under Code Section 409A, and (B) if the Company concludes, in the exercise of its discretion, that the payments due pursuant to this Agreement are subject to Section 409A of the Code, and if the consideration period, plus the revocation period described in the Release Agreement, spans two calendar years, the payments will be made in the second calendar year.

 

(iii) Change in Control Payment/Section 280G Limitation.

 

(1) General Rules. Code Sections 280G and 4999 may place significant tax burdens on both Executive and the Company if the total payments made to Executive due to certain change in control events described in Code Section 280G (the “Total Change in Control Payments”) equal or exceed the 280G Cap (three times the Executive’s  “Base Amount” as defined in Code Section 280G). If the Total Change in Control Payments equal or exceed the 280G Cap, Section 4999 of the Code imposes a 20% excise tax (the “Excise Tax”) on all amounts in excess of one times Executive’s Base Period Income Amount. The Excise Tax is imposed on Executive, rather than the Company, and will be withheld by the Company from any amounts payable to Executive pursuant to this Agreement. In determining whether the Total Change in Control Payments will exceed the 280G Cap and result in an Excise Tax becoming due, and for purposes of calculating the 280G Cap itself, the provisions of Code Sections 280G and 4999 and the applicable regulations will control over the general provisions of this Section 7(f)(iii).

 

  6  

 

 

(2) Limitation on Payments. Subject to the “best net” exception described in Section 7(f)(iii)(3) below, in order to avoid the imposition of the Excise Tax, the total payments to which Executive is entitled under this Agreement or otherwise will be reduced to the extent necessary to avoid exceeding the 280G Cap minus $1.00.

 

(3) “Best Net” Exception. If Executive’s Total Change in Control Payments minus the Excise Tax payable on all such payments exceeds the 280G Cap minus $1.00, then the total payments to which Executive is entitled under this Agreement or otherwise will not be reduced pursuant to Section 7(f)(iii)(2). If the “best net” exception applies, Executive shall be responsible for paying any Excise Tax (and income or other taxes) that may be imposed on Executive pursuant to Code Section 4999 or otherwise.

 

(4) Calculating the 280G Cap. If the Company believes that the provisions of Section 7(f)(iii)(2) may apply to reduce the total payments to which Executive is entitled under this Agreement or otherwise, it will notify Executive as soon as possible. The Company then will engage a “Consultant” (a law firm, a certified public accounting firm, and/or a firm of recognized executive compensation consultants) to make any necessary determinations and to perform any necessary calculations required in order to implement the rules set forth in this Section 7(f)(iii). The Consultant shall provide detailed supporting calculations to both the Company and Executive and all fees and expenses of the Consultant shall be borne by the Company.

 

If the Consultant determines that the limitations of Section 7(f)(iii)(2) apply, then the total payments to which Executive is entitled under this Agreement or otherwise will be reduced to the extent necessary to eliminate the amount in excess of the 280G Cap. Such payments will be made at the times specified herein, in the maximum amount that may be paid without exceeding the 280G Cap. The balance, if any, will then be paid, if due, after the opinions called for by this Section 7(f)(iii)(4) have been received.

 

If the amount paid to Executive by the Company is ultimately determined by the Internal Revenue Service to have exceeded the limitations of Section 7(f)(ii)(2), Executive must repay the excess promptly on demand of the Company. If it is ultimately determined by the Consultant or the Internal Revenue Service that a greater payment should have been made to Executive, the Company shall pay Executive the amount of the deficiency within 30 days of such determination.

 

As a general rule, the Consultant’s determination shall be binding on Executive and the Company. Section 280G and the Excise Tax rules of Section 4999, however, are complex and uncertain and, as a result, the Internal Revenue Service may disagree with the Consultant’s conclusions. If the Internal Revenue Service determines that the 280G Cap is actually lower than calculated by the Consultant, the 280G Cap will be recalculated by the Consultant. Any payment in excess of the revised 280G Cap then will be repaid by Executive to the Company. If the Internal Revenue Service determines that the actual 280G Cap exceeds the amount calculated by the Consultant, the Company shall pay Executive any shortage.

 

The Company has the right to challenge any determinations made by the Internal Revenue Service. If the Company agrees to indemnify Executive from any taxes, interest and penalties that may be imposed on Executive in connection with such challenge, then Executive must cooperate fully with the Company. the Company shall bear all costs associated with the challenge of any determination made by the Internal Revenue Service and the Company shall control all such challenges.

 

  7  

 

 

Executive must notify the Company in writing of any claim or determination by the Internal Revenue Service that, if upheld, would result in the payment of Excise Taxes. Such notice shall be given as soon as possible but in no event later than 15 days following Executive’s receipt of the notice of the Internal Revenue Service’s position.

 

(5) Effect of Repeal. If the provisions of Code Sections 280G and 4999 are repealed without succession, this Section 7(f)(ii) will not apply. In addition, if this provision does not apply to Executive for whatever reason (e.g., because Executive is not a “disqualified individual” for purposes of Code Section 280G), this Section will not apply.

 

(g) Leave of Absence. At the Company’s sole discretion, Executive may be placed on a paid administrative leave of absence for a reasonable period of time (not to exceed 60 days unless otherwise reasonably required to resolve matters under investigation) should the Board believe it necessary for any reason, including, but not limited to confirm that reasonable grounds exist for a termination for Cause, for example, pending the outcome of any internal or other investigation or any criminal charges. During this leave, the Company may bar Executive’s access to the Company’s or any affiliate’s offices or facilities or may provide Executive with access subject to terms and conditions as the Company chooses to impose.

 

(h) Compliance with Code Section 409A. Any payment under this Section 7 is subject to the provisions of this Section 7(h) (except for a payment pursuant to Disability or death under Section 7(d) or (e)). If Executive is a “Specified Employee” of the Company for purposes of Code Section 409A at the time of a payment event in Section 7(b) and if no exception from Code Section 409A applies in whole or in part, the severance or other payments will be made to Executive by the Company on the first day of the seventh month following the date of the Executive’s Separation from Service (the “409A Payment Date”). Should this Section 7(h) result in a delay of payments to Executive, the Company will begin to make the payments as described in this Section 7, provided that any amounts that would have been payable earlier but for the application of this Section 7(h), will be paid in lump-sum on the 409A Payment Date along with accrued interest at the rate of interest announced by the Company’s primary bank from time to time as its prime rate from the date that payments would otherwise have been made under this Agreement. The balance of the severance payments will be payable in accordance with regular payroll timing and the COBRA premiums will be paid monthly. For purposes of the provision, the term Specified Employee has the meaning in Code Section 409A(a)(2)(B)(i), or any successor provision and the issued treasury regulations and rulings. “Separation from Service” or “Termination of Employment” means, with respect to any payment that is subject to Code Section 409A, either (a) termination of Executive’s employment with Company and all affiliates, or (b) a permanent reduction in the level of bona fide services Executive provides to Company and all affiliates to an amount that is 20% or less of the average level of bona fide services Executive provided to Company in the immediately preceding 36 months, with the level of bona fide service calculated in accordance with Treasury Regulations Section 1.409A-1(h)(1)(ii). Solely for purposes of determining whether Executive has a “Separation from Service,” Executive’s employment relationship is treated as continuing while Executive is on military leave, sick leave, or other bona fide leave of absence (if the period of such leave does not exceed six months, or if longer, so long as Executive’s right to reemployment with Company or an affiliate is provided either by statute or contract). If Executive’s period of leave exceeds six months and Executive’s right to reemployment is not provided either by statute or by contract, the employment relationship is deemed to terminate on the first day immediately following the expiration of such six-month period. Whether a termination of employment has occurred will be determined based on all of the facts and circumstances and in accordance with regulations issued by the United States Treasury Department pursuant to Code Section 409A. If the payment is not subject to Code Section 409A, the term termination of employment will be given its ordinary meaning.

 

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(i) Mitigation/Offset. The Executive is under no obligation to seek other Employment or to otherwise mitigate the obligations of the Company under this Agreement, and the Company may not offset against amounts or benefits due Executive under this Agreement or otherwise on account of any claim (other than any preexisting debts then due in accordance with their terms) the Company or its affiliates may have against him or any remuneration or other benefit earned or received by Executive after such termination.

 

8. Executive’s Other Obligations.

 

(a) Ownership of Work, Materials and Documents. The Executive will disclose promptly to the Company any and all inventions, discoveries, and improvements (whether or not patentable or registrable under copyright or similar statutes), and all patentable or copyrightable works, initiated, conceived, discovered, reduced to practice, or made by the Executive, either alone or in conjunction with others, during the Executive’s employment with the Company and related to the business or activities of the Company and its affiliates (the “Developments”). Except to the extent any rights in any Developments constitute a work made for hire under the U.S. Copyright Act, which the parties acknowledge are owned by the Company and/or its applicable affiliate, the Executive assigns all of his right, title and interest in all Developments (including all intellectual property rights) to the Company or its nominee without further compensation, including all rights or benefits, including, without limitation, the right to sue and recover for past and future infringement. Whenever requested by the Company, the Executive will execute any and all applications, assignments or other instruments which the Company deems necessary to apply for and obtain trademarks, patents or copyrights of the United States or any foreign country or otherwise protect its interests. These obligations continue beyond the end of the Executive’s employment with the Company with respect to inventions, discoveries, improvements or copyrightable works initiated, conceived or made by the Executive while employed by the Company, and are binding upon the Executive’s employers, assigns, executors, administrators and other legal representatives. If the Company is unable for any reason, after reasonable effort, to obtain the Executive’s signature on any document needed in connection with the actions described in this Section 8(a), the Executive irrevocably designates and appoints the Company and its duly authorized officers and agents as the Executive’s agent and attorney in fact to act for and in the Executive’s behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of this Section 8(a) with the same legal force and effect as if executed by the Executive. Immediately upon the Company’s request at any time during or following the Term, Executive is required to return to the Company any and all Confidential and Proprietary Information and any other property of the Company then within Executive’s possession, custody and/or control. Failure to return this property, whether during the term of this Agreement or after its termination, is a breach of this Agreement.

 

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(b) Interests to be Protected. During the course of Executive’s employment, Executive will be exposed to a substantial amount of confidential and proprietary information, including, but not limited to, financial information, annual reports, audited and unaudited financial reports, operational budgets and strategies, methods of operation, customer lists, strategic plans, business plans, marketing plans and strategies, new business strategies, merger and acquisition strategies, management systems programs, computer systems, personnel and compensation information and payroll data, and other such reports, documents or information (collectively the “Confidential and Proprietary Information”). Due to Executive’s senior position with the Company and its affiliates, Executive acknowledges that he regularly receives Confidential and Proprietary Information with respect to the Company and/or its affiliates; for the avoidance of doubt, all such information is expressly included in the defined term “Confidential and Proprietary Information.” If Executive’s employment is terminated by either party for any reason, Executive promises that Executive will not retain, take with Executive or make any copies of such Confidential and Proprietary Information in any form, format, or manner whatsoever (including paper, digital or other storage in any form) nor will Executive disclose the same in whole or in part to any person or entity, in any manner either directly or indirectly. Excluded from this Agreement is information that (i) is or becomes publicly known through no violation of this Agreement; (ii) is lawfully received by the Executive from any third party without restriction on disclosure or use; (iii) is required to be disclosed by law, or (iv) is expressly approved in writing by the Company for release or other use by the Executive. Executive and the Company also acknowledge that because Executive is a senior executive he will have access to information (some of which is Confidential Information and some of which is not), employees and knowledge about the Company that is extremely valuable to the Company and which it needs to protect for a period of time after Executive terminates employment. Additionally, they agree that the covenants in this Section 8 are reasonable and necessary to protect the Company’s legitimate business interests. Executive and the Company agree that the following restrictive covenants (which together are referred to as the “Executive’s Post-Termination Obligations”) are fair and reasonable and are freely, voluntarily and knowingly entered into. Further, each party has been given the opportunity to consult with legal counsel before entering into this Agreement.

 

(c) Judicial Amendment. If the scope of any provision of Section 8 of this Agreement is found by a court to be too broad to permit enforcement to its full extent, then that provision will be enforced to the maximum extent permitted by law. The parties agree that, if legally permissible, the scope of any provision of this Agreement may be modified by a judge in any proceeding to enforce Section 8 of this Agreement, so that the provision can be enforced to the maximum extent permitted by law. If any provision of this Agreement is found to be invalid or unenforceable for any reason, the parties agree that it will not affect the validity and enforceability of the remaining provisions of this Agreement.

 

(d) Injunctive Relief, Damages and Forfeiture. Due to the nature of Executive’s position with the Company, and with full realization that a violation of Section 8 may cause immediate and irreparable injury and damage, which is not readily measurable, and to protect the parties’ interests, the parties understand and agree that in addition to instituting arbitration proceedings pursuant to Section 10 to recover damages resulting from a breach of this Agreement, either party may also seek injunctive relief to enforce this Agreement in a court of competent jurisdiction to cease or prevent any actual or threatened violation of this Agreement. In any action brought pursuant to this Section 8(d), the prevailing party will be entitled to an award of attorney’s fees and costs.

 

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(e) Survival. The provisions of this Section 8 survive the termination of this Agreement.

 

(f) Cooperation; No Disparagement. Following the Termination of this Agreement, for whatever reason, Executive agrees to provide reasonable assistance to the Company (including assistance with litigation matters), upon the Company’s request, concerning the Executive’s previous employment responsibilities and functions with the Company. In consideration for such cooperation, but only if the Executive is not receiving severance pursuant to Section 7, Company will compensate Executive for the time Executive spends on such cooperative efforts (at an hourly rate based on Executive’s Base Salary during the year preceding the date of termination) and Company will reimburse Executive for his reasonable out-of-pocket expenses Executive incurs in connection with such cooperative efforts. Additionally, at all times after the Executive’s employment with the Company has terminated, Company (defined for this purpose only as any Company press release and the Board, the CEO and the CEO’s direct reports, and no other employees) and Executive agree to refrain from making any disparaging or derogatory remarks, statements and/or publications regarding the other, its employees or its services.

 

9. General Provisions.

 

(a) Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any applicable law, then, if legally permissible, such provision will be deemed to be modified to the extent necessary to render it legal, valid and enforceable, and if no modification will make the provision legal, valid and enforceable, then this Agreement will be construed as if not containing the provision held to be invalid, and the rights and obligations of the parties will be construed and enforced accordingly.

 

(b) Assignment by Company. Nothing in this Agreement precludes the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation or entity that assumes this Agreement and all obligations and undertakings hereunder. Upon any consolidation, merger or transfer of assets and assumption, the term “Company” means any other corporation or entity, as appropriate, and this Agreement will continue in full force and effect.

 

(c) Entire Agreement. This Agreement and any agreements concerning equity compensation or other benefits, embody the parties’ complete agreement with respect to the subject matter in this Agreement and supersede any prior written or contemporaneous oral, understandings or agreements between the parties that may have related in any way to the subject matter in this Agreement, including but not limited to any offer letter provided to or signed by Executive. This Agreement may be amended only in writing executed by the Company and Executive.

 

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(d) Governing Law. Because the Company is a Colorado corporation, and because it is mutually agreed that it is in the best interests of the Company and all of its employees that a uniform body of law consistently interpreted be applied to the employment agreements to which the Company is a party, this Agreement will be deemed entered into by the Company and Executive in Colorado. The law of the State of Colorado will govern the interpretation and application of all of the provisions of this Agreement.

 

(e) Notice. Any notice required or permitted under this Agreement must be in writing and will be deemed to have been given when delivered personally or by overnight courier service or three days after being sent by mail, postage prepaid, at the address indicated below or to such changed address as such person may subsequently give such notice of:

 

if to the Company: Fortitude Gold Corporation
  2886 Carriage Manor Point
  Colorado Springs, CO 80906
 
   
if to the Executive: Attention: Chairman of the Board
  2886 Carriage Manor Point
  Colorado Springs, CO 80906

 

(f) Withholding; Release. All of Executive’s compensation under this Agreement will be subject to deduction and withholding authorized or required by applicable law. The Company’s obligation to make any post-termination payments hereunder (other than salary payments and expense reimbursements through a date of termination), is subject to Company receiving from Executive a mutually agreeable release, and compliance by Executive with the covenants set forth in Section 8 above.

 

(g) Non-Waiver; Construction; Counterparts. The failure in any one or more instances of a party to insist upon performance of any of the terms, covenants or conditions of this Agreement, to exercise any right or privilege conferred in this Agreement, or the waiver by that party of any breach of any of the terms, covenants or conditions of this Agreement, will not be construed as a subsequent waiver of any such terms, covenants, conditions, rights or privileges, but the waiver will continue and remain in full force and effect as if no such forbearance or waiver had occurred. No waiver is effective unless it is in writing and signed by an authorized representative of the waiving party. This Agreement will be construed fairly as to both parties and not in favor of, or against, either party, regardless of which party prepared the Agreement. This Agreement may be executed in multiple counterparts, each of which will be deemed to be an original, and all such counterparts will constitute but one instrument.

 

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(h) Successors and Assigns. This Agreement is solely for the benefit of the parties and their respective successors, assigns, heirs and legatees. Nothing in this Agreement will be construed to provide any right to any other entity or individual.

 

(i) Indemnification. The Company agrees to indemnify the Executive to the fullest extent provided under the Company’s limited liability company agreement and By-Laws, on the same terms and conditions as indemnification is generally provided to the Company’s officers and directors, in the event that he was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, by reason of the fact that the Executive is or was a director, officer, employee or agent of the Company or any of its affiliates; provided, however, that the Executive is not entitled to indemnification under this Section 8(i) relating to any claims, actions, suits or proceedings arising from his breach of this Agreement.

 

10. Dispute Resolution. Any dispute, controversy, or claim, whether contractual or non-contractual, including without limitation any federal or state statutory claim, common law or tort claim, or claim for attorneys’ fees, between the parties arising directly or indirectly out of or connected with this Agreement and/or the parties’ employment relationship, unless mutually settled by the parties hereto, must be resolved by binding arbitration conducted pursuant to the Federal Arbitration Act and in accordance with the Employment Arbitration Rules of the American Arbitration Association (the “AAA”) in effect at the time. The parties agree that before proceeding to arbitration, they will mediate their dispute(s) before a mutually selected mediator. If the parties are unable to mutually select a mediator within thirty (30) days (or as otherwise agreed), then either party may request the AAA’s assistance in appointing a mediator. Any arbitration will be conducted by an arbitrator mutually selected by the parties. If the parties are unable to mutually select an arbitrator within thirty (30) days (or as otherwise agreed), then either party may request the AAA’s assistance in selecting an arbitrator. All such disputes, controversies or claims will be conducted by a single arbitrator, unless the parties mutually agree that the arbitration will be conducted by a panel of three arbitrators. The arbitration shall be conducted pursuant to Employment Arbitration Rules of the AAA in effect at the time, or as otherwise agreed. The arbitrator(s) may award any relief available in a court of competent jurisdiction. The resolution of the dispute by the arbitrator(s) will be final, binding, nonappealable (except as provided by the Federal Arbitration Act) and fully enforceable by a court of competent jurisdiction pursuant to the Federal Arbitration Act. The arbitration award will be in writing and will include a statement of the reasons for the award. The arbitration will be held at the principal place of employment of the Executive, or as otherwise agreed to by the parties. The Company will initially pay all AAA, mediation, and arbitrator’s fees and costs. The arbitrator(s) may award reasonable attorneys’ fees and/or costs to the prevailing party. The Company and the Executive agree that each may bring claims against the other in an individual capacity only, and not as a class representative or class member in any purported collective, class or representative proceeding. Further, unless both the Company and the Executive agree otherwise, the Arbitrator may not consolidate more than one party’s claims into a single arbitration proceeding and may not otherwise preside over any form of a collective, class or representative proceeding. Notwithstanding anything herein to the contrary, any arbitration proceeding will be held in Denver, Colorado.

 

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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written.

 

FORTITUDE GOLD CORPORATION,
  a Colorado corporation
     
     
  By: /s/ Jason Reid
     
  Name: Jason Reid
     
  Title: Chief Executive Officer
     
     
  EXECUTIVE
     
     
  /s/ Jason Reid
     
  Name: Jason Reid

 

 

Fortitude Gold Employ. Agree Reid #2 9-23-20

 

  14  

 

Exhibit 14

 

Fortitude Gold Corporation

Code of Ethics

 

Introduction

 

In keeping with our commitment to honest business practices, Fortitude Gold Corporation, and its wholly owned subsidiaries (the “Company”) have adopted this company-wide Code of Ethics to assist our directors, officers, consultants and employees (“Company Representatives”) in complying with both our corporate policies and with the law.

 

Although this Code of Ethics covers many different business practices and procedures, it does not cover every issue that may arise. Instead, our Code sets forth the clear principles and standards to which we expect Company Representatives to adhere and certain principles regarding enforcement of the Code. Our goal is to conduct ourselves in a manner that avoids even the appearance of impropriety.

 

This Code should be read in conjunction with our other corporate policies. If a law conflicts with a policy in this Code, you must comply with the law. If you have questions about this Code, or our other policies, or how to comply with the law in a certain situation, it is important that you immediately bring your questions to one of the Company's officers. If you are in or observe a situation that you believe may violate or lead to a violation of this Code, you should refer to Section F of our Code for guidance on how to report questionable behavior.

 

Company Representatives who violate the standards of this Code will be subject to disciplinary action. Such action may include termination of employment.

 

A.           Compliance with All Laws, Rules and Regulations

 

The Company requires that Company Representatives strictly adhere to local, state, and federal laws, as well as the laws of the other countries in which we conduct business. If you have questions about what laws we are subject to, or about how to comply with certain laws, it is important that you alert an officer of the Company to your question. We rely on you not only to act ethically, but also to assist your fellow employees and management in following the law. When appropriate, the Company will provide information and training to promote compliance with laws, rules, and regulations, including insider trading laws.

 

Each Company Representative has a responsibility to:

 

· maintain a safe and healthy work environment;

 

· promote a workplace that is free from discrimination or harassment based on race, color, religion, sex, sexual orientation, age, national origin, disability or other factors that are unrelated to the Company’s business interests;

 

 

 

· support fair competition and laws prohibiting restraints of trade and other unfair trade practices;

 

· conduct our activities in full compliance with all applicable environmental laws;

 

· keep the political activities of our directors, officers and employees separate from our business;

 

· refrain from making any illegal payments, gifts, or gratuities to any government officials or political party;

 

· refrain from the unauthorized use, reproduction, or distribution of Company and/or any third party’s trade secrets, copyrighted information or confidential information; and,

 

· comply with all applicable securities laws, including insider trading laws which require Company Representatives to refrain from trading in the Company’s securities while in possession of confidential non-public information concerning the Company and “tipping” others who might make an investment decision on the basis of such information.

 

B.           Conflicts of Interest and Ethical Conduct

 

Company Representatives are expected to make or participate in business decisions and actions based on the best interests of the Company as a whole, and not based on personal relationships or personal gain. As defined, a “conflict of interest” exists when a Company Representative’s private interest interferes in any way with the interest of the Company, or creates an appearance of impropriety. A conflict situation can arise when you have interests that make it difficult for you to perform your work objectively, or when a Company Representative receives improper personal benefits as a result of his or her position with the Company. Conflicts of interest are prohibited as a matter of Company policy, unless authorized by the Board of Directors or under guidelines approved by the Board of Directors.

 

It is almost always a conflict of interest for a Company Representative to work simultaneously for a competitor, customer, or supplier. You should avoid any relationship that would cause a conflict of interest with your duties and responsibilities at the Company. In order to avoid a conflict of interest, or even an appearance of a conflict of interest, Company Representatives will not:

 

· possess any personal financial interest in any business transaction of the Company or its agents or representatives unless such interest is first approved by the Board;

 

· acquire or maintain any influential interest in or position with any other business enterprise whose activities are in competition with the Company;

 

· accept gifts, gratuities, bribes, kickbacks, or similar renumeration or consideration given by any person or organization in order to attract or influence business activity; or,

 

· use information concerning the Company’s business for personal gain or profit.

 

 

 

Members of our Board of Directors have a special responsibility to the Company and to our shareholders. To avoid conflicts of interest, directors are required to disclose to their fellow directors any personal interest they may have in a transaction being considered by the Board and, when appropriate, to recuse themselves from any decision in which there may be a conflict of interest. Waivers of a conflict of interest or this Code involving executive officers and directors require approval by the Board of Directors.

 

In addition to raising a potential conflict of interest, certain transactions with any director, officer, or shareholder that beneficially owns 5% or more of the Company’s securities are considered to be a “related party transaction” due to the related person’s relationship with the Company and the direct or indirect material interest in the transaction. All related party transactions must be disclosed to the Audit Committee or a special independent committee of the Board of Directors for review and approval.

 

Our Board of Directors and officers also have a duty to refrain from taking for themselves any opportunity discovered through use of Company property, information, or position, using Company property for personal gain, and from competing with the Company. The Company’s officers and directors will advance the Company’s legitimate interests when the opportunity to do so arises.

 

In addition to the foregoing, all Company Representatives shall:

 

· act honestly and ethically in the performance of his or her duties at the Company, avoiding actual or apparent conflicts of interest in personal and professional relationships;

 

· comply with rules and regulations of federal, state, provincial, local and foreign governments, as well as those of other appropriate private and public regulatory agencies that affect the conduct of the Company’s business and the Company’s financial reporting;

 

· act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing one’s independent judgment to be subordinated;

 

· share knowledge and maintain skills relevant to carrying out the Company Representatives’ duties within the Company;

 

· proactively promote and set an example of ethical behavior as a responsible partner among peers and colleagues in the work environment and community;

 

· achieve responsible use of and control over all assets and resources of the Company to which they are entrusted;

 

· honestly and accurately maintain the books, records, accounts, and financial statements of the Company in reasonable detail to appropriately reflect the Company’s transactions and to conform with the Company’s system of internal controls and meet all applicable legal requirements, and retain such records in accordance with the Company’s document retention policies; and,

 

 

 

· report any discovery of a violation of the Code or potential or existing conflict of interest in accordance with the procedures set forth in Section F of this Code.

 

C.           Our Commitment to Full, Fair, Accurate, Timely and Plain English Disclosure

 

As a respected public company, it is critical that the Company’s filings with the Securities and Exchange Commission be complete, timely and accurate in all material respects.

 

Company Representatives are charged with the responsibility of providing management with accurate and complete information to assure we are complying with our public disclosure requirements and our commitment to our shareholders.

 

In addition to this general duty of Company Representatives to assist the Company’s senior management in meeting its obligations for public reporting compliance purposes, the CEO and senior financial management employees each agree that he or she will:

 

· provide information that is accurate, complete, objective, relevant, timely and understandable to ensure full, fair, accurate, timely, and understandable disclosure in reports and documents filed with or submitted to the SEC or used in other public communications by the Company; and,

 

· promptly bring to the attention of the Company’s Chief Executive Officer or the Audit Committee (if one is appointed), any information concerning (a) any conduct believed to be a violation of law or business ethics, or this Code, including any transaction or relationship that reasonably could be expected to give rise to such a conflict; (b) significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data, or (c) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s financial reporting, disclosures, or internal controls.

 

D.           Payments to Government Personnel

 

The U.S. Foreign Corrupt Practices Act (FCPA) prohibits giving anything of value directly or indirectly to officials of foreign governments or foreign political candidates in order to obtain or retain business. Company Representatives are strictly prohibited from making illegal payments to government officials of any country.

 

In addition, the U.S. government and other foreign governments have a number of laws and regulations regarding business gratuities, which if violated would not only violate this Code but could also be a criminal offense. The U.S. government has laws and regulations concerning disclosure of payments to foreign governments. Any such payments should be promptly brought to the attention of a senior financial management employee or the Company's Chief Executive Officer.

 

 

 

E.            Confidentiality

 

Company Representatives shall respect and maintain the confidentiality of information acquired in the course of one’s work and shall not disclose such confidential information except when authorized or legally obligated to do so. Further, confidential information acquired in the course of performing one’s duties for the Company will not be used for personal advantage or gain. The responsibility to keep such confidential information continues even after your employment relationship with the Company ends.

 

F.            Reporting and Treatment of Violations

 

The Board of Directors has the power to monitor, investigate, make determinations and take action with respect to violations of this Code. In determining whether to take disciplinary action, the Board of Directors may take into account, among other factors:

 

· the nature and severity of the violation;

 

· whether the violation was a single occurrence or involved repeated occurrences;

 

· whether the violation appears to have been intentional or inadvertent;

 

· whether the person in question had been advised prior to the violation as to the proper course of action;

 

· whether the person in question had committed other violations in the past; and,

 

· such other facts and circumstances as the Board of Directors shall deem advisable in the context of the alleged violation.

 

Any waiver of this Code for Company Representatives may be made only by the Board of Directors. Any director seeking a waiver may not participate in the Board action related to such waiver. A waiver of this Code for any officer or director will be promptly disclosed to the Company’s shareholders.

 

 

 

 

ACKNOWLEDGEMENT OF CODE OF ETHICS

 

By signing below, I acknowledge I have received and reviewed a copy of Fortitude Gold Corporation’s Revised Code of Ethics. I understand this acknowledgement will be maintained in my employment file.

 

Acknowledged:

 

 

         
(name and title)   Date  

 

 

REPORTING SUSPECTED VIOLATIONS OF THE CODE OF ETHICS SHOULD BE MADE TO:

 

 

Fortitude Gold Corporation

Attn: Chief Executive Officer

2886 Carriage Manor Point

Colorado Springs, CO 80906

 

 

Exhibit 21

 

 

All subsidiaries of Fortitude Gold Corporation are incorporated in Nevada.

 

Each subsidiary conducts business under its own name.

 

 

 

Exhibit 23.1

 

CONSENT OF ATTORNEYS

 

 

Reference is made to the Registration Statement of Fortitude Gold Corporation on Form S-1 relating to the distribution of 20,000,000 shares of the Company’s common stock. Reference is also made to Exhibit 5 included in the Registration Statement relating to the validity of the securities proposed to be distributed.

 

We hereby consent to the use of our opinion concerning the validity of the securities proposed to be distributed.

 

  Very truly yours,
   
  HART & HART, LLC
   
  /s/ William T. Hart
  William T. Hart
   
Denver, Colorado  
October 16, 2020  

 

 

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

 

 

We hereby consent use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated June 23, 2020 relating to the financial statements of GRC Nevada Inc. for the fiscal years ended December 31, 2019 and 2018.  We also consent to the reference to our firm under the heading “Experts” in the prospectus, which is part of the registration statement.

 

  /s/ PLANTE & MORAN, PLLC 
   
Denver, Colorado  
October 16, 2020  

 

 

Exhibit 99.1

 

MINE SAFETY DISCLOSURES

 

The following disclosures are provided pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) and Item 104 of Regulation S-K, which require certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate mines regulated under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). The disclosures reflect our Nevada mining operations only as the requirements of the Act and Item 104 of Regulation S-K do not apply to our mines operated outside the United States.

 

Mine Safety Information. Whenever the Federal Mine Safety and Health Administration (“MSHA”) believes a violation of the Mine Act, any health or safety standard or any regulation has occurred, it may issue a citation which describes the alleged violation and fixes a time within which the U.S. mining operator (e.g. our subsidiary, Walker Lane Minerals Corp.) must abate the alleged violation. In some situations, such as when MSHA believes that conditions pose a hazard to miners, MSHA may issue an order removing miners from the area of the mine affected by the condition until the alleged hazards are corrected. When MSHA issues a citation or order, it generally proposes a civil penalty, or fine, as a result of the alleged violation, that the operator is ordered to pay. Citations and orders can be contested and appealed, and as part of that process, are often reduced in severity and amount, and are sometimes dismissed. The number of citations, orders and proposed assessments vary depending on the size and type (underground or surface) of the mine as well as by the MSHA inspector(s) assigned. In addition to civil penalties, the Mine Act also provides for criminal penalties for an operator who willfully violates a health or safety standard or knowingly violates or fails or refuses to comply with an order issued under Section 107(a) or any final decision issued under the Act.

 

The below table reflects citations and orders issued to us by MSHA during the year ended December 31, 2019. The proposed assessments for the year ended December 31, 2019 were taken from the MSHA data retrieval system as of January 2020.

 

Additional information about the Act and MSHA references used in the table follows:

 

· Section 104(a) S&S Citations: Citations received from MSHA under section 104(a) of the Mine Act for violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard.

 

· Section 104(b) Orders: Orders issued by MSHA under section 104(b) of the Mine Act, which represents a failure to abate a citation under section 104(a) within the period of time prescribed by MSHA. This results in an order of immediate withdrawal from the area of the mine affected by the condition until MSHA determines that the violation has been abated.

 

· Section 104(d) S&S Citations and Orders: Citations and orders issued by MSHA under section 104(d) of the Mine Act for unwarrantable failure to comply with mandatory, significant and substantial health or safety standards.

 

 

 

· Section 110(b)(2) Violations: Flagrant violations issued by MSHA under section 110(b)(2) of the Mine Act.

 

· Section 107(a) Orders: Orders issued by MSHA under section 107(a) of the Mine Act for situations in which MSHA determined an “imminent danger” (as defined by MSHA) existed.

 

    Mine or Operation(1)  
    Isabella Pearl Mine  
    MSHA ID 32602812  
Total # of "Significant and Substantial" Violations Under §104(a)     1  
Total # of Orders Issued Under §104(b)     -  
Total # of Citations and Orders Issued Under §104(d)     -  
Total # of Flagrant Violations Under §110(b)(2)     -  
Total # of Imminent Danger Orders Under §107(a)     -  
Total Amount of Proposed Assessments from MSHA under the Mine Act   $ 949  
Total # of Mining-Related Fatalities     -  
Received Notice of Pattern of Violations under Section 104(e)     No  
Received Notice of Potential to have Patterns under Section 104(e)     No  
Pending Legal Actions     -  
Legal Actions Instituted     -  
Legal Actions Resolved     -  

 

(1) MSHA assigns an identification number to each mine or operation and may or may not assign separate identification numbers to related facilities. The definition of “mine” under section 3 of the Mine Act includes the mine, as well as other items used in, or to be used in, or resulting from, the work of extracting minerals, such as land, structures, facilities, equipment, machines, tools, and minerals preparation facilities.

 

 

Exhibit 99.2

 

2020 REPORT ON THE MINERAL RESOURCE & RESERVE ESTIMATE FOR THE ISABELLA PEARL MINE, NEVADA
 

 

REPORT ON THE ESTIMATE OF

MINERAL RESOURCES

and

MINERAL RESERVES

for the

ISABELLA PEARL MINE

MINERAL COUNTY, NEVADA

 

for

WALKER LANE MINERALS CORP.

(a wholly-owned subsidiary of Gold Resource Corp.)

Signed by:

FRED H. BROWN, PGeo

Senior Resource Geologist, GRC Nevada Inc.

J. RICARDO GARCIA, PEng

Corporate Chief Engineer, Gold Resource Corp.

BARRY D. DEVLIN, PGeo

Vice President, Exploration, Gold Resource Corp.

JOY L. LESTER, SME-RM

Chief Geologist, Gold Resource Corp.

 

and

GRC Nevada Inc. Technical Staff

Effective Date: December 31, 2019
Report Date: February 26, 2020

 

 

 

2020 REPORT ON THE MINERAL RESOURCE & RESERVE ESTIMATE FOR THE ISABELLA PEARL MINE, NEVADA
 

 

TABLE OF CONTENTS

             
1 SUMMARY 10
  1.1 Introduction and Purpose 10
  1.2 Property Description and Ownership 10
  1.3 Geology and Mineralization 11
  1.4 Exploration and Mining History 12
  1.5 Metallurgical Testing and Process Design Criteria 12
  1.6 Mineral Resource Estimate 14
  1.7 Mineral Reserve Estimate 15
  1.8 Mining Methods 16
  1.9 Mineral Processing and Recovery Methods 17
  1.10 Mine Infrastructure 17
  1.11 Environmental Studies and Permitting 17
  1.12 Conclusions and Recommendations 19
2 INTRODUCTION 22
  2.1 Terms of Reference and Purpose of Report 22
  2.2 Qualifications of Qualified Persons 22
  2.3 Details of Inspection 23
  2.4 Sources of Information 24
  2.5 Effective Date 24
  2.6 Units of Measure 24
3 RELIANCE ON OTHER EXPERTS 25
4 PROPERTY DESCRIPTION AND LOCATION 26
  4.1 Property Location 26
  4.2 Mineral Titles 28
  4.3 Royalties, Agreements and Encumbrances 29
  4.4 Environmental Liabilities and Permitting 30
    4.4.1 Environmental Liabilities   30
    4.4.2 Required Permits and Status   30
4.5 Other Significant Factors and Risks 31
5 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY 32
  5.1 Topography, Elevation and Vegetation 32
  5.2 Accessibility and Transportation to the Property 32

 

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2020 REPORT ON THE MINERAL RESOURCE & RESERVE ESTIMATE FOR THE ISABELLA PEARL MINE, NEVADA
 

 

  5.3 Climate   33
  5.4 Sufficiency of Surface Rights 33
  5.5 Infrastructure Availability and Sources 34
    5.5.1 Power 34
    5.5.2 Water 34
    5.5.3 Mining Personnel 34
    5.5.4 Tailings Storage Area 34
    5.5.5 Waste Disposal Area 35
    5.5.6 Heap Leach Pad Area 35
    5.5.7 Processing Plant Site 35
6 HISTORY 36
  6.1 Prior Ownership and Ownership Changes 36
  6.2 Exploration and Development Results of Previous Owners 36
  6.3 Historical Mineral Resource and Mineral Reserve Estimates 37
  6.4 Historical Production 38
  6.5 Isabella Pearl Mine Production 38
7 GEOLOGICAL SETTING AND MINERALIZATION 39
  7.1 Regional Geology 39
  7.2 Local and Property Geology 41
    7.2.1 Lithology 44
    7.2.2 Structural Geology 44
    7.2.3 Alteration 45
  7.3 Isabella Pearl Mineralized Zones 47
    7.3.1 Extents and Continuity 48
8 DEPOSIT TYPE 49
9 EXPLORATION 52
  9.1 Relevant Exploration Work 52
    9.1.1 Exploration by TXAU 52
    9.1.2 Exploration by WLMC 52
  9.2 Significant Results and Interpretation 53
  9.3 Exploration Potential Outside Mine Area 54
10 DRILLING 56
  10.1 Type and Extent 56
  10.2 Procedures 58

 

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2020 REPORT ON THE MINERAL RESOURCE & RESERVE ESTIMATE FOR THE ISABELLA PEARL MINE, NEVADA
 

 

    10.2.1 RC Drilling   58
    10.2.2 DDH (Core) Drilling 59
    10.2.3 Downhole Surveying 60
  10.3 WLMC Exploration Drilling Programs 60
  10.4 Interpretation and Relevant Results 63
11 SAMPLE PREPARATION, ANALYSIS AND SECURITY 64
  11.1 Historic Security Measures and Sample Preparation 64
  11.2 WLMC (2016 to Present) 64
    11.2.1 Security Measures 64
    11.2.2 Sample Preparation and Analysis 64
    11.2.3 Quality Assurance/Quality Control Procedures 65
  11.3 Check Assays 69
  11.4 Opinion on Adequacy 71
12 DATA VERIFICATION 72
  12.1 Opinion on Data Adequacy 72
13 MINERAL PROCESSING AND METALLURGICAL TESTING 73
  13.1 Metallurgical Overview 73
  13.2 Mineralogy and Metallurgical Ore Types 74
  13.3 Previous Metallurgical Test Work Programs 75
13.4 WLMC Metallurgical Ore Characterization Test Work Programs 75
    13.4.1 Location of WLMC Metallurgical Test Drill Hole Samples 75
    13.4.2 Results of WLMC Metallurgical Test Drill Hole Samples 78
      13.4.2.1 Cyanide Bottle Roll Tests 79
      13.4.2.2 Head Screen Analysis 81
      13.4.2.3 Column Leach Test Work 84
  13.5 Discussion of Metallurgical Test Gold Recovery Curves 87
    13.5.1 Discussion of Bottle Roll Test Gold Recovery Curves 87
    13.5.2 Discussion of Column Leach Test Gold Recovery Curves 89
  13.6 Process Selection and Design Parameters 91
14 MINERAL RESOURCE ESTIMATE 93
  14.1 Introduction 93
  14.2 Mineral Resource Definitions 93
    14.2.1 Inferred Mineral Resource 94
    14.2.2 Indicated Mineral Resource 94

 

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2020 REPORT ON THE MINERAL RESOURCE & RESERVE ESTIMATE FOR THE ISABELLA PEARL MINE, NEVADA
 

 

    14.2.3 Measured Mineral Resource 94
  14.3 Database   94
    14.3.1 Drill Data 95
  14.4 Bulk Density 96
  14.5 Wireframe Modeling 97
    14.5.1 Topography 97
    14.5.2 Gridded Surfaces 99
    14.5.3 Mineralization Envelopes 99
  14.6 Compositing 100
  14.7 Exploratory Data Analysis 101
  14.8 Treatment of Extreme Values 105
  14.9 Continuity Analysis 107
  14.10 Block Model 107
  14.11 Estimation and Classification 108
  14.12 Mineral Resource Estimate 110
  14.13 Mineral Resource Estimate Sensitivity 111
  14.14 Opinion on Adequacy 112
  14.15 Validation 113
  14.16 Risk Factors 115
15 MINERAL RESERVE ESTIMATE 116
  15.1 Introduction 116
  15.2 Mineral Reserve Definitions 116
    15.2.1 Probable Mineral Reserve 116
    15.2.2 Proven Mineral Reserve 117
  15.3 Previous Mineral Reserve Estimates 117
  15.4 Mineral Reserve Estimation 117
  15.5 Mineral Reserve Estimate 118
  15.6 Conversion of Mineral Resource to Mineral Reserve 118
    15.6.1 Dilution 118
    15.6.2 Cutoff Grade 119
      15.6.2.1 Breakeven Cutoff Grade 119
      15.6.2.2 Internal Cutoff Grade 120
      15.6.2.3 Cut-Over Grade 120
  15.7 Relevant Factors 120

 

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2020 REPORT ON THE MINERAL RESOURCE & RESERVE ESTIMATE FOR THE ISABELLA PEARL MINE, NEVADA
 

 

16 MINING METHODS 121
  16.1 Mining Methods Summary 121
17 RECOVERY METHODS 123
  17.1 Process Description Summary 123
18 MINE INFRASTRUCTURE 126
  18.1 Mine Infrastructure Summary 126
19 MARKET STUDIES AND CONTRACTS 130
  19.1 Contracts and Status 130
20 ENVIRONMENTAL STUDIES, PERMITTING AND SOCIAL OR COMMUNITY IMPACT 131
  20.1 Required Permits and Status 131
    20.1.1 Federal Permitting 134
      20.1.1.1 BLM Exploration Notice of Intent (NOI) 134
    20.1.2 State Permitting 135
    20.1.3 Local Permitting 135
  20.2 Environmental Study Results 136
  20.3 Environmental Issues 136
  20.4 Operating and Post-Closure Requirements and Plans 137
  20.5 Post-Performance or Reclamation Bonds 138
    20.5.1 Mine Closure Plan 138
    20.5.2 Reclamation Measures During Operations and Mine Closure 138
    20.5.3 Closure Monitoring 139
    20.5.4 Reclamation and Closure Cost Estimate 139
    20.5.5 2019 Estimate of Current Closure Costs 140
  20.6 Social and Community 141
21 ADJACENT PROPERTIES 142
  21.1 Owner Properties 142
  21.2 Third-Party Properties 144
22 OTHER RELEVANT DATA AND INFORMATION 147
23 INTERPRETATION AND CONCLUSIONS 148
  23.1 Geology and Exploration 148
  23.2 Mineral Resources 148
  23.3 Mineral Reserves 150
  23.4 Mining 150
  23.5 Metallurgy and Processing 151

 

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2020 REPORT ON THE MINERAL RESOURCE & RESERVE ESTIMATE FOR THE ISABELLA PEARL MINE, NEVADA
 

 

  23.6 Infrastructure 152
  23.7 Foreseeable Impacts of Risks 152
24 RECOMMENDATIONS 154
  24.1 RC Drilling for Reserves 154
  24.2 DDH (Core) Drilling & Metallurgical Study 155
  24.3 DDH (Core) Drilling & Geotechnical Study 155
  24.4 Other Recommendations 156
25 REFERENCES 157
26 GLOSSARY 159
  26.1 Definition of Terms 159
  26.2 Abbreviations 160
APPENDIX A Certificates of Qualified Persons 164
APPENDIX B List of Mineral Claims 168
APPENDIX C Cross Sections 176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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2020 REPORT ON THE MINERAL RESOURCE & RESERVE ESTIMATE FOR THE ISABELLA PEARL MINE, NEVADA
 

LIST OF TABLES

Table 1.1 Drilling History at the Isabella Pearl Mine (1987 – 2019) 12
Table 1.2 Summary Metallurgical Test Work Completed on Isabella Pearl Deposit 13
Table 1.3 Gold Recovery Estimate 14
Table 1.4 Mineral Resource Inventory for the Isabella Pearl Deposit 15
Table 1.5 Mineral Reserve Statement for the Isabella Pearl Deposit 16
Table 1.6 Summary of Costs for Optional Recommended Work 21
Table 6.1 MDA’s Isabella Pearl Pit Optimization Parameters 38
Table 6.2 Results of MDA’s November 2013 Mineral Reserve Estimate for the Isabella Pearl Project 38
Table 6.3 Isabella Pearl Mine Production 2019 38
Table 7.1 Approximate Extents of Gold-Silver Deposits in the Isabella Pearl Mine Area 48
Table 10.1 Drilling History at the Isabella Pearl Mine 56
Table 10.2 Isabella Pearl Drill Hole Database Summary 57
Table 10.3 Isabella Pearl Assay Database Summary 57
Table 10.4 Significant Results 2018-2019 Drilling at Isabella Pearl 62
Table 11.1 WLMC 2016 through 2018 QA/QC Results 66
Table 11.2 WLMC 2019 Standard Reference Materials 66
Table 11.3 2018 SRM Warnings 67
Table 11.4 2019 Blank Material Warnings 67
Table 13.1 Summary Metallurgical Test Work Completed on Isabella Pearl Deposit 73
Table 13.2 Summary of Isabella Pearl Mine Core Composites Assays, KCA 2017 Program 79
Table 13.3 Summary Direct Agitated Cyanidation (Bottle Roll) Gold Test Results, KCA 2017 Program 79
Table 13.4 Summary Direct Agitated Cyanidation (Bottle Roll) Silver Test Results, KCA 2017 Program 80
Table 13.5 Summary of Head Screen Analyses 81
Table 13.6 Detailed Results of Head Screen Analysis 82
Table 13.7 Summary of Mercury and Copper in Sample, KCA 2017 Program 83
Table 13.8 Summary of Carbon and Sulfur Content, KCA 2017 Program 84
Table 13.9 Comparison of Drain Down Values and % Slump 85
Table 13.10 Summary Column Leach Test Results, KCA 2017 Program 86
Table 13.11 Summary of All Bottle Roll Tests Completed on the Isabella Pearl Mine 88
Table 13.12 Summary of All Column Leach Tests Completed on the Isabella Pearl Mine 89
Table 13.13 Summary of NaCN and Lime Consumption for the Column Leach Tests 90
Table 13.14 Bottle Roll Gold Recovery Estimate by Size Range 91
Table 13.15 Column Leach Gold Recovery Estimation by Size Range 91
Table 13.16 Gold Recovery Estimate 92
Table 13.17 NaCN and Lime Consumption 92
Table 14.1 Summary Assay Statistics 96
Table 14.2 GCP Geolocation Errors 98
Table 14.3 Constrained Composite Statistics 102
Table 14.4 Capping Thresholds 107

 

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2020 REPORT ON THE MINERAL RESOURCE & RESERVE ESTIMATE FOR THE ISABELLA PEARL MINE, NEVADA
 

 

Table 14.5 Experimental Semi-Variograms and Modeled Rotations 107
Table 14.6 Block Model Setup 108
Table 14.7 Mineral Resources Cutoff Calculation 111
Table 14.8 Mineral Resource Inventory for the Isabella Pearl Deposit 111
Table 14.9 Cutoff Grade Sensitivity for the Isabella Pearl Deposit 112
Table 14.10 Validation Statistics 113
Table 14.11 Estimation Risk Factors 115
Table 15.1 Mineral Reserve Statement Isabella Pearl Deposit as of December 31, 2018 117
Table 15.2 Mineral Reserve Statement Isabella Pearl Deposit as of December 31, 2019 118
Table 15.3 Cutoff Grade Assumptions 119
Table 18.1 Infrastructure Items and Specifications 127
Table 20.1 Permits, Licenses and Issuing Authorities for the Isabella Pearl Mine 131
Table 20.2 BLM Notice of Intent (NOI) Summary for the Isabella Pearl Mine 134
Table 20.3 Mine Closure and Reclamation Cost Estimate for the Isabella Pearl Mine as of December 31, 2019 140
Table 24.1 Summary of Costs for Optional Recommended Work 154
Table 24.2 Detailed Budget for Proposed Exploration Drilling Mine 155

 

LIST OF FIGURES

 

 

Figure 4.1 General Location Map of the Isabella Pearl Mine 27
Figure 4.2 Isabella Pearl Mineral Claims Map 28
Figure 5.1 Isabella Pearl Mine Access 33
Figure 7.1 Isabella Pearl Mine Regional Geologic Map 40
Figure 7.2 Isabella Pearl Mine Stratigraphic Column 42
Figure 7.3 Isabella Pearl Mine Geologic Map 43
Figure 8.1 High Sulfidation Characteristics of the Isabella Pearl Mineralization 49
Figure 8.2 Conceptual Model for Formation of the Isabella Pearl Deposit 50
Figure 8.3 Idealized Stratigraphic Section Highlighting Mineralization Controls for Isabella Pearl 51
Figure 9.1 3D Modeling of Mineralized Structures and Faults Northwest of Isabella Pearl Deposit 54
Figure 9.2 WLMC’s Regional Land Status Highlighting Isabella Pearl and Other Important Mines and Prospects 55
Figure 10.1 Isabella Pearl Drill Hole Location Map 57
Figure 10.2 2018-2019 Drill hole Collar Locations Isabella Pearl 61
Figure 11.1 2019 SRM Performance 67
Figure 11.2 2019 Blank Material Performance 68
Figure 11.3 2019 SRM Pulp Sample Rejects Reassays 69
Figure 11.4 Au Field Duplicate Control Plot 69
Figure 11.5 Au Min Max Field Duplicate Control Plot 70
Figure 11.6 Cyanide Leach vs Fire Assay Comparison Plot 70

 

 

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2020 REPORT ON THE MINERAL RESOURCE & RESERVE ESTIMATE FOR THE ISABELLA PEARL MINE, NEVADA
 

 

Figure 13.1: Drill Hole Locations for 2017 WLMC Metallurgical Samples 76
Figure 13.2 Plan View of TXAU & WLMC Metallurgical DDH Locations 77
Figure 13.3 Section View of TXAU & WLMC Metallurgical DDH Locations (looking northwest) 77
Figure 13.4 Plan and Section of Sample Locations for WLMC Test Program in Relation to Ore Zone 78
Figure 13.5 Bottle Roll Tests Showing % Gold Extraction During Leach Period 80
Figure 13.6 Bottle Roll Tests Showing % Silver Extraction During Leach Period 80
Figure 13.7 Head Screen Analysis Showing Cumulative Weight Percent Passing Crush Size in Inches) 83
Figure 13.8 Flow Sheet for Crushed Material for Column Leach Tests 85
Figure 13.9 Column Leach Test Results Showing Cumulative Weight Percent Gold Extracted Over Days of Leach 87
Figure 13.10 Summary of Bottle Roll Test Gold Recovery by Particle Size 89
Figure 13.11 Column leach Gold Recovery Curves for Column Leach Tests Completed 90
Figure 14.1 Isometric View Looking North at Mine Drill Holes 95
Figure 14.2 Plot of RQD vs. Elevation 97
Figure 14.3 Aerial Photometry with Ground Control Points 98
Figure 14.4 Isometric View Looking North Showing Oxide Base (blue) and Granite (orange) Contacts 99
Figure 14.5 Isometric View Looking North of Pearl (red), Civit Cat North (green), Isabella (blue) and Scarlet South (brown) Mineralization Domains 100
Figure 14.6 Dot Plot of Constrained Assay Sample Lengths 101
Figure 14.7 Log-Probability Plots of Au and Ag Composites 103
Figure 14.8 RC vs. DDH Drilling Results 104
Figure 14.9 Twin Hole Au Assay Grade Comparison 105
Figure 14.10 Log-Probability Plots of Composite Capping Thresholds 106
Figure 14.11 Typical Cross-section Looking NW Showing Gold Grades (g/t) and Classification 109
Figure 14.12 Au Swath Plots 114
Figure 15.1 Isabella Pearl Cut-Over Grade 120
Figure 17.1 Simplified Schematic of Isabella Pearl Flowsheet 125
Figure 18.1 General Site Arrangement 129
Figure 21.1 Map of Properties in the Vicinity of the Isabella Pearl Mine 146

 

 

 

 

 

 

 

 

 

 

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2020 REPORT ON THE MINERAL RESOURCE & RESERVE ESTIMATE FOR THE ISABELLA PEARL MINE, NEVADA
 

1 SUMMARY

 

1.1 Introduction and Purpose

 

This is a technical report for Walker Lane Minerals Corporation (WLMC), a wholly-owned subsidiary of Gold Resource Corporation (GRC), on its 100%-controlled Isabella Pearl mine, a producing open pit gold heap leach operation in Mineral County, Nevada. The report provides a summary of the detailed assessments of mineral resources and mineral reserves and other relevant considerations of the Isabella Pearl mine.

Mineral Reserves, as defined by Industry Guide 7 promulgated by the U.S. Securities and Exchange Commission (SEC), are that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination (SEC, 1992). The mineral reserves stated in this report are effective as of December 31, 2019.

On October 31, 2018, the SEC announced that it was adopting amendments to modernize the property disclosure requirements for mining registrants, and related guidance, under the Securities Act of 1933 and the Securities Exchange Act of 1934. Under the final rules, a registrant with material mining operations must disclose specified information in Securities Act and Exchange Act filings concerning its mineral resources, in addition to its mineral reserves. The final rules provide a two-year transition period so that a registrant will not be required to begin to comply with the new rules until its first fiscal year beginning on or after January 1, 2021. The SEC states that a registrant may voluntarily comply with the new rules prior to the compliance date, subject to the SEC’s completion of necessary EDGAR reprogramming changes. WLMC has decided to adopt the new rules and will disclose mineral resources in this report.

WLMC has received all regulatory permit approvals from the Nevada Division of Environmental Protection (NDEP) and the U.S. Department of the Interior, Bureau of Land Management (BLM) for the Isabella Pearl mine. Construction of the Isabella Pearl mine was completed during 2019 and reached commercial production levels in October.

1.2 Property Description and Ownership

 

The Isabella Pearl mine is located in the Gabbs Valley Range, approximately 10-kilometer (6 miles) north of the town of Luning in Mineral County, Nevada. The approximate centroid of the deposit areas is N39.60°, W118.18°. The mine has good connections to the infrastructure of west-central Nevada, with access roads to the mine site linking to Nevada state route 361 and U.S. Route 95, the main highway between Reno and Las Vegas. Elevations on the projectmine site range from a minimum of 1,597 m (5,240 ft) in the valley to a maximum of 1,777 m (5,829 ft) at the uppermost elevation. Typical high desert vegetation, controlled in part by elevation, is present in the area, including Pinion Pine and 

 

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Juniper trees, wild rosebush and several varieties of sagebrush, cacti, and short grasses. The climate is dry, semi-arid, with annual precipitation of approximately 11.4 cm (4.5 in).

The mine area covers approximately 198 hectares (490 acres) and consists of 42 unpatented lode mining claims on land owned by the U.S. government, and administered by the BLM. WLMC controls 100% interest in the Isabella Pearl claims which includes ownership of an undivided fifty percent (50%) interest and leases the remaining fifty percent (50%) interest in the 10 Isabella claims (part of the 36 unpatented lode mining claims) from a group of 6 individuals from Las Vegas, Nevada, known collectively as the “Matkin-Hayes Lease”. These claims are subject to a 3% NSR royalty.

On October 23, 2018, Ely Gold Royalties Inc., through its wholly-owned subsidiary Nevada Select Royalty, Inc., entered into an agreement with a private individual to acquire 100% of all rights and interests in 0.75% (three quarters of one percent) of the 3% NSR royalty on the 10 Isabella claims controlled by the Matkin-Hayes Lease. The remaining 29 unpatented claims comprising the Isabella Pearl mine are subject to a 3% NSR royalty in favor of TXAU Investments Ltd. (TXAU).

On March 6, 2019, WLMC acquired 100% of all rights and interests in the TDG-1, 2 and 3 claims held by Gateway Gold (USA) Corporation (Gateway) subject to a reservation of a 3% NSR royalty and royalty agreement in favor of Gateway. These 3 claims are within the Isabella Pearl mine area.

WLMC also controls an additional 454 claims covering approximately 3,240 hectares (8,000 acres) along a nearly 30 km (19 mi) trend extending northwest of the Isabella Pearl mine.

1.3 Geology and Mineralization

 

The Isabella Pearl mine is located in the central portion of the Walker Lane, a major northwest-trending zone on the western border of Nevada characterized by a series of closely spaced dextral strike-slip faults that were active throughout much of the middle to late Cenozoic. It is a complex zone up to 100 km (63 mi) wide and 700 to 900 km (438 to 563 mi) long that lies on the western boundary of the Basin and Range Province.

Volcanic rocks of middle Tertiary age cover much of the property and include intermediate lava flows and ignimbrite ash flow sheets. The volcanic rocks unconformably overlie Mesozoic strata including Triassic and Jurassic sedimentary units and Cretaceous and Jurassic igneous units. Tectonic activity and erosion have left an irregular, dominantly buried surface of Mesozoic rocks. Within the regional Walker Lane tectonic setting, several major fault zones trend through the property and are dominated by various splays and off set branches. The Soda Springs Valley fault zone is a major host of mineralization in the area and particularly along the Pearl fault strand.

The gold-silver mineralized zones include the Isabella, Pearl, and Civit Cat North oxide deposits and the Pearl and Civit Cat North sulfide deposits, collectively referred to in this report as the Isabella Pearl deposit. Alteration and mineral assemblages at Isabella Pearl, including widespread argillic alteration and generally abundant alunite, indicate the deposits belong to the high-sulfidation class of epithermal

 

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mineral deposits. K-Ar age determinations indicate the mineralization is about 19 Ma, some 7 to 10 million years younger than the age of the host rocks. This early Miocene age conforms to the age of other high-sulfidation epithermal precious-metal deposits in the Walker Lane (e.g., Goldfield and Paradise Peak).

1.4 Exploration and Mining History

 

The Santa Fe Mining District, in which the Isabella Pearl mine is located, dates back to the late 19th century. No work was done at Isabella Pearl area until late 1970’s, when a small amount of crushed Isabella mineral resources from surface and underground workings was put onto a small pad with the intention of developing a heap-leach operation, but the venture was abandoned. No record of gold production from this heap leach operation is available.

Modern exploration of the general area around the Isabella Pearl mine began in the early 1970’s by various companies. From 1987 through 1990, Combined Metals Reduction Company (CMRC) drilled the Isabella Pearl area during its joint venture with Homestake Mining Company (Homestake). The joint venture drilled at least 175 reverse circulation (RC) and diamond drill (core) holes (DDH) before the joint venture was terminated. TXAU conducted a DDH drilling program in early 2007 that consisted of 19 holes. This drilling was designed primarily to provide material for metallurgical testing and confirm the historic assay and geological data collected by the CMRC-Homestake joint venture. In 2008, TXAU completed 7 DDH in the Pearl deposit in order to address some issues concerning assays and insufficient quality assurance/quality control measures from prior drilling. From 2016 through 2019, WLMC executed RC and DDH drilling programs to collect representative mineralized ore grade samples in the mine area in sufficient quantity to conduct metallurgical testing and expand resources. In addition, WLMC completed a 5-hole RC condemnation drill program to ensure no mineral resources occurred where the mine/plant facilities are located. The Isabella Pearl mine drilling history is summarized in Table 1.1.

Table 1.1 Drilling History at the Isabella Pearl Mine (1987 - 2019)

Company Period RC DDH Total
No. Meters No. Meters No. Meters
Combined Metals-Homestake 1987-1990 182 19,598.6 6 513.9 188 20,112.5
TXAU 2007-2008 na Na 26 2,315.7 26 2,315.7
WLMC* 2016-2019 157 12,844.0 1 249.9 158 13,093.9
WLMC Met Holes 2016-2017 na Na 3 484.9 3 484.9
Water Wells na na na na na 4 800.0
Totals 339 32,442.6 36 3,564.5 379 36,807.1
* Includes 6 Air Track (AT) drill holes
1.5 Metallurgical Testing and Process Design Criteria

 

The Isabella Pearl mine has been subjected to at least 9 separate programs of metallurgical test work, the most relevant being the CMRC-Homestake joint venture undertaken in 1989 and 1990, and TXAU

 

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commissioned in 2009. These 2 programs are considered most relevant as the work was performed on drill hole and bulk surface samples and tested for cyanide leachability. Cyanide leachability data from all test programs along with that completed by WLMC during 2017 was considered for the final process design criteria. A summary of metallurgical test work completed on the Isabella Pearl deposit is Table 1.2.

Table 1.2 Summary Metallurgical Test Work Completed on Isabella Pearl Deposit

The CMRC-Homestake joint-venture metallurgical test work focused on establishing preliminary design parameters for several process alternatives including heap leaching, conventional milling, flotation, roasting and carbon-in-pulp (CIP), and autoclave oxidation. The tests were conducted at Dawson Metallurgical Laboratories, lnc. (Dawson), McClelland Laboratories, lnc. (McClelland) and Hazen Research, lnc. (Hazen). Samples were made up from bulk samples from trenches, core composites, and intervals of chips recovered from RC drilling. Thirty-three individual composites were prepared to cover the 3 basic ore categories: Isabella oxides, Pearl oxides and Pearl sulfides.

The TXAU metallurgical program was completed on oxide and sulfide materials from DDH holes and bulk surface samples. The combined results of the bottle roll and column leach tests completed showed:

· A very good repeatability between samples of any given particle size,
· Gold recovery for the finer size (200 Mesh) was between 86% and 95% except for one sample which had 2.7% contained sulfide,
· At coarser particle size (>10 mm) gold recovery ranged from 64% to 89%, and
· Column leach tests performed on P100 5/8 inch showed high gold recovery.

In 2017, WLMC conducted a metallurgical test work program on PQ-size DDH samples from drill holes. The metallurgical samples were sent to Kappes, Cassidy & Associates (KCA) with the main purpose of confirming economic gold recovery of the high-grade core zone of the Pearl deposit as demonstrated in the earlier work. Cyanidation test work (bottle roll and column leach) also confirmed the close

 

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relationship between particle size and gold recovery with the greater the fines fraction the higher the gold recovery. Preliminary agglomeration and a single agglomerated column test coupled with clay identification test work confirmed that agglomeration is not required for IP ore.

Metallurgical studies indicate that total estimated gold recovery timeframes for ore leached on the heap can be expected over a four-month period. Mineral reserves above 0.61 grams per metric tonne (g/t) Au are crushed to P80 of 5/8 inch and material between 0.44 and 0.61 g/t Au is currently stored in a low-grade stockpile for either future crushing or direct placement on the heap as Run-of-Mine (ROM). Total predicted gold recovery for crushed ore is estimated at 81% and ROM material is estimated at 60% (Table 1.3). Cyanide consumption is expected to average 0.75 kg/t (1.50 lb/ton) of leach material and lime consumption is estimated to average 3.0 kg/t (6.0 lb/ton) of leach material.

Table 1.3 Gold Recovery Estimate

1.6 Mineral Resource Estimate

 

A mineral resource is a concentration or occurrence of material of economic interest in or on the Earth’s crust in such form, grade or quality, and quantity that there are reasonable prospects for economic extraction.

The modeling and estimation of mineral resources utilized a portion of the drill hole database compiled by WLMC consisting of:

· Air Track (AT): 6 drill holes for 82.0 m (269 ft)
· RC: 333 drill holes for 32,360.6 m (106,170 ft)
· Diamond Drill (Core) Hole (DDH): 36 drill holes for 3,564.5 m (11,695 ft)

Mineral resource modeling was carried out on capped composites using Inverse Distance Cubed (“ID3”), Ordinary Kriging (“OK”) and Nearest Neighbor (“NN”) estimation methods. A minimum of three and a maximum of twelve composites were used for estimation, within a search ellipsoid oriented parallel with each defined structure and extending 120 m (394 ft) x 120 m (394 ft) x 30 m (98 ft). The major and semi-major axes approximate the average strike and dip directions of the mineralization in each of the three estimation areas. Both gold and silver were modeled and estimated.

 

 

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Mineral Resources at Isabella Pearl are further defined by WLMC as mineral resources within a constraining pit shell and above a defined cutoff value. The mineral resources reported herein have been constrained within a Lerchs-Grossman (LG) optimized pit shell and reported at a cutoff grade of 0.44 g/t Au (0.013 opst).

The Measured and Indicated Mineral Resources reported for Isabella Pearl contain 2.25 million tonnes (2.48 million short tons) at an average grade of 3.05 g/t Au (0.089 opst) and 18 g/t Ag (0.529 opst) (Table 1.4). Inferred Mineral Resources are estimated to be 497,100 tonnes (548,000 short tons) at an average gold grade of 1.41 g/t Au (0.041 opst) and 6 g/t Ag (0.181 opst).

Table 1.4 Mineral Resource Inventory for the Isabella Pearl Deposit, Mineral County, Nevada, USA (as of December 31, 20191 2 3 4 5)

Class Tonnes

Short

Tons

Au

(g/t)

Au

(opst)

Ag

(g/t)

Ag

(opst)

Au

(oz)

Ag

(oz)

Measured  893,300  984,700  5.39  0.157  34.7  1.013  154,800  998,000
Indicated  1,354,100  1,492,600  1.50  0.044  7.2  0.210  65,300  312,700
Measured & Indicated  2,247,400  2,477,300  3.05  0.089  18.1  0.529  220,100  1,310,700
Inferred  497,100  548,000  1.41  0.041  6.2  0.181  22,600  99,200
1) Reported at a cutoff of 0.44 Au g/t (0.013 Au opst).
2) Whole block diluted estimates reported within an optimized pit shell.
3) Mineral resources do not have demonstrated economic viability.
4) Totals may not sum exactly due to rounding.
5) Mineral Resources reported are inclusive of Mineral Reserves.
1.7 Mineral Reserve Estimate

 

The conversion of mineral resources to mineral reserves required accumulative knowledge achieved through LG pit optimization, detailed pit design, scheduling and associated modifying parameters. Detailed access, haulage, and operational cost criteria were applied in this process for each deposit (Isabella, Pearl and Civit Cat North, collectively known as the Isabella Pearl deposit). The mine was built in metric units and all metal grades are in g/t. The effective date of the mineral reserve estimate is December 31, 2019.

The orientation, proximity to the topographic surface, and geological controls of the Isabella Pearl mineral reserves support mining with open pit mining techniques. To calculate the mineral reserve, pits were designed following an optimized LG pit based on a $1,306/oz Au sales price. This price was chosen to create the primary guide surface based on a price sensitivity and subsequent profitability study that showed that the $1,306 pit maximized profitability while reducing capital requirements. The quantities of material within the designed pits were calculated using a cutoff grade of 0.44 g/t Au which is based on the three-year trailing average $1,306/oz Au sales price. The Isabella Pearl mine open pit Mineral Reserve Statement is presented in Table 1.5.

 

 

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The Proven and Probable Mineral Reserves reported for Isabella Pearl contain 2.25 million tonnes (2.48 million short tons) (Table 1.5) at an average gold grade of 3.05 g/t Au (0.089 opst) and 18 g/t Ag (0.529 opst).

Table 1.5 Mineral Reserve Statement for the Isabella Pearl Deposit, Mineral County, Nevada (as of December 31, 20191 2 3 4 5 6 7 8)

Class Tonnes

Short

Tons

Au

(g/t)

Au

(opst)

Ag

(g/t)

Ag

(opst)

Au

(oz)

Ag

(oz)

Proven  893,300  984,700  5.39  0.157 35  1.013  154,800  998,000
Probable  1,354,100  1,492,600  1.50  0.044  7  0.210  65,300  312,700
Proven & Probable  2,247,400  2,477,300  3.05  0.089  18  0.529  220,100  1,310,700
1. Metal prices used for P&P reserves were $1,306 per ounce of gold and $16.32 per ounce of silver. These prices reflect the three-year trailing average prices for gold and silver.
2. The quantities of material within the designed pits were calculated using a cutoff grade of 0.44 Au g/t.
3. Mining, processing, energy, administrative and smelting/refining costs were based on 2019 actual costs for the Isabella Pearl mine.
4. Metallurgical gold recovery assumptions used were 81% for Crushed ore and 60% for ROM ore. These recoveries reflect predicted average recoveries from metallurgical test programs.
5. P&P reserves are diluted and factored for expected mining recovery.
6. Figures in tables are rounded to reflect estimate precision and small differences generated by rounding are not material to estimates
7. 100% of the pit constrained Measured & Indicated mineral resources were converted to reserves.
1.8 Mining Methods

 

Isabella Pearl is a disseminated gold and silver deposit with mineralization close to the surface at an average head grade of 3.05 g/t Au and 18 g/t Ag. It was determined that mining would be performed with an open pit truck/loader operation. Initial costs were estimated and a detailed feasibility study analysis performed to determine the optimum ultimate mining limit for the operation. Based on the results of the feasibility study, pit designs were prepared and a production schedule developed to target a mining sequence that would provide the highest NPV possible. Considerable adjustments were made to the access and waste mining strategy in order to reduce haulage requirements and operating costs, which significantly improved the overall economics of this deposit.

The mine design consists of one pit accessing the Isabella, Pearl and Civit Cat North deposits, collectively known as the Isabella Pearl deposit. Open pit mining is by conventional diesel-powered equipment, utilizing a combination of blasthole drills, wheel loaders, and 91-tonne (100-short ton) trucks to handle ore and waste. Support equipment including of graders, track dozers, and water trucks also aid in the mining. Higher-grade ore (>0.61 g/t Au) is hauled to the crushing area and crushed before being placed on the leach pad. Low-grade ore between 0.44 and 0.61 g/t Au is hauled directly to the low-grade stockpile. Waste rock is stored in the waste rock facility designed in close proximity to the pit to reduce haulage costs.

 

 

 

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1.9 Mineral Processing and Recovery Methods

 

Metallurgical testwork has validated that Isabella Pearl oxidized ores are amenable to gold and silver recovery by cyanidation. The most economically effective process has been identified as conventional heap leaching of crushed ore, and to a lesser extent ROM, followed by absorption/desorption recovery (ADR) and refining to produce doré bars.

Over the life of the mine, ore will be delivered from the open pit, the majority being trucked to the crusher, and then transported to the heap leach pad via an overland conveyor and stacked onto the heap leach pad by a radial stacker. A minor amount of ROM ore shall be placed directly on the heap leach pad by truck.

1.10 Mine Infrastructure

 

Access to most elements of the Isabella Pearl mine is provided by newly permitted or pre-existing gravel and paved roads. The main haulage road to the waste rock dump site and the ore preparation/heap leach site were designed to accommodate 91-tonne (100-short ton) capacity mine haulage trucks, requiring two-way traffic travel and safety berms.

Electric power for the mine issupplied by three diesel-powered electric generators, one 1500 kW generator is on-line, one 1500 kW generator is on standby, and another 200 kW generator is also on standby. The generators supply power to the ADR and leaching system, the screening and crushing plant, the truck shop, the administrative offices and warehouse and ADR shop building. The 200kW generator is located near production wells to generate power for the well pumps on an as-needed basis.

The water balance required for the mine is approximately 120 gpm. Industrial (non-potable) water is being supplied from three production water wells. Permits for the WLMC production water wells have been issued by the Nevada State Engineer.

General mine infrastructure at the Isabella Pearl mine includes:

· Main Open Pit Mine and heap leach
· Crushing Process, administrative, and othersupport facilities
· Power supply and distribution
· Water supply
1.11 Environmental Studies and Permitting

 

The Isabella Pearl mine is located on public lands administered by the U.S. Department of the Interior, BLM. As such, the operation requires all of the identified federal permits, the most important of which are approvals of the Plan of Operations (POO) and its subsequent National Environmental Policy Act

 

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Evaluation (NEPA) analyses. WLMC submitted the POO and Reclamation Permit applications and the Environmental Assessment (EA). The BLM has reviewed baseline data and deemed the POO “complete” and authorized processing of the EA of the operations. The NEPA analysis was completed and a Record of Decision (ROD) issued on May 15, 2018.

WLMC has acquired the following Federal Permits and Registrations:

· EPA Hazardous Waste #NVR000092916 (BWM)
· Explosive Permit #9-NV-009-20-8K-00321 (Ledcor CMI Inc. contract mining)
· POO and Reclamation Plan #NVN86663 (BLM)

The mine also required permits from various State of Nevada agencies including: Bureau of Air Pollution Control (BAPC), Bureau of Mining Regulation and Reclamation (BMRR), BWM, Department of Conservation and Natural Resources (DCNR), NDEP and Nevada Department of Wildlife (NDOW).

The State of Nevada requires operational mining permits regardless of land status of the mine (i.e., private or public). The following are the state permits that are required for the Isabella Pearl mine:

· Reclamation Permit #0387 (NDEP/BMRR)
· Hazardous Waste Generator #NVR000092916 (NDEP/BWM)
· Water Pollution Control Permit #NEV2009102 (NDEP/BMRR)
· Emergency Release, Response, and Contingency Plan (NDEP/BMRR)
· Spill Prevention, Control, and Countermeasures Plan (NDEP/BMRR)
· National Pollutant Discharge Elimination System (NPDES) Permit #NVG201000 (NDEP/BWPC)
· General Stormwater Permit #NVR300000 MSW-43292 (NDEP/BWPC)
· Storm Water Pollution Prevention Plan (NDEP/BWPC)
· Water Rights – #83484, 82498, 79096 and 83485 (changed to 89001T) (DCNR/NDWR); Permits to change the point of diversion and place of use of the water rights have been approved, for groundwater production wells
· Air Quality Class II Operating Permit #AP-1041-3853 (NDEP/BAPC)
· Air Quality Mercury Permit to Construct #AP-1041-3895 (NDEP/BAPC)
· Air Quality Class I Operating Permit to Construct #AP-1041-3897 (NDEP/BAPC)
· Industrial Artificial Pond Permit #467428 (NDOW)

WLMC has obtained a Special Use Permit and Building Permits issued by Mineral County to construct buildings lat the Isabella Pearl mine including:

· Mineral County Business License #17288 (Mineral County Sheriff’s Office)
· Special Use Permit #165957 (Mineral County Planning Commission)
· Septic Permit #7905 and 7906 (Mineral County Building Department)
· ADR Building Permit #5891 (Mineral County Fire Marshall)
· Office Building Permit #7888 (Mineral County Fire Marshall)
· Water Tank Building Permit #7921 (Mineral County Fire Marshall)

 

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By virtue of the mine’s location and current land ownership, the mine operations were subject to reclamation financial surety requirements set by the BLM and State of Nevada. The cost associated with final reclamation and closure of the Isabella Pearl mine is currently set at $9.2 million.

1.12 Conclusions and Recommendations

 

Isabella Pearl is a producing gold mine with a favorable economic projection based on current operating costs and detailed life-of-mine mining and processing plan. The Isabella Pearl deposit has the grade and continuity required for on-going production.

The Isabella Pearl deposit geology is generally understood, and structural geology and alteration are the primary controls on mineralization. The core of the deposit is also relatively well-defined but recent infill and step-out drilling has materially changed the current mineral resource model, increasing the confidence level of the mineral resource estimate and allowing conversion of a significant portion of this material to mineral reserve. Drilling to the northwest of the deposit also has the potential to extend the mineral resources. In addition, reconnaissance geological mapping and rock chip sampling has delineated new, surface high-grade gold target areas further along strike to the northwest of the Isabella Pearl deposit.

Certain factors pose potential risks and opportunities, of greater or lesser degree, to the estimate as the mineral resources are based on currently available data. The highest risks associated with key estimation parameters were identified as:

· Core Recovery: Rock Quality Designation (RQD) results show a wide range of recoveries, which may bias assay grades.
· Bulk Density: Significant voids may reduce recoverable tonnage (Specific gravity is not well constrained).

All refractory sulfide material has been treated as waste for the Isabella Pearl estimate of mineral resources. In addition, the bottom of the optimized pit shell is designed to stay above the water table. The physical location of mineral resources is being confirmed at the mining scale using blast-hole drilling results and grade control modeling.

The conversion of mineral resources to mineral reserves required accumulative knowledge achieved through LG pit optimization, detailed pit design, scheduling and associated modifying parameters. The quantities of material within the designed pits were calculated using a cutoff grade of 0.44 g/t Au which is based on the three-year trailing average $1,306/oz Au sales price used for this mineral reserve estimate. The Proven and Probable mineral reserves as of December 31, 2019 reported for the Isabella Pearl mine, using diluted grades, is 2.25 million tonnes (2.48 million short tons) of material at an average gold grade of 3.05 g/t Au (0.089 opst) and 18 g/t Ag (0.530 opst) containing 220,100 ounces of gold and 1,310,700 ounces of silver. The mineral reserve estimate presented herein is based on technical data and information available as of December 31, 2019.

 

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Isabella Pearl is a disseminated gold and silver deposit with mineralization close to the surface. The mine design consists of one pit accessing the Isabella Pearl deposit. Open pit mining is by conventional diesel-powered equipment, utilizing a combination of blasthole drills, wheel loaders, and 91-tonne (100-short ton) trucks to handle ore and waste.

The Isabella Pearl oxide ore is amenable to heap leach cyanidation with a high relative recovery and fast leaching kinetics. Cyanidation test work (bottle roll and column leach), performed on representative mineral resources, confirms the close relationship between particle size and gold recovery. The greater the fines fraction the higher the gold recovery. Based on the metallurgical test work completed, total gold recovery is expected over a four-month period. Mineral resources above 0.61 g/t Au are being crushed to a P80 of 5/8 inch and placed directly on the heap. Mineral resources between 0.44 and 0.61 g/t Au are being stockpiled for either future crushing or placement on the heap as ROM. The total predicted gold recovery for crushed is 81% and 60% for ROM material. The gold recovery projection for crushed ore is based primarily on column leach test work and partly on benchmarking other heap leach operations.

The Isabella Pearl mine is economically viable at the 3-year trailing average gold price of $1,306 per ounce gold as well as at the current higher gold prices and has significant economic potential given the possibility for gold price increases in the future. Additionally, there is opportunity to expand the mineral reserve through additional drilling. Cost improvements and further optimizations are also possible.

The Isabella Pearl mine’s economic viability is generally at risk from changes in external factors which would lead to increased input costs (construction costs, operating costs), or a fall in the price of gold which would reduce revenue. A decrease in gold price would not only reduce revenue but would also reduce the amount of economically mineable ore as a decrease in metal prices could result in a higher cut-off grade. Under the current gold price environment, the mineral reserves are considered robust.

Environmental and future permitting risks include items being discovered on the mine site such as sensitive or endangered botany, or cultural artifacts, which would have the effect of extending schedules, increasing permitting costs, and potentially making permitting difficult at the Isabella Pearl mine. No environmental and permitting risks have currently been identified.

Internal risks, specific to the Isabella Pearl mine, include:

· Current drill spacing is considered adequate but there is a low risk of a decrease in mineral resources due to additional drilling and subsequent re-modeling and re-estimations.
· Poor operational execution, with resultant cost and schedule over-runs, scope creep, and increased operating costs. This is mitigated by management overseeing production.
· Predicted gold recovery from the Isabella Pearl ore is based on the results of column-leach tests and actual results could be lower than expected. This risk is deemed to be low, given the numerous metallurgical tests that have been conducted on the Isabella Pearl mineral resources during the past 30 years.
· Geotechnical studies were preliminary at Isabella Pearl and additional drilling is recommended to raise the level of certainty for final pit slope angles. There is a risk that additional

 

 

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    geotechnical studies might result in flatter pit slopes than used in this study, which would have an adverse impact on costs and mineral reserves.
· Finding and keeping the skilled employees required to operate the Isabella Pearl mine has proven to be challenging, given its rural location. Inadequate staffing can increase operating costs by reducing operating efficiencies and increasing repair and maintenance costs. Recruiting costs might be higher than predicted.

The qualified persons preparing this report for WLMC recommend continued open pit mining and processing the ore by screening, stacking, heap leaching and ADR to produce gold doré for sale.

Additional studies that may improve value include RC drilling to convert mineral resources to additional mineral reserves, including near-surface Isabella oxide mineralization, ddh (core) drilling for metallurgical studies of mixed oxide/sulfide mineralization, and additional geotechnical studies to optimize pit slopes. The recommendations for proposed mineral reserve, metallurgical and geotechnical drilling are shown in Table 1.6. The estimated cost for this optional work totals $1,987,000. The cost of this recommended work has not been included in the Isabella Pearl cash-flow model.

Table 1.6 Summary of Costs for Optional Recommended Work

Description Cost
RC Drilling for Mineral Reserves $1,237,000
DDH Drilling & Metallurgical Study $380,000
DDH Drilling & Geotechnical Study $370,000
Total $1,987,000

 

Additional optimization could include an ore control methodology implementation that further minimizes sulfide material being placed on the leach pad. This sulfide material, mainly located at or near the bottom of the pit, is refractory and will need to be treated as waste.

And finally, , the following test work should be considered:

· Develop a geometallurgical model to further characterize mineral resources,
· Blasting fragmentation study,
· Additional metallurgical test work including:
o Large column test work and additional ROM testing; and
o Refine the relationship between gold recovery and particle size with additional crush size and column leach test work.

 

 

 

 

 

 

 

 

 

 

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2 INTRODUCTION

 

2.1 Terms of Reference and Purpose of Report

 

This report was prepared as a technical report for WLMC, an indirect, wholly-owned subsidiary of GRC on the Isabella Pearl mine, an open pit gold heap leach operation located in Mineral County, Nevada.

The quality of information, conclusions, and estimates contained herein is consistent with the level of effort by the qualified persons, based on: 1) information available at the time of preparation, 2) data supplied by outside sources, and 3) the assumptions, conditions, and qualifications set forth in this report. The responsibility for this disclosure remains with WLMC.

This report provides mineral resource and mineral reserve estimates, and a classification of mineral reserves prepared in accordance with the SEC Industry Guide 7 ‘’Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations’’.

2.2 Qualifications of Qualified Persons

 

The qualified persons preparing this report are specialists in the fields of geology, exploration, mineral resource and mineral reserve estimation and classification, underground and surface mining, geotechnical, environmental, permitting, metallurgical testing, mineral processing, processing design, capital and operating cost estimation, and mineral economics.

The following individuals, by virtue of their education, experience and professional association, are considered Qualified Persons (QP) for this report and are members in good standing of appropriate professional institutions. The QPs are employees of either GRC or GRC Nevada Inc. (GRCN). Both GRCN and WLMC are wholly-owned subsidiaries of GRC, and therefore, the QPs are not independent of WLMC. QP certificates of authors are provided in Appendix A.

Mr. Brown graduated with a Bachelor of Science (B.Sc.) degree in Geology from New Mexico State University in 1987, obtained a Graduate Diploma in Engineering (Mining) in 1997 from the University of the Witwatersrand and a Master of Science (M.Sc.) in Engineering (Civil) from the University of the Witwatersrand in 2005. He is registered with the Association of Professional Engineers and Geoscientists of British Columbia as a Professional Geoscientist and the Society for Mining, Metallurgy and Exploration as a Registered Member. Mr. Brown has also worked as an Underground Mine Geologist, Mineral Resource Manager, Resident Geologist and Chief Geologist at several mines in South Africa operated by Anglo American, Anglogold and De Beers. Since 2004, before joining GRC in 2017, Mr. Brown was a Consulting Geologist specializing in mineral resource and mineral reserve estimations and reporting.

 

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Mr. Garcia holds a Bachelor´s degree in Industrial Engineering from Universidad de Lima (2002) and a Master´s degree in Mining Engineering and Mineral Economics from McGill University (2006). He is a Professional Engineer registered with the Association of Professional Engineers and Geoscientists of British Columbia. Mr. Garcia has over 15 years of practical experience in mining engineering and capital budgeting. He is the current Corporate Chief Engineer for Gold Resource Corp and is responsible for evaluating, improving and supporting engineering processes, systems and standards at all GRC´s operations and projects. Mr. Garcia has a robust operational background in diverse mining methods and commodities. He has held various roles in operations and all aspects of mining engineering at RPM Global (Canada), Teck’s Coal (Canada) and Copper (Chile) divisions, Hochschild Mining (Peru) and Newmont Mining Corporation (Peru).

Mr. Devlin holds a B.Sc. degree with honors in Geology, 1981, and a M.Sc., 1987, from the University of British Columbia, Vancouver Canada. He is also a Professional Geologist registered with the Association of Professional Engineers and Geoscientists of British Columbia and is a Member of the Society for Mining, Metallurgy and Exploration and the American Exploration and Mining Association. Mr. Devlin has worked more than 35 years in both exploration and mine production which includes working for several USA-companies, including US Borax and Chemical Corp., Hecla Mining Company and Gold Resource Corp.

Ms. Lester holds a B.Sc. in Geology and a M.Sc. in Geology from the South Dakota School of Mines and Technology, Rapid City, South Dakota. Ms. Lester’s industry experiences span more than 20 years and are rooted by traditional field techniques, best practices, and supplemented by modern technologies/research and includes extensive geologic mapping, hydrologic investigations, drill program design, interpretation and management, 3-D modeling, and scoping, prefeasibility, and resource and reserve reporting. Ms. Lester’s background in mining and exploration includes positions ranging from Independent Consultant, Exploration Geologist, Project Manager, and Chief Geologist for companies including Hecla Mining Company, Patagonia Gold S.A., and Gold Reserve Inc. For the past 6 years she has served as Chief Geologist for Gold Resource Corporation while overseeing exploration activities at their Oaxaca Mexico operations and exploration activities at their Nevada Mining Unit.

Other contributing authors include Richard Irvine, Chief Operating Officer, GRC (Sections 13, 16, 17, 18, 19, 21 and 22) and Alysen Tarrant, Environmental Manager, GRCN (Sections 4 and 20).

Technical data and information used in the preparation of this report also included some documents prepared by third party contractors. The authors sourced information from referenced documents as cited in the text and listed in References section of this report.

2.3 Details of Inspection

 

The Qualified Persons and other contributing authors referenced above and in Appendix A have visited the Isabella Pearl mine site on numerous occasions since 2016.

 

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2.4 Sources of Information

 

WLMC has relied on information and technical documents listed in the References section of this report which are assumed to be accurate and complete in all material aspects. While WLMC has carefully reviewed the available information provided, WLMC cannot guarantee its accuracy and completeness.

The reader is referred to earlier reports on mineral resources and reserves and the feasibility study for a more detailed description of the sources of information relied upon by the qualified persons of WLMC (Brown et al., 2018).

2.5 Effective Date

 

The effective date of this report is December 31, 2019.

2.6 Units of Measure

 

The metric system for weights and units has been used in this report with tons reported in metric tons (“tonnes”) consisting of 1,000 kilograms per tonne. Gold and silver ounces are reported in troy ounces converted using 31.1035 grams per troy ounce. All currency is in U.S. dollars (US$) unless otherwise stated.

 

 

 

 

 

 

 

 

 

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3 RELIANCE ON OTHER EXPERTS

 

The opinions contained herein are based in part on information provided by consultants throughout the course of the investigations in support of this mineral resource and reserve report. The qualified persons used their experience to determine if the information from previous reports was suitable for inclusion in this report and adjusted information that required amending. This report includes technical information, which required subsequent calculations to derive subtotals, totals and weighted averages. Such calculations inherently involve a degree of rounding and consequently introduce a margin of error. Where these occur, the qualified persons do not consider them to be material.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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4 property description and location

 

This section addresses the mine land holdings, corporate agreements, existing environmental liabilities and the permitting process.

4.1 Property Location

 

The Isabella Pearl mine is located in the Gabbs Valley Range, approximately 10 km (6 mi) north of the town of Luning in Mineral County, Nevada. A mine location map is shown in Figure 4.1. The mine is located within all or portions of the following Townships, Ranges, and Sections relative to the Mount Diablo Baseline and Meridian:

· Township 8 North, Range 34 East, Section 03; and
· Township 9 North, Range 34 East, Sections 26, 27, 34 and 35.

The approximate center of the deposit areas is N39.60°, W118.18°. The mine has good connections to the infrastructure of west-central Nevada, with access roads to the mine site linking to Nevada state route 361 and US Route 95, the main highway between Reno and Las Vegas.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Figure 4.1 General Location Map of the Isabella Pearl Mine

 

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4.2 Mineral Titles

 

The mine area covers approximately 198 hectares (490 acres) and consists of 42 unpatented lode mining claims on land owned by the U.S. government, and administered by the BLM. Mineral claims in the mine area are shown in Figure 4.2. To verify property boundaries and claim status, claim reviews and map preparation were done by Manuel Montoya Drafting and Plotting Services of Parker, Colorado and G.I.S. Land Services of Reno, Nevada in July 2016 and February 2017, respectively. Reports on mineral tenure and status was prepared by Erwin and Thompson LLP, in 2016 (Erwin, 2016), Pat Winmill, Esq., of the law firm Parsons Behle and Latimer, PLC, in Salt Lake City, in 2008 (Winmill, 2008) and Carr (2007). A list of claims within the mine boundary controlled by WLMC, its entities, or partners, is shown in Appendix B and is current as of September 2019.

There are no Tribal, State of Nevada or U.S. Forest Service lands within the mine area.

 

 

Figure 4.2 Isabella Pearl Mineral Claims Map

 

 

 

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4.3 Royalties, Agreements and Encumbrances

 

WLMC owns an undivided fifty percent (50%) interest and leases the remaining fifty percent (50%) interest in ten (10) claims from Natasha Matkin-Hayes et al. of Las Vegas, Nevada. This affects the following claims:

· Isabella Claims 1, 2, 3, 12, 13, 14 and 15, and
· Isabella Fractions 16, 17, 19.

The Matkin-Hayes lease, dated April 1, 1992, was recorded by memorandum dated June 15, 1992, in Book 146 OR, page 978 (Mineral County, Nevada), and executed by Sarah D. Narkus, Natasha Matkin-Hayes, William Longhurst, John Longhurst, Caroline Merrick, Marguerite Cole, and Combined Metals Reduction Company (CRMC). TXAU Investments Ltd. (TXAU), succeeded to CMRC’s interest in the lease pursuant to a Trustee’s Deed, dated August 13, 1999, recorded May 14, 2004, Doc # 131124, executed by First American Title Insurance Company in Favor of TXAU. WLMC purchased a 50% undivided interest in lessor’s interest in the lease including a 50% interest in a 6% gross receipts production royalty, and a 50% ownership of the subject property. WLMC received an assignment of the lessee’s interest in the lease. The assignment of the lessee’s interest in the lease transferred the benefit of advance royalty payments that had been paid lessors through August 2016, in the amount of $459,800.00.

On October 23, 2018, Ely Gold Royalties Inc., through its wholly-owned subsidiary Nevada Select Royalty, Inc., entered into a binding letter agreement with a private individual to acquire 100% of all rights and interests in 0.75% (three quarters of one percent) of the 3% NSR royalty on the 10 Isabella claims controlled by the Matkin-Hayes Lease.

WLMC owns 100% interest in the remaining 26 of the 36 claims comprising the Isabella Pearl mine subject to a reservation of a 3% net smelter return (NSR) royalty and royalty agreement in favor of TXAU. This affects the following claims:

· Vulture Dog 1, 2, 3, 4, 5, 6, 7, 8, 10 and 22,
· Soda 8, 32, 36, 37, 38, 49, 50, 51 and 52, and
· Sodar 21, 33, 34, 35, 46, 47 and 48.

On March 6, 2019, WLMC acquired 100% of all rights and interests in the TDG-1, 2 and 3 claims held by Gateway Gold (USA) Corporation (Gateway) subject to a reservation of a 3% NSR royalty and royalty agreement in favor of Gateway. These 3 claims are within the Isabella Pearl mine area.

The Isabella Pearl mine is subject to the Nevada Net Proceeds of Minerals tax, Nevada property and sales taxes, and U.S. income taxes. The Net Proceeds of Minerals tax is an “ad valorem property tax assessed on minerals when they are sold or removed from Nevada. The tax is levied on 100% of the value of the net proceeds (gross proceeds minus allowable deductions for tax purposes).” Calculation of this tax is made at 2-5%, depending on the percentage ratio of net proceeds to gross yield. Federal 

 

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income tax is applied at 21%, allowing for depletion, depreciation, and amortization and other benefits as calculated under the federal rules for alternative minimum tax.

4.4 Environmental Liabilities and Permitting
4.4.1 Environmental Liabilities

 

Site investigations by Great Basin Ecology, Inc. (GBE), Elko, Nevada, in June 2009 and 2017 (Back, 2009; GBE, 2017) did not indicate any environmental liabilities or the presence of endangered plants or species.

Previous mining at the Isabella Pearl site was conducted in 1978 by a local resident, Mr. Joe Morris. A small heap leach facility was constructed with approximately 1,361 tonnes (1,500 short tons) of crushed material. All existing leach material and contaminated subgrade soil from the Joe Morris Heap Leach Pad has been placed on the WLMC heap leach pad as part of the 45.7 cm (18 in) of liner cover.

WLMC has conducted mineral exploration activities at the Isabella Pearl site and is currently liable for reclamation of the associated disturbances. Liabilities associated with the exploration activities have been incorporated into the Plan of Operations and approved by both the BLM and the State of Nevada.

4.4.2 Required Permits and Status

 

The Isabella Pearl mine is located approximately 8.4 km (5.2 mi) northwest of the town of Luning, at the west foot of the Gabbs Valley Range located in Mineral County, Nevada. The location and current land ownership position (i.e., public land ownership) mean that the mine is being held to permitting requirements that are determined to be necessary by Mineral County, the State of Nevada, and the U.S. Department of the Interior BLM, Stillwater District Office, Stillwater Field Office.

A comprehensive list of the required federal, state and local permits, licenses, and authorizations for the Isabella Pearl mine are presented in Section 20 of this report. To date, all of the primary permits for operation have been acquired. This includes the BLM 43 CFR § 3809 POO and State of Nevada, Department of Conservation and Natural Resources (DCNR), NDEP, BMRR NAC 519A Reclamation Permit application. The BLM has deemed the POO complete and authorized the NEPA Environmental Assessment (EA) of the operations. The NEPA analysis was completed and WLMC received a Record of Decision (ROD) on May 15, 2018.

 

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4.5

Other Significant Factors and Risks

Potential factors and risks that may affect access, title, or the right or ability to perform work on the property could include:

· Unidentified cultural resources

Considerable effort has been expended on conducting surface inventories within the Isabella Pearl mine boundary. For the most part, these surveys have focused on surface features and artifacts. Given the number of cultural and archeological resources in the region, it is possible for subsurface discoveries to be made during construction of the mine facilities. Such a discovery would require mitigation that could impact the mine.

 

 

 

 

 

 

 

 

 

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5 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY
5.1 Topography, Elevation and Vegetation

 

The mine is within the Basin and Range province, a major physiographic region of the western United States. The region is typified by north-northeast trending mountain ranges separated by broad, flat alluvium filled valleys. Locally, the mountain ranges trend northwesterly, making this area rather anomalous in relation to typical Nevada physiography. Elevations on the mine site range from a minimum of 1,597 m (5,240 ft) in the valley to a maximum of 1,777 m (5,829 ft) at the uppermost elevation.

Typical high desert vegetation, controlled in part by elevation, is present in the area, including Pinion Pine and Juniper trees, wild rosebush and several varieties of sagebrush, cacti, and short grasses.

5.2 Accessibility and Transportation to the Property

 

The mine site is located in Mineral County and is accessible from Hawthorne, Nevada via well maintained paved roads and maintained dirt roads. From Hawthorne, travel east on U.S. Highway 95 a distance of 40 km (25 mi) to Nevada State Route 361 which is just west of the town of Luning. Turn north on State Route 361 and travel approximately 8.4 km (5.2 mi) to the county-maintained Rabbit Springs road that turns off to the west. The mine site lies about 1.6 km (1 mi) to the north along a dirt road that turns off approximately 1.6 km (1 mi) west of State Route 361. Drill roads provide access within the mine site and are passable by high clearance two-wheel drive vehicles. The mine area, encompassing about 198 hectares (490 acres) (see Figure 5.1), is located at the west foot of the Gabbs Valley Range in all or parts of Sections 27, 34 and 35 of Township 9 North, Range 34 East and Section 3 of Township 8 North, Range 34 East, Mount Diablo Baseline & Meridian (MDB&M).

 

 

 

 

 

 

 

 

 

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Figure 5.1 Isabella Pearl Mine Access

5.3 Climate

 

The climate is dry, semi-arid, with annual precipitation of approximately 11.4 cm (4.5 in), as documented at the nearby Mina Meteorological Station. Average temperatures range from -3° to 10° C (26° to 50° F) in the winter to highs exceeding 32° C (90° F) in the summer. Historically, the record low temperature, recorded in January 2003, is -19° C (-3° F), and the record high temperature, recorded in July 2002, is 42° C (108° F). The general area is drained by numerous stream channels originating in the mountains. These are typically dry but carry some runoff onto alluvial fans and into playas during summer thunderstorms.

 

5.4 Sufficiency of Surface Rights

 

All mineral resources and mineral reserves in this report is located on unpatented claims controlled by WLMC. As described elsewhere in this report, WLMC has secured and maintained the necessary permits for exploration and development of the Isabella Pearl mine.

 

 

 

 

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5.5 Infrastructure Availability and Sources
5.5.1 Power

 

Power is supplied by three diesel-powered electric generators. One 1500 kW generator is on-line, one 1500 kW generator is on standby and another 200 kW generator is on standby for the production wells to generate power for the well pumps if the need arises. The total connected force in the plant, including the crushers, is approximately 1,567 hp. WLMC has installed 4,160 volt direct burial power lines from the generator yard throughout the site and to the production wells, IPPW-1, IPPW-2 and IPPW-3. Fuel for the generators is stored in two above-ground tanks on graded areas with HDPE-lined floors and berms for secondary containment to provide emergency capture of 110-percent of the largest fuel tank/vessel volume.

5.5.2 Water

 

Industrial water is supplied from three production water wells. Production Well #2 (IPPW-2) was completed in September 2013 to a depth of 128 m (420 ft) and is upgradient from both the heap leach and open pit. Production Well #1 was installed in October 2016 to a depth of 396 m (1,300 ft) and is located south of the processing facility. Production Well #3 was installed in August 2019 to approximately the same depth as Well #1and is also located south of the processing facility. Permits for the production water wells and a maximum of 484 acre-feet of water annually (300 gpm 24/7) have been issued by the Nevada State Engineer.

5.5.3 Mining Personnel

 

There is considerable expertise in mining operations and management available from population centers within about 240 km (150 mi) of the mine. Nevada is an active mining state, with emphasis on open-pit gold operations. Mining personnel have been drawn from the cities of Reno/Sparks, Carson, Fernley and Fallon, the towns of Hawthorne and Yerington, as well as from other smaller communities in west-central Nevada. WLMC manpower currently totals 49 full-time and 4 temporary employees.

5.5.4 Tailings Storage Area

 

The current mine plan does not include any tailings. Spent ore from the heap leach pad is contained on the synthetic liner upon which it was constructed and closed in place.

 

 

 

 

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5.5.5 Waste Disposal Area

 

WLMC identified the primary waste-rock disposal area in the development of the mine plan. This waste disposal area was designed as valley fill.

5.5.6 Heap Leach Pad Area

 

The heap leach pad site a has sufficient capacity for the planned operation and potential expansion. It is also proximal to a water source and the mining areas to optimize operational efficiency.

5.5.7 Processing Plant Site

 

The location of the processing plant was considered when selecting a location for the heap leach pad. The plant site is adjacent to and down-gradient of the heap leach pad.

 

 

 

 

 

 

 

 

 

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6 HISTORY

 

The Isabella Pearl mine is in the Santa Fe Mining District which lies within the Walker Lane Mineral Belt. Although the district dates back to the late 19th century, no work on the Isabella Pearl mine area was done until the 1930’s when the Gilbert brothers completed a 120m (400ft) drift at Isabella. The brothers encountered up to one ounce of gold per ton in spots, but no economic material was produced. The Gilbert brothers then worked the Civit Cat mine, located about 1.6km (1mile) to the west (different than the Civit Cat North portion of the Isabella Pearl mineral resources and reserves discussed herein), and were rumored to have produced $80,000 worth of gold.

6.1 Prior Ownership and Ownership Changes

 

The Isabella mine was held by B. Narkaus until 1978 and was subsequently leased by Joe Morris the same year. Mr. Morris and three partners re-located some of the Isabella claims and subsequently leased them to the Combined Metals Reduction Company (Combined Metals). In 1987, Combined Metals entered into a joint-venture with Homestake Mining Company (Homestake) to explore and develop the Isabella claims and surrounding areas. The Combined Metals-Homestake joint venture was terminated in 1990. Combined Metals continued to maintain the claims but encumbered the property by borrowing over two million dollars from Repadre International Corporation (Repadre). Repadre initiated foreclosure action in 2002, and Combined Metals immediately filed for bankruptcy to forestall the foreclosure. In March 2004, the note held by Repadre was purchased by TXAU Investments Ltd. and TXAU Development Ltd., both Texas corporations (TXAU). The Combined Metals bankruptcy action was dismissed in May 2004, the note was foreclosed on, and the Isabella Pearl mine mining claims (including the 36 claims covering the Isabella, Pearl and Civit Cat deposits) were transferred to TXAU.

On August 12, 2016, Walker Lane Mineral Corp.’s (WLMC) parent company GRC acquired all of the outstanding stock of WLMC, a private entity held by TXAU, which controlled the Isabella Pearl mine, in exchange for 2,000,000 shares of GRC’s common stock valued at $13.1 million and cash of $152,885. At the time of acquisition by WLMC, the Isabella Pearl mine, a potential open pit heap leach mine, contained a third party Proven and Probable Mineral Reserve of 191,400 gold ounces at an average grade of 2.18 g/t Au and was in advanced stages of engineering and production permitting.

6.2 Exploration and Development Results of Previous Owners

 

In the early 1970's, Ventures West Minerals Ltd. and Brican Resources formed a joint venture for exploration of the general area around the Isabella Pearl mine. Later in the decade, the joint venture with Westley Explorations, Inc., successor to Ventures West, discovered low-grade gold mineralization in the Santa Fe Mine area, just south of and across the highway from the Isabella Pearl mine. In 1983, the Santa Fe property was joint ventured with Lacana Gold Inc., and later 100% interest was acquired by Lacana’s successor, Corona Gold Inc. The Calvada deposit, just to the east was explored by a CoCa

 

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Mines Inc. - Amax Gold Inc. joint venture prior to purchase by Corona Gold. The Santa Fe and Calvada mines, along with two other satellite deposits, were subsequently developed by Corona Gold as the Santa Fe open pit mine and heap leach operation. In 1992, Corona Gold was acquired by Homestake which completed mining at Santa Fe in December 1994. In late 2008, the Santa Fe property was acquired and further explored by Victoria Gold Corp., the current owners of the property.

In 1980, Fischer-Watt Mining Company acquired claims, northwestward from the Santa Fe mine property, for the purpose of exploring for bonanza gold-silver vein systems. They completed a stream sediment geochemical survey and a rock geochemical survey in portions of the property, fluid inclusion temperature determinations, some alteration mapping, and additional claim staking. Fischer-Watt subsequently joint-ventured the property with Ventures West Minerals, and additional work included geologic mapping at a scale of 1 inch = 500 feet, additional rock chip geochemistry, limited induced polarization and resistivity geophysical surveys, and nine rotary and DDH holes in the Copper Cliffs West exploration area. Although the drill holes did not encounter economic mineralization, Fischer-Watt concluded: “…the HY system clearly warrants further evaluation”. Combined Metals subsequently entered into a joint venture agreement with Fischer-Watt in 1982. That joint venture was dissolved during 1983 with Combined Metals acquiring Fischer-Watt’s interest in the claims. These claims, along with the acquisition of additional claims and leases, including the Isabella claim group assembled by Norsemont Mining Corporation in 1984, ultimately totaled more than 1,000 claims along the northwesterly trend.

Combined Metals drilled the Isabella deposit plus a limited number of exploration holes in a few of the other exploration areas during its joint venture with Homestake from 1988 through 1990. The joint venture drilled at least 175 RC and DDH holes before the joint venture was terminated. A historic mineral resource of approximately 360,751 ounces of gold and 3,202,991 ounces of silver was estimated at that time.

TXAU conducted a DDH drilling program in early 2007 that consisted of 19 holes for a total of 1,187 m (3,894 ft) of HQ-sized core. This drilling was designed primarily to provide material for metallurgical testing and confirm the historic assay and geological data collected by the Combined Metals- Homestake joint venture at Isabella and Pearl. In 2008, TXAU completed an additional 7 DDH holes for a total of 1,129 m (3,704 ft) in the Pearl deposit in order to address some issues concerning assays and insufficient quality assurance/quality control measures from prior drilling.

6.3 Historical Mineral Resource and Mineral Reserve Estimates

 

Historical resource and reserve estimates were described in reports prepared by Mine Development Associates (MDA; Prenn & Gustin, 2008, 2011 & 2013). These resource and reserve estimates have been reviewed by WLMC and are considered reliable but not relevant to the updated mineral resource and mineral reserve estimates presented in this report.

 

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For reported mineral reserves, MDA optimized an open pit for the project using the estimated economic parameters shown in Table 6.1. The base case final pit was based on a $1,100/oz gold price. The mineral reserve estimate reported by MDA in 2013 is presented in Table 6.2.

Table 6.1 MDA’s Isabella Pearl Pit Optimization Parameters

Table 6.2 Results of MDA’s November 2013 Mineral Reserve Estimate for the Isabella Pearl Project

6.4 Historical Production

 

In the late 1970’s, Joe Morris placed a small amount of crushed material onto a small pad with the intention of developing a heap-leach operation, but the venture was abandoned (Diner, 1983). No record of gold production from this heap leach operation is available.

6.5 Isabella Pearl Mine Production

 

Since production commenced at the Isabella Pearl mine in 2019, a total of 1,464,682 tonnes of open pit ore has been mined to produce 10,883 ounces of gold and 9,752 ounces of silver (Table 6.3).

In May of 2019, WLMC began selling gold and silver doré from the Isabella Pearl mine. During the year ended December 31, 2019, WLMC sold 10,272 and 8,332 ounces of gold and silver, respectively.

Table 6.3 Isabella Pearl Mine Production 2019

Year Ore Mined Gold Produced Silver Produced
Tonnes Oz Oz
2019 1,464,682 10,883 9,752
Totals 1,464,682 10,883 9,752

 

 

 

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7 GEOLOGICAL SETTING AND MINERALIZATION

 

The following description of geology and mineralization was mainly based on work by Ekrin and Byers (1985) with modifications and minor editing excerpts from Golden (2000), Hamm (2010) and Prenn & Gustin, 2008, 2011 & 2013). Select content was deleted from excerpted text in order to condense the information for the purpose of this report. Standardizations have been made to conform to the style and nomenclature of this document.

7.1 Regional Geology

 

The Isabella Pearl mine is located in the central portion of the Walker Lane, a major northwest- trending zone on the western border of Nevada characterized by a series of closely spaced dextral strike-slip faults that were active throughout much of the middle to late Cenozoic. It is a complex zone up to 100km (63mi) wide and 700 to 900km (438 to 563mi) long that lies on the western boundary of the Basin and Range Province.

Volcanic rocks of middle Tertiary age cover much of the property and include intermediate lava flows and ignimbrite ash flow sheets. The volcanic rocks unconformably overlie Mesozoic strata including Triassic and Jurassic sedimentary units and Cretaceous and Jurassic igneous units. Tectonic activity and erosion have left an irregular, dominantly buried surface of Mesozoic rocks. Within the regional Walker Lane tectonic setting, several major fault zones trend through the property and are dominated by various splays and off set branches. The Soda Springs Valley fault zone is a major host of mineralization in the area and particularly along the Pearl fault strand. The combined right-lateral, post-mineral displacement along the regional faults is in excess of 10km (6mi).

A regional geologic map is presented in Figure 7.1 showing the location of the Isabella Pearl mine. A regional cross section also demonstrates the rotation of blocks like the Isabella Pearl setting.

 

 

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Figure 7.1 Isabella Pearl Mine Regional Geologic Map 

 

 

 

 

 

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7.2 Local and Property Geology

 

The Isabella Pearl deposit is situated in the central portion of the Walker Lane geologic belt, which is a major structural zone, 90-300 km (60 to 190 miles) wide, that separates the Sierra Nevada and the Great Basin structural provinces and which extends from the Las Vegas region northwestward, beyond Reno, for a total length of 800km (500 miles). The Walker Lane zone is documented to be at least as old as 28 Ma (million years), with initial extension in a north to north-northeast direction and characterized by west-northwest to northwest-trending strike-slip faults that are primary controls for mineralization. These Tertiary-age faults are thought to be reactivated older structures present in the basement rocks.

The known pre-Tertiary basement rocks in the area include the Triassic Luning Formation, which is composed of medium to thick-bedded limestones with some dolomite and siliciclastic rocks. This formation was intruded by stocks and dikes of Jurassic or Cretaceous diorite, porphyritic quartz monzonite, and granite. These basement rocks are overlain by a thick sequence of late Oligocene ash flow tuffs that exceeds 1km (3,300ft) in thickness and includes minor associated lavas and intrusive rocks. From oldest to youngest, these Oligocene units include: (1) the Lavas of Giroux Valley; (2) the Mickey Pass Tuff, the Singatse Tuff, and the Petrified Spring Tuff, which are members of the Benton Spring Group; and (3) the Blue Sphinx Tuff. These units are overlain by the early to middle Miocene Lavas of Mount Ferguson, and they are locally crosscut by associated rhyolitic intrusions. The volcanic rocks range in age from 16 to 29 Ma. Other precious-metal districts of the central Walker Lane are temporally and spatially related to volcanic rocks of similar ages. See Figure 7.2 for a stratigraphic column of the Isabella Pearl mine area and Figure 7.3 for a map of the local and property geology.

The most voluminous volcanism occurred 28-24 Ma and included tuff units that appear to be altered by the approximately 19 Ma mineralizing event(s). From youngest to oldest these locally hydrothermally altered units, which consequently are potential host rocks, are listed as follows:

Tbx brecciated tuff and lava unit Miocene or Oligocene Blue Sphinx Tuff Petrified Spring Tuff
Singatse Tuff
Mickey Pass Tuff
Lavas of Giroux Valley

 

The Lavas of Giroux Valley do not outcrop within the property boundaries. 

 

 

 

 

 

 

 

 

 

 

 

 

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Figure 7.2 Isabella Pearl Mine Stratigraphic Column

 

 

 

 

 

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Figure 7.3 Isabella Pearl Mine Geologic Map

 

 

 

 

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7.2.1 Lithology

 

Lithology plays a role in ore control. Age dating suggests that any unit older than the Lavas of Mount Ferguson are potential host rocks. Altered and/or mineralized volcanic outcrop areas that have been recognized to date, listed from the youngest to the oldest rocks, are as follows:

 

Ÿ The Singatse Tuff is present locally throughout the trend, and although it is not known to contain economic gold mineralization, it is commonly hydrothermally altered, particularly in the basal portion, and locally it may have acted as a cap for underlying mineralization. Alteration in this and the younger units described above may represent leakage of mineralization from the more receptive Guild Mine Member beneath.

 

Ÿ At the south end of the trend, the Isabella deposit is hosted within moderately to poorly welded tuff in the upper rhyolitic portion, and the Pearl deposit is hosted dominantly within densely welded tuff in the lower, rhyodacite portion of the Guild Mine Member of the Mickey Pass Tuff.

 

Ÿ The basal air fall tuff unit of the Guild Mine Member is a potentially favorable host rock. Fragments of carbon and organic trash contained within the unit could react with mineralizing fluids and precipitate precious metals in a manner very similar to the carbon circuit of a cyanide recovery plant.

 

Ÿ The Pearl and Civit Cat sulfide mineral resources are hosted in part by the Cretaceous "granite".

 

7.2.2 Structural Geology

 

The Walker Lane zone is documented to be at least as old as 28 Ma (million years). The Walker Lane structures can be summarily described as consisting of numerous northwesterly trending strike-slip and normal faults, along with extensional oblique fractures and other faults that formed between the northwest striking faults, and dominantly pre-mineral detachment and associated listric normal faults. These structures provided both the ground preparation and the hydrothermal conduit systems necessary for economic mineralization.

Several regional and deep penetrating fault zones trend northwest through the area of interest including the Soda Springs fault. An example of the general density and trend of faulting is illustrated in Figure 7.3, which covers the area in the vicinity of the Isabella deposit. Many more faults are present than shown, but at all practical surface map scales individual faults and related fractures and joints are so numerous, and commonly obscured by alteration, that only the principal ones have been mapped. The importance of faults and fault zones for ore localization, particularly at intersections of and at bends along them cannot be over-emphasized.

 

 

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Beginning about 19-15 Ma, large magnitude east to southeast extension, characterized by multiple sets of closely spaced normal faults plus detachment faults in more deeply exposed terranes, occurred irregularly throughout much of the Great Basin. This SE-extension direction is 70-900 in a clockwise direction from the original north to north-northeast extension direction. West-Northwest-directed Basin and Range style deformation was superimposed on the region sometime about 17-16 Ma, a tilting event is dated at approximately 10 Ma, and peak extensional strain occurred 10-7 Ma. All of this tectonic activity and erosion resulted in an irregular, dominantly buried surface of considerable relief on the Mesozoic basement rocks, which now have the appearance of protruding into the overlying Tertiary volcanic rocks.

Detachment faults have been documented along the Walker Lane structural trend. These faults occur along the unconformity between the Tertiary volcanic and the older basement rocks as well as above and below this contact. The basement rocks are not tilted, so the detachment faulting is not related to large-scale crustal extension but rather has been described as "thin-skinned", and the associated listric normal faults do not penetrate into the basement rocks. In the Gabbs Valley Range, these listric faults are documented to repetitiously extend and tilt the Tertiary strata and merge into the detachment fault at the Tertiary-Cretaceous unconformity. Listric faults are common in rocks dated approximately 29-22 Ma but uncommon in younger rocks dated about 19-15 Ma. It is concluded (literature) that the detachment and listric normal faulting occurred as a consequence of strike-slip faulting dated 24-19 Ma.

Geologists who have worked in mineralized areas along the trend have observed the following: both pre-mineral and post-mineral faults are present, which respectively have structurally prepared the host rocks and displaced mineralization; post mineral faults are commonly characterized by unconsolidated breccias rather than by slickensides; tectonic, hydrothermal, and crackle breccias are present locally; and multiple episodes of breaking and healing are documented. At least some mineralization is reported to occur along the flanks of grabens and half-grabens formed by second and third order structures.

7.2.3 Alteration

 

In the mine area, argillized rocks have been described as dominantly an illite-montmorillonite assemblage, with kaolinite generally restricted to narrow bands up to a few yards wide around silicified zones. Weakly argillized rocks are variably bleached and locally contain areas of less altered, propylitized rock. These weakly argillized rocks are weakly incompetent and, although the feldspars are altered, the tuffaceous groundmass is recognizable; weathered surfaces are generally rough and pitted due to the loss of feldspars; and pyrite is present at least locally. Strongly to intensely argillized rocks are white and very incompetent, weather down readily, and the original rock type is unrecognizable in the field; pyrite is generally abundant, and where oxidized the rocks are yellowish to greenish in color. Argillized rocks contain no silicification other than single quartz veinlets. Light pink alunite is present locally as replacements in feldspar sites. In some areas, this strong argillic alteration may be underlain by propylitic alteration. There may be a relationship between alteration features and the intrusions of rhyolite dikes and plugs.

 

 

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At the Isabella deposit, weak to strong argillic alteration is pervasive in the upper, poorly to moderately welded ash flow tuff, while the lower, more densely welded tuff generally appears relatively "fresh" although varying degrees of propylitic alteration are common. In the upper, less welded tuff, narrow, structurally-controlled zones of silica-pyrite, as well as the more pervasive, near-horizontal, blanket-like silica replacement bodies, cut across the tilted host rock and generally grade outward into silica-kaolinite, with local alunite envelopes, and then into pervasive illite-montmorillonite zones. This alteration assemblage is also present in the lower, densely welded tuff but there it is tightly confined around the silicification. The illite-montmorillonite zone generally grades into propylitized rocks within 0-20m (0-65 ft.); within this interval mafic minerals are altered to clusters of iron oxides around their margins and plagioclase is altered to clay minerals (possibly montmorillonite).

Calcite, an alteration product of plagioclase, is present locally as pods and veinlets. Near silicified fault zones epidote is present as small granules both in plagioclase phenocrysts and in the groundmass.

Noteworthy is the fact that silicification and argillization features overlying the Isabella deposit are essentially identical to the alteration features present elsewhere along the structural trend.

Alunite is also commonly present in silicified areas, and silicified rocks generally grade outward into argillized and then into propylitically-altered rocks. Silicification is localized by fault and shear zones, and in many areas, silica has replaced large masses of both the volcanic and granitic rocks. Gold and silver are associated with this silicification and occurs primarily within the Guild Mine Member of the Mickey Pass Tuff.

Geologic records indicate that, in many or most areas, the quartz-alunite mineral assemblage caps argillic alteration. It has been hypothesized that this assemblage may have resulted from a strong acid leaching stage originating in a vapor-dominated hydrothermal system. These silicified outcrops locally stand in bold relief as knobs and irregular ledges, and silicification can cover hundreds of square yards.

Silicified cap rocks are reddish to purplish in less altered areas and white (no sulfides) in the most intensely altered areas. They are commonly rounded, very dense and without fabric, which has been attributed to pervasive recrystallization from opaline silica to quartz. No specific conclusions have been reached regarding the relationship, if any, of this silica cap rock to gold mineralization other than to note that there is a spatial correlation between quartz-alunite alteration, faults, and localities where economic to sub-economic amounts or gold are known to be present.

Other geologic data distinguish two types of silicification that have been described: (1) strong to intense silicification is pervasive, with the rock matrix partially to completely replaced by silica and with the rock texture partially to completely destroyed; iron oxides are common, and alunite and occasional barite may be present, and (2) weak to moderate silicification described as “irregular”, with "case hardened", goethite-stained rocks that form ledges in which the feldspars are bleached. Both types of silicification may indicate concealed faults.

 

 

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7.3 Isabella Pearl Mineralized Zones

 

The gold-silver mineralized zones discussed in this report include the Isabella, Pearl, and Civit Cat oxide deposits and the Pearl and Civit Cat sulfide deposits, collectively referred to in this report as the Isabella Pearl deposit. Alteration and mineral assemblages at Isabella Pearl, including widespread argillic alteration and generally abundant alunite, indicate the deposits belong to the high-sulfidation class of epithermal mineral deposits. K-Ar age determinations indicate the mineralization is about 19 Ma, some 7 to 10 million years younger than the age of the host rocks. This early Miocene age conforms to the age of other high-sulfidation epithermal precious-metal deposits in the Walker Lane (e.g., Goldfield and Paradise Peak).

Silicification generally grades outward into argillization, which then grades into propylitically altered rocks. Silicification is localized by faults and shears, and in many areas, silica has replaced large masses of both the volcanic and granitic rocks. Gold is associated with this silicification, occurring primarily within the Guild Mine Member in the lower part of the Mickey Pass Tuff. This alteration assemblage is also present in the lower, more densely welded tuff characteristic of the Pearl deposit, but it is tightly confined around the core of silicification that is mineralized.

The Isabella mineralization is moderately argillized to highly siliceous, contains numerous vugs in former feldspar and pumice sites (vuggy-silica textures), and typically lacks any evidence of cross-cutting veinlets. Narrow, structurally controlled zones of silica-pyrite, as well as the more pervasive silica replacement bodies, generally grade outward into silica-kaolinite with local alunite envelopes, which in turn grade into pervasive illite-montmorillonite zones. The iron oxide minerals goethite, jarosite, and hematite are present in the siliceous groundmass. Gold occurs as very small (<10 microns) liberated particles in cavities and along fracture surfaces. Rare secondary minerals include barite, cinnabar, and scorodite. A near-horizontal zone of pervasive argillic and advanced-argillic alteration occurs above the Isabella deposit in the upper, poorly to moderately welded rhyolitic ash-flow tuff of the Guild Mine Member. Within this altered zone, alunite occurs as pseudomorphs after potassium feldspar phenocrysts and as replacements of pumice fragments.

The Pearl deposit is hosted by the lower, densely welded portion of the Guild Mine Member and, to a lesser extent, by Cretaceous granite. Mineralization is largely controlled by the northwest-striking, northeast-dipping contact zone between the granitic basement and the overlying Tertiary volcanic units. This contact may be partially or entirely faulted; this report assumes the contact is marked by the fault. Strong silicification accompanies gold mineralization and is associated with fracture fillings and replacement of the welded tuff. The mineralization is usually associated with strong brecciation. Multiple stages of fracturing and brecciation with associated silicification have been observed in drill core.

Sulfide minerals at Pearl commonly exceed ten percent (by volume) and are composed primarily of crystalline grains and aggregates of pyrite, colloform banded “melnikovite”-type pyrite, and bladed marcasite (or pyrite after marcasite) in dark microcrystalline quartz. This quartz has replaced both the

 

 

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volcanic and intrusive host rocks. In the granite, alteration has resulted in the complete leaching of feldspars and ferromagnesian silicates, and pyrite and marcasite have filled the voids left by the silicate dissolution. Rare sulfide minerals observed in thin and polished sections include arsenopyrite, pyrrhotite, galena, sphalerite, chalcocite, chalcopyrite, polybasite, and pyrargyrite. Other minerals include very minor magnetite, zircon, monazite, and rutile. Native gold has not been observed in the sulfide mineralization.

The oxidation boundary is depressed over and immediately around the Pearl deposit, with oxide mineralization extending to more than 150m (500ft) below the surface. Goethite, jarosite, and manganese oxide are common, and barite and chlorargyrite occur rarely in the siliceous groundmass. Gold within the oxide mineralization occurs both as locked and liberated particles, as well as electrum. Particles range in size from 2 to 34 microns, averaging 14 microns. The liberated particles occur as small wire-like grains in cavities, while the locked gold is encapsulated by silica or goethite.

The Civit Cat mineralization, which is relatively minor and poorly defined by drilling, lies to the northeast of Pearl and is associated with the northwest-striking, southwest-dipping Civit Cat fault. The control on mineralization by the Pearl and Civit Cat faults, which have similar strikes but opposing dips, results in northwest-trending, roughly lens-shaped zones of mineralization that flank both sides of a graben-like structural trough.

7.3.1 Extents and Continuity

 

Within the Isabella Pearl mine area, three gold deposits have been modeled: Isabella, Pearl and Civit Cat North. The approximate extents of each are summarized in Table 7.1. Each deposit shows internal geological and grade continuity, with a consistent direction of mineralization. The approximate dimensions of each deposit are based on grade shells constructed at a nominal 0.3 g/t Au (0.009 opst) used to limit grade interpolation in the 3D block model.

Table 7.1 Approximate Extents of Gold-Silver Deposits in the Isabella Pearl Mine Area

 

  Tonnage Strike Length Dip Length
Civit Cat North 3.4 million tonnes 290 m 250 m
Isabella 7.1 million tonnes 570 m 20 m
Pearl 4.0 million tonnes 400 m 280 m
Scarlet 0.5 million tonnes 110 m 80 m

 

 

 

 

 

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8 DEPOSIT TYPE

 

Alteration and mineral assemblages throughout the deposit are represented by widespread argillic alteration, generally abundant alunite, and the presence of minor amounts of base metals, all of which indicate the ore deposits to belong to the high sulfidation (acid sulfate) class of epithermal mineral deposits. Fluid inclusion data indicates the solutions that deposited the coarse-grained quartz were dilute, with a salinity of 1-2 weight percent NaCl and temperatures ranging 200 to 300° C. Temporal relationships and the thickness of the tuff units suggest that the depth of formation was more than 900m. In Figure 8.1 a red circle highlights the high sulfidation characteristics of the Isabella Pearl ore classification including the Na-rich, moderate temperature, and acid phase minerals. The geometry of the deposit is controlled by two dominant geologic features; favorable stratigraphic horizon, and structural connectivity to mineralizing fluids. In high sulfidation environments the fluids ascend via structural feeders and under acid attack particularly replaces more favorable units; in the case of Isabella Pearl the Guild Mine member of the Mickey pass Tuff was this unit. Figure 8.2 demonstrates a conceptual ore deposit model.

Figure 8.1 High Sulfidation Characteristics of the Isabella Pearl Mineralization

 

 

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Figure 8.2 Conceptual Model for Formation of the Isabella Pearl Deposit

A local stratigraphic section shown in Figure 8.3 illustrates a more specific model for mineralization at the Isabella deposit and elsewhere along the Walker Lane trend, where numerous fault zones provided the conduits necessary for hydrothermal fluids to transport gold into environments favorable for gold mineralization. The uppermost, Isabella-type deposit occurs in the upper portion of the Guild Mine Member tuff host rock. This deposit type is relatively large and of lower average grade because the tuff is less welded and consequently relatively porous, allowing the mineralizing fluids to spread beneath the overlying Singatse Tuff, which served as a relatively impermeable barrier (only the lower portion of the Singatse Tuff is altered in the vicinity of the Isabella Pearl deposit.

The stratigraphically lower Pearl-type deposit is limited to faults and fractures and is controlled in part by the basement rock contact with the overlying volcanic rocks. The deep sulfide and Pearl-type deposits are relatively high-grade because these environments were the first favorable environments encountered by ascending, mineralized, hydrothermal fluids.

 

 

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Figure 8.3 Idealized Stratigraphic Section Highlighting Mineralization Controls for Isabella Pearl

 

 

 

 

 

 

 

 

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9 EXPLORATION
9.1 Relevant Exploration Work
9.1.1 Exploration by TXAU

 

TXAU conducted two DDH drilling programs that were managed by HB Engineering. The first program was designed primarily to provide material for metallurgical testing, as well as to attempt to confirm the historic assay and geological data collected by the Combined Metals-Homestake joint venture. A total of 19 holes (1,187m (3,894ft)) were drilled in early 2007, including four holes into the Pearl deposit and the remaining holes into the Isabella deposit. Two holes, P-6 and P-16, were lost in bad ground and were re-drilled. P-16 recovered core to 10m (33ft), which was split and sampled; no core from P-6 was sampled.

The 2007 drill data were incorporated into the project database, and MDA was contracted to complete a 43-101-compliant Mineral Resource estimate, as well as an economic scoping study (Prenn and Gustin, 2008). These studies led to the identification of a number of deficiencies that precluded the classification of any of the resources as Measured. In order to address these deficiencies and lower project risk, TXAU completed the 2008 drill program, which consisted of 7 DDH holes for a total of 1,129m of drilling (3,704ft). Since the Pearl deposit contributes approximately 75% of the total oxide resources at Isabella Pearl, and essentially all of the sulfide resources, the 2008 drilling concentrated on the Pearl deposit.

The 2008 program included an industry standard QA/QC program, down-hole surveys were conducted on all holes, care was taken during drilling and the removal of core from the core barrel in order to maximize sample recoveries, and further specific gravity determinations were obtained from samples of the drill core. Additional QA/QC work was also completed on the 2007 drill samples, and geologic mapping of portions of the Isabella-Pearl resource area was completed.

In addition to the drilling programs, TXAU commissioned McClelland Laboratories, Inc. (McClelland) to complete metallurgical testing on a bulk surface sample and DDH composites in 2007 and 2008. The results of this test work are summarized in Section 13.

9.1.2 Exploration by WLMC

 

WLMC executed a DDH drill program in 2016 to collect representative mineralized ore grade samples in the mine area in sufficient quantity to conduct metallurgical testing.

The 735 m (2,411 ft) DDH drill program managed by WLMC in 2016 incorporated three PQ size core holes which were sent to the Kappes, Cassidy & Associates (KCA) facility in Reno, Nevada for metallurgical testing and one HQ size core drill hole which was analyzed for gold, silver and a multi-element suite at ALS Laboratory (ALS) in Reno, Nevada. The purpose of the three PQ core drill holes was

 

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to collect enough mineral resources from the Isabella and Pearl deposits to perform bulk metallurgical tests. The HQ DDH (IPDD-002 is a twin of the first PQ DDH (IPDD-001) drilled to confirm relative elemental values of the material sent for metallurgical testing over 5-foot intervals versus wider composites for metallurgical tests.

In addition to the DDH drilling WLMC, also completed six (6) shallow AT drill holes totaling 82m (269 ft) targeting shallow oxide mineralization in the Isabella Pearl mine area. Holes were completed to maximum depth 30m (99 ft.).

WLMC also conducted extensive rock-chip sampling and geological mapping adjacent to the current Isabella and Pearl deposits to the northwest of the deposits as well as minor sampling south of the Pearl deposit. A total of 196 rock chip samples were taken by WLMC in 2017 in the Scarlet anomaly immediately northwest of Isabella and Pearl deposits and analyzed by Inspectorate - Bureau Veritas Minerals Laboratory (Bureau Veritas) in Sparks, Nevada. Rock chip samples were analyzed for gold, silver and a multi-element suite. A total of 67 of the 196 rock chip samples returned greater than 0.30 ppm Au and 22 of the 196 samples returned greater than 1.000 ppm Au with a high of 9.278 ppm Au.

Several anomalous zones were delineated from the rock chip sampling and mapping including the Scarlet trend, and 3D modeling and interpretation of the data utilized Surpac software to identify additional targets. Historical drilling was widely spaced with favorable results that were not offset with additional drilling, and WLMC plans to offset these historical drill intercepts as well as test highly anomalous rock chip samples and targets generated in modeling.

9.2 Significant Results and Interpretation

 

The TXAU 2008 and WLMC 2016 - 2019 drill information allowed for the refinement in the modeling of the high-grade portions of the Pearl deposit, as well as the oxidized/unoxidized boundary and the contact between Tertiary volcanic and granitic rocks. These refinements are critical to the confidence in the resource estimation at Pearl. Down-hole surveys conducted on the 2008 holes indicated only minor deviations, which alleviated concerns related to the lack of down-hole survey data in the pre-2008 holes. The confirmatory drilling ultimately led to the definition of mineral reserves within the Pearl deposit.

Recent exploration by WLMC included 3D modeling created with Surpac using historical mapping, sampling and drilling as well as new gathered WLMC data (Figure 9.1). This synergy of data resulted in the definition of a high potential to develop significant targets in the “TS-37 Solid”, “Scarlet Oxide Solid” and the “TS-32 Solid” which are situated immediately northwest of the Isabella and Pearl deposits. The colored planes in the figure represent the local interpretations of major mapped fault zones in the area. The high-grade portion of the Pearl deposit is included for spatial reference.

The minor rock chip sampling south of the Pearl deposit also returned several anomalous gold assays. WLMC has also planned several drill holes to test this shallow mineralization as well.

 

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Figure 9.1 3D Modeling of Mineralized Structures and Faults Northwest of Isabella Pearl Deposits

 

9.3 Exploration Potential Outside Mine Area

 

WLMC also controls an additional 454 claims covering 3,240 hectares (8,000 acres) along a nearly 30 km (19 mi) trend extending northwest of the Isabella Pearl mine. Figure 9.2 highlights this current land position and significant prospects for targeting. At least twenty-four gold prospect sites have been defined by previous operators (TXAU, CMRC, Homestake and others) along the northwest trend. At least twelve are considered high priority prospective target areas under current examination by WLMC within the entire Isabella Pearl claim area.

 

 

 

 

 

 

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Figure 9.2 WLMC’s Regional Land Status Highlighting Isabella Pearl and Other Important Mines and Prospects

 

 

 

 

 

 

 

 

 

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10 DRILLING
10.1 Type and Extent

 

The Mineral Reserves reported herein were estimated using a drill hole database compiled by WLMC, as described below. The final mine database includes a total of 379 holes drilled by Combined Metals-Homestake, TXAU and WLMC at Isabella Pearl through 2019, including 339 RC, 33 DDH, three metallurgical DDH drill holes and four water wells. Metallurgical drill holes were submitted in their entirety for metallurgical testing and do not have individual assay results. The Isabella Pearl mine drilling history is summarized in Table 10.1, which includes drill holes shown in Figure 10.1. The Isabella Pearl drill hole and assay databases are summarized in Tables 10.2 and 10.3, respectively.

Most of the pre-TXAU and WLMC drilling was completed between 1987 and 1990 by the Combined Metals-Homestake joint venture (Golden, 2000). It should be noted that the database used by Sierra Mining reportedly included 178 Combined Metals-Homestake holes (Golden, 2000), three more than the MDA database; holes IC-34, 35, 37, and 175 are possibilities for missing holes in the MDA data based on the drill hole numbering sequence (Prenn & Gustin, 2008, 2011 & 2013).

Topographic surveying of collars was undertaken by registered professional surveyors from Nevada. All plots were delivered as stamped referenced plats along with corresponding digital data files. Verification of field locations were also validated with registered air photographs. The TXAU 2007 - 2013 drill hole collar locations were surveyed by David Rowe of Winnemucca, Nevada. Rowe also surveyed the collar locations of 100 Combined Metals-Homestake holes that could be accurately located on the ground. The WLMC 2016 - 2018 drill holes were surveyed by Kevin Haskew of Reno, Nevada. The 2019 drill hole collars were surveyed by the Isabella Pearl mine survey department.

Table 10.1 Drilling History at the Isabella Pearl Mine

Company Period RC DDH Total
No. Meters No. Meters No. Meters
Combined Metals-Homestake 1987-1990 182 19,598.6 6 513.9 188 20,112.5
TXAU 2007-2008 na na 26 2,315.7 26 2,315.7
WLMC* 2016-2019 157 12,844.0 1 249.9 158 13,093.9
WLMC Met Holes 2016-2017 na na 3 484.9 3 484.9
Water Wells na na na na na 4 800.0
  Totals 339 36,422.6 36 3,564.4 379 36,807.1
* Includes 6 AT drill holes
                   

 

 

 

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Figure 10.1 Isabella Pearl Drill Hole Location Map

 

Table 10.2 Isabella Pearl Drill Hole Database Summary

Description DDH RC AT H2O Total
Number of drill holes 36 333 6 4 379
Total Length (m) 3,564 32,361 82 800 36,807
Average Length (m) 99.0 92.2 13.6 200 97.1
Meters Assayed 1,951 30,300 82 0 32,333
Drill Holes with Downhole Surveys 8 134 6 0 148

 

Table 10.3 Isabella Pearl Assay Database Summary

Assay Summary DDH RC AT Total
Number of Assays 1,119 19,882 54 21,055
Total Length (m) 1,950.6 30,300.2 82.0 32,332.8
Average Length (m) 1.74 1.52 1.52 1.54
Average Au g/t 2.30 0.26 0.30 0.37
Average Ag g/t 12 3 1.04 3.39

 

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10.2 Procedures
10.2.1 RC Drilling

 

MDA extracted the following information concerning the Combined Metals-Homestake RC drilling exclusively from the drill hole logs, which unsystematically include references to drilling contractors, rig types, and drill bits. Logs are available for all historic holes in the sequence IC-38 through IC-178, except IC-54. All historic holes are believed to have been completed by RC drill rigs, with the exception of DDHholes IC-136 through IC-141.

The first notation of drill-rig type is for hole IC-38, which notes a T-4 drill. This rig type was also identified in 90 of the following holes through to hole IC-135. Hole IC-49 notes that a T-4 rig was used to drill the first 91m (299ft) of the hole, with a TH-100 drilling the bottom 151m (495ft). No references to drilling company are made until hole IC-99, which is noted as being drilled by Hackworth. Hackworth is identified as the drill contractor on 21 logs within the sequence of holes from IC-99 through IC-132. Nine of these logs suggest that holes IC-99 through IC-132 were drilled in 1989.

Drilling Services is identified as the drill contractor for 33 of the holes in the sequence from IC-142 through IC-174. A total of 43 logs from holes in this sequence note the drill type as being TH100 or TH100A. Holes IC-142 to IC-156 are noted as being drilled in 1989, while holes IC-158 through IC- 174 were drilled in 1990.

Hackworth is again noted as the drill contractor for holes IC-176 through IC-178, the latest Combined Metals-Homestake holes in the database (IC-175 is not in the database). These holes were drilled in 1990 using a TH60 rig.

Drill-bit diameters are identified on 128 of the RC logs, which indicate 5.125, 5.25, 5.5, and 6in. bit sizes. Most of the Hackworth holes were drilled with 5.5in. bits, while most Drilling Services holes were drilled with 5.25in. bits. Both drill contractors used hammer and tri-cone bits

WLMC 2016 - 2019 RC drilling was performed on diurnal shifts by New Frontier Drilling LLC (Frontier) Fallon, Nevada. Drilling equipment consisted of an RC track mounted Foremost MPD drill capable of drilling angle holes to 500m (1,500 ft). Drill was equipped with an air compressor capable of delivering sufficient free air at high enough pressure for drilling with a dual-tube drill pipe. The setup was complete with cyclone assembly with discharge through a rotary wet splitter. Drill bit size was 13.3 cm (5.25 in). The drill pipe was 10.2 cm (4 in) diameter in 3.04m (10 ft) lengths. The method employed utilized the double wall drill pipe, interchange hammer, and hammer bits to drill and sample the geologic formations. The samples were recovered through the center of the double walled pipe and the sample discharged via a cyclone. Water/fluid was injected into the airflow on an intermitted to continuous basis to assist with recovery of the sample through the wet rotating splitter. Appropriate sample bags were provided by WLMC and they were collected and bagged and tagged under geologist supervision during the drilling. The contractor conducted all operations to industry standard practices.

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In 2017, WLMC also utilized New Frontier Drilling to complete a 1,356 m (4,450 ft) RC condemnation drill program to ensure no mineral resources occurred where mine/plant facilities are currently located. The program consisted of 5 RC drill holes drilled to depths of up to 366 m (1,200 ft).

The AT drilling was completed by Merritt Construction Mina, NV utilizing an Atlas Copco portable blast hole rig modified to 4.5 inches for shallow drilling (less than 30m (99 ft)). The drill rig is supported by compressed air at a rate of 825 cubic feet per minute, with compressed air forced down the center of the rod and hammered materials returned up the outside of the rod. This drilling method was restricted to vertical hole orientation. The drilling method was dry, samples were taken for each 1.5m (5 ft), and the recovered chips were collected in 5-gallon pails and split with a portable riffle splitter. Samples were bagged at the site and transported to company’s secure storage location until submittal to ALS. The AT holes were not surveyed down-hole.

10.2.2 DDH (Core) Drilling

 

Combined Metals-Homestake completed a six-hole DDH drilling program in 1989. No further details concerning this program are available.

TXAU conducted a 19-hole DDH drilling program in 2007 and drilled an additional seven DDH holes in 2008. HB Engineering managed the drilling programs for TXAU. Leroy Kay Drilling Co., Inc. of Yerington, Nevada (Kay Drilling) was the drilling contractor for the 2007 program. All recovered core was HQ size (2.5 in).

The drilling contractor for the 2008 program was Sierra Madre Exploration of West Point, California (Sierra Madre). Sierra Madre used a track-mounted Longyear Casa Grande C5S rig, made in Italy specifically for drilling long DDH holes from underground. The rig is capable of drilling HQ core to depths of greater than 600m (2,000ft) and can drill angle holes on very small drill pads, which was important for the 2008 campaign. Drilling was conducted during one or two 12-hour shifts per day, depending on the availability of personnel. All holes were collared and cased to 3.05m (10ft) by tri-cone drilling, with no recovery of these intervals. Core drilling was all HQ in size and was generally completed using a 3.05m (10ft) core barrel. To help increase recovery in loose, difficult drilling conditions, a Longyear’s HQ3 system was used instead of a standard core barrel. Water pressure was used to pump the core out of the core barrel (as opposed to jarring it out with hammer blows) onto a half-pipe tray, and the core was then boxed in standard wax-coated cardboard boxes.

KB Drilling Company (KB) of Mound House, Nevada provided services for the 2016 metallurgical DDH drilling program. Two sizes of DDH drill core were utilized: a large diameter “PQ” 8.5 cm (3.35 in) for metallurgical testing, and a smaller “HQ” 63.5mm (2.5 in) for core sample and routine laboratory analyses. The 24-hr 7 days shift DDH drilling was performed with a truck mounted UDR 1500 drill capable of DDH depth penetration to 500m (1500ft), utilizing traditional mud-lubricated drilling methods. Casing utilized was 12.7 cm (5 in) and was utilized generally 10-20ft for collar stability, however in some cases hole stabilization required up to 30 ft of casing. Occasionally overburden was tri-cone

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drilled. Core was pressure removed when possible (in fractured ground) otherwise handled traditionally with rubber mallet percussion to remove. Core was place in wax treated boxes. Depth, rod change, and loss zones were noted on wood blocks in place with the drill core. Core was shipped to a WLMC locked storage in Hawthorne, Nevada twice daily at drilling shift change. After drilling holes were surveyed with the Reflex tool (described in next section) and logged paper copies of the measurements were retained by the drill site geologist. The contractor conducted all operations to industry standard practices.

10.2.3 Downhole Surveying

 

The database contains down-hole survey data for the 11 DDH holes (including metallurgical drill holes), 5 RC holes and 6 AT holes as listed in Table 10.2. The remaining drill holes are limited to collar surveys only.

Seven DDH holes drilled by TXAU in 2008 were surveyed by the drillers upon completion of each hole using a Reflex EZ-SHOT tool. The holes tended to steepen by 1 to 2.5 degrees and change azimuth unsystematically up to 5.5 degrees. If the pre-2008 drill holes, which do not have down-hole survey data, deviated at similar magnitudes as the 2008 holes, the lack of surveys would have no material impact on the mineralization model.

The WLMC 2016 DDH program under KB utilized a Reflex EZ-shot camera and surveys were taken at approximately 50 ft intervals as per industry standard. The data was reviewed by the competent geologist and approved for entry into the company database.

The 2017 condemnation RC drilling program utilized the Reflex EZ- Gyro and surveys were taken every 15.2 m (50 ft) as per industry standard and included a QA/QC multi-shot optimization at approximately each 30.5 m (100 ft). This data was reviewed by competent geologist and approved for entry into the company database. No extreme or unusual deviation was noted with the survey results from either campaign.

10.3 WLMC Exploration Drilling Programs

 

The WLMC 2017 condemnation RC drilling program sterilized all near-surface ground in the areas tested with drill holes consisting of mainly alluvium or uneconomic mineralization to final drill hole depths.

During 2018 and 2019, WLMC completed 146 in-fill and step-out RC drill holes to expand mineral resources at the Isabella Pearl mine. The drilling program utilized the New Frontier Drilling RC drill and the same industry accepted down hole Reflex surveying and laboratory analytical methods as previously. The campaign successfully intercepted additional mineralization both along known structures and increased confidence in other infill areas. Results included up to 8.574 g/t Au over 83.82m including 22.826 g/t Au over 24.38m in Hole IPRC-090 and 18.042 g/t Au over 25.91m including 28.588 g/t Au over

 

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6.10m in Hole IPRC-091. Figure 10.2 below highlights the collar locations, and Table 10.4 below summarizes significant results. All of the information gained will be included in the resource updates.

Figure 10.2 2018-2019 Drill Hole Collar Locations at Isabella Pearl

 

 

 

 

 

 

 

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Table 10.4 Significant Results 2018-2019 Drilling at Isabella Pearl

 

 

 

 

 

 

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10.4 Interpretation and Relevant Results

 

The Isabella Pearl database (Table 10.3) indicates that the mean gold grades of the DDH holes are significantly higher than the RC holes. The Combined Metals-Homestake and TXAU DDH were drilled primarily to collect metallurgical samples and verify important mineralized zones defined by previously drilled RC holes. The DDH therefore drilled a higher percentage of mineral resources than the RC holes, especially in the high-grade Pearl deposit. In addition, sampling of the DDH was primarily restricted to suspected mineralized intervals, while the RC holes were sampled over their entire lengths.

Drill hole logs are available for all holes except IC-1 through 37 (the earliest holes in the database) and IC-54, as well as copies of assay certificates for 147 of the holes, including all TXAU holes. A significant amount of information was collected from the drill logs and entered into spreadsheets and, where appropriate, the mine database, including the depth to water table, intervals drilled while injecting water, the amount of water returning with the RC sample cuttings, qualitative descriptions of RC sample recoveries, any comments regarding possible RC down-hole contamination noted on the drill logs, other comments written on the drill logs that pertain to water and recovery, alteration (degree of silicification), lithology (overburden, welded and overlying unwelded Mickey Pass Tuff, granite), drill bit types and diameters, drill contractors, year of drilling, rig type, assay laboratory, analytical methods, and analytical detection limits. Although the database included oxidation codes, many of these codes were derived from the coding of the drill samples by an interpreted three-dimensional surface that conflicted with the oxidation notes in the drill logs in some cases. Oxidation data (oxide-mixed-sulfide) were therefore extracted from the drill logs and incorporated into the MDA digital database.

QA/QC data were also compiled by MDA from the paper copies of the Combined Metals-Homestake assay certificates. These data include internal laboratory check analyses of the original pulps and analyses of new pulps prepared from preparation rejects or duplicate samples. The QA/QC samples are discussed further in Section 12.

An audit of the assay database by MDA led to the identification of data in the assay certificates that were not included in the TXAU database. Two RC holes, which had been re-entered and deepened sometime after the original holes were drilled, did not have the re-entry assay data in the database. Several intervals of other holes were also missing assay data. All missing assay data identified by MDA were added to the mine database.

 

 

 

 

 

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11 SAMPLE PREPARATION, ANALYSIS AND SECURITY

 

11.1 Historic Security Measures and Sample Preparation

 

Historic security measures and sample preparation were reported by MDA (Prenn & Gustin, 2013). This includes descriptions excerpted from Sierra Mining (Golden, 2000) for drilling programs conducted at Isabella Pearl before TXAU took control of the project. For more details, the reader is referred to earlier reports on mineral resources and reserves and the feasibility study for the Isabella Pearl mine (Brown et al., 2018).

11.2 WLMC (2016 to Present)

 

11.2.1  Security Measures

 

Sample security procedures for WLMC sample materials were established according to industry standards and included (from generation of sample at the site) secured sample transport to a local locked storage facility for holding and/or directly shipped via secured transport to the laboratory for analysis. Samples were shipped by cargo truck in lots loaded into bins with top closures, enclosed trailer, or stacked and covered and secured to the bed of transport truck (in the case of whole DDH drill hole boxes). Chain of custody forms accompanied the shipments to the reception at the assigned laboratory. No breaches of the security were reported.

11.2.2  Sample Preparation and Analysis

 

For the WLMC 2016 drilling program, continuous sampling was done on 1.52 m (5 ft) intervals, contingent on drilling conditions. All assay samples were processed at ALS, with additional work carried out at ALS in Vancouver, BC, Canada. WLMC has no business relationship with ALS beyond being a customer for analytical services. ALS is an accredited ISO/IEC 17025 facility.

For the WLMC 2017 - 2019 drilling programs, continuous sampling was again done on 1.52 m (5 ft) intervals, contingent on drilling conditions. However, all assay samples during the 2017 – 2019 drilling programs were processed at Bureau Veritas. WLMC has no business relationship with Bureau Veritas beyond being a customer for analytical services. Bureau Veritas is an accredited ISO/IEC 17025 facility. The umpire laboratory used for check assaying is ALS and this sampling program is currently ongoing.

All assay samples were analyzed using a 30 g FA with an AAS finish for gold (ALS code AU-AA23; Bureau Veritas code FA430)). This technique has a lower detection limit of 0.005 ppm and an upper detection

 

 

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limit of 10.00 ppm. Samples with greater than 10.00 ppm Au were re-analyzed using a 30 g FA with a gravimetric finish (ALS code Au-GRA21; Bureau Veritas code FA530).

 

All assay samples were also analyzed using a 0.5 g sample with aqua regia for silver (ALS code Ag-AA45; Bureau Veritas code AQ-400). This technique has a lower detection limit of 0.1 ppm for silver and an upper detection limit of 200 ppm for silver.

 

11.2.3  Quality Assurance/Quality Control Procedures

 

The 2016 through 2018 WLMC drilling program consisted of 6 AT exploration drill holes, 5 RC condemnation drill holes, 36 RC in-fill and step-out drill holes, one DDH exploration drill hole and 3 DDH metallurgical drill holes. Condemnation drill holes were only sampled if the presence of visible mineralization was noted. All Standard Reference Materials (SRM) and blanks used for the QA/QC program were obtained from Shea Clark Smith / MEG, Inc., Reno, Nevada.

The variation from the SRM mean value defines the QA/QC variance and is used to determine acceptability of the standard sample assay. Approximately 60 g of sample material was submitted per QA/QC sample. For the 2016 through 2018 WLMC drilling programs, the criteria for failure were as follows.

a. Assay value within 95% Confidence Interval (CI): Pass
b. Assay value outside 95% Confidence Interval: Failure
c. Blank value greater than 5 times the lower detection limit (0.025 g/t Au): Failure

 

For the AT drilling program two blanks, one field duplicate and one SRM standard were inserted with the 54 samples collected. For the DDH drill hole, 3 SRM standards and 3 blanks were inserted with the 131 samples collected. For the RC drill holes, 5 SRM standards and 5 blanks were inserted with the 222 samples collected. No issues were noted with regards to the QA/QC results (Table 11.1).

 

 

 

 

 

 

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Table 11.1 WLMC 2016 through 2018 QA/QC Results

Sample Drill Hole SRM Standard Au g/t SRM g/t 95% CI
845340 IPAT-010 MEG-Blank.14.01 <0.005 0.003  
845375 IPAT-016 MEG-Au.10.01 0.02 0.022 0.016 - 0.027
845390 IPAT-016 MEG-Blank.14.01 <0.005 0.003  
869075 IPDD-002 MEG-Au.11.17 2.87 2.693 2.457 - 2.928
869125 IPDD-002 MEG-Au.12.13 0.947 0.879 0.761 - 0.997
869025 IPDD-002 MEG-Au.13.01 0.322 0.308 0.279 - 0.337
869026 IPDD-002 MEG-Blank.14.01 <0.005 0.003  
869076 IPDD-002 MEG-Blank.14.01 0.009 0.003  
869126 IPDD-002 MEG-Blank.14.01 0.005 0.003  
2970975 IPRC-004 MEG-Au.10.03 0.053 0.056 0.044 - 0.068
2970990 IPRC-004 MEG-Blank.14.01 <0.005 0.003  
2976025 IPRC-005 MEG-Au.11.19 0.114 0.12 0.093 - 0.146
2976175 IPRC-005 MEG-Au.12.20 0.484 0.499 0.456 - 0.541
2976125 IPRC-005 MEG-Au.12.21 0.14 0.143 0.124 - 0.162
2976075 IPRC-005 MEG-Au.13.01 0.337 0.308 0.279 - 0.337
2976040 IPRC-005 MEG-Blank.14.01 <0.005 0.003  
2976090 IPRC-005 MEG-Blank.14.01 <0.005 0.003  
2976140 IPRC-005 MEG-Blank.14.01 <0.005 0.003  
2976190 IPRC-005 MEG-Blank.14.01 <0.005 0.003  
845360 IPAT-017 10-15 ft 0.611    
845361 IPAT-017 Field Duplicate 0.600    

 

The 2019 WLMC drilling program consisted of 110 RC in-fill and step-out drill holes. All SRM samples were obtained from Shea Clark Smith / MEG, Inc., Reno, Nevada (Table 11.2). Blank material was sourced as “Lava Rock” (pumice) from Oxborrow Landscaping, Sparks, Nevada.

Table 11.2 WLMC 2019 Standard Reference Materials

Standard Au ppm Au SD
MEG-Au.10.03 0.056 0.006
MEG-Au.11.17 2.693 0.118
MEG-Au.12.11 1.465 0.081
MEG-Au.12.13 0.879 0.059
MEG-Au.12.20 0.499 0.021
MEG-Au.12.21 0.143 0.009
MEG-Au.12.32 0.616 0.017
MEG-Au.13.01 0.308 0.014
MEG-Au.17.01 0.381 0.015
MEG-Au.17.02 0.511 0.030
MEG-Au.17.21 1.107 0.062

 

 

 

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For the SRM, a warning was defined as an assay result outside 3 times the SRM standard deviation. For the 306 SRM samples submitted, a total of five warnings were returned (Table 11.3). Performance of the remaining assays was acceptable (Figure 11.1).

Table 11.3 2019 SRM Warnings

Sample DHID SRM Au Criteria
3084920 IPRC-122 MEG-Au.12.20 0.433 < 0.436
3085080 IPRC-125 MEG-Au.12.20 0.571  > 0.562
3084460 IPRC-114 MEG-Au.12.32 0.564 < 0.565
3084480 IPRC-114 MEG-Au.12.32 0.549 < 0.565
3084660 IPRC-118 MEG-Au.12.32 0.563 < 0.565

 

 

Figure 11.1 2019 SRM Performance

 

 

 

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For the blank material a warning was defined as an assay that exceeded five times the detection limit of 0.003 ppm (Figure 11.2). Of the 310 blanks submitted, a total of five warnings were received (Table 11.4). A check on the corresponding SRM sample results for these intervals indicated no issues associated with the individual assays. Adjacent SRM pulp sample rejects were submitted to ALS, and returned similar assay grades (Figure 11.3). There is insufficient sample material remaining for re-assaying.

 

 

 

Figure 11.2 2019 Blank Material Performance

 

Table 11.4 2019 Blank Material Warnings

Sample DHID BLANK Au Criteria
3082241 IPRC-089 Lava Blank 0.018 > 0.015
3082361 IPRC-090 Lava Blank 0.196 > 0.015
3082381 IPRC-090 Lava Blank 0.024 > 0.015
3082521 IPRC-091 Lava Blank 0.113 > 0.015
3082541 IPRC-091 Lava Blank 0.033 > 0.015

 

 

 

 

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Figure 11.3 2019 SRM Pulp Sample Rejects Reassays

11.3 Check Assays

 

For the 2019 drilling campaign, a total of 307 field duplicates were taken and submitted for assay at the same laboratory as the primary sample. There is a strong correlation between the primary and secondary assays, and no issues were noted (Figures 11.4 & 11.5)

 

 

 

Figure 11.4 Au Field Duplicate Control Plot

 

 

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Figure 11.5 Au Min Max Field Duplicate Control Plot

For the 2019 drilling campaign, a total of 488 coarse rejects from samples that assayed above 0.20 ppm were submitted for cyanide leach assay. Cyanide leach assay results from samples within the oxide zone demonstrated an average recovery of 88% percent compared to the corresponding fire assay results. Cyanide leach assay results from samples within the sulfide zone demonstrated an average recovery of 10% percent compared to the corresponding fire assay results (Figure 11.6).

Figure 11.6 Cyanide Leach vs Fire Assay Comparison Plot

 

 

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11.4 Opinion on Adequacy

 

WLMC considers that the 2016 - 2019 drilling programs and the historical drilling information as reported by MDA (Prenn & Gustin, 2013), meet industry standards and have been reviewed and confirmed in sufficient detail to permit inclusion of the information in the Isabella Pearl mine database.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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12 DATA VERIFICATION

 

WLMC has relied heavily on information and technical documents prepared by MDA for the Data Verification sections with regards to the historical drilling programs at Isabella Pearl. For more details, the reader is referred to earlier reports on mineral resources and reserves and the feasibility study for the Isabella Pearl mine (Brown et al., 2018).

12.1       Opinion on Data Adequacy

 

Investigations of all aspects of current and historical data quality indicates that the quality of the information is suitable for mineral reserve estimation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

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13 MINERAL PROCESSING AND METALLURGICAL TESTING
13.1 Metallurgical Overview

 

This summary of metallurgical test work results and applications was prepared to provide an overview of the metallurgical understanding of the Isabella Pearl mine. This section provides a description of Isabella Pearl mineralization and metallurgical characterization of the deposit including:

· Mineralogy and metallurgical ore types
· Review of previous test programs with emphasis on cyanide leachability
· WLMC metallurgical test program and results
· Metal recovery and recovery rate predictions, and
· The basis of the process design criteria.

 

The Isabella Pearl mine has been subjected to nine separate programs of modern metallurgical test work, the most relevant being the Combined Metals-Homestake joint venture undertaken in 1990, and TXAU in 2009. These two programs are considered of particular interest as the work was performed on drill hole samples and tested for cyanide leachability. There were many other programs where the work focused principally on alternative recovery methods such as flotation. Nonetheless, all cyanide leachability data from all test programs along with that completed by WLMC during 2017 was considered in the conclusions presented herein.

A breakdown of the test work, including a study commissioned by WLMC in 2017, are summarized in Table 13.1 below:

Table 13.1 Summary Metallurgical Test Work Completed on Isabella Pearl Deposit

 

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Seventy five percent of the oxide contained gold in the Isabella Pearl deposit is located below the 1,646 m bench in the Pearl Pit, and this material represents thirty five percent of all mineral resources considered in the mine plan presented herein. The importance of determining the metallurgical properties of this material cannot be overstated. The premise of the WLMC metallurgical test program undertaken by KCA in February 2017 (KCA, 2017) was twofold:

 

1. Confirm previous cyanide leach test work results and viability of Heap Leach, Carbon Adsorption/desorption and Electrowinning gold recovery process to the Oxide mineral resources.
2. Establish that the high-grade core of the Pearl deposit would indeed yield previously determined, gold recovery levels.

 

The results of the cyanide leach test work demonstrate the straightforward and consistent nature of the Isabella Pearl metallurgy.

· The economic minerals of interest are gold and to a minor degree silver.
· The results are not dependent on deposit lithology or zoning; The deposit will be mined only above the water table and so refractory sulfide material below the water table is not an issue.
· A single simple cyanidation process can be used to recover gold and to a lesser degree silver.
· Fast leaching kinetics.
· Economics improve by two-stage crushing of plus 1-gram gold to ½ inch. Further test work required to develop particle size gold recovery relationship.
13.2 Mineralogy and Metallurgical Ore Types

 

The mineral resources of the mine include the Civit Cat North, Isabella and Pearl oxide deposits, collectively referred to as the Isabella Pearl deposits. The origin of all these deposits is similar, widespread argillic alteration and generally abundant alunite indicate the deposits are high-sulfidation epithermal mineral deposits. K-Ar age determinations demonstrate that the mineralization is about 19 Ma. Oxide mineralization at Isabella Pearl extends over 150 meters below the surface and it should be noted that only oxidized ore is included in economics of the mine plan.

The gold-silver mineralization is closely associated with silicification, which generally grades outward into argillization, which then into propylitically altered rocks. Silicification is localized by faults and shears, and in many areas, silica has replaced large masses of both the volcanic and granitic rocks. Gold occurs as very small (<10 microns) liberated particles in cavities and along fracture surfaces. Jarosite, goethite and hematite are present in the siliceous groundmass.

In the Isabella deposit, gold in mineral resources occur as very small (<10 microns) liberated particles in cavities and along fracture surfaces and iron oxide minerals jarosite, limonite and goethite.

 

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In the Pearl deposit, mineralization is very siliceous, and similar in mineralization to the Isabella material. The silver/gold ratio is higher than Isabella. The gold is contained both as locked and free particles, as native and electrum in an average size of 14 micron. The mineralization is associated with goethite, limonite, jarosite and psilomelane (manganese). Sulfide mineralization occurs beneath the Pearl oxide and mixed mineral resources. The underlying sulfide material contains pyrite, pyrrhotite, galena, sphalerite, chalcopyrite, and silver as polybasite and pyrargyrite.

Natural weathering and fracture-controlled oxidation of sulfide mineralization causes formation of oxide ore (with low sulfide mineral). Gold is present as free gold, residing in iron oxide minerals or quartz, and adsorbed on clay minerals. Metallurgical test work has determined that gold is amenable to cyanidation and that the oxidized portion of these mineral deposits are metallurgically the same and will yield similar metal recovery results when processed.

13.3 Previous Metallurgical Test Work Programs

 

For details of previous metallurgical test work programs, the reader is referred to earlier reports on mineral resources and reserves and the feasibility study for the Isabella Pearl mine (Brown et al., 2018). The most relevant results of these programs were those completed by Combined Metals-Homestake joint-venture and TXAU, both of which tested for the application of Heap Leach and the ADR process to Isabella Pearl mineral resources. The TXAU metallurgical program was completed on DDH and a bulk surface sample. A complete description of this test work can be found in the report by MDA (Prenn and Gustin (2013). The combined results of all the bottle roll tests and column tests completed, it can be concluded that:

· There is very good repeatability between samples of any given particle size.
· Gold recovery for the finer size (200 mesh) was between 86% and 95% except for one sample which had 2.7% contained sulfide.
· At coarser particle size (>10 mm) gold recovery ranged from 64% to 89%.
· Column leach tests performed on P100 5/8 inch showed high gold recovery.

13.4 WLMC Metallurgical Ore Characterization Test Work Programs
13.4.1 Location of WLMC Metallurgical Test Drill Hole Samples

 

In 2017, WLMC conducted a metallurgical test work program on PQ-size core samples from drill holes completed in 2016. The purpose was to evaluate process requirements to recover gold using conventional heap leaching technology. The location of metallurgical holes drilled at the Isabella Pearl deposit by WLMC in 2016 are shown in Figure 13.1. The location of the WLMC, and previous TXAU, DDH holes used in the respective metallurgical test programs are provided in Figures 13.2 and 13.3. The

 

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location of these drill holes in relation to the mineralized ore zones verifies the representativeness of the samples for both metallurgical test programs.

 

Figure 13.1: Drill Hole Locations for 2017 WLMC Metallurgical Samples

 

 

 

 

 

 

 

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Figure 13.2 Plan View of TXAU & WLMC Metallurgical DDH Locations (Magenta Line is Section shown in Figure 13.3)

Figure 13.3 Section View of TXAU & WLMC Metallurgical DDH Locations (looking northeast)

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13.4.2 Results of WLMC Metallurgical Test Drill Hole Samples

 

As previously stated, the premise of the WLMC metallurgical test program was twofold:

1. Confirm previous cyanide leach test work results and viability of heap leach carbon adsorption/desorption and electrowinning gold recovery process.
2. Establish that the high-grade core of the Pearl deposit would indeed yield previously determined, gold recovery levels.

In October and November of 2016, WLMC completed a PQ size DDH program consisting of 4 holes, totaling 735 meters. Four samples for metallurgical testing were taken from 3 of these holes: IPDD-001 (2 sample intervals), IPDD-003 (1 sample interval) and IPDD-004 (1 sample interval). The metallurgical samples were sent to the KCA metallurgical testing facility in Reno. The main purpose of the test work program was to confirm that the high-grade core zone of the Pearl deposit indicates economic gold recovery as demonstrated in earlier work by others. Two holes intercepted the Pearl deposit and one was drilled in the Isabella deposit. Figure 13.4 presents the plan and section of the DDH holes completed by WLMC in late 2016 (Note: Hole IPDD-002 was a twin hole of IPDD-001 drilled for geology and assay information). Table 13.2 below presents the results the gold and silver values of the composites used in the metallurgical test program.

 

Figure 13.4 Plan and Section of Sample Locations for WLMC Test Program in Relation to Ore Zone

 

 

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Table 13.2 Summary of Isabella Pearl Mine Core Composites Assays, KCA 2017 Program

13.4.2.1 Cyanide Bottle Roll Tests

 

A total of 61 boxes of uncut DDH core representing 1,439 kilograms of material was delivered to KCA laboratories in Reno for sample preparation and testing. The work completed consisted of head analysis (including, whole rock and QXRD), screen analysis by size fraction, comminution, bottle roll, agglomeration and column leach testing.

Table 13.3 and 13.4 present the gold and silver recovery results of the four 96-hour bottle roll tests completed on 1,000-gram samples that were pulverized to a p80 size of 200 mesh Tyler. Figures 13.5 and 13.6 show the graphical results of gold and silver extraction during the leach period for the metallurgical test samples.

In all samples tested leach kinetics were rapid, samples IPDD-003 and IPDD-004 achieved plus 93% of the total metal recovery in 2 hours. Sample IPDD-001 #1 had a low gold head grade of, 0.025 g/t Au and is therefore classified as waste. Sample IPDD-001 #2 contained 2.47% sulfides, its gold recovery did not surpass 62%.

Table 13.3 Summary Direct Agitated Cyanidation (Bottle Roll) Gold Test Results, KCA 2017 Program

 

 

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Figure 13.5 Bottle Roll Tests Showing % Gold Extraction During Leach Period

Table 13.4 Summary Direct Agitated Cyanidation (Bottle Roll) Silver Test Results, KCA 2017 Program

Figure 13.6 Bottle Roll Tests Showing % Silver Extraction during Leach Period

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13.4.2.2 Head Screen Analysis

 

Head screen analysis was carried out on portions of each of the four sample composites at the as received crush sizes. The objective of the head screen analysis was to determine assay grade values from select crush size fractions. Each sample was initially wet screened at 200 mesh. The minus 200 mesh material was filtered and dried. The oversized material was dried and then dry screened at ⅝, ½, ⅜ and ¼ inches, 10, 20, 35, 65, 100 and 200 mesh Tyler. The dry screened minus 200 mesh material was then combined with the wet screened material. Each separate size fraction was then weighed, and the weights reported. Each size fraction was then crushed to a nominal size of 10 mesh Tyler, as necessary.

A summary of the head screen analyses is presented in Table 13.5. The head screen analyses detail is presented in Table 13.6 and shown graphically in Figure 13.7.

Table 13.5 Summary of Head Screen Analyses

 

 

 

 

 

 

 

 

 

 

 

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Table 13.6 Detailed Results of Head Screen Analysis

 

 

 

 

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Figure 13.7 Head Screen Analysis Showing Cumulative Weight Percent Passing Crush Size (in inches)

In summary, the head screen analysis on the four samples exhibit similar distribution curves. The highest-grade sample IPDD-003 contained the most gold in the finest fraction as compared to the others.

Head analyses for mercury were also conducted utilizing cold vapor/atomic absorption methods. Total copper analyses were conducted utilizing inductively coupled argon plasma-optical emission spectrophotometer (ICAP-OES) as well as by fire assay – atomic adsorption (FA-AA) methods.

The results of the mercury and copper analyses are presented Table 13.7.

Table 13.7 Summary of Mercury and Copper in Sample, KCA 2017 Program

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Head analyses for carbon and sulfur were also conducted utilizing a LECO CS 230 unit. In addition to total carbon and sulfur analyses, speciation for organic and inorganic carbon, and speciation for sulfide and sulfate sulfur, were conducted. The results of the carbon and sulfur analyses are presented in Table 13.8.

Table 13.8 Summary of Carbon and Sulfur Content, KCA 2017 Program

13.4.2.3 Column Leach Test Work

 

The crushed material split out for column test work was blended with lime or agglomerated with cement as necessary and then loaded into a 4-inch diameter plastic column (Figure 13.8). Alkaline cyanide solution was continuously distributed onto the material through Tygon tubing. The flow rate of solution dripping onto the material was controlled with a peristaltic pump to 0.004 to 0.005 gallons per minute per square foot of column surface area.

The solution exiting each leach column was collected in the bottom (floor - PLS) tank. Leach solution was checked each cycle for pH, NaCN, Au and Ag. Copper was checked periodically. The solution was then passed through a bottle of granular activated carbon over a period of 24 hours to extract the gold and silver in solution. After passing through the bottle of activated carbon, the solution was re-assayed for pH, NaCN, Au and Ag. Sodium cyanide was then added, if necessary, to maintain the solution at "target" levels (discussed in the Test History section). The leach solution was then recycled to the material for another 24-hour leach period. Two (2) batches of leach solution were used so that while one batch was applied to each column, the other was run through carbon.

 

 

 

 

 

 

 

 

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Figure 13.8 Flow Sheet for Crushed Material for Column Leach Tests in 4-inch Diameter Plastic Column

Preliminary agglomeration test work was conducted on portions of the crushed material. For the test work, the material was agglomerated with various additions of lime or cement. In the preliminary agglomeration testing, the agglomerated material was placed in a column with no compressive load and then tested for permeability. The purpose of the percolation tests was to examine the permeability of the material under various cement agglomeration levels. The percolation tests were conducted in small (3 inch inside diameter) columns at a range of cement levels with no compressive load applied. Two (2) tests (KCA Test Nos. 77513 F and 77513 J) failed the parameters utilized by KCA due to excessive pellet breakdown. All other tests passed the KCA parameters. However, it should be noted that the IPDD-001, 320.5’ to 469.5’ sample (KCA Sample No. 76585 B) showed overall low pH values. Once the agglomeration test work was complete, it was decided that the IPDD-003, 219.5’ to 422.0’ material should be agglomerated with cement (KCA Test No. 77517). However, a second column was run with the same material without cement agglomeration (KCA Test No. 77565). The flow rates and percent (%) slump observed in the non- agglomerated column were similar to the agglomerated column. A comparison of the drain down values and % slumps of the column leach tests on IPDD-003, 219.5’ to 422.0’ material is presented in Table 13.9.

 

Table 13.9 Comparison of Drain Down Values and % Slump

 

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Three (3) column leach tests were conducted utilizing material crushed to 100% passing ⅝ inches (IPDD-001, 320.5’ to 469.5’, IPDD-003, 219.5’ to 422.0 and IPDD-004, 0.0’ to 211.0’). During testing, the material was leached for 46 days with a sodium cyanide solution. Additionally, a column leach test was conducted utilizing material crushed to 100% passing ⅝ inches. During testing, the material was leached for 28 days with a sodium cyanide solution. The material in the column was then washed for 30 days.

The column leach test results exhibited rapid leach kinetics. The highest-grade sample IPD-003 grading 9.3 g/t Au was tested twice, first under agglomeration and then without agglomeration, both results achieved gold recovery of 88% and 89% in 46 and 28 days respectively. Sample IDD-001 grading 1.25 g/t Au and 2.47% sulfide reached a gold recovery of 62% after 46 days. Sample IPDD-004 grading 0.74 g/t Au achieved 76% recovery after 46 days. The results of the column leach test work are presented in Table 13.10 and shown graphically in Figure 13.9.

Table 13.10 Summary Column Leach Test Results, KCA 2017 Program

 

 

 

 

 

 

 

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Figure 13.9 Column Leach Test Results Showing Cumulative Weight Percent Gold Extracted Over Days of Leach

13.5    Discussion of Metallurgical Test Gold Recovery Curves
13.5.1    Discussion of Bottle Roll Test Gold Recovery Curves

 

Table 13.11 is a summary of all bottle roll tests completed on Isabella Pearl mine. These results are presented in Figure 13.10 where it is observed the very strong relationship between gold recovery and nominal particle size that is subjected to cyanidation. The relationship clearly demonstrates that the more work that is done on the mineral resources that is to be leached, i.e. crushing and grinding the greater the fines fraction, the greater the quantity of economic minerals to be liberated the greater the recovery and faster the recovery rate. This may be attributed to their very fine nature of the mineral grains and their encapsulation of gold within silica and weathering or oxidation resistant gangue minerals.

 

 

 

 

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Table 13.11 Summary of All Bottle Roll Tests Completed on the Isabella Pearl Mine

 

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Figure 13.10 Summary of Bottle Roll Test Gold Recovery by Particle Size

13.5.2   Discussion of Column Leach Test Gold Recovery Curves

 

All 6 column leach tests performed on core samples from the Isabella Pearl mine are summarized in Table 13.12. The NaCN and Lime Consumption during the column leach tests are summarized in Table 13.13. Figure 13.11 presents column leach gold recovery curves for the 6 column leach tests.

The nature of the fast leach kinetics was recorded on every test, with 80 to 90 percent of total recovery occurring in the first 10 days of leaching.

 

Table 13.12 Summary of All Column Leach Tests Completed on the Isabella Pearl Mine

 

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Table 13.13 Summary of NaCN and Lime Consumption for the Column Leach Tests

 

 

 

Figure 13.11 Column Leach Gold Recovery Curves for Column Leach Tests Completed

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13.6   Process Selection and Design Parameters

 

Cyanidation test work (bottle roll and column leach), performed on representative mineral resources, confirms the close relationship between particle size and gold recovery. The greater the fines fraction the higher the gold recovery. The results of all bottle roll and column leach tests performed are summarized by size fraction and presented in Tables 13.14 and 13.15 below.

Table 13.14 Bottle Roll Gold Recovery Estimate by Size Range

 

Table 13.15 Column Leach Gold Recovery Estimation by Size Range

Interpreting these results, it was observed that:

· A high level of gold recovery (plus 90 percent) could be achieved using a grinding and milling process. The capital cost and economics of milling, however, is prohibitive given the limited amount of mineral resources, leaving the most viable option to be a heap leach process with a carbon absorption/desorption and electrowinning given low silver to gold ratio.
· There exists a marked increase in gold recovery by decreasing the average size fraction of the mineral resources. Review of the combined gold recovery by bottle roll and column leach testing, determined that sizing the material to a p100 of 5/8 inch could reasonably expect a 25% increase in gold recovery (60 to 85%) over ROM size material. The tradeoff of the extra cost of crushing to gold recovery is explained in Section 17 of this document.

Based on the metallurgical test work completed, the recoveries presented in Table 13.16 are being used for the mine. Total gold recovery is expected over a four-month period. Considering the economic parameters used in the feasibility study, mineral resources above 0.61 g/t Au are currently being crushed to P80 of 5/8 inch and material between 0.44 and 0.61 g/t Au is being sent to a low-grade stockpile for either future crushing or direct placement on the heap as ROM. Total predicted gold recovery is 81% for crushed and 60 % for ROM material.

 

 

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Table 13.16 Gold Recovery Estimate

 

 

Cyanide consumption is expected to average 0.75 kg/t (1.50 lb/ton) of leach material and lime consumption is estimated to average 3.0 kg/t (6.0 lb/ton) of leach material (Table 13.17).

 

Table 13.17 NaCN and Lime Consumption

Material Gold
Recovery
NaCN
Consumption
Lime
Consumption
ROM  60 %  0.75 kg/t  6.0 kg/t
5/8 Crush  81 %  0.75 kg/t  6.0 kg/t

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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14 MINERAL RESOURCE ESTIMATE
14.1 Introduction

 

On October 31, 2018, the SEC announced that it was adopting amendments to modernize the property disclosure requirements for mining registrants, and related guidance, under the Securities Act of 1933 and the Securities Exchange Act of 1934 (SEC, 2018a, 2018b). Under the final rules, a registrant with material mining operations must disclose specified information in Securities Act and Exchange Act filings concerning its Mineral Resources, in addition to its Mineral Reserves. The final rules provide a two-year transition period so that a registrant will not be required to begin to comply with the new rules until its first fiscal year beginning on or after January 1, 2021. The SEC states that a registrant may voluntarily comply with the new rules prior to the compliance date, subject to the SEC’s completion of necessary EDGAR reprogramming changes. WLMC has decided to adopt the new rules and will disclose Mineral Resources in this report.

The modeling and estimation of Mineral Resources presented herein is based on technical data and information available as of December 31, 2019. WLMC models and estimates Mineral Resources from available technical information prior to the generation of Mineral Reserves.

The modeling and Mineral Resource estimation work reported herein was mainly carried out by Fred H. Brown, P.Geo., a Qualified Person by reason of education, affiliation with a professional association and past relevant work experience as described in Section 2.2. Mr. Brown is employed as a Senior Resource Geologist by GRCN and is not independent of WLMC.

Modeling and estimation of mineral resources were carried out using the commercially available Maptek Vulcan software program, version 12.

Any statements and opinions expressed in this document are given in good faith and in the belief that such statements and opinions are not false and misleading as of the effective date of this report.

14.2 Mineral Resource Definitions

 

The SEC is adopting the Combined Reserves International Reporting Standards Committee (CRIRSCO) framework for reporting Mineral Resources (Miskelly, 2003). According to CRIRSCO, a Mineral Resource is a concentration or occurrence of material of intrinsic economic interest in or on the Earth’s crust (a deposit) in such form, grade or quality, and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories. Portions of a deposit that do not have reasonable prospects for eventual economic extraction must not be included in a Mineral Resource.

 

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Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no guarantee that all or any part of the mineral resource will be converted into mineral reserve. Confidence in the estimate of Inferred Mineral Resources is insufficient to allow the meaningful application of technical and economic parameters.

14.2.1 Inferred Mineral Resource

 

An Inferred Mineral Resource is that part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with a low level of confidence. It is inferred from geological evidence and assumed but not verified geological and/or grade continuity. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes which is limited or of uncertain quality and/or reliability. An Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated Mineral Resource.

14.2.2 Indicated Mineral Resource

 

An Indicated Mineral Resource is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings, and drill holes. The locations are too widely or inappropriately spaced to confirm geological continuity and/or grade continuity but are spaced closely enough for continuity to be assumed. An Indicated Mineral Resource has a lower level of confidence than that applying to a Measured Mineral Resource but has a higher level of confidence than that applying to an Inferred Mineral Resource.

14.2.3 Measured Mineral Resource

 

A Measured Mineral Resource is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence. It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings, and drill holes. The locations are spaced closely enough to confirm geological and/or grade continuity.

14.3 Database

 

Mineral Resources described in this report are gold and silver bearing material that has been physically delineated by one or more of a number of methods including drilling and surface mapping and other types of sampling. This material has been found to contain a sufficient amount of mineralization of an average grade to have potential that warrants further exploration evaluation. This material is reported

 

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as Mineral Resources only if the potential exists for reclassification into the Mineral Reserves category. Mineral Resources cannot be classified in the Mineral Reserves category until technical, economic and legal factors have been evaluated.

The modeling and estimation reported herein utilized the drill hole database compiled by WLMC. Drill holes with assay samples within the immediate mine area were imported into a Maptek Vulcan database. The extracted drill hole database contains 379 unique collar records (Figure 14.1) and 21,055 assay records, broken down by drilling type as:

· AT: 6 drill holes for 82.0 m (269 ft)
· RC: 333 drill holes for 32,360.6 m (106,170 ft)
· DDH: 36 drill holes for 3,564.5 m (11,695 ft)

Industry standard validation checks of the database were carried out with minor corrections made where necessary. The database was interrogated for inconsistencies in naming conventions or analytical units, duplicate entries, interval, length or distance values less than or equal to zero, blank or zero-value assay results, out-of-sequence intervals, intervals or distances greater than the reported drill hole length, inappropriate collar locations, and missing interval and coordinate fields. No significant discrepancies with the data were noted.

14.3.1 Drill Data

 

Drill hole distance units are reported in meters and grade units are reported as ppm. The collar coordinates were provided in the WGS 1984 UTM Zone 11N coordinate system.

The average minimum collar distance within the mine area is 19.7 m (65 ft). Summary assay statistics were tabulated for the assay data (Table 14.1).

 

Figure 14.1 Isometric View Looking North at Mine Drill Holes

 

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Table 14.1 Summary Assay Statistics

Assay Data Length m Au ppm Ag ppm
Mean 1.536 0.37 3.39
Median 1.524 0.007 0.2
Mode 1.524 0.0001 0.0001
Standard Deviation 0.198 2.31 21.77
CoV 7.74 0.16 0.16
Minimum 0.609 0.0001 0.0001
Maximum 7.925 106.5 1214.1
Count 21,055 21,055 20,597

 

14.4 Bulk Density

 

MDA reported an average bulk density value of 2.20 tonnes per cubic meter (tonnage factor 14.6) for oxidized units and 2.40 tonnes per cubic meter (tonnage factor 13.4) for non-oxidized units (Prenn & Gustin, 2013).

A total of 38 bulk density measurements were collected by HB Engineering from TXAU geotechnical DDH core, with values ranging from 1.58 tonnes per cubic meter (tonnage factor 20.5) to 3.20 tonnes per cubic meter (tonnage factor 10.0), with a median of 2.21 tonnes per cubic meter (tonnage factor 14.5) and an average value of 2.20 tonnes per cubic meter (tonnage factor 14.6). For the current update a conservative bulk density of 2.20 tonnes per cubic meter (tonnage factor 14.6) was assigned to the model for all units.

RQD data collected by HB Engineering from TXAU geotechnical DDH drill holes also suggests the presence of multiple zones of poor recovery, fractures and voids (Figure 14.2). An additional factor may be required to accommodate the presence of voids and fractured rocks.

 

 

 

 

 

 

 

 

 

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Figure 14.2 Plot of RQD vs. Elevation

14.5 Wireframe Modeling
14.5.1 Topography

 

A topographic model covering portions of Isabella Pearl was created by WLMC staff using aerial photogrammetry collected on December 31, 2019. An Unmanned Aerial Vehicle (UAV) collected 1,352 high resolution aerial photographs over the Isabella Pearl active pit and Scarlet areas at a nominal elevation of 106 m above ground level (AGL) (Figure 14.3) and a ground sampling distance (GSD) of 1.33-inches per pixel. Cloud based processing was used to generate a high resolution orthomosaic, 3D reconstruction, a dense point cloud, and a digital elevation model (DEM). The point cloud was converted to a 3D topographic surface for modeling.

 

 

 

 

 

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Figure 14.3 Aerial Photometry with Ground Control Points

On board the UAV global navigation satellite system (GNSS) an electronic compass, barometric sensor, and inertial measurement unit (IMU) were used to estimate photograph geolocation. Surveyed ground control points (GCP) were used for indirect georeferencing to WGS84. Table 14.2 lists the GCP geolocation errors.

Table 14.2 GCP Geolocation Errors

GCP X Error (in) Y Error (in) Z Error (in)
GCP1023 0.3228 0.0748 0.689
GCP1029 -0.1299 0.4213 -0.3031
GCP1028 0.0315 -0.3976 0.1378
GCP1025 0.0472 0.2913 -0.0157
GCP1027 -0.1575 -0.5906 -0.6535
GCP1026 -0.2283 0.4449 -0.2559
DDH1 -0.2559 0.2165 0.3386
DDH2 -0.1535 -0.3465 -0.1024
DDH3 0.0669 0.2598 0.3071
DDH4 0.3228 -0.1181 -0.1575
DDH5 0.1339 -0.248 0.0118
Total RMSE 0.1947 0.3415 0.3468

 

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14.5.2 Gridded Surfaces

 

Gridded surfaces were developed for a water, oxidation floor and lower granite contact based on logged water and lithology contacts (Figure 14.4).

14.5.3 Mineralization Envelopes

 

A number of geological structures directly influence the Isabella Pearl mineralization. Vein solids and fault traces were digitized and imported into Vulcan software. Three-dimensional surfaces of the Pearl and Civit Cat faults, which separate the Mickey Pass Tuff and granitic basement, were created using the digitized fault traces and lithologic drill-hole data. The Civit Cat North, Isabella, Scarlet South and Pearl domains were modeled based on nominal 0.30 g/t Au (0.009 opst) grade shells using close spaced polygons snapped directly to drill hole assay intervals. In order to maintain zonal consistency, lower grade assay intervals were incorporated into the modeled domains where appropriate. The interpreted polygons were then consolidated into three-dimensional triangulated wireframes, which were clipped to the updated topographic surface. Modeling of the Isabella domain also incorporated blasthole results and geological features exposed during mining, and the Pearl domain has been split into a lower grade “Vein” and higher grade “Main” sub-domain. The resulting mineralization domains were used to back-tag assay and composite intervals and provide reasonable volume constraints (Figure 14.5).

 

Figure 14.4 Isometric View Looking North Showing Oxide Base (blue) and Granite (orange) Contacts

 

 

 

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Figure 14.5 Isometric View Looking North of Pearl (red), Civit Cat North (green), Isabella (blue) and Scarlet South (brown) Mineralization Domains

14.6 Compositing

 

The average length of assays intervals within the defined mineralization domains is 1.540 m (5.05 ft), with a mode of 1.524 m (5.00 ft) and a median length of 1.524 m (5.00 ft). A total of 95% of the constrained assays are 1.524 m (5.00 ft) in length (Figure 14.6). Assays were therefore composited to 1.524 m (5.00 ft) within the defined domains. Residual composite lengths less than 0.762 m (2.50 ft) were merged with the adjacent interval. A small number of missing intervals were treated as nulls.

 

 

 

 

 

 

 

 

 

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Figure 14.6 Dot Plot of Constrained Assay Sample Lengths

 

14.7 Exploratory Data Analysis

 

Summary statistics were calculated for the composite sample populations (Table 14.3). The Civit Cat North and Isabella sample populations demonstrate similar gold distributions as compared to the higher-grade Pearl mineralization. The highest average silver grade also occurs in the Pearl domain, followed by the Civit Cat North mineralization and the Isabella mineralization (Figure 14.7).

The correlation between gold and silver composite grades was also examined for each sample population. The Civit Cat North displays a moderate level of correlation with a Pearson Product-Moment Correlation Coefficient (PCC) of 0.352, while the Isabella displays a lower level of correlation with a PCC of 0.254. The Pearl (PE) Main displays a PCC of 0.224, and the PE Veins domain displays a PCC of 0.131. There are insufficient samples at this time to determine the correlation at Scarlet South.

 

 

 

 

 

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Table 14.3 Constrained Composite Statistics

Au Civit Cat North Isabella Pearl Pearl Veins Scarlet South
Mean 0.68 0.54 4.82 1.12 0.71
St Dev 0.67 0.79 8.73 2.58 0.87
CV 0.99 1.47 1.81 2.29 1.22
Median 0.54 0.31 1.96 0.45 0.51
Minimum 0.001 0.001 0.001 0.001 0.027
Maximum 5.78 12.62 92.16 29.25 7.65
Count 250 2415 1155 436 110
Ag Civit Cat Isabella Pearl Pearl Veins Scarlet
Mean 8.05 2.31 37.51 6.89 3.01
St Dev 16.54 9.10 82.45 14.73 6.08
CV 2.05 3.94 2.20 2.14 2.02
Median 3.83 0.80 10.39 2.10 1.30
Minimum 0.001 0.001 0.001 0.001 0.05
Maximum 147.79 411.40 1214.10 129.89 51.30
Count 250 2415 1155 436 110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Figure 14.7 Log-Probability Plots of Au and Ag Composites

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The gold sample distributions for RC and DDH composites were also examined for evidence of bias in the Isabella and Pearl mineralization domains. The results suggest that RC drilling has in general slightly undervalued the DDH (DH) drilling at Pearl (Figure 14.8), which may be due in part to the observed clustering of DDH drilling in the vicinity of the high-grade portion of the Pearl domain.

 

Figure 14.8 RC vs. DDH Drilling Results

 

A single true twin is available for grade comparison and analysis: IC-145 (a vertical RC drill hole) and IP-DD-002 (a vertical DDH). The separation between collars is 5.97 m (19.58 ft). Both drill holes penetrate the center of the Pearl domain.

Visual comparison of the composite grades between the two drill holes suggests the presence of localized downhole contamination below the oxide base, with elevated grades observed in the RC drill hole compared to the DDH drill hole (Figure 14.9). Potential contamination in RC drill holes appears to be limited to beneath the oxide base; in order to accommodate for a potential bias during estimation more restrictive estimation constraints were imposed on the Pearl model.

 

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Figure 14.9 Twin Hole Au Assay Grade Comparison

14.8 Treatment of Extreme Values

 

The potential influence of extreme values during estimation was evaluated by grade capping analysis on the tagged and composited grade intervals in order. The presence of high-grade outliers was identified by disintegration analysis of the upper tails and examination of histograms and log-probability plots (Figure 14.10). Composite grades were reduced to the selected threshold prior to estimation. The Pearl capping threshold was then iteratively refined in order to minimize the relative difference between the resulting average Nearest Neighbor model and block grade estimates (Table 14.4). For the Pearl deposit an additional range restriction of 40 m (131 ft) was placed on composites equal to or greater than 50% of the capping threshold.

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Figure 14.10 Log-Probability Plots of Composite Capping Thresholds

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Table 14.4 Capping Thresholds

  Au Ag
  Cap g/t Number
Capped
Capped
Mean
Percent
Contribution
Cap g/t Number
Capped
Capped
Mean
Percent
Contribution
Civit Cat North 4 2 0.67 1% 100 2 7.8 3%
Isabella 10 2 0.54 0% 100 1 2.2 6%
Pearl Main 50 11 4.67 3% 250 15 33.9 11%
Pearl Veins 10 4 1.00 12% 100 2 6.8 2%
Scarlet South 2 4 0.64 12% 100 0 3.0 0%

 

14.9 Continuity Analysis

 

Continuity analysis was carried out on normal-score transformed variograms using composited grade intervals (Table 14.5). Only poorly defined experimental semi-variograms could be developed, but the variograms do provide information relevant to the definition of search ranges, anisotropy, and classification.

Table 14.5 Experimental Semi-Variograms and Modeled Rotations

Domain Au Ag
Civit Cat North

0.15 + 0.85 SPH (130, 130, 30)

235° -45° 180°

0.40 + 0.60 SPH (130, 130, 30)

235° -45° 180°

Isabella

0.10 +0.90 SPH (120,120,30)

25° -15° 0°

0.40 + 0.60 SPH (120,120,30)

25° -15° 0°

Pearl

0.13 + 0.87 SPH (70, 60, 25)

45° -35° 0°

0.13 + 0.87 SPH (70, 60, 25)

45° -35° 0°

Pearl Veins

0.20 + 0.80 SPH (100, 80, 20)

55° -50° 0°

0.20 + 0.80 SPH (100, 100, 20)

55° -50° 0°

Scarlet South NA NA

 

14.10 Block Model

 

A rotated block model was established across the mine with the block model limits selected so as to cover the extent of the mineral resources and accommodate a potential pit shell (Table 14.6). A parent block size of 5.0 m x 5.0 m x 6.0 m (16.4 ft x 16.4 ft x 19.7 ft) was selected as representative of the pit shell configuration and selective mining unit.

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Table 14.6 Block Model Setup

  Origin Offset Block Size Sub-Cell
X 396588.043 1440 5 0.5
Y 4273320.014 850 5 0.5
Z 1400.000 420 6 0.5
Rotation 125 degrees

The block model contains variables for Au and Ag grade estimation, bulk density, classification, drill hole spacing and oxidation state. The modeled oxide floor was used to code blocks as either oxide or sulfide.

14.11 Estimation and Classification

 

Inverse Distance Cubed (“ID3”), Ordinary Kriging (“OK”) and Nearest Neighbor (“NN”) estimates were carried out using capped composites. A minimum of three and a maximum of twelve composites were used for estimation, within a search ellipsoid oriented parallel with each defined structure and extending 120 m (394 ft) x 120 m (394 ft) x 30 m (98 ft). The major and semi-major axes approximate the average strike and dip directions of the mineralization in each of the three estimation areas. Based on preliminary mining results and analysis of blasthole grades, the orientation of the Isabella search ellipse was adjusted to impart a slight anisotropy with the principle axis oriented 040 degrees. Both gold and silver were modeled and estimated.

In order to provide a whole block estimate suitable for open pit mine planning and reserve reporting, the block model was regularized after estimation to a 5.0 m (16.4 ft) x 5.0 m (16.4 ft) x 6.0 m (19.7 ft) whole block estimate by volume percent and diluted at zero grade. Due to the poor quality of the variograms the whole block diluted Inverse Distance Cubed estimates were used for reserve conversion.

Classification parameters were derived from the original MDA criteria (Prenn & Gustin, 2013). The most relevant factors used in the classification process were:

Drill hole spacing density
Level of confidence in the geological interpretation
Observed continuity of mineralization
Direct proximity to a drill hole

Parent blocks were classified algorithmically by drill hole spacing geometry as follows:

A block within 15.0 m (49.0 ft) of a 2008 series DDH drill hole, or the IP-DD-002 DDH drill hole, was classified as a Measured mineral resource. Only blocks within the modeled Pearl domain were classified as Measured mineral resources.
A block was classified as an Indicated mineral resource if five or more composites from at least two drill holes were used for estimation and the nearest composite was within 25.0 m (82.0 ft).
All other estimated blocks are classified as Inferred.

 

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An example of a typical cross section showing the drill hole data and modeled mineral-domain envelopes in the most strongly mineralized portions of the Isabella, Pearl and Civit Cat deposits is in Figure 14.11.

WLMC is not aware of any environmental, permitting, legal, title, taxation, socio-economic, marketing, political, or other issues that could materially affect the estimation of mineral resources at Isabella Pearl.

Figure 14.11 Typical Cross-Section Looking NW Showing Gold Grades (g/t) and Classification

 

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14.12 Mineral Resource Estimate

 

A Measured Mineral Resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of conclusive geological evidence and sampling. The level of geological certainty associated with a Measured Mineral Resource is sufficient to allow a qualified person to apply modifying factors in sufficient detail to support detailed mine planning and final evaluation of the economic viability of the deposit. A Measured Mineral Resource has a higher level of confidence than the level of confidence of either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve.

An Indicated Mineral Resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of adequate geological evidence and sampling. The level of geological certainty associated with an Indicated Mineral Resource is sufficient to allow a qualified person to apply modifying factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. An Indicated Mineral Resource has a lower level of confidence than the level of confidence of a Measured Mineral Resource and may only be converted to a Probable Mineral Reserve.

An Inferred Mineral Resource is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. The level of geological uncertainty associated with an Inferred Mineral Resource is too high to apply relevant technical and economic factors likely to influence the prospects of economic extraction in a manner useful for evaluation of economic viability. An Inferred Mineral Resource has the lowest level of geological confidence of all mineral resources, which prevents the application of the modifying factors in a manner useful for evaluation of economic viability. An Inferred Mineral Resource, therefore, may not be converted to a mineral reserve.

Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no guarantee that all or any part of the mineral resource will be converted into mineral reserve. Confidence in the estimate of Inferred Mineral Resources is insufficient to allow the meaningful application of technical and economic parameters.

WLMC models and estimates mineral resources prior to establishing mineral reserves. Mineral resources at Isabella Pearl is further defined by WLMC as mineral resources within a constraining pit shell and above a defined cutoff value. Mineral resources reported herein has been constrained within a Lerchs-Grossman optimized pit shell and is reported at a cutoff grade of 0.44 g/t Au (0.013 opst), derived from the unit costs and recoveries listed in Table 14.7. The gold price is based on the three-year trailing average.

Measured and Indicated mineral resources reported for Isabella Pearl contain 2.25 million tonnes (2.48 million short tons) of material at an average gold grade of 3.05 g/t Au (0.089 opst) and 18 g/t Ag (0.529 opst) (Table 14.8).

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Table 14.7 Mineral Resources Cutoff Calculation

Description Unit Value    
Gold Price $/oz 1,306    
Charges % 0.075    
Royalty % 3.000    
Selling Cost $/oz 40.2    
Costs   Crushed ROM Waste
Mining $/t        2.76   2.99    2.83
Rehandling $/t        1.00   1.00        -   
Crushing $/t        3.03        -           -   
Processing $/t        5.96   5.96        -   
G&A and Energy $/t        5.26   5.26        -   
Rehabilitation $/t            -           -       0.70
Processing Recovery   81.0% 60.0% 0.0%

 

Table 14.8 Mineral Resource Inventory for the Isabella Pearl Deposit, Mineral County, Nevada, USA (as of December 31, 20191 2 3 4 5))

Class Tonnes Short Tons Au (g/t) Au (opst) Ag (g/t) Ag (opst)
Measured  893,300  984,700  5.39  0.157  34.7  1.013
Indicated  1,354,100  1,492,600  1.50  0.044  7.2  0.210
Meas + Ind  2,247,400  2,477,300  3.05  0.089  18.1  0.529
Inferred  497,100  548,000  1.41  0.041  6.2  0.181
1. Reported at a cutoff of 0.44 Au g/t (0.013 Au opst).
2. Whole block diluted estimates reported within an optimized pit shell.
3. Mineral resources do not have demonstrated economic viability.
4. Totals may not sum exactly due to rounding.
5. Mineral Resources reported are inclusive of reserves.

The mining method is by open pit extraction and all Measured and Indicated mineral resources within the design pit shell and above cutoff have been converted to mineral reserves.

All refractory sulfide mineralization is treated as waste for the Isabella Pearl estimate of mineral resources. In addition, the bottom of the optimized pit shell will not go below the water table.

14.13 Mineral Resource Estimate Sensitivity

 

The sensitivity of the mineral resources inventory to changes in cutoff grade was also examined by summarizing tonnes and grade within the pit shell at varying cutoff grades (Table 14.9). The results suggest that the mineral resource estimate is relatively insensitive to changes in cutoff grade.

 

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Table 14.9 Cutoff Grade Sensitivity for the Isabella Pearl Deposit

 

Measured
Cutoff (g/t) Tonnes Short Tons Au (g/t) Au (opst) Ag (g/t) Ag (opst)
0.30  921,500  1,015,800 5.24 0.153 33.8 0.987
0.40  902,100  994,400 5.34 0.156 34.5 1.006
0.44  893,300  984,700 5.39 0.157 34.7 1.015
0.50  881,800  972,000 5.45 0.159 35.1 1.026
0.60  862,800  951,100 5.56 0.162 35.8 1.045
Indicated
Cutoff (g/t) Tonnes Short Tons Au (g/t) Au (opst) Ag (g/t) Ag (opst)
0.30  1,851,700  2,041,100 1.19 0.035 5.6 0.164
0.40  1,482,700  1,634,400 1.41 0.041 6.7 0.195
0.44  1,354,100  1,492,600 1.50 0.044 7.2 0.210
0.50  1,222,200  1,347,200 1.61 0.047 7.8 0.227
0.60  995,200  1,097,000 1.86 0.054 9.1 0.265
Measured and Indicated
Cutoff (g/t) Tonnes Short Tons Au (g/t) Au (opst) Ag (g/t) Ag (opst)
0.30  2,773,200  3,056,900 2.54 0.074 15.0 0.437
0.40  2,384,700  2,628,800 2.90 0.085 17.2 0.502
0.44  2,247,400  2,477,300 3.05 0.089 18.1 0.530
0.50  2,104,000  2,319,200 3.22 0.094 19.2 0.562
0.60  1,858,000  2,048,100 3.58 0.105 21.5 0.627

 

14.14   Opinion on Adequacy

 

WLMC considers that the WLMC 2016 -2019 drilling program results meet industry standards for drilling and QA/QC measures. WLMC also considers that the historical drilling results have been reviewed and confirmed in sufficient detail to permit the generation of Measured and Indicated mineral resource estimates, and that sufficient technical information is available to convert mineral resources to Proven and Probable mineral reserves.

 

 

 

 

 

 

 

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14.15   Validation

 

The undiluted block model was validated visually by the inspection of successive section lines in order to confirm that the block models correctly reflect the distribution of high-grade and low-grade assay values. Cross sections showing block grade distribution and classification of mineral resources are in Appendix C.

The undiluted block model estimates were checked for global bias by comparing the average metal grades to nearest neighbor model means (Table 14.10). A nearest neighbor estimator produces a theoretically unbiased estimate of the average value when no cutoff grade is imposed and is a reasonable basis for checking the performance of different estimation methods (typically the target comparison should be less than 5%).

· For Civit Cat North, global gold kriged grades averaged 1% higher than the Nearest Neighbor values and ID3 grades averaged within 1% of the Nearest Neighbor values.
· For Isabella, global gold kriged grades averaged 4% lower than the Nearest Neighbor values and ID3 grades averaged within 1% of the Nearest Neighbor values.
· For Pearl Veins, global gold kriged grades averaged 1% higher than the Nearest Neighbor values and ID3 grades averaged within 1% of the Nearest Neighbor values.
· For Pearl Main, global gold kriged grades averaged within 1% of the the Nearest Neighbor values and ID3 grades averaged 4% higher than the Nearest Neighbor values.

 

Table 14.10 Validation Statistics

  Civit Cat North Isabella Pearl Veins Pearl Main
Au Uncapped Composite Mean (g/t) 0.68 0.54 1.12 4.82
Au ID3 Block Mean (g/t) 0.72 0.50 0.84 3.53
Au OK Block Mean (g/t) 0.73 0.48 0.85 3.41
Au NN Block Mean(g/t) 0.72 0.50 0.84 3.41
         
Ag Uncapped Composite Mean (g/t) 8.1 2.3 6.9 37.6
Ag ID3 Block Mean (g/t) 10.7 1.6 7.8 32.8
Ag OK Block Mean (g/t) 10.4 1.6 8.2 32.4
Ag NN Block Mean (g/t) 13.2 1.7 7.9 31.8

 

Swath plots were also generated as a check on potential local trends of the block estimates (Figure 14.12). This was done by plotting the mean values (with no cutoff) from the Nearest Neighbor average grade versus the average ID3 estimated grades in horizontal swaths aligned with the block model. The results demonstrate the trends are behaving within acceptable limits and indicate no significant abnormal trends in the estimates.

 

 

 

 

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Figure 14.12 Au Swath Plots

 

 

 

 

 

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14.16   Risk Factors

 

Relevant factors which may affect the estimation of mineral resources include changes to the geological, geotechnical and geometallurgical models, infill drilling to convert material to a higher classification, drilling to test for extensions to known mineral resources, collection of additional bulk density data and significant changes to commodity prices. It should be noted that these and other factors pose potential risks and opportunities, of greater or lesser degree, to the estimate as the model is based on currently available data. Risks associated with key estimation parameters are tabulated in Table 14.11.

Table 14.11 Estimation Risk Factors

 

Category Description Risk Potential for Adverse Impact
Database Database Integrity Assay database is compiled from historical data. Very Low
Drilling Technique 6 AT drill holes included in estimate. Low
Drilling Technique Infill drilling and mining have confirmed the model. Low
Drilling Contamination Infill drilling and mining have confirmed the model. Low
Drilling Logging Infill drilling and mining have confirmed the model. Low
Drilling Recovery RQD results show a wide range of recoveries, which may bias assay grades. Moderate
Drilling Data Density Drill hole spacing is ~ 19 m. Low
Drilling Survey Only 10% of drill holes have downhole surveys. Low
Geology Geological Interpretation Based on drill holes and field mapping. Low
Geology Oxide Base WLMC has completed targeted drilling to determine the base of the oxide zone Low
Geology Oxide Zone CN leach assays have quantified the impact of transitional material. Low
Model Estimation ID3 is used for estimation. Very Low
Model Bulk Density Significant voids may reduce recoverable tonnage. SG is not well constrained. Moderate
Model Grade Continuity Infill drilling and mining have confirmed the model. Low
Model Economics Reasonable cutoff grades have been applied. Low
Sampling Predominantly 1.52 m (5 ft) samples Sample size is based on RC drilling intervals. Very Low
Sampling Quality of assay data WLMC has relied on MDA for quality assessment of historical data. Low

 

 

 

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15   MINERAL RESERVE ESTIMATE
15.1   Introduction

 

The Mineral Reserve estimates presented herein were prepared according to the amendments being adopted by the SEC to modernize the property disclosure requirements for mining registrants, and related guidance, under the Securities Act of 1933 and the Securities Exchange Act of 1934 (SEC, 2018 a, b).

The mineral reserve estimate for the Isabella Pearl mine is based on technical data and information available, mainly results of drill hole sampling, as of December 31, 2019. The current mineral reserve estimate was prepared by the QPs described in Section 2.2.

15.2   Mineral Reserve Definitions

 

The SEC is adopting the Combined Reserves International Reporting Standards Committee (CRIRSCO) framework of applying modifying factors to indicated or measured mineral resources in order to convert them to mineral reserves (Miskelly, 2003). According to CRIRSCO, a Mineral Reserve is the economically mineable part of a Measured or Indicated Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been carried out and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction is reasonably justified. Mineral Reserves are subdivided in order of increasing confidence into Probable Mineral Reserves and Proven Mineral Reserves.

15.2.1   Probable Mineral Reserve

 

A Probable Mineral Reserve is the economically mineable part of an Indicated and, in some circumstances, Measured Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been carried out and include considerations of and modifications by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction is reasonably justified. A Probable Mineral Reserve has a lower level of confidence than a Proven Mineral Reserve.

 

 

 

 

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15.2.2   Proven Mineral Reserve

 

A Proven Mineral Reserve is the economically mineable part of a Measure Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been carried out and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction is reasonably justified.

15.3   Previous Mineral Reserve Estimates

 

A previous estimate of Proven and Probable Mineral Reserves was released by WLMC with an effective date of December 31, 2018 (Table 15.1); previous mineral reserves were based on a gold price of $1,258/oz Au. Mineral Reserves stated in the table below are contained within and engineered pit design following the $1,080/oz Au sales price Lerchs-Grossman pit.

Table 15.1 Mineral Reserve Statement Isabella Pearl Mine, Mineral County, Nevada, as of December 31, 2018

Class Tonnes

Short

Tons

Au

(g/t)

Au

(opst)

Ag

(g/t)

Ag

(opst)

Au

(oz)

Ag

(oz)

Proven 720,000 793,000 5.65 0.165 35 1.010 130,700 801,600
Probable 2,215,000 2,441,000 1.18 0.034 5 0.154 84,100 375,100
Proven & Probable 2,934,000 3,235,000 2.28 0.066 12 0.364 214,800 1,176,700

 

15.4   Mineral Reserve Estimation

 

The conversion of mineral resources to mineral reserves required accumulative knowledge achieved through Lerchs-Grossmann (LG) pit optimization, detailed pit design, scheduling and associated modifying parameters. Detailed access, haulage, and operational cost criteria were applied in this process for each deposit (Isabella, Pearl and Civit Cat North). The mine was built in metric units and all metal grades are g/t.

The orientation, proximity to the topographic surface, and geological controls of the Isabella Pearl mineralization support mining of the mineral reserves with open pit mining techniques. To calculate the mineable reserve, pits were designed following an optimized LG pit based on a $1,306/oz Au sales price. This price was chosen to create the primary guide surface based on a price sensitivity and subsequent profitability study that showed that the $1,306 pit maximized profitability while reducing capital requirements. The quantities of material within the designed pits were calculated using a cutoff grade of 0.44 g/t Au which is based on the three-year trailing average $1,306/oz Au sales price observed at the time of this mineral reserve reporting.

 

 

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15.5   Mineral Reserve Estimate

 

The Isabella Pearl mine open pit Mineral Reserve Statement with an effective date of December 31, 2019 is presented in Table 15.2

The Proven and Probable Mineral Reserves reported for Isabella Pearl contain 2.25 million tonnes (2.48 million short tons) (Table 15.2) at an average gold grade of 3.05 g/t Au (0.089 opst) and 18 g/t Ag (0.529 opst). The mine mineral reserves are based on a gold price of $1,306/oz Au. Mineral Reserves stated in the table below are contained within and engineered pit design following the $1,306/oz Au sales price Lerchs-Grossman pit.

 

Table 15.2 Mineral Reserve Statement for the Isabella Pearl Deposit, Mineral County, Nevada, as of December 31, 20191 2 3 4 5 6 7 8

Class Tonnes

Short

Tons

Au

(g/t)

Au

(opst)

Ag

(g/t)

Ag

(opst)

Au

(oz)

Ag

(oz)

Proven 893,300 984,700 5.39 0.157 35 1.013 154,800 998,000
Probable 1,354,100 1,492,600 1.50 0.044 7 0.210 65,300 312,700
Proven & Probable 2,247,400 2,477,300 3.05 0.089 18 0.529 220,100 1,310,700
1. Metal prices used for P&P reserves were $1,306 per ounce of gold and $16.32 per ounce of silver. These prices reflect the three-year trailing average prices for gold and silver.
2. The quantities of material within the designed pits were calculated using a cutoff grade of 0.44 Au g/t.
3. Mining, processing, energy, administrative and smelting/refining costs were based on 2019 actual costs for the Isabella Pearl mine.
4. Metallurgical gold recovery assumptions used were 81% for Crushed ore and 60% for ROM ore. These recoveries reflect predicted average recoveries from metallurgical test programs.
5. P&P reserves are diluted and factored for expected mining recovery.
6. Figures in tables are rounded to reflect estimate precision and small differences generated by rounding are not material to estimates
7. 100% of the pit constrained Measured & Indicated mineral resources were converted to reserves.

 

15.6   Conversion of Mineral Resource to Mineral Reserve
15.6.1   Dilution

 

The block model created and used for the estimation of reserves explicitly models dilution. The minimum mining unit is a 5m x 5m x 6m (vertical) block and the Au grade of economically mineralized zones is diluted accordingly to the amount of uneconomic material present within each block.

 

 

 

 

 

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15.6.2   Cutoff Grade

 

In 2018, based on the estimated costs at the time, a gold cut-off grade of 0.38 g/t was defined for ROM and 0.44 g/t for Crushed. The cut-over grade was calculated at 0.61 g/t. The Cut-Over is the grade at which it is better to start crushing the material as the benefit of the extra gold recovered more than compensates the added cost of crushing.

For this reserve report, the gold cut-off grade for the deposit is estimated at 0.44 g/t based on 2019 actual costs and historical data. This is the cut-off grade that was applied to Measured and Indicated resources for conversion to Proven and Probable reserves. The internal or marginal gold cut-off grade estimated for Crushed is actually lower than the cut-off for ROM (Table 15.3). In this case, all material should be crushed. Operationally, the previously defined cut-over grade of 0.61 g/t Au will be maintained to prioritize high-grade ore going on to the heap leach pad. Ore that is between a gold grade of 0.44 g/t and 0.61 g/t Au will be sent to the low-grade stockpile for future processing.

Table 15.3 shows the cutoff grade assumptions used for the Mineral Reserve estimate.

Table 15.3 Cutoff Grade Assumptions

Material Cutoff Grade (g/t Au)
Break Even Internal Cut-Over
ROM 0.627 0.48 na
Crushed 0.55 0.44 0.32

 

In summary, ore, low grade and waste are currently being classified as follows:

Waste: 0.00 – 0.43 g/t
Low-Grade: 0.44 – 0.61 g/t
High-Grade: > 0.61 g/t
15.6.2.1   Breakeven Cutoff Grade

 

The lowest grade of material that can be mined and processed considering all applicable costs, without incurring a loss or gaining a profit. The break-even cut-off grade assumes that the block does not have to be mined and classifies the material as ore or waste to mine or ignore respectively.

 

 

 

 

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15.6.2.2  Internal Cutoff Grade

 

The internal cut-off grade assumes that the block in question must be mined and determines whether it should be processed or not. It may be used to decide whether material is treated as ROM or sent to the crusher. It should not be confused with break-even cut-offs, which include an allowance for the cost of stripping.

15.6.2.3  Cut-Over Grade

 

If more than one processing method is applicable to a particular rock-type, then the grade at which it is more favorable to change from one processing method to another is referred to as a cut-over, rather than a cut-off. Figure 15.1 shows this effect for Isabella Pearl, where it is more expensive to crush material, but the recovery fraction is higher.

Figure 15.1 Isabella Pearl Cut-Over Grade

15.7  Relevant Factors

 

The Qualified Persons are not aware of any environmental, permitting, legal, title, taxation, socio-economic, marketing, political, or other issues that could materially affect the mineral reserves stated here.

 

 

 

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16 MINING METHODS
16.1   Mining Methods Summary

 

The Isabella Pearl mine design consists of one pit accessing the Isabella, Pearl and Civit Cat North deposits. Open pit mining is conducted by conventional diesel-powered equipment, utilizing a combination of blasthole drills, wheel loaders, and 91-tonne (100-short ton) trucks to define, and handle ore and waste. Support equipment includes graders, track dozers, and water trucks. Higher-grade ore (>0.61 g/t Au) is hauled to the crushing area and crushed before being placed on the leach pad. Low-grade ore between 0.44 and 0.61 g/t Au is hauled directly to the low-grade stockpile. Waste rock is stored in the waste rock facility located in close proximity to the pit to reduce haulage costs.

The final pit was designed using 6 m (20 ft) benches with a bench face angle of 68°, and an inter-ramp slope of 49.7° between a triple bench-catch of 8 m (26 ft). Haul roads were designed to 14 m (46 ft) widths for one-way traffic and 24 m (79 ft) widths for two-way traffic. These widths included an external safety berm in compliance with Mine Safety and Health Administration (MSHA) regulations. The final location of the ramps was optimized in order to reduce the overall pit slopes in areas where the pit slope was required to be less than 50°.

All ore and waste is hauled utilizing a 91-tonne (100-short ton) truck fleet. Low-grade ROM ore was initially placed on the heap leach pad with only lime addition on pad areas protected by a minimum of four feet of cover over the leach pad liner and collector piping system. Most of this material was placed in interior portions of the heap leach to minimize the difficulty of re-grading for reclamation. Currently, high-grade ore is hauled to the crusher pad stockpile to then fed to the crusher by a front-end loader. The crushed ore is then delivered to the heap by a stacker conveyor system. Low-grade ore is currently being stored in the low-grade stockpile for either future crushing or direct placement on the heap as ROM.

The mine pits will generate an estimated total of 15.8 million tonnes (17.4 million short tons) of waste rock. The dump face is at the estimated 40° angle of repose of the material. The Pearl dump is being built from the south toe upward, with the outer slopes concurrently graded to 3(Horizontal):1(Vertical). The outer faces of the graded waste are being contoured, compacted, overlain with growth medium and re-vegetated when it is practical. Contouring and re-vegetation of the top of the dump will occur during post-production reclamation.

Isabella Pearl mining operations are being conducted by a contractor. Isabella Pearl production is scheduled to mine up to 600,000 tonnes (661,400 short tons) of material (ore and waste) per month from a 2-phase pit. The Pearl zone is mined in 2 phases (Pearl Phase 1 & 2) in order to balance the high strip ratio of the upper benches and maintain an adequate cash flow balance. The current plan targets WLMC to process an approximate average of 54,400 tonnes (60,000 short tons) of ore per month over the life-of-mine. Major mining equipment currently includes one Caterpillar D8 dozer, one Caterpillar

 

 

 

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D9 dozer, two Caterpillar 14M motor graders, two 769 Caterpillar water trucks, two lube trucks and two mechanic’s trucks.

The mine is currently in operation 12 hours per day, 7 days per week (12/7). During production, mining operations require two crews operating on twelve-hour rotating shifts.

During mining operations, blasthole samples are collected and assayed to provide control for ore and waste segregation. The resulting information is used to assign a material type to the blocks representing the active benches. Each block is assigned a destination code based on classification of the material (high-grade ore, low-grade ore, and waste). Following assay and ore/waste designation, visual identification of waste is made by the site geologist and compared to the mine block model. The tonnage of this material is tracked by WLMC geologists and the mine production reporting system.

The reader is referred to earlier reports on mineral resources and reserves and the feasibility study for a more detailed description of the mining methods utilized at the Isabella Pearl mine (Brown et al., 2018). Specific topics covered in earlier reports include:

· Pit Slope Geotechnical Evaluation
· Pit Optimization
· Mine Design
· Waste Rock Storage Design
· Haulage
· Mine Production Schedule
· Mining Operations
· Ancillary Mining Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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17 RECOVERY METHODS

17.1 Process Description Summary

 

Metallurgical test work has validated that Isabella Pearl oxidized ores are amenable to gold and silver recovery by cyanidation. The most economically effective process has been identified as conventional heap leaching of crushed ore, and to a lesser extent ROM, followed by absorption/desorption recovery (ADR) and refining to produce doré bars. The estimated recovery of gold from crushed ore is 81%. The estimated gold recovery of ROM material placed on the heap leach is 60%.

The general layout consists of the heap leach pad area which covers about 114,000 m2 (1.5 million ft2) and provides containment for 3.1 million tonnes (3.4 million short tons) of ore. The leach pad is a modified valley fill with a double liner system. A berm ranging from 1 to 5 m (3.3 to 16.4 ft) has been constructed along the sides and downstream (south) edge of the pad. The ADR plant consists of five 2 m (7 ft) diameter vertical adsorption towers in series with a carbon screen on the barren discharge; a 2.7 tonne (3 short ton) carbon-stripping plant with a carbon conditioning and sizing screen; and barren and pregnant solution tanks. The ADR plant design flowrate is 1,400 gpm. Electro-winning is done in a 150-ft3 electrolytic cell. Smelting is done in a T-200 melt furnace.

Figure 17.1 shows a simplified schematic of the Isabella Pearl mine flowsheet. Ore is delivered from the open pit to the crusher and then transported to the heap leach pad via a series of jump/stacker conveyors and stacked onto the heap leach pad by a radial stacker. Isabella Pearl high-grade ore above the 0.61 g/t Au cutoff is crushed using a two-stage portable crushing plant with a 250-tonne (276-short ton) per hour capacity. High-grade ore is first trucked from the open pit to a stockpile located close to the primary crushing circuit. A front-end loader then feeds the high-grade ore to the crushing circuit. Ore is then placed into a stationary grizzly located above the hopper that prevents oversized material from making its way into the crusher cavity. A 1.2 m (4 ft) x 6.1 m (20 ft) vibrating grizzly feeder draws ore into the jaw crusher. The minus 5 cm (2 in) grizzly feeder undersize material bypasses the crusher and combines with crusher product on the crusher discharge belt conveyor.

Primary crushed ore, (approximately 80 percent passing 8 cm (3 in)), is conveyed to a vibrating, inclined, triple deck screen. The design of the crushing circuit is to handle a nominal 227 tonnes per hour (250 short tons per hour). The undersize fraction from the screen bypasses the secondary circuit and reports to the fine crushing product belt conveyor. Screen oversize material is conveyed to the secondary cone crusher. Secondary crushed ore, (approximately 80 percent passing 1.6 cm (5/8 in)) is returned via conveyor to the triple deck screen. The undersize fraction from the screen becomes the product of the fine crushing circuit, and reports to the fine crushing product belt conveyor. The product of the fine crushing circuit is either conveyed and stacked in a crushed ore stockpile or transported by a series of stacker conveyors to the heap leach pad. The final conveyor on the leach pad is a radial-type mobile stacker that places ore in lifts, up to 7.6 m (25 ft) in height. At its peak, the pyramidal heap will be 30 m (100 ft) high and the mean heap height will be approximately 16 m (53 ft). Lime addition is added at the

 

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first stacker conveyor by means of silo and screw feeder. Water sprays are utilized for dust suppression at the crusher feed hopper and at transfer points for the screened undersize material.

The pad liner system consists of 15 cm (6 in) of prepared subgrade overlain by a geomembrane sandwiched clay liner (GCL) which in turn is covered by a 60-mil high density polyethylene (HDPE) geomembrane. The heap distribution (leaching solution) system consists of two 1400 gpm pumps with variable speed controllers and a network of 15 cm (6 in), 8 cm (3 in) and 1.3 cm (½ in) piping connected to drip emitters. The ore is leached via emitters at a solution application rate of 0.005 gpm/ft2. The leachate flows by gravity through the heap and is gathered in collector piping and exits each side of the leach pad through 25.4 cm (10 in) solid HDPE pipes resting in double-lined exit notches (ditches). The primary 60-mil HDPE upper liner in the ditch is welded to the leach pad primary liner. GCL installed for secondary containment beneath the leach pad overlaps the secondary liner of the exit notches by a minimum of 6 m (20 ft). Any seepage collected between the leach pad primary and secondary liners reports to the pregnant pond or the barren/stormwater pond via the pipe containment ditches. The upper 60 mil geomembrane is covered with a minimum of 45.7 cm (18 in) of permeable ore to protect against puncture and rupture. Pregnant solution trickling through the heap is collected by 20.3 cm (8 in) HDPE piping resting on the upper geomembrane, the solution flows by gravity to solid HDPE outlet pipes resting in HDPE double-lined ditches in notches through the perimeter berm and enters shunt valve boxes located between the heap leach pad and the ponds. Pregnant solution is conveyed via the closed-circuit pregnant solution pipeline to the pregnant tank at the ADR processing plant.

The pregnant cyanide solution is pumped from the pregnant tank to a feed box in the carbon-in-column (CIC) circuit where it is contacted with activated carbon completing the extraction of the gold via carbon adsorption. The CIC circuit consists of five columns in a series. Solution from the last column overflows to the barren tank where liquid sodium cyanide, fresh water and anti-scalant is added on an as needed basis prior to the solution returning to the heap leach pad for additional leaching of the ore. The heap design allows for direction of pregnant solution to the pregnant pond or from either the pregnant pond or the barren/stormwater pond to the barren tank or between the ponds through a 0.9 m (3 ft) weir should the need arise. The pregnant strip solution is electrolyzed at the on-site facility and the cathode sludge dried, blended with fluxes, and melted to produce doré bullion for shipment to a refiner.

The reader is referred to earlier reports on mineral resources and reserves and the feasibility study for a more detailed description of the recovery methods employed at the Isabella Pearl mine (Brown et al., 2018). Specific topics covered in earlier reports include:

· Run-of-Mine (ROM) Processing
· Primary Crushing & Fine Crushing
· Heap Leach Pad & Solution Ponds
· Adsorption-Desorption-Recovery (ADR) Facility
· Major Process Equipment List
· Assay Laboratory
· Consumable Requirements

 

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Figure 17.1 Simplified Schematic of Isabella Pearl Mine Flowsheet

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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18 MINE INFRASTructure

18.1 Mine Infrastructure Summary

 

Access to most elements of the Isabella Pearl mine is provided by pre-existing gravel and paved roads. The main haulage road to the waste rock dump site and the ore preparation/heap leach site were designed to accommodate 91-tonne (100-short ton) capacity mine haulage trucks, requiring two-way traffic travel and safety berms.

The ADR plant, where gold and silver are stripped from pregnant solutions, are housed in a pre-engineered 21 m (69 ft) x 39 m (128.33 ft) structure consisting of steel ribs (struts) covered by insulation and tin siding, erected on a concrete slab. Two electric generators (plus fuel tanks) are in the ADR area. The west end of the ADR area is occupied by the ADR processing plant building. Pregnant solution and barren/stormwater ponds were designed to be near the center of the ADR area. The entire ADR area is enclosed by cyclone fencing.

An assay laboratory and preparation facilities are located are located east of the barren/stormwater pond. Nearby office trailers house on-site administrative staff including the general manager, mine, environmental and safety managers as well as accounting, engineering, geology, metallurgy and surveying staff. Contractors utilize a site north of the ore preparation area on which they have placed their own shop. A septic system with a leach field services the ADR plant, laboratory and offices. A second septic system services the ore preparation area, mine and contractor’s shop. A pipeline with industrial water from a non-potable water storage tank services the ADR plant, laboratory, office and contractor’s shop. Potable water for drinking is being supplied from bottles.

Power is supplied by three diesel-powered electric generators. One 1500 kW generator is on-line, one 1500 kW generator is on standby, and one 200 kW generator is on standby for the water production wells to generate power for the well pumps on an as-needed basis. The total connected electrical force in the plant, including the crushers, is approximately 1,567 hp. WLMC has installed 4,160 volt direct burial power lines from the generator yard throughout the site and to the production wells. Fuel for the generators is stored in two above-ground tanks on graded areas with HDPE-lined floors and berms for secondary containment to provide emergency capture of 110-percent of the largest fuel tank/vessel volume.

Industrial water is supplied from three production water wells. Production Well #2 (IPPW-2) was completed in September 2013 to a depth of 128 m (420 ft) and is upgradient from both the heap leach and open pit. Production Well #1 (IPPW-1) was installed in October 2016 to a depth of 396 m (1,300 ft) and is located south of the processing facility. A third production water well (Well #3) was installed in 2019, about 400 meters southwest of Well #1. Permits for the WLMC production water wells and a maximum of 484-acre feet of water annually (300 gpm 24/7) have been issued by the Nevada State

 

 

 

 

 

 

 

 

 

 

 

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Engineer. A 757,000 to 946,250 liter (200,000 to 250,000 gallon) non-potable water tank is located near contractor’s yard. The tank is approximately 13.4 m (44 ft) in diameter and 6.1 m (20 ft) high.

Specifications for the mine infrastructure are provided in Table 18.1. Figure 18.1 shows the general site arrangement layout of the facilities including location of the ADR plant to the heap leach pad, pit and waste dumps, and references to infrastructure items in Table 18.1.

The reader is referred to earlier reports on mineral resources and reserves and the feasibility study for a more detailed description of the mine infrastructure at the Isabella Pearl mine (Brown et al., 2018). Specific topics covered in earlier reports included:

· Haulage roads
· Mine operations and support facilities
· Process support facilities
· Additional support facilities
· Power supply and distribution
· Water supply

Table 18.1 Infrastructure Items and Specifications

Mine Component (1) Acres Existing
Disturbance
Acres Proposed
New Disturbance
Total Acres
Disturbance
Roads
Exploration Roads, Pads and Sumps Outside of Mine Pit 26.6(2) 15.0(3) 41.6
Main Project Entrance, R-1 0 0.6 0.6
Main Ore Haulage(4), R-3 0 3.3 3.3
Haulage Road South Terminus(4), R-4 0 2 2
Contractors’ Yard Road, R-5 0 0.2 0.2
Operating Area Access, R-6 0 1.3 1.3
Crusher to Pad Road, R-7 0 0.3 0.3
Well Access, R-8 0 0.1 0.1
Raw Water Storage Tank, R-9 0 0.2 0.2
Existing Access North, R-10(5) 0.8 0.9 1.7
Leach Pad Perimeter Road, R-11 0 6.6 6.6
DG Stockpile Off-haul Road(4),  R-12 0 3.9 3.9
Subtotals 27.4 34.4 61.8
Leach Pad, Mine Pits, Waste Rock Dump, Borrows and Stockpiles
Pearl Dump, D-1 0 94.8 94.8
Heap Leach Pad 0 28.1 28.1
Disturbance in Mine Pit Area(7) 24.1 24.2 48.3
Pit Perimeter Berm 0 2.8 2.8
Growth Medium Borrow, B-1 (6) 0 8.8 8.8
DG/Granite Stockpile, BQ-1 0 4.9 4.9
DG/Granite Borrow/Quarry, Q-1 0 9.3 9.3
Subtotals 24.1 172.9 197
Yards
Ore Preparation Area, Y-1 0 5.6 5.6
Contractors’ Yard, Y-2 0 1.6 1.6

 

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ADR Plant Area, Y-3 0 10.8 10.8
Employee/Visitor Parking, Y4 0 0.3 0.3
Blasting Media Storage, Y-5 0 0.3 0.3
Raw Water Storage Tank, Y-6 0 0.5 0.5
Utility Corridor from Production Well IPPW-1 to IPPW-2, Y-7 0.4 3.7 4.1
Water Lines to Crusher and Dust Suppression Loading, Y-8 0 0.8 0.8
Contingent Water Lines, Y-9 2.2 0 2.2
Power Line & Water Line to Crusher, Y10 0 0.2 0.2
Subtotals 2.6 23.8 26.4
Sediment & Drainage Control
Permanent Principal Drainage, D-1(8) 0 3.4 3.4
Haul Road Drainage Diversion, D-2 0 1.2 1.2
East Pad Diversion, D-3 0 1.7 1.7
Ore Prep Area Diversions, D-4(9) 0 0.6 0.6
Southeast ADR Pad Diversion, D-5 0 0.2 0.2
Growth Media Borrow Post-reclamation Drainage, D-6 0 0.6 0.6
Subtotals 0 7.7 7.7
Grand Total 54.1 238.8 292.9

Table 18.1 Notes

1) R-1, R-3, A-1, A-2 etc. are SRCE ID codes.
2) Includes 24.11 acres of pre-existing exploration disturbance and 2.5 acres of recent extra-pit exploration disturbance by WLMC under BLM Notice-of-Intent (NOI) Case Number NVN 081762.
3) For contingent future exploration outside of proposed mine pit.
4) Haulage road disturbance areas include safety berms.
5) Existing public access road northward will be reclaimed. A permanent public bypass will be constructed to avoid long-term drainage channel crossing maintenance.
6) 8.84 acre expansion of 5.60 acre Ore Preparation Area to 14.44 acres Growth Media Borrow excavation.
7) Includes 21.61 acres of pre-existing disturbance and 2.5 acres of TXAU exploration disturbance in pit footprint.
8) This feature to remain permanently after reclamation.

9) Drainage diversions will be removed during excavation of reclamation stage borrow

 

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Figure 18.1 General Site Arrangement

 

 

 

 

 

 

 

 

 

 

 

 

 

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19 MARKET STUDIES AND CONTRACTS

 

The process facility for this operation produces doré bars between 50-55% gold content. Gold bars are being weighed and assayed at the mine to establish value. The bars are shipped regularly to a commercial refiner where their value is verified. Sale prices are obtained based on world spot or London Bullion Market Association (LBMA) pricing and are easily transacted.

19.1 Contracts and Status

 

A market study for the gold product was not undertaken for this study. Gold is sold through commercial banks and market dealers. The gold market is stable in terms of gold sale outlets and investment interest.

This study assumes a static price curve for the gold market price. In the economic evaluations, the gold price was set at $1,306/oz based on the SEC’s guidance of using a 3-year trailing average price. This price was slightly lower than the London PM Fix Price of $1,520 on December 31, 2019, the effective date of this mineral resource and reserve estimate.

Terms for an off-take and smelting agreement are likely to be based on refinery agreements established with highly respected, internationally accredited, precious metals refineries and mints located throughout the world.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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20 ENVIRONMENTAL STUDIES, PERMITTING AND SOCIAL OR community IMPACT
20.1 Required Permits and Status

 

The Isabella Pearl mine is located approximately 8.4 km (5.2 mi) north of the town Luning, at the west foot of the Gabbs Valley Range in Mineral County, Nevada. The location and current land ownership position results in the mine being held to permitting requirements that are determined to be necessary by Mineral County, the State of Nevada, and the U.S. Department of the Interior, BLM: Carson City District Office and Stillwater Field Office.

As of December 31, 2019, all applicable environmental permits to conduct open pit mining and beneficiation activities at the Isabella Pearl mine have been approved and are in good standing. Table 20.1 below lists the environmental permits that are applicable to the Isabella Pearl mine.

Table 20.1 Permits, Licenses and Issuing Authorities for the Isabella Pearl Mine

Permit/Approval Issuing Authority Permit Purpose Status
Federal Permits Approval and Registrations
Mine Plan of Operations/NEPA Analysis and ROD BLM Prevent unnecessary or undue degradation of public lands; Initiate NEPA analysis to disclose and evaluate environmental impacts and project alternatives. REQUIRED. Plan of Operations submitted to the BLM and subsequent NEPA analysis has been initiated.
Rights-of-Way (RoW) across public lands BLM Authorization grant to use a specific piece of public land for a certain project, such as roads, pipelines, transmission lines, and communication sites NOT REQUIRED. No Rights-of-Ways are for operation.
Explosives Permit U.S. Bureau of Alcohol, Tobacco and Firearms Storage and use of explosives REQUIRED of all mining operations in Nevada that store and use explosives.
EPA Hazardous Waste ID No. U.S. Environmental Protection Agency (EPA) Registration as a small-quantity generator of wastes regulated as hazardous REQUIRED of all mining operations in Nevada that generates regulated hazardous wastes (e.g., lab wastes, etc.)
Notification of Commencement of Operations Mine Safety and Health Administration Mine safety issues, training plan, mine registration REQUIRED of all mining operations in Nevada.
Biological Opinion and Consultation U.S. Fish and Wildlife Service Only if project Threatened or Endangered Species is determined present during the NEPA analysis of the project. REQUIRED during the BLM EA due to Raptor status in area. Bird and Bat Conservation Plan (BBCP) may also be part of this; To be decided during NEPA analysis.
Federal Communications Commission Permit Federal Communications Commission (FCC) Frequency registrations for radio/microwave communication facilities MAYBE, if WLMC intends to use business radios to transmit on their own frequency
State Permits, Authorizations and Registrations
Nevada Mine Registry Nevada Division of Required operations registration REQUIRED of all mining

 

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  Minerals   operations in Nevada.
Surface Area Disturbance Permit NDEP/BAPC Regulates airborne emissions from surface disturbance activities REQUIRED of all surface disturbance operations in Nevada over 5 acres.
Class II Air Quality Operating Permit NDEP/BAPC Regulates project air emissions from stationary sources REQUIRED for fugitive dust emissions and thermal emission units at lab and refinery.
Mercury Operating Permit to Construct NDEP/BAPC Program to achieve mercury reduction via add-on control technologies REQUIRED of all precious metal processing facilities with SIC codes “1041” or “1044”, with focus on mercury emissions from thermal processing units.
Class 1 Air Quality Operating Permit to Construct NDEP/BAPC Program to achieve mercury reduction via add-on control technologies REQUIRED of all facilities that emit more than 100 tons per year regulated pollutant or emit more than 25 tons per year total HAP or 10 tons per year of any one HAP.
Mining Reclamation Permit NDEP/BMRR Reclamation of surface disturbance due to mining and mineral processing; includes financial assurance requirements REQUIRED. Reclamation Plan submitted as part of federal POO. Accepted under a Memorandum of Understanding (MOU) between the BLM and the NDEP.
Mineral Exploration Hole Plugging Permit or Waiver NDWR Prevents degradation of waters of the State REQUIRED of all drilling operations in Nevada.
State Groundwater Permit NDEP/BMRR Prevents degradation of waters of the State from surface disposal, septic systems, mound septic systems, unlined ponds and overland flow MAYBE as part of the septic system for sewage disposal.
Water Pollution Control Permit (WPCP) NDEP/BMRR Prevent degradation of waters of the state from mining, establishes minimum facility design and containment requirements REQUIRED of all mining operations in Nevada
Approval to operate a Solid Waste System NDEP/BWM Authorization to operate an on-site landfill NOT REQUIRED. No Solid Waste Systems are for operation.
Hazardous Waste Management Permit NDEP/BWM Management and recycling of hazardous wastes REQUIRED of all mining operations in Nevada that generates regulated hazardous wastes (e.g., lab wastes, etc.)
National Pollutant Discharge Elimination System (NPDES) Permit NDEP/BWPC Management of site discharges NOT REQUIRED. No point source discharges by operation.
General Stormwater Discharge Permit NDEP/BWPC General permit for stormwater discharges associated with industrial activity from metals mining activities REQUIRED. Application for permit NVR300000 also requires preparation of Stormwater Pollution Prevention Plan (SWPPP)
Permit to Appropriate Water/Change Point of Diversion NDWR Water rights appropriation REQUIRED. WLMC has applied for and received an appropriation of 464 acre-feet annually under Water Rights Permits 79096, 82498, 83484 and 83485.
Permit to Construct a Dam NDWR Regulate impoundment higher than 20 ft or impounding more than 20 acre-feet NOT REQUIRED. No process water ponds will exceed the

 

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      20/20 height or impoundment thresholds.

Potable Water System Permit Nevada Bureau of Safe Drinking Water Water system for drinking water and other domestic uses (e.g., lavatories) NOT REQUIRED. WLMC will supply bottled drinking water.
Septic Treatment Permit Sewage Disposal System Permit NDEP/BWPC Design, operation, and monitoring of septic and sewage disposal systems REQUIRED for the septic systems at the mine site.
Dredging Permit NDOW Protection of Nevada waterways NOT REQUIRED. No dredging.
Industrial Artificial Pond Permit NDOW Regulate artificial bodies of water containing chemicals that threaten wildlife REQUIRED of all mining operations in Nevada that utilize open process water ponds.
Wildlife Protection Permit NDOW Stream and watershed wildlife habitat protection NOT REQUIRED. No stream or watershed modification.
Hazardous Materials Permit Nevada Fire Marshall Store a hazardous material in excess of the amount set forth in the International Fire Code, 2006 REQUIRED for storage of fuels and lubricant at the Isabella Pearl site.
License for Radioactive Material Nevada State Health Division, Radiological Health Section Radioactive material licensing MAYBE, if WLMC intends to use a densitometer or similar device at site.
Encroachment Permit Nevada Department of Transportation (NDOT) Permits for permanent installations within State rights-of-way and in areas maintained by the State NOT REQUIRED. No installations within State rights-of-way by operations.
Temporary Permit to Work in Waterways NDEP/BWPC Covers temporary working or routine maintenance in surface waters of the State, such as channel clearing and minor repairs to intake structures. NOT REQUIRED. No work in waterways by operations.
State Business License Nevada Secretary of State License to operate in the state of Nevada REQUIRED of all entities conducting business in the State of Nevada.
Retail Sales Permit or Exemption Certificate Nevada State Department of Taxation Permit to buy wholesale or sell retail NOT REQUIRED. No wholesale purchasing or retail selling for operation.
Local Permits for Mineral County
Building Permits Mineral County Building Planning Department Mineral County Building Planning Department Ensure compliance with local building standards/requirements REQUIRED for construction of buildings and septic systems.
Special Use Permit Mineral County Building Planning Department Provided as necessary under applicable zoning ordinances REQUIRED for construction of Isabella Pearl project.
County Road Use and Maintenance Permit/Agreement Mineral County Building Planning Department Use and maintenance of county roads NOT REQUIRED. WLMC will maintain their own roads.
Business License Mineral County Building Planning Department License for the engagement of business activities REQUIRED for operating a business in Mineral County.

 

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20.1.1  Federal Permitting

 

A number of federal permits and authorizations are required for mining operations located on public land administered by a federal land management agency, including, but not limited to the BLM, U.S. Department of Agriculture–Forest Service, and the National Parks Service. In the case of Isabella Pearl, the mine is located on public lands administered by the BLM. As such, the operation requires all of the identified federal permits, the most important of which are approvals of the 43 CFR § 3809 POO and its subsequent NEPA analyses. WLMC submitted the POO and Reclamation Permit application and the NEPA analysis was completed and a ROD was issued on May 15, 2018.

WLMC has acquired the following Federal Permits and Registrations:

· EPA Hazardous Waste #NVR000092916 (BWM)
· Explosive Permit #9-NV-009-20-8K-00321 (Ledcor CMI Inc. contract mining)
· POO and Reclamation Plan #NVN86663 (BLM)

 

20.1.1.1 BLM Exploration Notice of Intent (NOI)

 

Upon completion of the POO and issuance of the ROD by the BLM, the existing exploration permit that was within the mine plan boundary was closed. The reclamation cost estimated for surface disturbance associated with ongoing exploration within the mine plan boundary is covered by the bond for the Isabella Pearl mine. This allows WLMC to continue its exploration activities within the mine plan boundary while active mining is in progress.

Surface disturbance associated with proposed exploration drilling to be conducted outside the mine plan bounday (the permitted mine area) is currently authorized under a separate BLM Notice of Intent, a summary of which, including the obligated bond amounts for reclamation, is provided in Table 20.2.

Table 20.2 BLM Notice of Intent Summary for the Isabella Pearl Mine

Area Serial Number Name Total Acres Bond Amount Obligated
Scarlet Prospect NVN-98794 GRC Reclamation Cost Estimate 1.66 $11,724
  Total 1.66 $11,724

 

 

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20.1.2  State Permitting

 

The State of Nevada requires operational mining permits regardless of land status of the mine (i.e., private or public). The following are the state permits that are required for the Isabella Pearl mine:

· Reclamation Permit #0387 (NDEP/BMRR)
· Hazardous Waste Generator #NVR000092916 (NDEP/BWM)
· Water Pollution Control Permit #NEV2009102 (NDEP/BMRR)
· Emergency Release, Response, and Contingency Plan (NDEP/BMRR)
· Spill Prevention, Control, and Countermeasures Plan (NDEP/BMRR)
· National Pollutant Discharge Elimination System (NPDES) Permit #NVG201000 (NDEP/BWPC)
· General Stormwater Permit #NVR300000 MSW-43292 (NDEP/BWPC)
· Storm Water Pollution Prevention Plan (NDEP/BWPC)
· Water Rights – #83484, 82498, 79096 and 83485 (changed to 89001T) (DCNR/NDWR); Permits to change the point of diversion and place of use of the water rights have been approved, for groundwater production wells
· Air Quality Class II Operating Permit #AP-1041-3853 (NDEP/BAPC)
· Air Quality Mercury Permit to Construct #AP-1041-3895 (NDEP/BAPC)
· Air Quality Class I Operating Permit to Construct #AP-1041-3897 (NDEP/BAPC)
· Industrial Artificial Pond Permit #467428 (NDOW)

The State of Nevada has issued the above permits, which are all in good standing as of December 31, 2019.

20.1.3  Local Permitting

 

WLMC has obtained the necessary Building Permits and a Special Use Permit issued by Mineral County. These permits authorized WLMC to construct the buildings located at the Isabella Pearl mine.

The following are the Mineral County permits that are required for the Isabella Pearl mine:

· Mineral County Business License #17288 (Mineral County Sheriff’s Office)
· Special Use Permit #165957 (Mineral County Planning Commission)
· Septic Permit #7905 and 7906 (Mineral County Building Department)
· ADR Building Permit #5891 (Mineral County Fire Marshall)
· Office Building Permit #7888 (Mineral County Fire Marshall)
· Water Tank Building Permit #7921 (Mineral County Fire Marshall)

The Special Use Permit was approved when the ROD was issued by BLM in May 2018. Mineral County has issued the remaining permits, which are all in good standing as of December 31, 2019.

 

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20.2 Environmental Study Results

 

The reader is referred to earlier reports on mineral resources and reserves and the feasibility study for a more detailed description of environmental study results at the Isabella Pearl mine (Brown et al., 2018, 2019). Specific topics covered in earlier reports included:

· Mine Waste Characterization and Management
· Waste Rock Management Plan
· Groundwater Characterization
o Groundwater Quality
· Surface Water Characterization
· Cultural Resources Inventory
o Native American Religious Concerns
· Biological Resources Inventory
o Vegetation
o Mammals
o Reptiles
o Migratory Birds
o Sensitive Species
§ BLM
§ State of Nevada

 

20.3 Environmental Issues

 

Following submission by TXAU of the plan of operations in 2010, public scoping was conducted from March 15 through April 15, 2011. In five letters and four telephone calls received by the BLM, the following issues and concerns were identified:

· Wildlife—Potential disturbance of habitat for mule deer, pronghorn antelope, and desert bighorn sheep;
· Special status species—Proximity of disturbance to a known prairie falcon nest;
· Springs—The impact of mining on springs and associated wildlife;
· Public access and vested rights-of-way—The status of public access to surrounding areas for recreation;
· Level of NEPA analysis—What criteria were used to determine that the preparation of an EA would be appropriate, as opposed to a full environmental impact statement;
· Transportation of ore—Plans to evaluate the impacts of the transportation of ore on off-site facilities;

 

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· Water resources—Waste and ore rock characterization and potential impacts on Waters of the United States;
· Cultural resources—Request for complete examination of the site for archaeological and cultural resources;
· Water rights—Two claims of vested water rights for stockwater use in the area; and
· Recreation—Requests by various off-road race organizers to control cross traffic during race day.

Issues originally identified from the agency comments were concern for water quality, wildlife (including special status species), habitat, recreation, nearby spring monitoring, and quantity and quality reporting. Each of these concerns has been addressed or mitigated by the design of the project, or the implementation of Operator Committed Environmental Protection Measures and Practices (Section 2.5 of the Isabella Pearl mine POO (Welsh Hagen, 2018).

20.4 Operating and Post-Closure Requirements and Plans

 

As part of both the Nevada Water Pollution Control Permit (WPCP) and the BLM POO, WLMC has submitted a detailed plan for monitoring designed to demonstrate compliance with the approved POO and other Federal or State environmental laws and regulations, to provide early detection of potential problems, and to supply information that will assist in directing corrective actions, should they become necessary. The plan includes discussion on water quality in the area; monitoring locations, analytical profiles, and sampling/reporting frequency. Examples of monitoring programs which may be necessary include surface- and ground-water quality and quantity, air quality, revegetation, stability, noise levels, and wildlife mortality.

The BMRR also requires a process fluid management plan as part of the WPCP. This plan describes the management of process fluids, including the methods to be used for the monitoring and controlling of all process fluids. The plan also provides a description of the means to evaluate the conditions in the fluid management system, to be able to quantify the available storage capacity for meteoric waters and to define when and to what extent the designed containment capacity may been exceeded. The management of non-process (non-contact) stormwater around and between process facilities is a necessary part of the Nevada General Permit for Stormwater Discharges Associated with Industrial Activity from metals Mining Activities (NVR300000) and is typically detailed in the site-wide Stormwater Pollution Prevention Plan (SWPPP). These documents were prepared in conjunction with the WPCP.

WLMC has the following plans in place: environmental management plan, waste rock management plan, weed management plan, water management plan, emergency response plan, spill prevention, control and counter measure plan, spring monitoring plan, groundwater monitoring plan and stormwater pollution prevention plan.

 

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20.5 Post-Performance or Reclamation Bonds

 

The Isabella Pearl project’s location and current land ownership mean that the mine operations will be subject to reclamation financial surety requirements set by the state and federal agencies. Any operator who conducts mining operations in the State of Nevada under an approved BLM POO and/or state Reclamation Permit must file a surety with the NDEP-BMRR or federal land management agency, as applicable, to ensure that reclamation will be completed on privately owned and federal land. The surety may be: a trust fund; a bond; an irrevocable letter of credit; insurance; a corporate guarantee; or any combination thereof. The existing reclamation bond(s) associated with the exploration Notice-of-Intent (NOI) will be incorporated into the overall mine reclamation bond as part of the final authorization process. The surety will be released when all of the requirements of the permit have been fulfilled, including, but not limited to reclamation of disturbances, regrading of lands, and revegetation, as defined by the approved reclamation plan.

20.5.1 Mine Closure Plan

 

Both the BLM’s 43 CFR § 3809.401(b)(3) and State of Nevada’s mining regulations (NAC 519A et seq.) require closure and reclamation of mining and mineral development projects in the State of Nevada. In addition, any operator who conducts mining operations under an approved BLM POO or State Reclamation Permit must furnish a bond in an amount sufficient for stabilizing and reclaiming all areas disturbed by the operations.

After operations cease, residual process solution in the heap leach pad will be recirculated until the rate of flow from these facilities can be passively managed through evaporation from the lined process ponds or a combination of evaporation and infiltration (depending on final water quality). The waste rock dump will be re-graded and revegetated, pursuant to the approved reclamation plan. Buildings and facilities not identified for a post-mining use will be removed from the site during the salvage and site demolition phase. Reclamation and closure activities may be conducted concurrently, to the extent practical, to reduce the overall reclamation and closure costs, minimize environmental liabilities, and limit bond exposure.

The revegetation release criteria for reclaimed areas are presented in the Guidelines for Successful Revegetation for the NDEP, BLM, and U.S.D.A. Forest Service (BLM, 1998). The revegetation goal is to achieve the permitted plant cover as soon as possible.

20.5.2 Reclamation Measures During Operations and Mine Closure

 

In general, the reclamation plan outlined in the Isabella Pearl mine POO and submitted to both the BLM and the NDEP includes a description of the equipment, devices, and practices that WLMC proposes to use including, where applicable, plans for:

 

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i. Drill hole plugging and abandonment;
ii. Regrading and reshaping;
iii. Mine reclamation, including information on pit backfilling that details economic, environmental, and safety factors;
iv. Riparian mitigation;
v. Wildlife habitat rehabilitation;
vi. Topsoil handling;
vii. Revegetation;
viii. Isolation and control of acid forming, toxic, or deleterious materials;
ix. Removal or stabilization of buildings, structures and support facilities; and
x. Post-closure management.

In addition, the WPCP includes a plan for the permanent closure of the facility which describes the procedures, methods and schedule for stabilizing spent process materials. The plan will include:

a. Procedures for characterizing spent process materials as they are generated; and
b. The procedures to stabilize all process components with an emphasis on stabilizing spent process materials and the estimated cost for the procedures.
20.5.3 Closure Monitoring

 

Monitoring the mine facilities after closure will ensure continued compliance with reclamation requirements and preservation of the State and Federal natural resources. Applicable monitoring programs may include, and are not limited to, the following:

· Surface water and groundwater, quality and quantity;
· Revegetation monitoring; and
· Slope stability for reclaimed mine facilities.

Long-term environmental monitoring of facilities like the heap leach pad and waste rock disposal areas is not anticipated after closure and reclamation are completed.

20.5.4 Reclamation and Closure Cost Estimate

 

Conceptual reclamation and closure methods were used to evaluate the various components of the project to estimate final closure costs. Version 1.4.1.017 of the Standardized Reclamation Cost Estimator (SRCE) was used to prepare this estimate. The SRCE uses first principles methods to estimate quantities, productivities and work hours required for various closure tasks based on inputs from the user. The physical layout, geometry and dimensions of the project components were based on the current understanding of the site plan and facilities layout. These included current designs for the main project components including the open pit(s), infrastructure, waste rock dumps, haul and access roads,

 

 

 

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heap leach pad, utilities, and process ponds. Equipment and labor costs were conservatively estimated using State and BLM-approved costs.

The costs associated with final reclamation and closure of the Isabella Pearl project are currently estimated to be $9.2 million. This total is an undiscounted internal cost to reclaim and close the facilities associated with the mining and processing project.

20.5.5 2019 Estimate of Current Closure Costs

 

WLMC maintains a quarterly review of its environmental obligations as well as any updates of information related to either new regulations.

WLMC considers two levels of care in preparation of its mine closure plan for the possible future abandonment of the Isabella Pearl mine. In compliance with environmental obligations, WLMC considers two levels of care:

· Works and actions that are specifically identified in the current environmental regulations, or in case of modifications or new regulations arising and,
· Those particular terms and conditions listed in the permissions, registers or certificates, as established in the authorization in terms of environmental impact and although not specifically identified in any order, are the result of case-specific analysis.

A Mine Closure Plan and Reclamation Budget has been prepared by Alysen Tarrant, GRCN Environmental Manager. The budget is based on Nevada Standardized Reclamation Cost Estimator and Cost Data File provided by BLM to calculate reclamation bonding requirements for Isabella Pearl mine.

The mine closure and reclamation cost estimate for the Isabella Pearl Mine as of December 31, 2019 is presented in Table 20.3

Table 20.3 Mine Closure and Reclamation Cost Estimate for the Isabella Pearl Mine as of December 31, 2019

Activity Cost
Earthwork/Recontouring
Exploration $6,526
Exploration Roads & Drill Pads $220,715
Roads $32,932
Well Abandonment $95,837
Pits $2,972
Process Ponds $5,762
Heaps $160,367
Waste Rock Dumps $267,024
Foundation and Buildings Areas $5,468
Yards, etc. $75,433
Drainage & Sediment Control $49,404
Mob/Demob $137,385
Revegetation/Stabilization

 

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Exploration Roads & Drill Pads $14,317
Roads $10,617
Pits $7,644
Process Ponds $187
Heaps $14,997
Waste Rock Dumps $12,746
Foundation and Buildings Areas $307
Yards, etc. $17,143
Drainage & Sediment Control $1,203
Detoxification/Water Treatment/Disposal of Wastes
Solid Waste - Off Site $1,510
Hazardous Materials $14,991
Hydrocarbon Contaminated Soils $3,176
Other** - IFM + PFS + Evaporation $1,322,363
Structure, Equipment and Facility Removal, and Misc.
Foundation & Buildings Areas $168,006
Equipment removal $220,077
Fence removal $66,719
Fence installation $161,735
Monitoring
Reclamation Monitoring and Maintenance $64,824
Ground and Surface Water Monitoring $173,039
Vacate & Backfill Septic Tanks $7,340
20 gpm forced evaporation system $4,798
12 months Telemetering, Labor & Equipment $77,500
Construction Management & Support
Construction Management $211,503
Construction Support $22,383
Road Maintenance $126,447
Total $3,785,397

 

20.6 Social and Community

 

Hawthorne, which is approximately 40 km (25 mi) west of the project, has a population of approximately 3,023 (Nevada State Demographer, 2017). It has sufficient resources to provide general amenities, housing, and services. It is the home of the Hawthorne Army Ammunition Plant, which provides much of the employment in the area.

The small town of Luning is about 10 km (6 mi) to the south of the project area. The population estimate is 98 (Nevada State Demographer, 2017) and the town provides minimal services and amenities.

Mineral County’s estimated population for 2016 was 4,449 (US Census Bureau, 2017). Based on the 2010 Census, there were 2,830 housing units in Mineral County, 590 of which were vacant. In October 2017, the Mineral County labor force was 2,104 individuals, with an unemployment rate of 5.1 percent (Nevada Department of Employment Training and Rehabilitation, 2017). 

 

 

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21 ADJACENT PROPERTIES
21.1 Owner Properties

 

WLMC, either directly or through GRCN, a related subsidiary of parent company GRC, controls additional claims adjoining the Isabella Pearl project and several properties within a 30 km (18 mi) radius which include: Mina Gold, East Camp Douglas and County Line.

Acquisition of the WLMC unpatented lode mining claims acquired from TXAU in 2016 included an additional 305 claims along the Isabella Pearl mineralized trend to the northwest. This is in addition to the 36 claims that cover the Isabella Pearl deposit and planned mine area. The land position acquired from TXAU totals 341 unpatented lode mining claims covering approximately 2,751 hectares (6,800 acres), with 83 claims having a 3% NSR royalty and the balance having a 1% NSR royalty.

In January 2017, WLMC acquired 153 additional unpatented lode mining claims to consolidate the mineralized area surrounding of the Isabella Pearl mine. The claims were acquired from Nevada Select Royalty Inc. (Nevada Select), a wholly-owned subsidiary of Ely Gold and Minerals Inc. WLMC purchased the claims from Nevada Select for $460,000, which included shares of restricted common stock valued at $300,000, and cash of $100,000, plus a one-time advanced royalty cash payment of $60,000. Nevada Select retained a 2.5% NSR royalty on the claims. WLMC also retained the right to buy down 0.5% percent of the NSR royalty on the claims for $500,000. The newly acquired mining claims brings the total number of unpatented lode mining claims in the Isabella Pearl area to 494, covering approximately 3,642 hectares (9,000 acres). The claims extend exploration potential to the northwest along a geologic trend with mineralized outcrops and historic mine workings.

GRCN purchased the Mina Gold property from Nevada Select in August 2016. The property is located approximately 25 km (15 mi) from the Isabella Pearl project and covers an area of approximately 333 hectares (825 acres) consisting of 43 unpatented lode mining claims and 5 patented claims. Gold mineralization at Mina Gold is hosted by epithermal quartz veins occurring along fault zones in volcanic host rock outcropping at the surface. Mina Gold has been explored by over 313 historic exploration drill holes which encompass more than 16,246 m (53,300 ft) of drilling. Historic drill intercepts encountered gold at shallow depths (<60 m; 196 ft) including 7.4 g/t (0.22 opst) gold over 12.2 m (40 ft), 11.8 g/t (0.34 opst) gold over 4.6 m (15 ft) and 5.0 g/t (0.15 opst) gold over 6.1 m (20 ft). Historic metallurgical reports completed by Legend Metallurgical Laboratory, Inc. Reno, NV, includes column leach tests at minus 15 cm (6 in) rock returned 80% gold recovery in 60 days. Minus 1.3 cm (1/2 in) rock returned 75% gold recovery in 2 days. The best gold recoveries will likely require particle agglomeration prior to heap leaching. GRCN acquired 100% of the Mina Gold property from Nevada Select for $1,000,000, which included shares of restricted common stock valued at $850,000 and cash of $150,000 representing a one-time advanced royalty payment. Nevada Select retained a 3% NSR royalty on the patented claims and 2% NSR

 

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royalty on the unpatented claims. GRCN retained the right to buy down 1% of the NSR royalty on the patented claims for $1,000,000 and 0.5% of the NSR royalty on the unpatented claims for $500,000.

In January 2017, GRCN purchased the East Camp Douglas gold property from Diversified Inholdings, LLC. (DVI). The property is located approximately 30 km (18 mi) south of Isabella Pearl. The East Camp Douglas property covers an area of approximately 2,144 hectares (5,300 acres) consisting of 277 unpatented claims, 12 patented claims and an additional 80 hectares (200 acres) of fee lands. Precious metal epithermal mineralization at East Camp Douglas occurs as both widespread high sulfidation alteration areas and low sulfidation veins. Gold was first discovered at East Camp Douglas in low sulfidation quartz-adularia veins in 1893. Gold mining flourished in the district until 1902, with intermittent production through the 1980’s. Historic district gold production is estimated at approximately 100,000 ounces. Modern exploration (post 1960’s) by several mining and exploration companies has established modest gold targets in five separate areas in the district, with over 3,000 m (9,842 ft) of DDH core and a large exploration database. Historic drilling highlights include 22.86 m (75 ft) of 13.55 g/t (0.40 opst) gold (from 4.6 m (15 ft) down hole) and 23.86 m (78 ft) of 1.99 g/t (0.06 opst) gold (starting from surface). GRCN acquired 100% of the East Camp Douglas property from DVI for $2,000,000, which consisted of shares of restricted common stock valued at $1,000,000 and cash of $1,000,000. DVI retained a 3% NSR royalty on unpatented claims and fee lands and 1% NSR royalty on patented claims. The patented claims have an existing 2% NSR royalty to an unrelated third party.

GRCN purchased of the County Line gold property from Nevada Select in March 2018. The property is located approximately 23 km (14 mi) northeast of the Isabella Pearl project and covers an area of approximately 429 hectares (1,060 acres) consisting of 53 unpatented lode mining claims and one unpatented placer mining claim. GRCN also staked 63 additional unpatented claims around the property to strengthen the land position and exploration potential. The total land package consists of 939 hectares (2,320 acres). The County Line property is part of the Paradise Peak collection cluster of high sulfidation epithermal deposits. The district historically produced a total of 1.5 million ounces of gold and 38.9 million ounces of silver. The County Line open pit historically produced approximately 81,000 ounces of gold and 760,000 ounces silver. The Porphyry (East) Pit, located approximately 762 m (2,500 ft) southeast of the County Line pit, produced approximately 7,400 ounces of gold and 8,000 ounces silver. While both open pits represent exploration targets, other targets include “Newman Ridge” and the “Jackpot Zone”. GRCN rock chip samples obtained from the bottom of the County Line pit averaged 2.2 g/t (0.06 opst) gold with cyanide bottle-roll tests on those samples yielded an average of 94.5% gold recovery in approximately two hours. GRCN acquired 100% interest in the County Line property from Nevada Select for total cash compensation of $300,000. Nevada Select retained a 3% NSR royalty on the property claims. GRCN retained the right to buy down 1% of the NSR royalty on the claims for $1,000,000.

 

 

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21.2 Third-Party Properties

 

The Isabella Pearl project is situated along strong structural controls and alignments within the Walker Lane mineral belt which hosts numerous significant epithermal gold and silver deposits. The closest (<50 km; 31 mi) and most significant third-party properties include Santa Fe, Paradise Peak, Denton-Rawhide, Candelaria and Borealis. Other significant mines and mining districts located along the Walker Lane mineralized trend include Aurora, Bodie, Bullfrog, Comstock, Goldfield, Silver Peak (Mineral Ridge) and Tonopah.

The Santa Fe property, located just southeast and across the highway from the Isabella Pearl project, was mined in the early 1990’s. The Santa Fe mine reportedly produced 345,499 ounces of gold and 710,629 ounces of silver from four deposits averaging about 1.16 g/t (0.034 opst) gold and 8.6 g/t (0.25 opst) silver. This property is currently owned and being offered for sale by Victoria Gold Corp.

The Paradise Peak Mine, located about 23 km (14 mi) to the east, was mined by FMC Corp. (FMC) in the late 1980’s and early 1990’s. This mine reportedly produced 1,614,084 ounces of gold and 24,100,000 ounces of silver from six deposits at an average grade of around 3.4 g/t (0.1 opst gold-equivalent) of gold per tonne. Paradise Peak is currently on care-and-maintenance and being offered for sale by owner, Ward Enterprises Inc.

The Denton-Rawhide Mine, located about 40 km (25 mi) to the north, was opened by Kennecott-Plexus in 1990. This open-pit heap-leach mine reportedly produced 1,320,380 ounces of gold and 10,343,130 ounces of silver through 2002 with some after-mine leaching continuing for several more years. The property is currently owned by Rawhide Mining LLC, a private company, which has recently re-started open-pit and heap-leaching operations at Rawhide.

The Candelaria Mining District is located about 48 km (30 mi) to the south, just off the paved highway 95, which connects Reno with Las Vegas. The district developed into one of the richest silver districts in the state of Nevada, following discovery of high-grade veins in 1864. From 1864 until 1954, the district produced 22 million ounces of silver. Open pit mining between 1980 and 1999 resulted in the production of an additional 47 million ounces of silver. Total historical production for the property is estimated to be at least 69 million ounces of silver with a minimum of 100,000 ounces of gold also being recovered. Mineralization within the district is confined to the Candelaria Shear with high-grade veins formed along contacts of intrusive dikes within the host volcanics. Lower grade, bulk tonnage mineralization extends as a halo from the veins into the surrounding shear zone. The main orebodies vary in width from 24 m (78 ft) to 37 m (121 ft) averaging 109 to 128 g/t (3.2 to 3.7 opst) silver. In January 2017, owners SSR Mining Inc. (SSR) optioned 100% interest in the Candelaria project to Silver One Resources Inc. To exercise the option, Silver One was required to issue $1.0 million in Silver One shares upon signing, three additional annual instalments of $1.0 million in Silver One shares and assume reclamation obligations.

 

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The Borealis Mine, located about 56 km (35 mi) to the southwest of Isabella Pearl, was mined in the early 1900s and intermittently through the 1930s. The modern-day Borealis deposit was discovered in 1978 by Houston Oil and Minerals Co. (Houston; later bought out by Tenneco). Houston constructed an open-pit operation and began production in 1981, which continued through 1986, when Echo Bay Minerals purchased Borealis. Production continued through mine closure in 1990 with a total of 635,000 ounces of gold being produced from eight deposits at Borealis. From 1990 to 2003, the property was explored by Santa Fe Gold, Cambior and Golden Phoenix, mainly targeting the high-grade sulfide gold mineralization at depth. In 2003, the property was optioned to Borealis Mining Company LLC., a subsidiary of Gryphon Gold Corporation (Gryphon). By the end of 2004, Gryphon had earned a 70% position in the property, with Golden Phoenix retaining 30%. In January 2005, Golden Phoenix sold its remaining 30% interest to Gryphon. In February 2005, Gryphon announced a gold reserve totaling of 3.9 million tonnes (4.3 million short tons) averaging 1.16 g/t (0.034 opst) gold at Borealis. In September 2011, Gryphon began heap leaching at the Borealis mine. In January of 2013, Gryphon entered into agreement with Waterton Global Value L.P. (Waterton) on the ownership of the Borealis mining project. Efforts at the Borealis mine were not economically successful reportedly due to the falling price of gold. In 2015, operations were suspended and Waterton took control of Borealis and the property is currently on care-and-maintenance.

The most important owner and third-party adjacent properties within a 50 km (31 mi) radius of the Isabella Pearl mine are shown on Figure 21.1.

 

 

 

 

 

 

 

 

 

 

 

 

 

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Figure 21.1 Map of the Properties in the Vicinity of the Isabella Pearl Mine

 

 

 

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22 OTHER RELEVANT DATA AND INFORMATION

 

There are no other relevant data and information or explanation necessary to make the technical report understandable and not misleading.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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23 INTERPRETATION AND CONCLUSIONS

 

Isabella Pearl is a producing gold mine with a favorable economic projection based on actual operating costs and a detailed mining and processing plan.

23.1 Geology and Exploration

 

Precious-metal mineralization in the Isabella Pearl mine area occurs in a thick sequence of Oligocene ash flow tuffs that overlies Triassic sedimentary rocks intruded by Jurassic or Cretaceous stocks and dikes. Welded and unwelded portions of the Guild Mine Member of the Mickey Pass Tuff host several gold-silver deposits that are the focus of this report.

The Isabella is an oxide deposit that contains very small particles of gold in cavities and along fracture surfaces in poorly to moderately welded tuff. This deposit is very siliceous with pervasive silica replacement and structurally controlled zones of silica and iron oxide minerals. Both oxide and sulfide mineralization are found in the Pearl deposit, which occurs in a lower, more densely welded tuff and granite. The Pearl mineralization is associated with strong brecciation and silicification as fracture fillings and replacement of the tuff. The Civit Cat deposit is relatively minor and poorly defined by drilling. The Isabella, Pearl and Civit Cat deposits are known collectively as the Isabella Pearl deposit.

Since WLMC acquired the project in 2016, 161 holes have been drilled in the deposit for further mineral delineation and additional metallurgical testing. This included 4 holes totaling 735 meters of DDH drilling and 12,844 meters in 158 holes of RC drilling. The RC drilling total also included 5 condemnation holes totaling 1,356 m in the heap leach area and two additional ~400 m deep water wells to supply the mine’s future water needs for gold production.

The Isabella Pearl deposit geology is generally understood and structural geology and alteration are the primary controls on mineralization. The core of the deposit is also relatively well-defined but infill drilling can be expected to materially change the current mineral resource model, increasing the confidence level of the mineral resource estimate and to convert a significant portion of this material to mineral reserve. Drilling along the periphery of the deposit also has the potential to extend the mineral resources to the northwest. In addition, reconnaissance geological mapping and rock chip sampling has delineated new, surface high-grade gold target areas located along strike to the northwest of the Pearl deposit currently in production.

23.2 Mineral Resources

 

WLMC uses the term “mineral resources” to describe mineralization that does not constitute “mineral reserves” under U.S. reporting requirements as governed by SEC Industry Guide 7. Mineral resources are used to describe a mineralized body that has been delineated by appropriate drilling and/or

 

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sampling to establish continuity and supports an estimate of tonnage and an average grade of the selected metals.

Mineral resources at Isabella Pearl is further defined by WLMC as mineral resources within a constraining pit shell and above a defined cutoff value. Mineral resources reported herein has been constrained within a Lerchs-Grossman optimized pit shell and are reported at a cutoff grade of 0.44 g/t Au (0.013 opst).

Measured and Indicated mineral resources reported for Isabella Pearl contain 2.25 million tonnes (2.48 million short tons) of material at an average gold grade of 3.05 g/t Au (0.089 opst) and 18 g/t Ag (0.529 opst). Inferred Mineral Resources are estimated to be 497,100 tonnes (548,000 short tons) at an average gold grade of 1.41 g/t Au (0.041 opst) and 6 g/t Ag (0.181 opst).

The modeling and estimation of mineral resources presented herein is based on technical data and information available as of December 31, 2019. WLMC has evaluated and performed verification of the Isabella Pearl drill hole database and considers the assay data to be adequate for the estimation of the mineral resources. The extracted drill hole database contains 379 unique collar records and 21,055 assay records, broken down by drilling type as:

· AT: 6 drill holes for 82.00 m (269.0 ft)
· RC: 333 drill holes for 32,360.6m (106,170 ft)
· DDH: 36 drill holes for 3,564.5 m (11,695 ft)

It should be noted that certain factors pose potential risks and opportunities, of greater or lesser degree, to the estimate as the model is based on currently available data. The highest risks associated with key estimation parameters were identified as:

· Base of Oxidation: Distribution of oxide and non-oxide mineral resources in the deposit is very complex,
· Downhole Contamination: Contamination below the water table is common in RC drilling. A portion of the Pearl and Civit Cat North deposits lie near or below the water table.

All refractory, non-cyanide-leachable sulfides were treated as waste for the Isabella Pearl estimate of mineral resources. In addition, the bottom of the optimized pit shell will not go below the water table.

The physical location of mineral resources are being confirmed at the mining scale using blast-hole drilling results and grade control modeling.

 

 

 

 

 

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23.3 Mineral Reserves

 

The conversion of mineral resources to mineral reserves required accumulative knowledge achieved through LG pit optimization, detailed pit design, scheduling and associated modifying parameters. Detailed access, haulage, and operational cost criteria were applied in this process for Isabella Pearl deposit.

The orientation, proximity to the topographic surface, and geological controls of the Isabella Pearl mineralization support mining of the mineral reserves with open pit mining techniques. To calculate the mineable reserve, pits were designed following an optimized LG pit based on a $1,306/oz Au sales price. This price was chosen to create the primary guide surface based on a price sensitivity and subsequent profitability study that showed that the $1,306 pit maximized profitability while reducing capital requirements. A pit design below market price ensures the mine will be viable even if gold prices fall to as low as $1,306 assuming there are no other major changes to the project economics. Deposit modeling at a lower gold price than the current gold price also demonstrates a positive economic upside for the project.

The quantities of material within the designed pits were calculated using a cutoff grade of 0.61 g/t Au for Crushed ore and material grading between 0.44 and 0.61 g/t Au being sent to a low-grade stockpile for either future crushing or direct placement on the heap as ROM ore. The three-year trailing average $1,306/oz Au sales price was observed at the time of this mineral reserve estimate.

The proven and probable mineral reserves reported for the Isabella Pearl project, using diluted grades, is 2.25 million tonnes (2.48 million short tons) of material at an average gold grade of 3.05 g/t Au (0.089 opst) and 18 g/t Ag (0.529 opst) containing 220,100 ounces of gold and 1,310,700 ounces of silver.

23.4 Mining

 

Isabella Pearl is a disseminated gold and silver deposit with mineralization close to the surface. The mine design consists of one pit accessing the Isabella Pearl deposit. Open pit mining is undertaken with conventional diesel-powered equipment, utilizing a combination of blasthole drills, wheel loaders, and 91-tonne (100-short ton) trucks to handle ore and waste. The 100-short ton mining fleet was selected as it allowed a lower mining cost. Support equipment including graders, track dozers, and water trucks aid the mining. Higher-grade ore (>0.61 g/t Au) is currently being hauled to the crushing area and crushed before being placed on the leach pad. Low-grade ore between 0.44 and 0.61 g/t Au is being sent to a low-grade stockpile and will eventually be hauled either to the crusher or directly to the leach pad depending on economic considerations. Waste rock is being stored in the waste rock facility designed in close proximity to the pit to reduce haulage costs.

The final pit was designed using 6 m (20 ft) benches, a bench face angle of 68° and an inter-ramp slope of 49.7° between a triple bench-catch of 8 m (26 ft). Haul roads were designed to 14 m (46 ft) widths for one-way traffic and 24 m (79 ft) widths for two-way traffic. These widths included an external berm.

 

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The final location of the ramps was optimized in order to reduce the overall pit slopes in areas where the pit slope was required to be less than 50°.

23.5 Metallurgy and Processing

 

The Isabella Pearl oxide ore is amenable to heap leach cyanidation with a high relative recovery and fast leaching kinetics. Cyanidation test work (bottle roll and column leach), performed on representative mineral resources, confirms the close relationship between particle size and gold recovery. The greater the fines fraction the higher the gold recovery.

Based on the metallurgical test work completed, total gold recovery is expected over a four-month period. Mineral reserves above 0.61 g/t Au are currently being crushed to a P80 of 5/8 inch and placed on the heap leach pad. During 2019, most of the ore was crushed but some lower grade material was placed on the heap as ROM. In the future, WLMC may decide to place additional ROM material, between 0.44 and 0.61 g/t Au, directly on the heap if warranted to do so. The total predicted gold recovery for crushed ore is 81% and ROM is 60%. The gold recovery projection of 81% for crushed ore is based primarily on column leach test work and partly on benchmarking other heap leach operations.

A high level of gold recovery (plus 90 percent) could be achieved using a grinding and milling process. The capital cost and economics of milling, however, is prohibitive given the current mineral reserves, leaving the most viable option to be a heap leach process with a carbon absorption/desorption and electrowinning to gold doré production given the low silver to gold ratio.

Any un-oxidized high-grade, refractory material, at or near the bottom of the pit, which is poorly amenable to cyanidation, will not be placed on the heap with the oxide ore and instead be treated as waste rock.

Processing the Isabella Pearl ore through screening, stacking, heap-leaching and ADR are basic, conventional and well understood processes that have been successfully and extensively employed throughout Nevada and worldwide.

Operating costs were based on actual costs realized during the first year of production at the Isabella Pearl mine. There is potential upside for consumable pricing through long term purchase agreements for cyanide, cement and diesel. There is also upside potential of lower maintenance and material cost in the early years of production when the equipment is new.

 

 

 

 

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23.6 Infrastructure

 

Electric power is being supplied by three diesel-powered electric generators, one 1500 kW generator is on-line, one 1500 kW generator is on standby, and another 200 kW generator will also be on standby. The generators are being used to supply power to the ADR and leaching system, the screening and crushing plant, the truck shop, the administrative offices,laboratory and ADR shop building. The 200kW generator is located near production wells to generate power for the well pumps if the need arises.

The use of line power supplied by NV Energy was investigated. However, permitting requirements and other uncertainties were likely to delay initial mine construction, so diesel-generated power was chosen.

The water balance required for the project is currently projected to be 120 gpm. Industrial (non-potable) water is being supplied from three production water wells. Permits for the WLMC production water wells and a maximum of 484-acre feet of water annually (300 gpm 24/7) have been issued by the Nevada State Engineer.

23.7 Foreseeable Impacts of Risks

 

The Isabella Pearl mine’s economic viability is generally at risk from changes in external factors which would lead to increases in input costs (eg. operating costs), or a fall in the price of gold which would reduce revenue. A decrease in gold price would not only reduce revenue but could also reduce the amount of economically mineable ore as a decrease in metal prices would result in a higher cut-off grade. Under the current gold price environment, the mineral reserves are considered robust.

Typical environmental risks include items being discovered on the mine site such as sensitive or endangered botany, or cultural artifacts, which could affect potential expansion and make additional permitting difficult at the Isabella Pearl mine. No environmental and permitting risks were identified and the BLM has issued all regulatory permits to operate the mine. Internal risks, specific to the mine include:

· Current drill spacing is considered adequate but there is a low risk of a decrease in mineral resources due to additional drilling and subsequent re-modeling and re-estimations.
· Predicted gold recovery from the Isabella Pearl ore is based on the results of column-leach tests and expected results could be lower than expected. This risk is deemed to be low, given the numerous metallurgical tests that have been conducted on the Isabella Pearl mineral resources during the past 30 years.
· Should the metallurgical efficiencies and reagent consumption rates assumed in previous studies not be generally achieved, the mine may not achieve the predicted economic performance.
·

Geotechnical studies were preliminary at Isabella Pearl and additional drilling is recommended to raise the level of certainty for final pit slope angles. There is a risk that additional 

 

 

 

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    geotechnical studies might result in flatter pit slopes than used in previous studies, which would have an adverse impact on costs and mineral reserves.
· Finding and keeping the skilled employees required to operate the Isabella Pearl mine has proven to be challenging, given its rural location. Inadequate staffing could potentially increase operating costs by reducing operating efficiencies and increasing repair and maintenance costs. Recruiting costs might be higher than predicted.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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24 RECOMMENDATIONS

 

The qualified persons preparing this report for WLMC recommend that the Isabella Pearl mine continue with open pit mining and processing the ore by screening, stacking, heap leaching, ADR and doré production. Some additional studies are recommended that may improve value and optimizations including additional drilling to convert mineral resources to mineral reserves, and additional geotechnical studies to possibly steepen pit slopes.

Recommendations for mineral reserve, metallurgical and geotechnical drilling at the Isabella Pearl mine are shown in Table 24.1. The estimated costs of the recommendations total $1,987,000. The cost of this recommended work has not been included in the Isabella Pearl cash-flow model.

Table 24.1 Summary of Costs for Optional Recommended Work

Description Cost
RC Drilling for Reserves $1,237,000
DDH Drilling & Metallurgical Study $380,000
DDH Drilling & Geotechnical Study $370,000
Total $1,987,000

 

24.1 RC Drilling for Mineral Reserves

 

The Isabella Pearl mine will benefit from additional drilling to the northwest of the Pearl deposit, mainly on the Scarlet structures. There is already potential identified for mineral reserve expansion in this area. Once exploration drilling is completed, mineral reserve estimates will be updated, and the mine plan modified in order to incorporate any new mineral reserves. The proposed budget for 7,000 m of exploration RC drilling is shown in Table 24.2. The estimated cost of the recommended exploration drilling program is $1,237,000.

 

 

 

 

 

 

 

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Table 24.2 Detailed Budget for Proposed Exploration Drilling at Isabella Pearl Mine

Description Total Cost (USD)
Salaries and Wages 140,000
Health Insurance 16,000
401K Expense 2,000
Payroll Taxes Employer 6,000
Contractors Drilling (RC) - 7,000 m 560,000
Contractors Services 40,000
Material Used by Contractors 10,000
Topographical Studies 4,800
Geophysical Studies 200,000
Laboratory Assays - 6,100 samples 152,500
Maintenance Vehicles 200
Consulting Services 11,500
Lodging 12,000
Meals 2,800
Auto Rental and Other Transport 800
Other Travel Expenses 4,800
Gasoline 1,600
Cleaning Supplies 200
Hardware, Paint and Other 200
Field Supplies and Materials 6,000
Courier Services 1,200
Machinery and Equipment Rent 2,400
Allocation of Labor Costs 62,000
Total 1,237,000

 

24.2 DDH (Core) Drilling & Metallurgical Study

 

It is recommended that WLMC conduct further metallurgical test work on PQ-size core samples from holes to be drilled in Isabella Pearl deposit. The main purpose of this program is mainly column test work for:

· additional testing on near-surface Isabella ROM oxide mineralization; and
· confirm viability of Heap Leach, Carbon Adsorption/desorption and Electrowinning gold recovery of mixed oxide/sulfide mineral resources in the Pearl deposit.

The proposed budget for 600 m of metallurgical core drilling and related studies is $380,000.

24.3 DDH (Core) Drilling & Geotechnical Study

 

The qualified persons deem the current open pit and dump designs to be adequate being similar to those proposed in earlier studies. Further review of the geotechnical requirements may not be necessary. However, previous geotechnical studies have only been preliminary at Isabella Pearl and

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additional drilling is recommended as an option to raise the level of certainty for final pit slope angles. This will ensure that the most optimal pit slopes are utilized and that proper setbacks are applied to the dump toes near the final pit crest. A more detailed geotechnical study will serve to further de-risk the project and could also lead to improvements, especially if steeper slopes can be achieved in the Pearl deposit mining area. The highest-grade portion of the mineral reserve is concentrated in a very small volume of ore located at or near the bottom of the ultimate pit.

Once DDH core drilling and the geotechnical study have been completed, the open pit and dump designs should be reviewed and modified, if necessary, to reflect the new geotechnical information. The proposed budget for 900 m of geotechnical DDH core drilling and related studies is $370,000.

24.4 Other Recommendations

 

Once construction has finished, it is recommended that an ore control methodology be implemented that minimizes sulfide materials being placed on the leach pad. This sulfide material, also located at or near the bottom of the pit, is refractory and should be treated as waste.

In addition, the following test work should be considered:

· Develop a geometallurgical model to further characterize the mineral resources in the Isabella Pearl deposit,
· Blasting fragmentation study,
· Additional metallurgical test work including:
o Large column test work, additional ROM testing.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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25 REferences

 

Back, G. N., 2009, Isabella-Pearl Project Biological Baseline Survey prepared by Great Basin Ecology, Inc.

Brown, F. H., Garcia, J. R., Devlin, B. D., and Lester, J. L., 2018, Report on the estimate of mineral resources and mineral reserves for the Isabella Pearl Project, Mineral County, Nevada for Walker Lane Minerals Corp.; Gold Resource Corporation Company report, p. 251.

Carr, J., 2007, Preliminary Review of Selected Unpatented Mining Claims, Sections 26, 26, 34 and 35, T9N, R34E and Section 3, T8N, R34E, Mineral County, Nevada, 25p. plus attachments.

Diner, Y. A., 1983, The HY precious metals lode prospect, Mineral County, Nevada: Master’s thesis submitted to the Department of Applied Science, Stanford University.

Ekrin, E. B. and Byers, F.M. Jr., 1985, Geologic Map of the Gabbs Mountain, Mount Ferguson, Luning, and Sunrise Flat Quadrangles.

Erwin, T. P., 2016, Mineral Status Report Mina Project Mineral County Nevada: Confidential Legal Advice provide to Gold Resource Corporation, 34p.

Great Basin Ecology, Inc., 2017, Isabella Pearl Project Biological Survey

Golden, J., 2000, Walker Lane Property, Level I Feasibility Report for the Isabella Mine: report prepared for Combined Metals Reduction Company by Sierra Mining & Engineering, LLC, 40p. and appendices.

Hamm, J. C., 2010, Technical Report on the Walker Lane Property: report prepared for Tesoro Gold Company, 103p.

Hedenquist, J., 2017a, Exploration for Lithocap-Hosted Epithermal Deposits: private presentation to Gold Resource Corp., Nevada: August 2017

Hedenquist, J., 2017b, Observations after brief visit to Isabella Pearl property, Nevada: private report for Walker Lane Minerals Corp., 4p

Kappes, Cassiday & Associates, 2017, Isabella Pearl Project Report of Metallurgical Test Work July 2017, 178p.

Miskelly, N., 2003 Progress on International Standards for Reporting of Mineral Resources and Reserves by Norman Miskelly, Chairman, Combined Reserves International Reporting Standards Committee (CRIRSCO) dated September 20, 2003; 22 pgs.

Nevada Department of Employment, Training and Rehabilitation, 2017, www.nvdetr.org

Nevada State Demographer, 2017, www.nvdemography.org

 

 

 

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Prenn, N. B., and Gustin, M .M., 2008, Resource Report and Scoping Study, Isabella-Pearl Deposits, Gabbs Valley Project, Mineral County, Nevada: report prepared for TXAU Investments, Inc. by Mine Development Associates, 78p.

Prenn, N. B., and Gustin, M. M., 2011 & 2013, Pre-Feasibility Study and Updated Resource Report, Isabella-Pearl Deposits, Mineral County, Nevada: unpublished report prepared for Isabella Pearl LLC (“TXAU”), Inc. by Mine Development Associates, 127p.

SEC, 1992, Industry Guide 7: Description of property by issuers engaged or to be engaged in significant mining operations. Release No. FR-39, July 30, 1992, effective August 13, 1992, 57 Federal Register 36442.

SEC, 2018a, Securities and Exchange Commission (SEC) 17 CFR Parts 229, 230, 239, and 249, RIN 3235-AL81, Modernization of Property Disclosures for Mining Registrants, Final Rule; 453 pgs.

SEC, 2018b, Securities and Exchange Commission (SEC) Adopts Rules to Modernize Property Disclosures Required for Mining Registrants, Press Release (Release Nos. 33-10570; 34-84509; File No. S7-10-16) Dated October 31, 2018; 3 pgs.

US Census Bureau, 2017, www.census.gov

Welsh Hagen Associates, 2018, Plan of Operations and Reclamation Plan Isabella Pearl Project Luning, NV prepared for Walker Lane Minerals Corp., 81p.

Winmill, P. J., 2008, Title opinion on certain unpatented mining claims Mineral County, Nevada: private report prepared for HB Engineering Group for the benefit of TXAU Investments, 21p.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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26 GLOSSARY

 

 

26.1 Definition of Terms

The following terms used in this report shall have the following meanings:

 

Adit: A more or less horizontal drive (walk-in mine) into a hill that is usually driven for the purpose of intersecting or mining an ore body. An adit may also be driven into a hill to intersect or connect a shaft for the purpose of dewatering. Adits were commonly driven on a slight incline to enable loaded mine trucks to have the advantage of a downhill run out, while the empty (lighter) truck was pushed uphill back into the hill. The incline also allows water to drain out of the adit. An adit only becomes a tunnel if it comes out again on the hill somewhere, like a train tunnel.
Andesite: An extrusive igneous, volcanic rock, of intermediate composition, with aphanitic to porphyritic texture characteristic of subduction zones (eg. western margin of South America).
Doré: Unrefined gold and silver bars usually containing more than 90% precious metal.
Epithermal: Used to describe gold deposits found on or just below the surface close to vents or volcanoes, formed at low temperature and pressure.

Gram:

 

 

Gold Institute Production Cost Standard:

A metric unit of weight and mass, equal to 1/1000th of a kilogram. One gram equals .035 ounces. One ounce equals 31.103 grams.

 

To improve the reporting practices within the gold mining industry, the gold industry in 1996 adosted The Gold Institute Production Cost Standard, a uniform format for reporting production costs on a per-ounce basis. The purpose of the Standard is to provide analysts and other market observers with a means to make more-reliable financial comparisons of companies and their operations.

Hectare: Another metric unit of measurement, for surface area. One hectare equals 1/200th of a square kilometer, 10,000 square meters, or 2.47 acres. A hectare is approximately the size of a soccer field.
   
Kilometer: Another metric unit of measurement, for distance. The prefix “kilo” means 1000, so one kilometer equals 1,000 meters, one kilometer equals 3,280.84 feet, which equals 1,093.6 yards, which equals 0.6214 miles.
Mineral Resources: Mineralization that does not constitute “mineral reserves” under U.S. reporting requirements as governed by SEC Industry Guide 7.  Mineral Resources are described as a mineralized body that has been delineated by appropriate drilling and/or underground sampling to establish continuity and support an estimate of tonnage and an average grade of the selected metal(s).  Mineral resources do not have demonstrated economic viability.  The SEC only permits issuers to report mineral resources in tonnage and average grade without reference to contained ounces or quantities of other metals.
Net Smelter Return Royalty:                         

A share of the net revenue generated from the sale of metal produced by the mine.

Usage-based payments made by one party (the “licensee”) to another (the “licensor”) for the right to ongoing use of an asset, sometimes called an intellectual property. Typically agreed upon as a percentage of gross or net revenues derived from the use of an asset or a fixed price per unit sold.

Ore or Ore Deposit: Rocks that contain economic amounts of minerals in them and that are expected to be profitably mined.
Probable Reserves Probable (Indicated) Reserves are those for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately

 

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  spaced.  The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.
   
Proven Reserves Proven (Measured) Reserves are those for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes, grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well - established.
   
Silicified: Is combined or impregnated with silicon or silica.
   
SurpacTM Surpac-Gemcom software for geological modeling, mine planning, design, and surveying.
Tonne: A metric ton.  One tonne equals 1000 kg. It is approximately equal to 2,204.62 pounds.
   
US GAAP: United States Generally Accepted Accounting Principles
   
Volcanic domes: These are mounds that form when viscous lava is erupted slowly and piles up over the vent, rather than moving away as lava flow. The sides of most domes are very steep and typically are mantled with unstable rock debris formed during or shortly after dome emplacement. Most domes are composed of silica-rich lava which may contain enough pressurized gas to cause explosions during dome extrusion.
   
Volcanogenic Of volcanic origin
   
VulcanTM: Maptek-Vulcan 3D geology and mining modeling software program
   
Conversion Table
   
Metric System Imperial System
1 meter (m) 3.2808 feet (ft)
1 kilometer (km) 0.6214 mile (mi)
1 square kilometer (km2) 0.3861 square mile (mi2)
1 square kilometer (km2) 100 hectares (has)
1 hectare (ha) 2.471 acres (ac)
1 gram (g) 0.0322 troy ounce (oz)
1 kilogram (kg) 2.2046 pounds (lbs)
1 tonne (t) 1.1023 short tons (T)
1 gram/tonne (g/t) 0.0292 ounce/ton (oz/t)

 

Unless stated otherwise, all measurements reported here are metric and currencies are expressed in constant U.S. dollars.

 

 

26.2 Abbreviations

 

Other common abbreviations encountered in the text of this report are listed below:

 

 

 

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˚C degree Centigrade
AA atomic absorption
AAL American Assay Laboratories, Inc.
AAS Atomic Absorption Spectroscopy
Ag silver
ALS ALS Chemex and/or ALS USA Inc.
Au gold
AuEq Precious Metal Gold Equivalent (unless otherwise noted)
BAPC Bureau of Air Pollution Control
BCY bank cubic yard
BLM Bureau of Land Management
BMMR Bureau of Mining Regulation and Reclamation
BWM Bureau of Waste Management
BWPC Bureau of Water Pollution Control
Cfm cubic feet per minute
Chemex ALS Chemex and./or ALS USA Inc.
CIM Canadian Institute of Mining, Metallurgy, and Petroleum
CIP Carbon-in-Pulp
cm centimeter
CMRC Combined Metals Reduction Company
Combined Metals Combined Metals Reduction Company
core diamond core-drilling method
Cu copper
Dawson Dawson Metallurgical Laboratories, Inc.
DCNR Department of Conservation and Natural Resources
DDH Diamond Drill (Core)Hole
dmt dry metric tonne
EA Environmental Assessment
EPA Environmental Protection Agency
FA-AA fire assay with an atomic absorption finish
ft or (‘) feet = 0.3048 metre
g/t gram/tonne
gpt gram/tonne
g Au/t grams of gold per metric tonne
g gram(s) = 0.001 kg
GIS Geographic Information System
gpm gallons per minute
GPS Global Positioning System
GRC Gold Resource Corporation
GRCN GRC Nevada Inc.
ha hectare(s)
Hazen Hazen Research Inc.
HB Engineering HB Engineering Group
Homestake Homestake Mining Company
hp horsepower
in or (“) inch, 2.54 cm = 25.4 mm
IRR Internal Rate-of-Return
Kay Drilling Leroy Kay Drilling Co.
K-Ar Potassium-Argon (referring to age date technique)
KCA Kappes, Cassiday & Associates
kg kilogram, or kg/t (kilogram per tonne)

 

 

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km kilometer
Kva Kilovolt-amps
Kw Kilowatt
lb pound
l liter
LOM Life-of-Mine
m meter
Ma million years age
masl meters above sea level
McClelland McClelland Laboratories Inc.
MDA Mine Development Associates
mean arithmetic average of group of samples
μm microns
mi mile
mm millimeter
MSHA Mine Safety and Health Administration
Mw Megawatt
NDEP Nevada Division of Environmental Protection
NDOW Nevada Department of Wildlife
NDWR Nevada Division of Water Resources
NEPA National Environmental Policy Act
NI 43-101 Canadian Securities Administrators’ National Instrument 43-101
NOI Notice-of-Intent
NPV Net Present Value
NSR Net Smelter Return
Opst Ounces per short ton
Ounce Troy ounce, or 31.1035 g
oz. ounce
P80 3/4” 80% passing a ¾” screen
P100 3/8” 100% passing a 3/8” screen
Pb lead
POO Plan of Operations
ppb parts per billion
ppm parts per million = g/t
psi pounds per square inch
RC reverse-circulation drilling method
Repadre Repadre International Corporation
ROD Record of Decision
ROM Run-of-Mine
RQD Rock Quality Designation
QA/QC Quality Assurance/Quality Control
QP Qualified Person
SEC Securities Exchange Commission
Sierra Mining Sierra Mining & Engineering, LLC
SRCE Standardized Reclamation Cost Estimator
SRM Standard Reference Material
t, tonne metric tonne = 1.1023 short tons
TXAU TXAU Investments, Inc./TXAU Development Ltd./Isabella Pearl LLC
T, Ton Imperial or short ton
Tpd, or tpd tonnes per day
WLMC Walker Lane Minerals Corporation

 

 

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WPCP Water Pollution Control Permit
wt weight
Zn zinc

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Appendix A: Certificates of Qualified Persons

FRED H. BROWN, P.GEO.

 

I, Fred H. Brown, do hereby certify that:

 

1. I have worked as a geologist continuously since my graduation from university in 1987.

2. This certificate applies to the technical report titled “Report on the Estimate of Mineral Resources and Mineral Reserves for the Isabella Pearl Project, Mineral County, Nevada” (the “Technical Report”), with an effective date of December 31, 2018.

3. I graduated with a Bachelor of Science degree in Geology from New Mexico State University in 1987. I obtained a Graduate Diploma in Engineering (Mining) in 1997 from the University of the Witwatersrand and a Master of Science in Engineering (Civil) from the University of the Witwatersrand in 2005. I am registered with the Association of Professional Engineers and Geoscientists of British Columbia as a Professional Geoscientist (#171602) and the Society for Mining, Metallurgy and Exploration as a Registered Member (#4152172).

4. I am currently employed as Senior Resource Geologist with GRC Nevada Inc., a Nevada corporation, a wholly-owned subsidiary of Gold Resource Corporation, a Colorado corporation.

5. I certify that by reason of my education, affiliation with a professional organization and past relevant work experience, I fulfill the requirements to be a “qualified person”.

 

My relevant experience for the purpose of the Technical Report is:

 

Underground Mine Geologist, Freegold Mine, AAC 1987-1995
Mineral Resource Manager, Vaal Reefs Mine, Anglogold 1995-1997
Resident Geologist, Venetia Mine, De Beers 1997-2000
Chief Geologist, De Beers Consolidated Mines 2000-2004
Consulting Geologist 2004-2017
Senior Resource Geologist, GRCN Present
 

6. I am a co-author of this technical report and specifically responsible for part of Section 6 and Sections 11, 12 and 14.

 

 

Effective Date: December 31, 2019

 

 

{SIGNED}

[Fred H. Brown]

 

 

 

 

_______________________________

Fred H. Brown, P.Geo

 

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J. RICARDO GARCIA, P.ENG.

I, Ricardo Garcia, do hereby certify that:

1. I have worked as an engineer continuously since my graduation from university in 2002.

2. This certificate applies to the technical report titled “Report on the Estimate of Mineral Resources and Mineral Reserves for the Isabella Pearl Project, Mineral County, Nevada” (the “Technical Report”), with an effective date of December 31, 2018.

3. I graduated in 2002 with a Bachelor of Engineering degree in Industrial Engineering from Universidad de Lima, Lima Peru. I obtained in 2006 a Master of Engineering degree in Mining Engineering and Mineral Economics from McGill University, Montreal Canada. I am registered with the Association of Professional Engineers and Geoscientists of British Columbia as a Professional Engineer (#152677).

4. I am currently employed as Corporate Chief Engineer with Gold Resource Corporation, a Colorado corporation.

5. I certify that by reason of my education, affiliation with a professional organization and past relevant work experience, I fulfill the requirements to be a “qualified person”.

 

My relevant experience for the purpose of the Technical Report is:

 

Business Analyst, Hochschild Mining 2002-2003
Education Assistant, Engineering and Economics, McGill University 2004-2006
Mining Engineer, Teck Resources 2006-2012
Senior Mining Engineer, RPM Global 2012-2016
Corporate Chief Engineer, Gold Resource Corp. Jan 2016-Present
 

I am a co-author of this technical report and specifically responsible for Section 15 and parts of Sections 16, 17, 18, 19, 21 and 22.

 

 

 

Effective Date: December 31, 2019

 

 

{SIGNED}

[J. Ricardo Garcia]

 

 

 

 

 

_______________________________

J. Ricardo Garcia, P.Eng

  

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BARRY D. DEVLIN, P.GEO.

 

I, Barry D. Devlin, do hereby certify that:

 

1. I have worked as a geologist continuously since my graduation from university in 1981.

2. This certificate applies to the technical report titled “Report on the Estimate of Mineral Resources and Mineral Reserves for the Isabella Pearl Project, Mineral County, Nevada” (the “Technical Report”), with an effective date of December 31, 2018.

3. I graduated with a Bachelor of Science degree with honors in Geology in 1981 and a Masters in Geology, 1987, from the University of British Columbia, Vancouver Canada. I am registered with the Association of Professional Engineers and Geoscientists of British Columbia as a Professional Geoscientist (#109658).

4. I am currently employed as Vice President, Exploration with Gold Resource Corporation, a Colorado corporation.

5. I certify that by reason of my education, affiliation with a professional organization and past relevant work experience, I fulfill the requirements to be a “qualified person”.

 

My relevant experience for the purpose of the Technical Report is:

 

Project Geologist, U.S. Borax & Chemical Corp. 1981-1984
Project Geologist, Derry, Michener, Booth & Wahl/Dolly Varden Minerals 1985-1986
Chief Mine Geologist, Total Erickson Resources Ltd. 1987
Senior Project Geologist, Welcome North Mines Ltd. 1988-1989
Chief Mine Geologist/District Geologist/Exploration Manager, Hecla Mining Company 1990-April 2007
Vice President, Exploration, Endeavour Silver Corp. May 2007-Dec 2012
Vice President, Exploration, Gold Resource Corp. Jan 2013-Present
 

 

6. I am a co-author of this technical report and specifically responsible for Sections 1, 2, 3, 4, 5, 6, 23, 24, 25 and 26.

 

 

Effective Date: December 31, 2019

 

 

{SIGNED}

[Barry D. Devlin]

 

 

 

 

 

_______________________________

Barry D. Devlin, P.Geo

 

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JOY L. LESTER, SME-RM

 

I, Joy L. Lester, do hereby certify that:

 

1. I have worked as a geologist continuously since my graduation from university in 1996.

 

2. This certificate applies to the technical report titled “Report on the Estimate of Mineral Resources and Mineral Reserves for the Isabella Pearl Project, Mineral County, Nevada” (the “Technical Report”), with an effective date of December 31, 2018.

 

3. I graduated with a Bachelor of Science degree in Geology from the South Dakota School of Mines and Technology in 1996. I obtained a Master of Science degree in Geology from the South Dakota School of Mines and Technology in 2004.

 

4. I am registered with the Society for Mining, Metallurgy and Exploration; Registered Member #4119722RM.

 

5. I am currently employed as Chief Geologist with Gold Resource Corporation, a Colorado corporation.

 

6. I certify that by reason of my education, affiliation with a professional organization, and past relevant work experience, I fulfill the requirements to be a “qualified person”.

 

My relevant experience for the purpose of the Technical Report is:

 

Exploration Geologist, Gold Reserve Inc. Km 88, Venezuela, Exploration site 1996-1999
Exploration Geologist, Hecla Venezuela, La Camorra Mine 2002-2004
Exploration Geologist, Patagonia Gold S.A, Lomada Leiva and Cap Oeste Mines 2004-2008
Senior Exploration Geologist/Project Manager Landore Resources Ltd., Ontario, Canada 2008-2012
Consultant Geologist, Exploration, Gold Resource Corp. El Aguila Mine, Oaxaca Mex 2013-2014
Chief Geologist, Gold Resource Corp., Nevada and El Aguila Mine Oaxaca Mexico 2014-Present
 

6. I am a co-author of this technical report and specifically responsible for Sections 7, 8 and 9 and part of Section 10.

 

Effective Date: December 31, 2019

 

 

{SIGNED}

[Joy L. Lester]

 

 

 

 

 

_______________________________

Joy Lester, P.Geo

 

 

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Appendix B: List of Mineral Claims

Claim
Name & No.
Type BLM
Serial No.
Loc Date Mineral
Cnty Doc
Owner Status Acquisition History
NEVADA CROWN #  1 Unpat Lode NMC56909 5/20/1944 36629 WLMC 100% Owned Acq From TXAU
NEVADA CROWN #  2 Unpat Lode NMC56910 5/27/1944 36625 WLMC 100% Owned Acq From TXAU
NEVADA CROWN #  5 Unpat Lode NMC56911 5/27/1944 36626 WLMC 100% Owned Acq From TXAU
NEVADA CROWN #  6 Unpat Lode NMC56912 5/27/1944 36627 WLMC 100% Owned Acq From TXAU
NEVADA CROWN #  7 Unpat Lode NMC56913 5/27/1944 36628 WLMC 100% Owned Acq From TXAU
NEVADA CROWN # 10 Unpat Lode NMC56914 6/10/1944 36630 WLMC 100% Owned Acq From TXAU
NEVADA CROWN # 11 Unpat Lode NMC56915 10/5/1971 12021 WLMC 100% Owned Acq From TXAU
NEVADA CROWN 13 Unpat Lode NMC56917 10/6/1971 12023 WLMC 100% Owned Acq From TXAU
NEVADA JUNEAU # 12 Unpat Lode NMC56919 10/5/1971 12017 WLMC 100% Owned Acq From TXAU
NEVADA JUNEAU # 13 Unpat Lode NMC56920 10/5/1971 12018 WLMC 100% Owned Acq From TXAU
NEVADA JUNEAU # 14 Unpat Lode NMC56921 10/5/1971 12019 WLMC 100% Owned Acq From TXAU
NEVADA JUNEAU # 15 Unpat Lode NMC56922 10/5/1971 12020 WLMC 100% Owned Acq From TXAU
VULTURE DOG #  1 Unpat Lode NMC84621 7/17/1979 39154 WLMC 100% Owned Acq From TXAU
VULTURE DOG #  2 Unpat Lode NMC84622 7/17/1979 39155 WLMC 100% Owned Acq From TXAU
VULTURE DOG #  3 Unpat Lode NMC84623 7/17/1979 39156 WLMC 100% Owned Acq From TXAU
VULTURE DOG #  4 Unpat Lode NMC84624 7/17/1979 39157 WLMC 100% Owned Acq From TXAU
VULTURE DOG #  5 Unpat Lode NMC84625 7/17/1979 39158 WLMC 100% Owned Acq From TXAU
VULTURE DOG #  6 Unpat Lode NMC84626 7/17/1979 39159 WLMC 100% Owned Acq From TXAU
VULTURE DOG #  7 Unpat Lode NMC84627 7/17/1979 39160 WLMC 100% Owned Acq From TXAU
VULTURE DOG #  8 Unpat Lode NMC84628 7/17/1979 39161 WLMC 100% Owned Acq From TXAU
VULTURE DOG #  9 Unpat Lode NMC84629 7/17/1979 39162 WLMC 100% Owned Acq From TXAU
VULTURE DOG # 10 Unpat Lode NMC84630 7/17/1979 39163 WLMC 100% Owned Acq From TXAU
VULTURE DOG # 11 Unpat Lode NMC84631 7/17/1979 39164 WLMC 100% Owned Acq From TXAU
VULTURE DOG # 12 Unpat Lode NMC84632 7/17/1979 39165 WLMC 100% Owned Acq From TXAU
VULTURE DOG # 13 Unpat Lode NMC84633 7/17/1979 39166 WLMC 100% Owned Acq From TXAU
VULTURE DOG # 14 Unpat Lode NMC84634 7/17/1979 39167 WLMC 100% Owned Acq From TXAU
VULTURE DOG # 15 Unpat Lode NMC84635 7/17/1979 39168 WLMC 100% Owned Acq From TXAU
VULTURE DOG # 16 Unpat Lode NMC84751 7/17/1979 39169 WLMC 100% Owned Acq From TXAU
CIVIT CAT #  1 Unpat Lode NMC117958 3/4/1973 16289 WLMC 100% Owned Acq From TXAU
CIVIT CAT #  2 Unpat Lode NMC117959 3/4/1973 16290 WLMC 100% Owned Acq From TXAU
CIVIT CAT #  3 Unpat Lode NMC117960 3/4/1973 16291 WLMC 100% Owned Acq From TXAU
CIVIT CAT #  4 Unpat Lode NMC117961 3/4/1973 16292 WLMC 100% Owned Acq From TXAU
CIVIT CAT #  5 Unpat Lode NMC117962 3/4/1973 16293 WLMC 100% Owned Acq From TXAU
RLE #  3 Unpat Lode NMC133570 9/18/1979 41132 WLMC 100% Owned Acq From TXAU
RLE #  4 Unpat Lode NMC133571 9/18/1979 41133 WLMC 100% Owned Acq From TXAU
RLE #  5 Unpat Lode NMC133572 9/18/1979 41134 WLMC 100% Owned Acq From TXAU
RLE #  6 Unpat Lode NMC133573 9/18/1979 41135 WLMC 100% Owned Acq From TXAU
HY #203 Unpat Lode NMC151215 2/23/1980 44010 WLMC 100% Owned Acq From TXAU
HY #204 Unpat Lode NMC151216 2/23/1980 44011 WLMC 100% Owned Acq From TXAU
HY #205 Unpat Lode NMC151217 2/23/1980 44012 WLMC 100% Owned Acq From TXAU
HY #206 Unpat Lode NMC151218 2/23/1980 44013 WLMC 100% Owned Acq From TXAU
HY #207 Unpat Lode NMC151219 2/23/1980 44014 WLMC 100% Owned Acq From TXAU
HY #208 Unpat Lode NMC151220 2/23/1980 44015 WLMC 100% Owned Acq From TXAU
HY #209 Unpat Lode NMC151221 2/23/1980 44016 WLMC 100% Owned Acq From TXAU
HY #210 Unpat Lode NMC151222 2/23/1980 44017 WLMC 100% Owned Acq From TXAU
HY #211 Unpat Lode NMC151223 2/23/1980 44018 WLMC 100% Owned Acq From TXAU
HY #212 Unpat Lode NMC151224 2/23/1980 44019 WLMC 100% Owned Acq From TXAU
HY #213 Unpat Lode NMC151225 2/23/1980 44020 WLMC 100% Owned Acq From TXAU
ISLAND #  2 Unpat Lode NMC218088 7/6/1981 53070 WLMC 100% Owned Acq From TXAU
ISLAND #  4 FRAC Unpat Lode NMC218090 7/7/1981 53072 WLMC 100% Owned Acq From TXAU
ISLAND #  5 Unpat Lode NMC218091 7/7/1981 53073 WLMC 100% Owned Acq From TXAU
ISLAND #  6 Unpat Lode NMC218092 7/8/1981 53074 WLMC 100% Owned Acq From TXAU
ISLAND # 10 Unpat Lode NMC218096 7/8/1981 53078 WLMC 100% Owned Acq From TXAU
ISLAND # 11 Unpat Lode NMC218097 7/8/1981 53079 WLMC 100% Owned Acq From TXAU
ISLAND # 12 Unpat Lode NMC218098 7/8/1981 53080 WLMC 100% Owned Acq From TXAU
HY # 61 Unpat Lode NMC223041 9/1/1981 53915 WLMC 100% Owned Acq From TXAU
HY # 66 Unpat Lode NMC223046 9/1/1981 53920 WLMC 100% Owned Acq From TXAU
HY # 67 Unpat Lode NMC223047 9/1/1981 53921 WLMC 100% Owned Acq From TXAU
HY # 68 Unpat Lode NMC223048 9/1/1981 53922 WLMC 100% Owned Acq From TXAU
HY # 69 Unpat Lode NMC223049 9/1/1981 53923 WLMC 100% Owned Acq From TXAU
HY # 70 Unpat Lode NMC223050 9/1/1981 53924 WLMC 100% Owned Acq From TXAU
HY # 71 Unpat Lode NMC223051 9/1/1981 53925 WLMC 100% Owned Acq From TXAU

 

 

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HY # 76 Unpat Lode NMC223056 9/1/1981 53930 WLMC 100% Owned Acq From TXAU
HY # 109 Unpat Lode NMC223089 9/2/1981 53963 WLMC 100% Owned Acq From TXAU
HY # 110 Unpat Lode NMC223090 9/2/1981 53964 WLMC 100% Owned Acq From TXAU
HY # 115 Unpat Lode NMC223095 9/2/1981 53969 WLMC 100% Owned Acq From TXAU
HY # 116 Unpat Lode NMC223096 9/2/1981 53970 WLMC 100% Owned Acq From TXAU
HY # 122 Unpat Lode NMC223102 9/2/1981 53976 WLMC 100% Owned Acq From TXAU
HY # 123 Unpat Lode NMC223103 9/2/1981 53977 WLMC 100% Owned Acq From TXAU
HY # 124 Unpat Lode NMC223104 9/2/1981 53978 WLMC 100% Owned Acq From TXAU
HY # 125 Unpat Lode NMC223105 9/2/1981 53979 WLMC 100% Owned Acq From TXAU
HY # 126 Unpat Lode NMC223106 9/2/1981 53980 WLMC 100% Owned Acq From TXAU
HY # 127 Unpat Lode NMC223107 9/2/1981 53981 WLMC 100% Owned Acq From TXAU
HY # 128 Unpat Lode NMC223108 9/2/1981 53982 WLMC 100% Owned Acq From TXAU
HY # 129 Unpat Lode NMC223109 9/2/1981 53983 WLMC 100% Owned Acq From TXAU
HY # 132 Unpat Lode NMC223112 9/2/1981 53986 WLMC 100% Owned Acq From TXAU
HY # 134 Unpat Lode NMC223114 9/3/1981 53988 WLMC 100% Owned Acq From TXAU
HY # 135 Unpat Lode NMC223115 9/3/1981 53989 WLMC 100% Owned Acq From TXAU
HY # 136 Unpat Lode NMC223116 9/3/1981 53990 WLMC 100% Owned Acq From TXAU
HY # 137 Unpat Lode NMC223117 9/3/1981 53991 WLMC 100% Owned Acq From TXAU
HY # 138 Unpat Lode NMC223118 9/3/1981 53992 WLMC 100% Owned Acq From TXAU
HY # 139 Unpat Lode NMC223119 9/3/1981 53993 WLMC 100% Owned Acq From TXAU
HY # 142 Unpat Lode NMC223122 9/3/1981 53996 WLMC 100% Owned Acq From TXAU
HY # 143 Unpat Lode NMC223123 9/3/1981 53997 WLMC 100% Owned Acq From TXAU
HY # 144 Unpat Lode NMC223124 9/3/1981 53998 WLMC 100% Owned Acq From TXAU
HY # 145 Unpat Lode NMC223125 9/3/1981 53999 WLMC 100% Owned Acq From TXAU
HY # 146 Unpat Lode NMC223126 9/3/1981 54000 WLMC 100% Owned Acq From TXAU
HY # 147 Unpat Lode NMC223127 9/3/1981 54001 WLMC 100% Owned Acq From TXAU
HY # 148 Unpat Lode NMC223128 9/3/1981 54002 WLMC 100% Owned Acq From TXAU
HY # 149 Unpat Lode NMC223129 9/3/1981 54003 WLMC 100% Owned Acq From TXAU
HY # 150 Unpat Lode NMC223130 9/3/1981 54004 WLMC 100% Owned Acq From TXAU
HY # 151 Unpat Lode NMC223131 9/3/1981 54005 WLMC 100% Owned Acq From TXAU
HY # 152 Unpat Lode NMC223132 9/3/1981 54006 WLMC 100% Owned Acq From TXAU
HY # 153 Unpat Lode NMC223133 9/3/1981 54007 WLMC 100% Owned Acq From TXAU
HY # 154 Unpat Lode NMC223134 9/3/1981 54008 WLMC 100% Owned Acq From TXAU
HY # 214 Unpat Lode NMC223143 9/1/1981 53901 WLMC 100% Owned Acq From TXAU
HY # 215 Unpat Lode NMC223144 9/1/1981 53902 WLMC 100% Owned Acq From TXAU
HY # 216 Unpat Lode NMC223145 9/1/1981 53903 WLMC 100% Owned Acq From TXAU
HY # 502 Unpat Lode NMC223147 9/2/1981 53905 WLMC 100% Owned Acq From TXAU
HY # 505 Unpat Lode NMC223150 9/2/1981 53908 WLMC 100% Owned Acq From TXAU
HY # 506 Unpat Lode NMC223151 9/2/1981 53909 WLMC 100% Owned Acq From TXAU
HY # 508 Unpat Lode NMC223153 9/2/1981 53911 WLMC 100% Owned Acq From TXAU
HY # 510 Unpat Lode NMC223155 9/2/1981 53913 WLMC 100% Owned Acq From TXAU
HY # 511 Unpat Lode NMC223156 9/2/1981 53914 WLMC 100% Owned Acq From TXAU
BROWN DERBY #  2 Unpat Lode NMC255811 11/18/1982 60125 WLMC 100% Owned Acq From TXAU
BROWN DERBY #  3 Unpat Lode NMC255812 11/18/1982 60126 WLMC 100% Owned Acq From TXAU
HARD YAKKA #  1 Unpat Lode NMC298881 1/19/1984 65073 WLMC 100% Owned Acq From TXAU
HARD YAKKA #  3 Unpat Lode NMC298883 1/19/1984 65075 WLMC 100% Owned Acq From TXAU
HARD YAKKA #  5 Unpat Lode NMC298885 1/19/1984 65077 WLMC 100% Owned Acq From TXAU
HARD YAKKA #  6 Unpat Lode NMC298886 1/19/1984 65078 WLMC 100% Owned Acq From TXAU
VULTURE DOG # 22 Unpat Lode NMC315752 6/21/1984 68277 WLMC 100% Owned Acq From TXAU
HY # 300 Unpat Lode NMC319119 7/26/1984   WLMC 100% Owned Acq From TXAU
HY # 301 Unpat Lode NMC319120 7/26/1984   WLMC 100% Owned Acq From TXAU
HY # 302 Unpat Lode NMC319121 7/26/1984   WLMC 100% Owned Acq From TXAU
HY # 303 Unpat Lode NMC319122 7/26/1984   WLMC 100% Owned Acq From TXAU
HY # 304 Unpat Lode NMC319123 7/26/1984   WLMC 100% Owned Acq From TXAU
HY # 305 Unpat Lode NMC319124 7/26/1984   WLMC 100% Owned Acq From TXAU
HY # 306 Unpat Lode NMC319125 8/2/1984   WLMC 100% Owned Acq From TXAU
HY # 307 Unpat Lode NMC319126 8/2/1984   WLMC 100% Owned Acq From TXAU
HY # 308 Unpat Lode NMC319127 8/2/1984   WLMC 100% Owned Acq From TXAU
HY # 309 Unpat Lode NMC319128 8/2/1984   WLMC 100% Owned Acq From TXAU
HY # 310 Unpat Lode NMC319129 8/2/1984   WLMC 100% Owned Acq From TXAU
HY # 311 Unpat Lode NMC319130 8/2/1984   WLMC 100% Owned Acq From TXAU
HY # 600 Unpat Lode NMC319131 7/27/1984   WLMC 100% Owned Acq From TXAU
HY # 603 Unpat Lode NMC319134 7/27/1984   WLMC 100% Owned Acq From TXAU
HY # 609 Unpat Lode NMC319140 7/28/1984   WLMC 100% Owned Acq From TXAU
HY # 609 FRACTION Unpat Lode NMC319141 7/28/1984   WLMC 100% Owned Acq From TXAU
HY # 612 Unpat Lode NMC319144 7/30/1984   WLMC 100% Owned Acq From TXAU
HY # 615 Unpat Lode NMC319147 7/30/1984   WLMC 100% Owned Acq From TXAU

 

 

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HY # 616 Unpat Lode NMC319148 7/30/1984   WLMC 100% Owned Acq From TXAU
HY # 617 Unpat Lode NMC319149 8/1/1984   WLMC 100% Owned Acq From TXAU
HY # 618 Unpat Lode NMC319150 8/1/1984   WLMC 100% Owned Acq From TXAU
HY # 619 Unpat Lode NMC319151 8/1/1984   WLMC 100% Owned Acq From TXAU
HY # 622 Unpat Lode NMC319154 8/1/1984   WLMC 100% Owned Acq From TXAU
HY # 625 Unpat Lode NMC319157 8/1/1984   WLMC 100% Owned Acq From TXAU
HY # 626 Unpat Lode NMC319158 7/31/1984   WLMC 100% Owned Acq From TXAU
HY # 627 Unpat Lode NMC319159 7/31/1984   WLMC 100% Owned Acq From TXAU
HY # 628 Unpat Lode NMC319160 7/31/1984   WLMC 100% Owned Acq From TXAU
HY # 629 Unpat Lode NMC319161 7/31/1984   WLMC 100% Owned Acq From TXAU
HY # 630 Unpat Lode NMC319162 7/31/1984   WLMC 100% Owned Acq From TXAU
HY # 631 Unpat Lode NMC319163 7/31/1984   WLMC 100% Owned Acq From TXAU
HY # 633 Unpat Lode NMC319165 7/31/1984   WLMC 100% Owned Acq From TXAU
HY # 634 Unpat Lode NMC319166 7/31/1984   WLMC 100% Owned Acq From TXAU
HY # 635 Unpat Lode NMC319167 7/31/1984   WLMC 100% Owned Acq From TXAU
HY # 636 Unpat Lode NMC319168 8/2/1984   WLMC 100% Owned Acq From TXAU
HY # 639 Unpat Lode NMC319171 8/2/1984   WLMC 100% Owned Acq From TXAU
HY # 640 Unpat Lode NMC319172 8/2/1984   WLMC 100% Owned Acq From TXAU
HY # 641 Unpat Lode NMC319173 8/2/1984   WLMC 100% Owned Acq From TXAU
HY # 642 Unpat Lode NMC319174 8/2/1984   WLMC 100% Owned Acq From TXAU
RLE L#  7 Unpat Lode NMC329930 9/27/1984   WLMC 100% Owned Acq From TXAU
CIVIT CAT #  6 Unpat Lode NMC340103 5/10/1985   WLMC 100% Owned Acq From TXAU
CIVIT CAT #  7 Unpat Lode NMC340104 5/10/1985   WLMC 100% Owned Acq From TXAU
CIVIT CAT #  8 Unpat Lode NMC340105 5/10/1985   WLMC 100% Owned Acq From TXAU
HY #651 Unpat Lode NMC366936 2/24/1986   WLMC 100% Owned Acq From TXAU
HY #652 Unpat Lode NMC366937 2/24/1986   WLMC 100% Owned Acq From TXAU
HY #653 Unpat Lode NMC366938 2/24/1986   WLMC 100% Owned Acq From TXAU
HY #654 Unpat Lode NMC366939 2/24/1986   WLMC 100% Owned Acq From TXAU
HY #655 Unpat Lode NMC366940 2/24/1986   WLMC 100% Owned Acq From TXAU
HY #656 Unpat Lode NMC366941 2/24/1986   WLMC 100% Owned Acq From TXAU
HY #657 Unpat Lode NMC366942 2/24/1986   WLMC 100% Owned Acq From TXAU
HY #658 Unpat Lode NMC366943 2/24/1986   WLMC 100% Owned Acq From TXAU
HY #659 Unpat Lode NMC366944 2/24/1986   WLMC 100% Owned Acq From TXAU
HY #660 Unpat Lode NMC366945 2/24/1986   WLMC 100% Owned Acq From TXAU
HY #661 Unpat Lode NMC366946 2/24/1986   WLMC 100% Owned Acq From TXAU
HY #662 Unpat Lode NMC366947 2/24/1986   WLMC 100% Owned Acq From TXAU
HY #679 Unpat Lode NMC381694 9/3/1986   WLMC 100% Owned Acq From TXAU
HY #680 Unpat Lode NMC381695 9/3/1986   WLMC 100% Owned Acq From TXAU
HY 689 Unpat Lode NMC381704 9/3/1986   WLMC 100% Owned Acq From TXAU
ARO #  1 Unpat Lode NMC392308 11/6/1986 79054 WLMC 100% Owned Acq From TXAU
ARO #  2 Unpat Lode NMC392309 11/6/1986 79055 WLMC 100% Owned Acq From TXAU
ARO #  3 Unpat Lode NMC392310 11/6/1986 79056 WLMC 100% Owned Acq From TXAU
ARO #  4 Unpat Lode NMC392311 11/6/1986 79057 WLMC 100% Owned Acq From TXAU
ARO #  6 Unpat Lode NMC392313 11/6/1986 79059 WLMC 100% Owned Acq From TXAU
ARO #  7 Unpat Lode NMC392314 11/6/1986 79060 WLMC 100% Owned Acq From TXAU
ARO #  8 Unpat Lode NMC392315 11/6/1986 79061 WLMC 100% Owned Acq From TXAU
ARO #  9 Unpat Lode NMC392316 11/6/1986 79062 WLMC 100% Owned Acq From TXAU
ARO # 10 Unpat Lode NMC392317 11/6/1986 79063 WLMC 100% Owned Acq From TXAU
ARO # 11 Unpat Lode NMC392318 11/6/1986 79064 WLMC 100% Owned Acq From TXAU
ARO # 12 Unpat Lode NMC392319 11/6/1986 79065 WLMC 100% Owned Acq From TXAU
ARO # 13 Unpat Lode NMC392320 11/6/1986 79066 WLMC 100% Owned Acq From TXAU
ARO # 14 Unpat Lode NMC392321 11/6/1986 79067 WLMC 100% Owned Acq From TXAU
SODA #  6 Unpat Lode NMC405057 2/27/1987 79813 WLMC 100% Owned Acq From TXAU
SODA #  7 Unpat Lode NMC405058 2/27/1987 79814 WLMC 100% Owned Acq From TXAU
SODA #  8 Unpat Lode NMC405059 2/27/1987 79815 WLMC 100% Owned Acq From TXAU
SODA #  9 Unpat Lode NMC405060 2/27/1987 79816 WLMC 100% Owned Acq From TXAU
SODA # 10 Unpat Lode NMC405061 2/27/1987 79817 WLMC 100% Owned Acq From TXAU
SODA # 11 Unpat Lode NMC405062 2/27/1987 79818 WLMC 100% Owned Acq From TXAU
SODA # 12 Unpat Lode NMC405063 2/27/1987 79819 WLMC 100% Owned Acq From TXAU
SODA # 13 Unpat Lode NMC405064 2/27/1987 79820 WLMC 100% Owned Acq From TXAU
SODA # 19 Unpat Lode NMC405070 2/27/1987 79826 WLMC 100% Owned Acq From TXAU
SODA # 23 Unpat Lode NMC405074 2/27/1987 79830 WLMC 100% Owned Acq From TXAU
SODA # 24 Unpat Lode NMC405075 2/27/1987 79831 WLMC 100% Owned Acq From TXAU
SODA # 25 Unpat Lode NMC405076 2/27/1987 79832 WLMC 100% Owned Acq From TXAU
SODA # 26 Unpat Lode NMC405077 2/27/1987 79833 WLMC 100% Owned Acq From TXAU
SODA # 36 Unpat Lode NMC405087 2/27/1987 79843 WLMC 100% Owned Acq From TXAU
SODA # 49 Unpat Lode NMC405100 2/27/1987 79856 WLMC 100% Owned Acq From TXAU

 

 

170

 

 

2020 REPORT ON THE MINERAL RESOURCE & RESERVE ESTIMATE FOR THE ISABELLA PEARL MINE, NEVADA
 

 

SODA # 50 Unpat Lode NMC405101 2/27/1987 79857 WLMC 100% Owned Acq From TXAU
SODA # 51 Unpat Lode NMC405102 2/27/1987 79858 WLMC 100% Owned Acq From TXAU
SODA # 52 Unpat Lode NMC405103 2/27/1987 79859 WLMC 100% Owned Acq From TXAU
BEN #  8 Unpat Lode NMC419911 4/28/1987   WLMC 100% Owned Acq From TXAU
BEN # 13 Unpat Lode NMC419916 4/29/1987   WLMC 100% Owned Acq From TXAU
BEN # 14 Unpat Lode NMC419917 4/29/1987   WLMC 100% Owned Acq From TXAU
HY #739 Unpat Lode NMC470073 1/6/1988   WLMC 100% Owned Acq From TXAU
HY #740 Unpat Lode NMC470074 1/6/1988   WLMC 100% Owned Acq From TXAU
HY #741 Unpat Lode NMC470075 1/6/1988   WLMC 100% Owned Acq From TXAU
HY #742 Unpat Lode NMC470076 1/6/1988   WLMC 100% Owned Acq From TXAU
HY #743 Unpat Lode NMC470077 1/6/1988   WLMC 100% Owned Acq From TXAU
HY #744 Unpat Lode NMC470078 1/6/1988   WLMC 100% Owned Acq From TXAU
HY #745 Unpat Lode NMC470079 1/6/1988   WLMC 100% Owned Acq From TXAU
HY #746 Unpat Lode NMC470080 1/6/1988   WLMC 100% Owned Acq From TXAU
HY #747 Unpat Lode NMC470081 1/6/1988   WLMC 100% Owned Acq From TXAU
HY #748 Unpat Lode NMC470082 1/6/1988   WLMC 100% Owned Acq From TXAU
HY #749 Unpat Lode NMC470083 1/6/1988   WLMC 100% Owned Acq From TXAU
GL #  4 Unpat Lode NMC470986 1/12/1988   WLMC 100% Owned Acq From TXAU
GL #  5 Unpat Lode NMC470987 1/12/1988   WLMC 100% Owned Acq From TXAU
GL # 14 Unpat Lode NMC470988 1/12/1988   WLMC 100% Owned Acq From TXAU
GL # 15 Unpat Lode NMC470989 1/12/1988   WLMC 100% Owned Acq From TXAU
GL #119 Unpat Lode NMC472828 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #120 Unpat Lode NMC472829 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #121 Unpat Lode NMC472830 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #122 Unpat Lode NMC472831 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #124 Unpat Lode NMC472833 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #126 Unpat Lode NMC472835 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #127 Unpat Lode NMC472836 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #128 Unpat Lode NMC472837 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #129 Unpat Lode NMC472838 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #130 Unpat Lode NMC472839 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #131 Unpat Lode NMC472840 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #132 Unpat Lode NMC472841 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #133 Unpat Lode NMC472842 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #134 Unpat Lode NMC472843 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #136 Unpat Lode NMC472844 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #135 Unpat Lode NMC472845 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #137 Unpat Lode NMC472846 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #138 Unpat Lode NMC472847 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #139 Unpat Lode NMC472848 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #140 Unpat Lode NMC472849 2/4/1988   WLMC 100% Owned Acq From TXAU
GL #103 Unpat Lode NMC476566 2/19/1988   WLMC 100% Owned Acq From TXAU
GL #104 Unpat Lode NMC476567 2/19/1988   WLMC 100% Owned Acq From TXAU
GL #105 Unpat Lode NMC476568 2/19/1988   WLMC 100% Owned Acq From TXAU
GL #106 Unpat Lode NMC476569 2/19/1988   WLMC 100% Owned Acq From TXAU
GL #107 Unpat Lode NMC476570 2/15/1988   WLMC 100% Owned Acq From TXAU
GL #108 Unpat Lode NMC476571 2/15/1988   WLMC 100% Owned Acq From TXAU
GL #109 Unpat Lode NMC476572 2/15/1988   WLMC 100% Owned Acq From TXAU
GL #110 Unpat Lode NMC476573 2/15/1988   WLMC 100% Owned Acq From TXAU
GL #111 Unpat Lode NMC476574 2/15/1988   WLMC 100% Owned Acq From TXAU
GL #112 Unpat Lode NMC476575 2/15/1988   WLMC 100% Owned Acq From TXAU
GL #113 Unpat Lode NMC476576 2/15/1988   WLMC 100% Owned Acq From TXAU
GL #114 Unpat Lode NMC476577 2/15/1988   WLMC 100% Owned Acq From TXAU
GL #115 Unpat Lode NMC476578 2/15/1988   WLMC 100% Owned Acq From TXAU
GL #116 Unpat Lode NMC476579 2/15/1988   WLMC 100% Owned Acq From TXAU
GL #141 Unpat Lode NMC476580 2/15/1988   WLMC 100% Owned Acq From TXAU
GL #142 Unpat Lode NMC476581 2/15/1988   WLMC 100% Owned Acq From TXAU
GL #203 Unpat Lode NMC505509 5/24/1988   WLMC 100% Owned Acq From TXAU
GL #204 Unpat Lode NMC505510 5/24/1988   WLMC 100% Owned Acq From TXAU
GL #205 Unpat Lode NMC505511 5/23/1988   WLMC 100% Owned Acq From TXAU
GL #206 Unpat Lode NMC505512 5/23/1988   WLMC 100% Owned Acq From TXAU
GL #219 Unpat Lode NMC505516 5/23/1988   WLMC 100% Owned Acq From TXAU
GL #220 Unpat Lode NMC505517 5/23/1988   WLMC 100% Owned Acq From TXAU
GL #221 Unpat Lode NMC505518 5/23/1988   WLMC 100% Owned Acq From TXAU
GL #222 Unpat Lode NMC505519 5/23/1988   WLMC 100% Owned Acq From TXAU
GL #223 Unpat Lode NMC505520 5/23/1988   WLMC 100% Owned Acq From TXAU
GL #224 Unpat Lode NMC505521 5/24/1988   WLMC 100% Owned Acq From TXAU

 

 

171

 

 

2020 REPORT ON THE MINERAL RESOURCE & RESERVE ESTIMATE FOR THE ISABELLA PEARL MINE, NEVADA
 

 

GL #226 Unpat Lode NMC505523 5/24/1988   WLMC 100% Owned Acq From TXAU
GL #227 Unpat Lode NMC505524 5/24/1988   WLMC 100% Owned Acq From TXAU
GL #228 Unpat Lode NMC505525 5/24/1988   WLMC 100% Owned Acq From TXAU
GL #229 Unpat Lode NMC505526 5/24/1988   WLMC 100% Owned Acq From TXAU
GL #230 Unpat Lode NMC505527 5/24/1988   WLMC 100% Owned Acq From TXAU
GL # 344 Unpat Lode NMC520617 9/13/1988   WLMC 100% Owned Acq From TXAU
GL # 355 Unpat Lode NMC520628 9/13/1988   WLMC 100% Owned Acq From TXAU
GL # 370 Unpat Lode NMC520641 9/13/1988   WLMC 100% Owned Acq From TXAU
GL # 378 Unpat Lode NMC520649 7/26/1988   WLMC 100% Owned Acq From TXAU
GL # 379 Unpat Lode NMC520650 7/26/1988   WLMC 100% Owned Acq From TXAU
GL # 380 Unpat Lode NMC520651 7/26/1988   WLMC 100% Owned Acq From TXAU
GL # 381 Unpat Lode NMC520652 7/26/1988   WLMC 100% Owned Acq From TXAU
GL # 385 Unpat Lode NMC520655 8/30/1988   WLMC 100% Owned Acq From TXAU
GL # 386 Unpat Lode NMC520656 8/30/1988   WLMC 100% Owned Acq From TXAU
GL # 387 Unpat Lode NMC520657 8/30/1988   WLMC 100% Owned Acq From TXAU
GL # 390 Unpat Lode NMC520660 8/30/1988   WLMC 100% Owned Acq From TXAU
GL # 392 Unpat Lode NMC520662 9/1/1988   WLMC 100% Owned Acq From TXAU
GL # 393 Unpat Lode NMC520663 9/1/1988   WLMC 100% Owned Acq From TXAU
GL # 394 Unpat Lode NMC520664 9/1/1988   WLMC 100% Owned Acq From TXAU
GL # 395 Unpat Lode NMC520665 9/1/1988   WLMC 100% Owned Acq From TXAU
GL #396 Unpat Lode NMC559377 4/13/1989   WLMC 100% Owned Acq From TXAU
GL #397 Unpat Lode NMC559378 4/13/1989   WLMC 100% Owned Acq From TXAU
GL #398 Unpat Lode NMC559379 4/13/1989   WLMC 100% Owned Acq From TXAU
GL #399 Unpat Lode NMC559380 4/13/1989   WLMC 100% Owned Acq From TXAU
GL #400 Unpat Lode NMC559381 4/13/1989   WLMC 100% Owned Acq From TXAU
GL #401 Unpat Lode NMC559382 4/17/1989   WLMC 100% Owned Acq From TXAU
GL #402 Unpat Lode NMC559383 4/17/1989   WLMC 100% Owned Acq From TXAU
GL #403 Unpat Lode NMC559384 4/17/1989   WLMC 100% Owned Acq From TXAU
YO HO Unpat Lode NMC602526 7/11/1990   WLMC 100% Owned Acq From TXAU
SODA   37 Unpat Lode NMC602527 5/10/1990   WLMC 100% Owned Acq From TXAU
SODA   38 Unpat Lode NMC602528 5/10/1990   WLMC 100% Owned Acq From TXAU
SODA 5 Unpat Lode NMC636629 9/18/1991   WLMC 100% Owned Acq From TXAU
SODA 32 Unpat Lode NMC636630 9/18/1991   WLMC 100% Owned Acq From TXAU
HY 632 Unpat Lode NMC673880 10/4/1992   WLMC 100% Owned Acq From TXAU
NEW 644 Unpat Lode NMC814799 2/4/2000   WLMC 100% Owned Acq From TXAU
NEW COPPER CLIFFS 1 Unpat Lode NMC842885 11/13/2002   WLMC 100% Owned Acq From TXAU
NEW COPPER CLIFFS 2 Unpat Lode NMC842886 11/13/2002   WLMC 100% Owned Acq From TXAU
NEW COPPER CLIFFS 3 Unpat Lode NMC842887 11/13/2002   WLMC 100% Owned Acq From TXAU
NEW COPPER CLIFFS 2 Unpat Lode NMC842888 11/13/2002   WLMC 100% Owned Acq From TXAU
(a/k/a NEW COPPER CLIFFS 4)         WLMC 100% Owned Acq From TXAU
NEW COPPER CLIFFS 5 Unpat Lode NMC842889 11/13/2002   WLMC 100% Owned Acq From TXAU
SOD 1 Unpat Lode NMC1053898 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 2 Unpat Lode NMC1053899 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 3 Unpat Lode NMC1053900 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 4 Unpat Lode NMC1053901 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 5 Unpat Lode NMC1053902 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 6 Unpat Lode NMC1053903 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 7 Unpat Lode NMC1053904 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 8 Unpat Lode NMC1053905 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 9 Unpat Lode NMC1053906 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 10 Unpat Lode NMC1053907 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 11 Unpat Lode NMC1053908 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 12 Unpat Lode NMC1053909 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 13 Unpat Lode NMC1053910 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 14 Unpat Lode NMC1053911 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 15 Unpat Lode NMC1053912 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 16 Unpat Lode NMC1053913 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 17 Unpat Lode NMC1053914 8/2/2011   WLMC 100% Owned Acq From TXAU
SOD 18 Unpat Lode NMC1053915 8/2/2011   WLMC 100% Owned Acq From TXAU
SODAR 20 Unpat Lode NMC1185560 11/16/2018 170004 WLMC 100% Owned Acq From TXAU
(WLMC reloc of SODA claims)
SODAR 21 Unpat Lode NMC1185561 11/16/2018 170005 WLMC 100% Owned same
SODAR 22 Unpat Lode NMC1185562 11/16/2018 170006 WLMC 100% Owned same
SODAR 33 Unpat Lode NMC1185563 11/16/2018 170007 WLMC 100% Owned same
SODAR 34 Unpat Lode NMC1185564 11/16/2018 170008 WLMC 100% Owned same
SODAR 35 Unpat Lode NMC1185565 11/16/2018 170009 WLMC 100% Owned same
SODAR 46 Unpat Lode NMC1185566 11/16/2018 170010 WLMC 100% Owned same

 

 

172

 

 

2020 REPORT ON THE MINERAL RESOURCE & RESERVE ESTIMATE FOR THE ISABELLA PEARL MINE, NEVADA
 

 

SODAR 47 Unpat Lode NMC1185567 11/16/2018 170011 WLMC 100% Owned same
SODAR 48 Unpat Lode NMC1185568 11/16/2018 170012 WLMC 100% Owned same
ISABELLA # 12 Unpat Lode NMC170214 9/1/1980 45607 WLMC WLMC 50% Own
WLMC 50% Lse
Acq From TXAU
(WLMC 50% - Hayes et al 50%)
ISABELLA # 13 Unpat Lode NMC170215 9/1/1980 45608 WLMC same Acq From TXAU
ISABELLA # 14 Unpat Lode NMC170216 9/1/1980 45609 WLMC same Acq From TXAU
ISABELLA # 15 Unpat Lode NMC170217 9/1/1980 45610 WLMC same Acq From TXAU
ISABELLA # 16 FRAC Unpat Lode NMC170218 9/1/1980 45611 WLMC same Acq From TXAU
ISABELLA # 17 FRAC Unpat Lode NMC170219 9/21/1980 45612 WLMC same Acq From TXAU
ISABELLA # 19 FRAC Unpat Lode NMC170221 9/28/1980 45614 WLMC same Acq From TXAU
ISABELLA #  1 Unpat Lode NMC235711 1/30/1982 56931 WLMC same Acq From TXAU
ISABELLA #  2 Unpat Lode NMC235712 1/30/1982 56932 WLMC same Acq From TXAU
ISABELLA #  3 Unpat Lode NMC235713 1/30/1982 56933 WLMC same Acq From TXAU
IS 1 Unpat Lode NMC1130461 9/2/2016 164174 WLMC 100% Owned Acq From NV Select Royalty
IS 2 Unpat Lode NMC1130462 9/2/2016 164175 WLMC 100% Owned Acq From NV Select Royalty
IS 3 Unpat Lode NMC1130463 9/2/2016 164176 WLMC 100% Owned Acq From NV Select Royalty
IS 4 Unpat Lode NMC1130464 9/2/2016 164177 WLMC 100% Owned Acq From NV Select Royalty
IS 5 Unpat Lode NMC1130465 9/2/2016 164178 WLMC 100% Owned Acq From NV Select Royalty
IS 6 Unpat Lode NMC1130466 9/2/2016 164179 WLMC 100% Owned Acq From NV Select Royalty
IS 7 Unpat Lode NMC1130467 9/2/2016 164180 WLMC 100% Owned Acq From NV Select Royalty
IS 8 Unpat Lode NMC1130468 9/2/2016 164181 WLMC 100% Owned Acq From NV Select Royalty
IS 9 Unpat Lode NMC1130469 9/2/2016 164182 WLMC 100% Owned Acq From NV Select Royalty
IS 10 Unpat Lode NMC1130470 9/2/2016 164183 WLMC 100% Owned Acq From NV Select Royalty
IS 11 Unpat Lode NMC1130471 9/4/2016 164184 WLMC 100% Owned Acq From NV Select Royalty
IS 12 Unpat Lode NMC1130472 9/4/2016 164185 WLMC 100% Owned Acq From NV Select Royalty
IS 13 Unpat Lode NMC1130473 9/4/2016 164186 WLMC 100% Owned Acq From NV Select Royalty
IS 14 Unpat Lode NMC1130474 9/4/2016 164187 WLMC 100% Owned Acq From NV Select Royalty
IS 15 Unpat Lode NMC1130475 9/4/2016 164188 WLMC 100% Owned Acq From NV Select Royalty
IS 16 Unpat Lode NMC1130476 9/4/2016 164189 WLMC 100% Owned Acq From NV Select Royalty
IS 17 Unpat Lode NMC1130477 9/4/2016 164190 WLMC 100% Owned Acq From NV Select Royalty
IS 18 Unpat Lode NMC1130478 9/4/2016 164191 WLMC 100% Owned Acq From NV Select Royalty
IS 19 Unpat Lode NMC1130479 9/4/2016 164192 WLMC 100% Owned Acq From NV Select Royalty
IS 20 Unpat Lode NMC1130480 9/4/2016 164193 WLMC 100% Owned Acq From NV Select Royalty
IS 21 Unpat Lode NMC1130481 9/4/2016 164194 WLMC 100% Owned Acq From NV Select Royalty
IS 22 Unpat Lode NMC1130482 9/4/2016 164195 WLMC 100% Owned Acq From NV Select Royalty
IS 23 Unpat Lode NMC1130483 9/4/2016 164196 WLMC 100% Owned Acq From NV Select Royalty
IS 24 Unpat Lode NMC1130484 9/4/2016 164197 WLMC 100% Owned Acq From NV Select Royalty
IS 25 Unpat Lode NMC1130485 9/4/2016 164198 WLMC 100% Owned Acq From NV Select Royalty
IS 26 Unpat Lode NMC1130486 9/4/2016 164199 WLMC 100% Owned Acq From NV Select Royalty
IS 27 Unpat Lode NMC1130487 9/4/2016 164200 WLMC 100% Owned Acq From NV Select Royalty
IS 28 Unpat Lode NMC1130488 9/4/2016 164201 WLMC 100% Owned Acq From NV Select Royalty
IS 29 Unpat Lode NMC1130489 9/4/2016 164202 WLMC 100% Owned Acq From NV Select Royalty
IS 30 Unpat Lode NMC1130490 9/4/2016 164203 WLMC 100% Owned Acq From NV Select Royalty
IS 31 Unpat Lode NMC1130491 9/4/2016 164204 WLMC 100% Owned Acq From NV Select Royalty
IS 32 Unpat Lode NMC1130492 9/4/2016 164205 WLMC 100% Owned Acq From NV Select Royalty
IS 33 Unpat Lode NMC1130493 9/4/2016 164206 WLMC 100% Owned Acq From NV Select Royalty
IS 34 Unpat Lode NMC1130494 9/4/2016 164207 WLMC 100% Owned Acq From NV Select Royalty
IS 35 Unpat Lode NMC1130495 9/4/2016 164208 WLMC 100% Owned Acq From NV Select Royalty
IS 36 Unpat Lode NMC1130496 9/4/2016 164209 WLMC 100% Owned Acq From NV Select Royalty
IS 37 Unpat Lode NMC1130497 9/4/2016 164210 WLMC 100% Owned Acq From NV Select Royalty
IS 38 Unpat Lode NMC1130498 9/4/2016 164211 WLMC 100% Owned Acq From NV Select Royalty
IS 39 Unpat Lode NMC1130499 9/4/2016 164212 WLMC 100% Owned Acq From NV Select Royalty
IS 40 Unpat Lode NMC1130500 9/4/2016 164213 WLMC 100% Owned Acq From NV Select Royalty
IS 41 Unpat Lode NMC1130501 9/12/2016 164214 WLMC 100% Owned Acq From NV Select Royalty
IS 42 Unpat Lode NMC1130502 9/12/2016 164215 WLMC 100% Owned Acq From NV Select Royalty
IS 43 Unpat Lode NMC1130503 9/12/2016 164216 WLMC 100% Owned Acq From NV Select Royalty
IS 44 Unpat Lode NMC1130504 9/12/2016 164217 WLMC 100% Owned Acq From NV Select Royalty
IS 45 Unpat Lode NMC1130505 9/12/2016 164218 WLMC 100% Owned Acq From NV Select Royalty
IS 46 Unpat Lode NMC1130506 9/12/2016 164219 WLMC 100% Owned Acq From NV Select Royalty
IS 47 Unpat Lode NMC1130507 9/12/2016 164220 WLMC 100% Owned Acq From NV Select Royalty
IS 48 Unpat Lode NMC1130508 9/12/2016 164221 WLMC 100% Owned Acq From NV Select Royalty
IS 49 Unpat Lode NMC1130509 9/12/2016 164222 WLMC 100% Owned Acq From NV Select Royalty
IS 50 Unpat Lode NMC1130510 9/12/2016 164223 WLMC 100% Owned Acq From NV Select Royalty
IS 51 Unpat Lode NMC1130511 9/12/2016 164224 WLMC 100% Owned Acq From NV Select Royalty
IS 52 Unpat Lode NMC1130512 9/12/2016 164225 WLMC 100% Owned Acq From NV Select Royalty
IS 53 Unpat Lode NMC1130513 9/12/2016 164226 WLMC 100% Owned Acq From NV Select Royalty
IS 54 Unpat Lode NMC1130514 9/12/2016 164227 WLMC 100% Owned Acq From NV Select Royalty

 

 

 

173

 

 

2020 REPORT ON THE MINERAL RESOURCE & RESERVE ESTIMATE FOR THE ISABELLA PEARL MINE, NEVADA
 

 

IS 55 Unpat Lode NMC1130515 9/12/2016 164228 WLMC 100% Owned Acq From NV Select Royalty
IS 2 Unpat Lode NMC1136485 12/10/2016 164811 WLMC 100% Owned Acq From NV Select Royalty
IS 4 Unpat Lode NMC1136486 12/10/2016 164812 WLMC 100% Owned Acq From NV Select Royalty
IS 56 Unpat Lode NMC1136487 9/26/2016 164815 WLMC 100% Owned Acq From NV Select Royalty
IS 57 Unpat Lode NMC1136488 9/26/2016 164816 WLMC 100% Owned Acq From NV Select Royalty
IS 59 Unpat Lode NMC1136489 9/26/2016 164817 WLMC 100% Owned Acq From NV Select Royalty
IS 60 Unpat Lode NMC1136490 9/26/2016 164818 WLMC 100% Owned Acq From NV Select Royalty
IS 61 Unpat Lode NMC1136491 9/26/2016 164819 WLMC 100% Owned Acq From NV Select Royalty
IS 62 Unpat Lode NMC1136492 9/26/2016 164820 WLMC 100% Owned Acq From NV Select Royalty
IS 63 Unpat Lode NMC1136493 9/26/2016 164821 WLMC 100% Owned Acq From NV Select Royalty
IS 65 Unpat Lode NMC1136494 9/26/2016 164822 WLMC 100% Owned Acq From NV Select Royalty
IS 66 Unpat Lode NMC1136495 9/26/2016 164823 WLMC 100% Owned Acq From NV Select Royalty
IS 67 Unpat Lode NMC1136496 9/26/2016 164824 WLMC 100% Owned Acq From NV Select Royalty
IS 98 Unpat Lode NMC1136497 9/27/2016 164825 WLMC 100% Owned Acq From NV Select Royalty
IS 99 Unpat Lode NMC1136498 9/27/2016 164826 WLMC 100% Owned Acq From NV Select Royalty
IS 100 Unpat Lode NMC1136499 9/27/2016 164827 WLMC 100% Owned Acq From NV Select Royalty
IS 101 Unpat Lode NMC1136500 9/27/2016 164828 WLMC 100% Owned Acq From NV Select Royalty
IS 102 Unpat Lode NMC1136501 9/27/2016 164829 WLMC 100% Owned Acq From NV Select Royalty
IS 103 Unpat Lode NMC1136502 9/27/2016 164830 WLMC 100% Owned Acq From NV Select Royalty
IS 104 Unpat Lode NMC1136503 9/27/2016 164831 WLMC 100% Owned Acq From NV Select Royalty
IS 105 Unpat Lode NMC1136504 9/27/2016 164832 WLMC 100% Owned Acq From NV Select Royalty
IS 113 Unpat Lode NMC1136505 9/29/2016 164833 WLMC 100% Owned Acq From NV Select Royalty
IS 114 Unpat Lode NMC1136506 9/29/2016 164834 WLMC 100% Owned Acq From NV Select Royalty
IS 115 Unpat Lode NMC1136507 9/29/2016 164835 WLMC 100% Owned Acq From NV Select Royalty
IS 116 Unpat Lode NMC1136508 9/29/2016 164836 WLMC 100% Owned Acq From NV Select Royalty
IS 117 Unpat Lode NMC1136509 9/29/2016 164837 WLMC 100% Owned Acq From NV Select Royalty
IS 118 Unpat Lode NMC1136510 9/29/2016 164838 WLMC 100% Owned Acq From NV Select Royalty
IS 120 Unpat Lode NMC1136511 9/30/2016 164839 WLMC 100% Owned Acq From NV Select Royalty
IS 122 Unpat Lode NMC1136512 9/30/2016 164840 WLMC 100% Owned Acq From NV Select Royalty
IS 124 Unpat Lode NMC1136513 9/30/2016 164841 WLMC 100% Owned Acq From NV Select Royalty
IS 126 Unpat Lode NMC1136514 9/30/2016 164842 WLMC 100% Owned Acq From NV Select Royalty
IS 128 Unpat Lode NMC1136515 9/30/2016 164843 WLMC 100% Owned Acq From NV Select Royalty
IS 130 Unpat Lode NMC1136516 9/30/2016 164844 WLMC 100% Owned Acq From NV Select Royalty
IS 132 Unpat Lode NMC1136517 9/30/2016 164845 WLMC 100% Owned Acq From NV Select Royalty
IS 134 Unpat Lode NMC1136518 9/30/2016 164846 WLMC 100% Owned Acq From NV Select Royalty
IS 200 Unpat Lode NMC1136519 12/10/2016 164813 WLMC 100% Owned Acq From NV Select Royalty
IS 201 Unpat Lode NMC1136520 12/10/2016 164814 WLMC 100% Owned Acq From NV Select Royalty
IW 1 Unpat Lode NMC1136521 10/14/2016 164847 WLMC 100% Owned Acq From NV Select Royalty
IW 2 Unpat Lode NMC1136522 10/14/2016 164848 WLMC 100% Owned Acq From NV Select Royalty
IW 3 Unpat Lode NMC1136523 10/14/2016 164849 WLMC 100% Owned Acq From NV Select Royalty
IW 4 Unpat Lode NMC1136524 10/14/2016 164850 WLMC 100% Owned Acq From NV Select Royalty
IW 5 Unpat Lode NMC1136525 10/14/2016 164851 WLMC 100% Owned Acq From NV Select Royalty
IW 6 Unpat Lode NMC1136526 10/14/2016 164852 WLMC 100% Owned Acq From NV Select Royalty
IW 7 Unpat Lode NMC1136527 10/14/2016 164853 WLMC 100% Owned Acq From NV Select Royalty
IW 8 Unpat Lode NMC1136528 10/14/2016 164854 WLMC 100% Owned Acq From NV Select Royalty
IW 9 Unpat Lode NMC1136529 10/14/2016 164855 WLMC 100% Owned Acq From NV Select Royalty
IW 10 Unpat Lode NMC1136530 10/14/2016 164856 WLMC 100% Owned Acq From NV Select Royalty
IW 12 Unpat Lode NMC1136531 10/14/2016 164857 WLMC 100% Owned Acq From NV Select Royalty
IW 14 Unpat Lode NMC1136532 10/14/2016 164858 WLMC 100% Owned Acq From NV Select Royalty
IW 29 Unpat Lode NMC1136533 12/8/2016 164859 WLMC 100% Owned Acq From NV Select Royalty
IW 30 Unpat Lode NMC1136534 12/8/2016 164860 WLMC 100% Owned Acq From NV Select Royalty
IW 31 Unpat Lode NMC1136535 12/8/2016 164861 WLMC 100% Owned Acq From NV Select Royalty
IW 32 Unpat Lode NMC1136536 10/13/2016 164862 WLMC 100% Owned Acq From NV Select Royalty
IW 33 Unpat Lode NMC1136537 10/13/2016 164863 WLMC 100% Owned Acq From NV Select Royalty
IW 34 Unpat Lode NMC1136538 10/13/2016 164864 WLMC 100% Owned Acq From NV Select Royalty
IW 35 Unpat Lode NMC1136539 10/13/2016 164865 WLMC 100% Owned Acq From NV Select Royalty
IW 36 Unpat Lode NMC1136540 10/13/2016 164866 WLMC 100% Owned Acq From NV Select Royalty
IW 37 Unpat Lode NMC1136541 10/13/2016 164867 WLMC 100% Owned Acq From NV Select Royalty
IW 39 Unpat Lode NMC1136542 10/13/2016 164868 WLMC 100% Owned Acq From NV Select Royalty
IW 41 Unpat Lode NMC1136543 10/13/2016 164869 WLMC 100% Owned Acq From NV Select Royalty
IW 43 Unpat Lode NMC1136544 10/13/2016 164870 WLMC 100% Owned Acq From NV Select Royalty
IW 48 Unpat Lode NMC1136545 12/9/2016 164871 WLMC 100% Owned Acq From NV Select Royalty
IW 49 Unpat Lode NMC1136546 12/9/2016 164872 WLMC 100% Owned Acq From NV Select Royalty
IW 50 Unpat Lode NMC1136547 12/9/2016 164873 WLMC 100% Owned Acq From NV Select Royalty
IW 51 Unpat Lode NMC1136548 12/9/2016 164874 WLMC 100% Owned Acq From NV Select Royalty
IW 52 Unpat Lode NMC1136549 10/13/2016 164875 WLMC 100% Owned Acq From NV Select Royalty
IW 53 Unpat Lode NMC1136550 10/13/2016 164876 WLMC 100% Owned Acq From NV Select Royalty

 

 

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IW 54 Unpat Lode NMC1136551 10/13/2016 164877 WLMC 100% Owned Acq From NV Select Royalty
IW 55 Unpat Lode NMC1136552 10/13/2016 164878 WLMC 100% Owned Acq From NV Select Royalty
IW 56 Unpat Lode NMC1136553 10/13/2016 164879 WLMC 100% Owned Acq From NV Select Royalty
IW 57 Unpat Lode NMC1136554 10/13/2016 164880 WLMC 100% Owned Acq From NV Select Royalty
IW 58 Unpat Lode NMC1136555 10/13/2016 164881 WLMC 100% Owned Acq From NV Select Royalty
IW 59 Unpat Lode NMC1136556 10/13/2016 164882 WLMC 100% Owned Acq From NV Select Royalty
IW 60 Unpat Lode NMC1136557 10/13/2016 164883 WLMC 100% Owned Acq From NV Select Royalty
IW 61 Unpat Lode NMC1136558 10/13/2016 164884 WLMC 100% Owned Acq From NV Select Royalty
IW 62 Unpat Lode NMC1136559 12/10/2016 164885 WLMC 100% Owned Acq From NV Select Royalty
IW 63 Unpat Lode NMC1136560 12/10/2016 164886 WLMC 100% Owned Acq From NV Select Royalty
IW 64 Unpat Lode NMC1136561 12/10/2016 164887 WLMC 100% Owned Acq From NV Select Royalty
IW 65 Unpat Lode NMC1136562 12/10/2016 164888 WLMC 100% Owned Acq From NV Select Royalty
WH 15 Unpat Lode NMC1136563 10/1/2016 164889 WLMC 100% Owned Acq From NV Select Royalty
WH 16 Unpat Lode NMC1136564 10/1/2016 164890 WLMC 100% Owned Acq From NV Select Royalty
WH 17 Unpat Lode NMC1136565 10/1/2016 164891 WLMC 100% Owned Acq From NV Select Royalty
WH 18 Unpat Lode NMC1136566 10/1/2016 164892 WLMC 100% Owned Acq From NV Select Royalty
WH 19 Unpat Lode NMC1136567 10/1/2016 164893 WLMC 100% Owned Acq From NV Select Royalty
WH 20 Unpat Lode NMC1136568 10/1/2016 164894 WLMC 100% Owned Acq From NV Select Royalty
WH 21 Unpat Lode NMC1136569 10/1/2016 164895 WLMC 100% Owned Acq From NV Select Royalty
WH 22 Unpat Lode NMC1136570 10/1/2016 164896 WLMC 100% Owned Acq From NV Select Royalty
WH 23 Unpat Lode NMC1136571 10/1/2016 164897 WLMC 100% Owned Acq From NV Select Royalty
WH 24 Unpat Lode NMC1136572 10/1/2016 164898 WLMC 100% Owned Acq From NV Select Royalty
WH 25 Unpat Lode NMC1136573 10/1/2016 164899 WLMC 100% Owned Acq From NV Select Royalty
WH 26 Unpat Lode NMC1136574 10/1/2016 164900 WLMC 100% Owned Acq From NV Select Royalty
WH 27 Unpat Lode NMC1136575 10/1/2016 164901 WLMC 100% Owned Acq From NV Select Royalty
WH 28 Unpat Lode NMC1136576 10/1/2016 164902 WLMC 100% Owned Acq From NV Select Royalty
WH 43 Unpat Lode NMC1136577 10/1/2016 164903 WLMC 100% Owned Acq From NV Select Royalty
WH 44 Unpat Lode NMC1136578 10/1/2016 164904 WLMC 100% Owned Acq From NV Select Royalty
WH 45 Unpat Lode NMC1136579 12/7/2016 164905 WLMC 100% Owned Acq From NV Select Royalty
WH 46 Unpat Lode NMC1136580 12/7/2016 164906 WLMC 100% Owned Acq From NV Select Royalty
WH 82 Unpat Lode NMC1136581 12/7/2016 164907 WLMC 100% Owned Acq From NV Select Royalty
WH 83 Unpat Lode NMC1136582 12/7/2016 164908 WLMC 100% Owned Acq From NV Select Royalty
TDG 1 Unpat Lode NMC989539 03/23/2008 146107 WLMC 100% Owned Acq From Gateway Gold (USA) Corp.
TDG 2 Unpat Lode NMC989540 03/23/2008 146108 WLMC 100% Owned Acq From Gateway Gold (USA) Corp.
TDG 3 Unpat Lode NMC989541 03/23/2008 146109 WLMC 100% Owned Acq From Gateway Gold (USA) Corp.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Appendix C: Cross Sections

 

 

Plan map showing location of 50 m – spaced cross sections for the Isabella Pearl deposit.

 

Codes for Section Au Grade and Block Classification (as shown on cross sections E through N below)

 

 

 

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