Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

Jerritt Canyon Canada Ltd. (the “Company” or “Jerritt”) is a gold metal producer engaged in the mining, exploration and development of mineral properties located in the United States. The Company was incorporated on June 11, 2015 under the laws of the Province of Ontario, Canada. The Company’s registered address is located at 365 Bay Street, Suite 400, Toronto, Ontario, Canada, M5H 2V1.

Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).    

The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates and judgments when applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.

These consolidated financial statements were approved and authorized by the Board of Directors of the Company on April 8, 2021.

Basis of measurement

The consolidated financial statements have been prepared on a historical cost basis except for certain financial assets and liabilities which are measured at fair value.

During 2019, the Company changed its fiscal year end from June 30 to December 31 to align its reporting period with other mining companies. As such, the period ended December 31, 2019 is an extended year, comprised of the 18 month period from July 1, 2018 to December 31, 2019. The comparative year ended December 31, 2020 comprises the January 1, 2020 to December 31, 2020 year. As a result, comparative amounts presented in the consolidated financial statements are not entirely comparable.

The consolidated financial statements are presented in US dollars (“USD”), which is also the functional currency of the Company and its subsidiaries.

These consolidated financial statements include the accounts of the Company and its subsidiaries. Subsidiaries are entities controlled by the Company. Control exists when the Company has power over an investee, when the Company is exposed, or has rights, to variable returns from the investee and when the Company has the ability to affect those returns through its power over the investee. Subsidiaries are included in the consolidated financial results of the Company from the effective date of acquisition up to the effective date of disposition or loss of control. The principal subsidiaries of the Company and their geographic locations as at December 31, 2020 and December 31, 2019 are as follows:

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

Non-controlling interests in the net assets (excluding goodwill) of consolidated subsidiaries are identified separately from the Company’s equity therein. Non-controlling interests consist of the non-controlling interests’ proportionate share of the net identifiable assets acquired at the date of the original business combination and the non-controlling interests’ share of changes in equity since the date of the combination.

Total comprehensive income (loss) is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Cash and cash equivalents include cash and short-term investments that are readily convertible to cash and have a maturity date within 90 days of the purchase date.

Stockpile inventories represent ore that has been mined and is available for future processing. Stockpiles are measured by estimating the number of tons added and removed from the stockpile, the number of contained ounces (based on assay data) and the estimated metallurgical recovery rates (based on expected processing method). Stockpile ore tonnages are verified by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the ore. These costs include direct labor, mine-site overhead expenses, and depreciation and depletion on mine equipment and mineral properties. Stockpile inventories are valued at the lower of average cost and net realizable value.

Work-in-process inventories are valued at the lower of average production cost and net realizable value. Production costs include the cost of raw materials, direct labour, mine-site overhead expenses and depreciation and depletion of property, plant and equipment and mineral properties.

Finished goods inventories are valued at the lower of average production cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of selling. Materials and supplies inventories are valued at the lower of average cost and net realizable value.

When inventories have been written down to net realizable value, an assessment of net realizable value is made in each subsequent period. If the circumstances which resulted in the write down no longer exist, the remaining amount of the write down is reversed.

Property, plant and equipment are recorded at cost less accumulated depreciation and impairment, if any. Depreciation is recorded on a straight-line basis to residual values over the estimated useful lives of the assets. Residual values and useful lives are reviewed at least annually. Land is not depreciated.

Depreciation rates are as follows:

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

Exploration and evaluation expenditures

Exploration and evaluation expenditures relate to the initial costs incurred on the search for, and evaluation of, potential mineral reserves and resources. Exploration includes such costs as exploratory drilling, sampling, mapping and other costs involved in searching for ore. Evaluation includes costs incurred to establish the technical and commercial viability of developing mineral properties acquired or identified through exploration. Exploration and evaluation expenditures in relation to each separate area of interest are expensed in net income or loss. Upon the determination of the technical feasibility and commercial viability of a project, further costs to develop the asset are recognized as mine development expenditures.

Mine development expenditures

Once it has been determined that the development of a mineral property is commercially viable and technically feasible, based on management’s assessment, the costs incurred to develop a property are capitalized. These costs include engineering and metallurgical studies; drilling and other related costs to delineate an ore body; the costs of removing overburden to initially expose the ore body prior to the start of mining operations; and, the building of access ways, shafts, drifts, ramps and other infrastructure at underground mines. Capitalization of costs incurred ceases when the mining property is capable of operating at levels intended by management. Various factors are considered by management when making this determination including: 1. major mine infrastructure has been completed; 2. designed and targeted production levels are achieved; and 3. indicators have been observed to suggest that operating results will continue at levels designed and targeted. Upon commencement of production, mineral property costs are depreciated on a unit-of-production over the estimated life of the asset to which they relate. The useful life of the mineral property is determined with reference to its proven and probable reserves and/or resource material to the extent there is a high degree of confidence in its economic extraction.

Mine development costs incurred during production

During the production phase the Company incurs underground development costs for major underground excavation done to establish new access ways. These costs include building new shafts, drifts, ramps, lateral access ways, and other infrastructure to access specific ore blocks which will provide probable future economic benefits to the Company. Costs directly attributable to this underground development are capitalized and amortized on a unit of production basis over the estimated useful lives of the properties.

Depreciation rates are as follows:

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

At each reporting date, the Company reviews the carrying amounts of its mineral property plant and equipment to determine whether there is any indication that those assets are impaired. If such an indication exists, the recoverable amount of the asset is estimated in order to determine the extent, if any, of the impairment. Where the asset does not generate cash inflows that are independent from other assets, the Company estimates the recoverable amount of the cash-generating unit (“CGU”) to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Any impairment is recognized as an expense.

Where an impairment subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount provided that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment been recognized for the asset (or CGU) in prior periods. A reversal of an impairment is recognized as income.

The Company recognizes liabilities for statutory, contractual, constructive or legal obligations for environmental rehabilitation in the period in which it is incurred. The net present value of future rehabilitation cost estimates arising from the decommissioning of plant and other site preparation work is capitalized to the mining assets along with a corresponding increase in the rehabilitation provision. Discount rates that reflect the time value of money are used to calculate the net present value. The Company’s estimates are reviewed at the end of each reporting period for changes in regulatory requirements, discount rates, effects of inflation and changes in estimates.

Accretion expense is charged to income or loss, while adjustments related to changes in estimated cash flows are recorded as increases or decreases in the carrying value of the asset. The capitalized cost is amortized on the same basis as the related asset. Upon settlement of the liability, a gain or loss is recorded if the actual costs incurred are different from the liability recorded.

The Company is principally engaged in the business of producing gold dore. Revenue from contracts with customers is recognized when control of the goods or services is transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

those goods or services. The Company has generally concluded that it is the principal in its revenue contracts because it typically controls the goods or services before transferring them to the customer.

The income tax expense for the period comprises current and deferred taxes. Taxes are recognized in the consolidated statements of income (loss) and comprehensive income (loss), except to the extent that it relates to items recognized directly in equity.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the reporting date in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. The Company has established provisions, where appropriate, on the basis of amounts expected to be paid to tax authorities.

Deferred tax is recognized using the liability method, on unused tax losses, unused tax credits, and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. However, the deferred tax is not recognized if it arises from initial recognition of an asset or liability in a transaction other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates and tax laws that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and current tax assets, and they relate to income taxes levied by the same tax authority on the same taxable entity; or on different tax entities, but they intend to settle current tax liabilities and current tax assets on a net basis; or, their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized to the extent that it is probable that future taxable income will be available against which unused tax losses, unused tax credits, and the temporary differences can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Basic income (loss) per share is computed by dividing the amount of net income (loss) for the period by the weighted average number of common shares outstanding during the period.

Diluted income (loss) per share is calculated using the treasury stock method. Under the treasury stock method, the weighted average number of shares outstanding used in the calculation of diluted income (loss) per share assumes that the deemed proceeds received from the exercise of stock options, agents’ options and share purchase warrants that are “in the money” would be used to repurchase common shares of the Company at the average market price during the period.

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

1. Financial assets

Financial assets, primarily marketable securities, are classified as either financial assets at fair value through profit or loss (“FVTPL”), amortized cost, or fair value through other comprehensive income (“FVOCI”). The Company determines the classification of its financial assets at initial recognition.

(1.1) FVTPL

Financial assets are classified at FVTPL if they are acquired for the purpose of selling in the near term. Gains or losses on these items are recognized in profit or loss.

(1.2) Amortized cost

Financial assets are classified at amortized cost if both of the following criteria are met and the financial assets are not designated as at FVTPL: 1) the objective of the Company’s business model for these financial assets is to collect their contractual cash flows and 2) the asset’s contractual cash flows represent “solely payments of principal and interest”. The Company’s accounts receivable are recorded at amortized cost as they meet the required criteria. A provision is recorded when the estimated recoverable amount of the financial asset is lower than the carrying amount. At each statement of financial position date, the Company assesses on a forward-looking basis the expected credit losses associated with its financial assets carried at amortized cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. When sold or impaired, any accumulated fair value adjustments previously recognized are included in profit or loss.

(1.3) FVOCI

For equity securities that are not held for trading, the Company can make an irrevocable election at initial recognition to classify the instruments at FVOCI, with all subsequent changes in fair value being recognized in other comprehensive income (“OCI”). This election is available for each separate investment. Under this new FVOCI category, fair value changes are recognized in OCI while dividends are recognized in income or loss. On disposal of the investment, the cumulative fair value change remains in OCI and is not recycled to net income or loss.

(1.4) Reclassifications

Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Company changes its business model for managing financial assets.

2. Financial liabilities

Financial liabilities are classified, at initial recognition, as financial liabilities at FVTPL, loans and borrowings,. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.

The Company does not have any financial liabilities designated at FVTPL. Accounts payable and accrued liabilities, loans payable, secured debt, grid promissory note payable and lease payable are accounted for at amortized cost. After initial recognition, interest-bearing loans and borrowings and trade and other payables are subsequently measured using the effective interest rate method.

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

Items included in the financial statements of each of the Company’s subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). Foreign currency transactions are translated into the functional currency using the exchange rates at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in a currency other than the functional currency are recognized in income or loss.

Assets and liabilities of entities with non-US dollar denominated functional currencies are translated at the period end rates of exchange and the results of their operations translated at the average rate for the period. The resulting translation adjustments are included in OCI. Additionally, foreign exchange gains and losses related to certain intercompany loans that are permanent in nature are included in OCI.

Significant contracts are assessed to determine whether they contain a lease in substance or legal form. Where the Company receives substantially all the risks and rewards of ownership of the asset, these assets are capitalized at the lower of the fair value of the leased asset or the estimated present value of the minimum lease payments. The corresponding lease obligation is included within other liabilities and interest expense is recognized over the term of the lease. Operating leases are not capitalized and payments are included in income or loss on a straight-line basis over the lease term.

Borrowing costs incurred that are attributable to acquiring and developing mineral property or acquiring or constructing property, plant and equipment (qualifying assets) are capitalized and included in the carrying amounts of qualifying assets until those qualifying assets. Capitalization commences on the date that expenditures for the qualifying asset are being incurred, borrowing costs are being incurred by the Company and activities that are necessary to prepare the qualifying asset for its intended use are being undertaken. All other borrowing costs are expensed in the period in which they are incurred.

Provisions are liabilities that are uncertain in timing or amount. The Company records a provision when:

Provisions are reviewed at the end of each reporting period and adjusted to reflect management’s current best estimate of the expense required to settle the present obligation. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

IFRS requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements. By their nature, these estimates and judgments are subject to measurement uncertainty and the effect on the consolidated financial statements of changes in such estimates in future periods could be significant.

Areas of judgment that have the most significant effect on the amounts recognized in the consolidated financial statements include:

Critical accounting estimates include:

The adoption of the following new standards, interpretations and amendments were included in the financial statements for the year beginning January 1, 2020.

IFRS 16, Leases

IFRS 16 – In 2016, the IASB issued IFRS 16, Leases (“IFRS 16”), replacing IAS 17, Leases and related interpretations. The standard introduces a single on-balance sheet recognition and measurement model for lessees, eliminating the distinction between operating and finance leases. Lessors continue to classify leases as finance and operating leases. IFRS 16 becomes effective for annual periods beginning on or after January 1, 2019, and is to be applied retrospectively. The Company analyzed its contracts to identify whether they contain a lease arrangement for the application of IFRS 16. No additional contracts were identified as a result of the adoption of IFRS 16 that were not previously capitalized on the balance sheet. Therefore, the adoption of IFRS 16 resulted in no impact to the opening retained earnings (deficit) on January 1, 2020

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)

In May 2020, the IASB issued amendments to IAS 16 Property, Plant and Equipment that clarify the accounting for the net proceeds from selling any items produced while bringing an item of property, plant and mine development to the location and condition necessary for it to be capable of operating in the manner intended by management. The amendments prohibit entities from deducting amounts received from selling items produced from the cost of property, plant and mine development while the Company is preparing the asset for its intended use. Instead, sales proceeds and the cost of producing these items will be recognized in the consolidated statements of income. The amendments are effective for annual reporting periods beginning on or after January 1, 2022, with earlier application permitted. The amendments apply retrospectively, but only to assets brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after the beginning of the earliest period presented in the financial statements in which the Company first applies the amendments. The Company is evaluating the extent of the impact of the amendments on its financial statements.’

There are no additional standards not yet effective that would have an impact on the consolidated financial statements.

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

Jerritt Canyon Gold LLC owns and operates the Jerritt Canyon mine. The Company has fully consolidated Jerritt Canyon Gold LLC and has recognized a non-controlling interest within equity on its consolidated statements of financial position as a result of the 20% minority interest previously held by WBOX 2014-1.

On June 29, 2020, the Company acquired the remaining 20% interest held by WBOX 2014-1 increasing its ownership to 100%. Cash consideration of $40.0 million and a $5.0 million promissory note was issued to the non-controlling shareholders for total consideration of $45.0 million. The promissory note carries an interest rate of 7% payable monthly, and is due on June 29, 2021.

The acquisition of an additional ownership interest in a subsidiary without a change of control is accounted for as an equity transaction. Any excess or deficit of consideration paid over the carrying amount of the non-controlling interests is recognised in equity of the parent in transactions where the non-controlling interests are acquired. The Company has elected to recognize this effect in retained earnings.

Non-controlling interest as at and for the year ended December 31, 2020 and year ended December 31, 2019 is as follows:

The financial information of Jerritt Canyon Gold LLC is provided below:

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

The balance as at December 31, 2020 consists of cash on deposit with major Canadian and US banks in general interest-bearing accounts totaling $2.2 million (December 31, 2019 – $6.5 million).

The balance at December 31, 2020 consists of investments in shares of publicly traded companies totaling $5.1 million (December 31, 2019 – $nil) which are revalued to market at each period end. The impact to the consolidated financial statements of this revaluation to market value resulted in an unrealized gain of $2.0 million for the year ended December 31, 2020 (2019 – $nil) which has been recognized in the statement of income (loss) and comprehensive income (loss) for the year ended December 31, 2020. During the year ended December 31, 2020, the Company also recognized a realized loss of $0.3 million (2019 – $nil) on sale of investments.

As at December 31, 2020, the Company anticipates full recovery of these amounts and therefore no impairment has been recorded against these receivables. The credit risk on the receivables from gold sales and other receivables is further discussed in Note 21.

The Company holds no collateral for any receivable amounts outstanding as at December 31, 2020.

All of the Company’s inventories on hand are located at the Jerritt Canyon mine in Nevada, USA.

For the 12 month period ended December 31, 2020 and 18 months ended December 31, 2019, the cost of inventories (excluding capitalized depreciation) recognized as an expense and included in cost of goods sold was $143.0 million and $222.4 million respectively.

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

The purpose of the Commutation Account is to quantify the cost of this policy. Jerritt can elect to extinguish all rights under the policy (releasing AIG from reclamation cost and financial assurance liabilities – replacement bonds would be required) and AIG would pay Jerritt the balance remaining in the Commutation Account.

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

Mineral property, plant and equipment consists of the following:

As at December 31, 2020, the Company had property, plant, and equipment of $3.7 million (December 31, 2019 – $3,8 million), which consisted of mobile equipment and mining equipment located at the Company’s mine site in Nevada which are not in use and the Company is planning to dispose of in the future through sales.

At December 31, 2020, $4.8 million (December 31, 2019 – $nil), of mobile equipment and plant and equipment is under lease obligations (See Note 18).

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

As at July 1, 2017, the secured debt payable to WBOX 2015-1 carried an interest rate of 12% payable monthly and the principal repayable through quarterly instalments of $0.25 million, with the balance outstanding payable on June 28, 2018.

On April 30, 2018, WBOX 2015-1 agreed to extend the payment date for the outstanding balance to January 28, 2020. The quarterly instalments, previously of $0.25 million, were amended to $0.3 million payable quarterly commencing on June 24, 2018 and payable quarterly thereafter.

On April 28, 2019, WBOX 2015-1 agreed to extend the payment date for the outstanding balance to January 28, 2021. The quarterly instalments remain at $0.3 million payable quarterly commencing on June 24, 2019 and payable quarterly thereafter.

As at December 31, 2020, the balance outstanding amounts to $10.7 million (December 31, 2019 – $12.3 million), with the current portion due within a year of $10.7 million (December 31, 2019 – $1.2 million), and long term portion in the amount of $nil (December 31, 2019 – $11.1 million).

Grid promissory note:

The grid promissory note of $86.8 million (December 31, 2019 – $74.4 million) is from Sprott Mining Inc., the parent company of the Company. The loan from Sprott Mining Inc. is non-interest bearing, without fixed terms of repayment and is due on demand.

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

The $12.4 million and $39.6 million received from Sprott Mining Inc. during the year ended December 31, 2020 and the year ended December 31, 2019, respectively, was used by the Company to contribute the Company’s pro-rata share of capital into Jerritt Canyon Gold LLC in accordance with capital contribution agreements with Jerritt Canyon Gold LLC’s 20% non-controlling interest holder, WBOX 2014-1, having the following effective dates and amounts:

Promissory note payable:

The Company funded the purchase of the remaining 20% non-controlling interest as described in note 6 through a $30 million promissory note from Sprott Mining Inc. The promissory note has a stated coupon rate of 6.75%, with interest payable semi-annually on June 30^th and December 31^st, and is due in one lump sum payment on June 29, 2030. Sprott Mining Inc. has the option to convert all or any portion of the promissory note into common shares at a conversion price of $1 per share, at any time on or prior to the mature date.

The fair value of the promissory note was estimated at $25.5 million upon issuance using a discount rate of 9.25%. The $4.5 million difference between the face value of the loan of $30 million and the fair value of $25.5 million has been recorded to contributed surplus.

During the year ended December 31, 2020, interest expense of $1.0 million and accretion expense of $0.2 million was recognized in the consolidated statements of income (loss) and comprehensive income (loss) bringing the balance outstanding at December 31, 2020 to $26.7 million.

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

Changes in asset retirement obligations:

As at December 31, 2020 and December 31, 2019, all of the decommissioning and rehabilitation provisions were long-term in nature.

The Company’s decommissioning and rehabilitation provisions consist of reclamation and closure costs for both active mines and exploration activities. The present value of obligations relating to active mines and exploration activities is currently estimated at $87.3 million (December 31, 2019 – $67.1 million) reflecting payments for approximately the next 20 years. Significant reclamation and closure activities include land and water rehabilitation, demolition of buildings and mine facilities, ongoing care and maintenance, and other costs.

The undiscounted value of this liability is $97.8 million (December 31, 2019 – $77.2 million). Inflation rate assumptions of 2.0% (2019 – 2.1%) and discount rates of 1.45% (2019 – 2.25%) have been used to determine the present value of the obligation. The majority of future estimated decommissioning and rehabilitation work has been funded through cash deposits held at various financial and government institutions (Note 10).

The Company is authorized to issue an unlimited number of common shares without par value.

As at December 31, 2020, 100,000 (June 30, 2018: 100,000) common shares were issued and fully paid.

Accounts payable and accrued liabilities consist of the following:

Trade payables of the Company are principally comprised of amounts outstanding for trade purchases relating to exploration activities and amounts payable for operating and financing activities. The usual credit period allowed for trade purchases is between 30 to 90 days.

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

The Company has finance lease obligations for equipment used at the Jerritt Canyon operations. The following summarizes the Company’s finance leases as at December 31, 2020 and 2019:

The Company has a 0.5% Net Smelter Returns Royalty relating to the production of gold and silver from the Jerritt Canyon mines and processing plant. The royalty is applied, at a fixed rate of 0.5%, against proceeds from gold and silver products after deducting treatment, refining, transportation, insurance, and taxes and levies charges. Total net smelter royalty expense incurred in relation to the NSR during the year ended December 31, 2020 amounted to $1.0 million. The amount payable as at December 31, 2020 is $4.2 million (December 31, 2019 – $3.9 million).

The Company also has a 2.5% to 5% Net Smelter Returns Royalty relating to the production of gold and silver from the Jerritt Canyon mine from production within specific boundary lines. The royalty is applied, at a fixed rate of 2.5% to 5%, against proceeds from gold and silver products. Total net smelter royalty expense incurred in relation to the NSR during the year ended December 31, 2020 amounted to $1.3 million. The amount payable as at December 31, 2020 is $0.5 million (December 31, 2019 – $0.1 million).

A breakdown of the total royalty payable is presented below:

As at December 31, 2020, the outstanding loan amounts to principal of $7.0 million and interest of $2.0 million for total amount owing of $9.0 million (December 31, 2019 – $8.6 million), with the current

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

portion in the amount of $9.0 million (December 31, 2019 – $3 million), and long term portion in the amount of $nil (December 31, 2019 – $5.6 million). A portion of the loan in the amount of $3 million (December 31, 2019 – $3 million) is due on demand and is non-interest bearing. The remaining portion of $6.0 million bears interest of 10% and is due January 28, 2021.

The amounts outstanding are unsecured, except for the secured debt as described in Note 12, and will be settled in cash. No expense has been recognized for bad debts or doubtful debts in respect of the amounts owed by related parties.

The remuneration of directors and other members of key management personnel during the years were as follows:

The remuneration of directors and key executives is determined by the compensation committee and is dependent upon the performance of individuals, the performance of the Company, and external market trends.

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

The Company’s financial instruments consist of cash and cash equivalents, marketable securities, accounts receivable, restricted cash, accounts payable and accrued liabilities and secured debt.

The Company’s financial assets and liabilities classified as FVTPL are carried at fair value with changes in fair value recorded in income (loss). Interest income and expense are both recorded in profit or loss.

Accounts receivable are classified as loans and receivables. Accounts payable and accrued liabilities, loan payable, grid promissory note, finance lease obligation, net smelter return royalty as well as the secured debt are classified as other liabilities and are measured at amortized cost, using the effective interest method. The fair values of accounts receivables, accounts payable and accrued liabilities, loan payable, grid promissory note, net smelter returns royalty and approximate their carrying values because of the short term nature of these instruments and/or they have recently been issued.

The categories of fair value hierarchy that reflect the significance of inputs used in making fair value measurements are as follows:

There have been no transfers between fair value levels during the reporting period.

An assessment of the Company’s financial instruments is set out below. The fair value of these instruments approximate the carrying value.

An assessment of the Company’s financial instruments carried at fair value is set out below:

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Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

At December 31, 2020 and December 31, 2019 there were no financial assets or financial liabilities recognized at fair value on a non-recurring basis.

The Company is exposed to certain risks through its use of financial instruments, including market risk (currency risk, interest rate risk and commodity price risk), credit risk, and liquidity risk.

The Company manages its exposure to risk through the identification and analysis of risks faced by the Company, setting appropriate risk limits and controls, and monitoring those risks and adherence to the limits and controls that are established. Risk management is carried out by senior management under the approval of the Board of Directors. Risk management practices are reviewed regularly by senior management and the Board of Directors to reflect changes in market conditions and the Company’s activities.

Market risk

Market risk is the risk that changes in market factors, such as foreign exchange rates, interest rates or commodity prices which will affect the fair values or future cash flows of the Company.

Results are reported in US dollars. The majority of the Company’s operating and capital expenditures are denominated and settled in US dollars. The largest single exposure the Company has is to the Canadian dollar through cash holdings and corporate administration costs. Consequently, fluctuations in the US dollar exchange rate against the Canadian dollar increases the volatility of corporate administration costs and overall net income (loss), when translated into US dollars. The Company manages this risk by maintaining funds in Canadian dollars to support the cash requirements of those operations. The Company does not use any foreign exchange contracts to hedge these currency risks.

The Company is exposed to currency risk through the following financial assets and liabilities denominated in Canadian dollars:

Based on the above net exposures as at December 31, 2020 and December 31, 2019, a 10% appreciation or depreciation in the Canadian dollar against the US dollar, assuming all other variables remain constant, would result in an immaterial increase or decrease, respectively, in operating results and equity.

Interest rate risk is the risk that the fair values and future cash flows of the Company will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its cash and cash equivalents. The Company’s cash and cash equivalents contain highly liquid

A-27

Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

investments that earn interest at market rates. Fluctuations in market interest rates do not have a significant impact on the Company’s results from operations due to the short term to maturity of the investments held.

The Company is not exposed to interest rate risk on any borrowings because they are all held at fixed interest rates.

The Company sells its gold production in the world market. The market prices of gold are the primary drivers of the Company’s profitability and ability to generate free cash flow. All of the future gold production is unhedged in order to provide shareholders with full exposure to changes in the market gold price.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises from cash and cash equivalents, restricted cash, and trade and other receivables. For cash and cash equivalents, restricted funds, and accounts receivable and prepaid expenses, credit risk exposure equals the carrying amount on the consolidated statements of financial position.

The Company manages its credit risk on cash and cash equivalent balances by maintaining balances with Tier 1 Canadian and US banks.

The Company has cash of $67.0 million (December 31, 2019—$63.7 million) included in restricted cash (Note 11) with a third party insurer to fund future reclamation costs at the Jerritt Canyon mine. The Company maintains title to these funds should the third party be in default of its obligations or enters into bankruptcy protection.

Amounts receivable consist primarily of harmonized sales tax (“HST”) due from the Canadian government and receivables from gold sales due from Asahi. Management believes the risk of loss for HST and gold sales to be minimal.

Liquidity risk

Liquidity risk is the risk of loss from not having sufficient funds to meet financial obligations as they fall due. As at December 31, 2020, the Company had a working capital deficiency of $101.1 million (December 31, 2019 – $73.2 million working capital deficiency). The Company manages liquidity risk through forecasting its cash flows from operations and anticipating investing and financing activities. Senior management is actively involved in the review and approval of planned expenditures and typically ensures that it has sufficient cash on demand to meet expected operating expenses.

A-28

Notes to the Consolidated Financial Statements

For the 12 months ended December 31, 2020 and the 18 months ended December 31, 2019

(In thousands of US dollars unless otherwise noted)

The following are the contractual maturities of the undiscounted cash flows of derivative and non-derivative liabilities: