Consolidated Financial Statements
(Expressed in thousands of United States dollars)
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
For the three and six month periods ended June 30, 2007
(Unaudited)
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying interim consolidated financial statements of Yukon-Nevada Gold Corp. (the
Company) have been prepared by management in accordance with generally accepted accounting
principles (GAAP) in Canada, and within the framework of the summary of significant accounting
policies disclosed in the notes to these consolidated financial statements.
Management is responsible for establishing internal controls over financial reporting for the Company.
Management has designed and implemented internal controls over financial reporting (ICFR) that
provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP.
The Audit Committee of the Board of Directors meets periodically with management and the
Company’s independent auditors to review the scope and results of their annual audit and to review
the consolidated financial statements and related financial reporting matters prior to submitting the
consolidated financial statements to the Board of Directors for approval. The Audit Committee is
appointed by the Board of Directors and all of its members are independent directors. The Audit
Committee is responsible for engaging or re-appointing the external auditors.
These interim consolidated financial statements have been approved by the Board of Directors on the
recommendation of the Audit Committee.
AUDITOR INVOLVEMENT
The auditors of Yukon-Nevada Gold Corp. have not performed a review of the unaudited financial
statements for the three and six month periods ended June 30, 2007.
1
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Consolidated Balance Sheets
(Unaudited)
(Expressed in thousands of United States dollars)
June 30, December 31,
2007 2006
(Unaudited) (Audited)
Assets
Current assets:
Cash $ 67,122 $ 4,342
Short-term investments 48 1,026
Marketable securities (note 6) 32 -
Accounts receivable and prepaid expenses 4,834 600
Inventories (note 7) 25,612 -
97,648 5,968
Restricted funds (note 8) 30,213 7,838
Property, plant and equipment (note 9) 21,574 540
Mineral properties (note 10) 117,658 17,566
Other assets (note 11) 1,105 -
$ 268,198 $ 31,912
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities (note 13) $ 37,062 $ 673
Due to related parties (note 12) - 11
37,062 684
Other long-term liabilities (note 13) 1,487 -
Future income taxes (note 14) 5,282 3,729
Asset retirement obligations (note 15) 25,358 1,903
69,189 6,316
Shareholders’ equity:
Share capital (note 16) 184,177 32,025
Warrants (note 16) 20,657 687
Contributed surplus (note 16) 4,697 1,155
Accumulated other comprehensive income (loss) 2,273 (326)
Deficit (12,795) (7,945)
199,009 25,596
Subsequent events (note 19)
$ 268,198 $ 31,912
See accompanying notes to financial statements.
Approved on behalf of the Board:
“Graham C. Dickson” Director “R.J. MacDonald” Director
2
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Consolidated Statements of Operations
(Unaudited)
(Expressed in thousands of United States dollars)
Three months Six months
June 30, June 30,
2007 2006 2007 2006
Operating expenses $ 926 $ - $ 926 $ -
Accretion of asset retirement obligations 74 36 109 72
Depreciation, depletion and amortization 84 3 88 6
Exploration 536 - 536 -
General and administration 546 168 853 325
Corporate communications and
development 182 69 322 145
Stock-based compensation 119 - 2,123 130
Operating loss (2,467) (276) (4,957) (678)
Foreign exchange loss 359 - 359 -
Interest expense 43 - 43 -
Investment and other income (379) (73) (509) (117)
23 (73) (107) (117)
Net loss $ (2,490) $ (203) $ (4,850) $ (561)
Loss per share – basic and diluted (0.032) (0.004) (0.069) (0.011)
Weighted average number of shares
outstanding (basic and diluted) 78,893,333 50,874,682 69,792,460 48,920,212
Consolidated Statements of Deficit
(Unaudited)
(Expressed in thousands of United States dollars)
Three months ended Six months ended
June 30, June 30,
2007 2006 2007 2006
Deficit, beginning of period $ (10,305) $ (7,114) $ (7,945) $ (6,756)
Loss for the period (2,490) (203) (4,850) (561)
Deficit, end of period $ (12,795) $ (7,317) $ (12,795) $ (7,317)
See accompanying notes to financial statements.
3
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(Expressed in thousands of United States dollars)
Three months Six months
ended ended
June 30, June 30,
2007 2007
Loss for the period $ (2,490) $ (4,850)
Foreign exchange adjustment (note 5(a)) 2,314 2,599
Comprehensive loss for the period $ (176) $ (2,251)
See accompanying notes to financial statements.
4
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in thousands of United States dollars)
Three months Six months
June 30, June 30,
2007 2006 2007 2006
Cash provided by (used in):
Operations:
Loss for the period $ (2,490) $ (203) $ (4,850) $ (561)
Items not involving cash:
Depreciation 149 25 185 51
Accretion expense 73 36 109 72
Stock-based compensation 119 - 2,123 130
Change in non-cash working capital (3,615) (400) (3,247) (394)
(5,764) (542) (5,680) (702)
Financing:
Increase in due to related parties - - (11) (9)
Decrease in note payable (8,112) - (8,112) -
Common shares issued for cash,
June 2007 private placement 69,388 9,187 69,388 9,187
Share issue costs (3,816) (459) (3,821) (459)
Common shares issued upon exercise
of shareholder warrants 3,720 1,336 6,726 1,336
Common shares issued upon exercise
of agents’ options and warrants 183 317 479 723
Common shares issued upon exercise
of stock options 255 53 518 61
61,618 10,434 65,167 10,839
Investments:
Acquisition of Queenstake, net of
cash acquired of $2,450 (note 3) (233) - (233) -
Restricted cash 3,026 (7,677) 5,597 (5,830)
Short-term investments 1,070 (26) 1,044 (153)
Mineral property (4,117) (1,778) (6,427) (3,527)
Deferred acquisition costs (23) (111) (23)
Purchase of property, plant and
equipment (541) (102) (614) (206)
(795) (9,606) (744) (9,739)
Effect of exchange rate changes on cash 3,943 11 4,037 9
Increase in cash 59,002 297 62,780 407
Cash, beginning of period 8,120 151 4,342 41
Cash, end of period $ 67,122 $ 448 $ 67,122 $ 448
See accompanying notes to financial statements.
5
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
1. Nature of operations:
Yukon-Nevada Gold Corp.’s (the Company) business is gold mining and related activities,
including exploration, development, extraction, processing and reclamation. Gold is currently
being produced in Nevada, USA (Jerritt Canyon), acquired on June 20, 2007. There are gold
exploration activities being carried out in Nevada, USA (Jerritt Canyon) and the Yukon Territory,
Canada (Ketza River and Silver Valley).
The Company is in the process of mineral exploration on its properties in the Yukon Territory and
has yet to determine whether these properties contain reserves that are economically
recoverable. The recoverability of the amount shown for mineral properties is dependent upon
the existence of economically recoverable reserves, confirmation of the Company's ownership
interest in the mining claims, the ability of the Company to obtain necessary financing to complete
the development, and upon future profitable production or proceeds from the disposition of the
mineral properties.
2. Change in functional and reporting currency:
Prior to April 1, 2007, the Company’s operations were measured in Canadian dollars and the
consolidated financial statements were expressed in Canadian dollars. Due to circumstances
arising from the acquisition of Queenstake Resources Ltd. (Queenstake) on June 20, 2007, it has
been determined that the Company’s functional currency is the US dollar. Concurrent with this
change in functional currency, the Company has adopted the US dollar as its reporting currency,
effective June 30, 2007.
In accordance with Canadian generally accepted accounting principles (GAAP), the Company is
required to restate all amounts presented for comparative purposes into US dollars using the
current rate method as follows: all assets and liabilities are translated into US dollars at the
exchange rate prevailing at the balance sheet date; all revenue and expense items, shareholders’
equity items and cash flows are translated at the average rates that were in effect during these
periods, with the exception of shares issued on June 20, 2007 associated with the Plan of
Arrangement with Queenstake and the private-placement financing – these transactions were
translated into US dollars using the Bank of Canada closing $US/$CAD exchange rate on the
date of these transactions; and the resulting translation adjustment is recorded as a separate
component of shareholders’ equity in accumulated other comprehensive income.
Going forward, the Company will translate Canadian denominated accounts using the temporal
method. Monetary assets will be translated at the balance sheet date into US dollars and nonmonetary
assets and liabilities and shareholder equity accounts will be translated at the historical
rate.
The effect on the consolidated financial statements was an accumulated other comprehensive
loss of $326,000 in shareholders’ equity at December 31, 2006.
6
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
3. Business combination:
Effective June 20, 2007 the Company acquired 100% of the outstanding common shares of
Queenstake pursuant to a Plan of Arrangement (POA) that was approved by the shareholders of
both the Company and Queenstake on May 18, 2007. Under the Plan of Arrangement, the
Company issued 58,436,531 shares to the shareholders of Queenstake for all of the outstanding
common shares of Queenstake. In addition, the Company issued 3,851,200 share purchase
warrants and 402,000 stock options to existing Queenstake share purchase and stock option
holders as of June 20, 2007.
This business combination has been accounted for as a purchase transaction, with the Company
being identified as the acquirer and Queenstake as the acquiree in accordance with CICA
Handbook 1581 Business Combinations. These consolidated financial statements include 100%
of Queenstake’s operating results for the period from June 20 to June 30, 2007.
The preliminary allocation of the purchase price of 100% of the outstanding common shares of
Queenstake is summarized in the following table, based on the information currently available to
management. The Company will engage independent professionals to perform an appraisal of
certain Queenstake assets, including the valuation of income tax assets and liabilities associated
with the transaction. Based on the results of these appraisals, the allocation of the purchase price
to the net assets acquired by the Company may change and this change may be material:
Purchase price:
Share consideration (58,436,531 shares at CDN$1.76 per share) $ 96,744
Fair value of share purchase warrants and stock options 1,944
Acquisition costs 2,683
$ 101,371
Net assets acquired:
Cash $ 2,450
Accounts receivable and prepaid expenses 3,764
Marketable securities 32
Inventories 22,904
Restricted cash 27,588
Property, plant and equipment 20,636
Mineral properties 91,913
Other assets 1,110
Accounts payable and accruals (44,319)
Long-term liabilities (24,707)
$ 101,371
7
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
4. Basis of presentation:
These unaudited interim consolidated financial statements include the accounts of Yukon-Nevada
Gold Corp. and its wholly owned subsidiaries (the Company). These interim consolidated
financial statements do not include all disclosures required by Canadian generally accepted
accounting principles for annual financial statements, and accordingly, these interim consolidated
financial statements should be read in conjunction with the Company’s most recent annual
consolidated financial statements. These interim consolidated financial statements follow the
same accounting policies and methods of application used in the Company’s audited
consolidated financial statements as at and for the year ended December 31, 2006, except for the
new accounting policies adopted subsequent to that date, as discussed in note 5.
Basis of consolidation
These consolidated financial statements include the accounts of Yukon-Nevada Gold Corp. and
its subsidiaries. All material intercompany transactions and balances have been eliminated. The
subsidiaries and percentage of ownership at June 30, 2007 are as follows:
Ketza River Holdings Ltd. (Yukon) – 100%
YGC Resources Arizona Inc. (Arizona) – 100%
Queenstake Resources Ltd. (British Columbia) – 100%
Queenstake Resources U.S.A. Inc. (Delaware) – 100%
Castle Exploration Inc. (Colorado) – 100%
Certain of the comparative figures have been reclassified to conform with the presentation
adopted in the current year.
5. Adoption of new accounting policies:
(a) Financial instruments:
The Canadian Institute of Chartered Accountants (CICA) issued Section 3855, Financial
Instruments - Recognition and Measurement, Section 3861, Financial Instruments -
Disclosure and Presentation, Section 3865, Hedges and Section 1530, Comprehensive
Income, all applicable for annual or interim periods beginning on or after October 1, 2006.
Sections 3855 and 3861 require all financial assets, financial liabilities and non-financial
derivatives to be recognized on the balance sheet at the appropriate measurement and
properly disclosed in the notes to the consolidated financial statements. Section 3865 sets
out hedge accounting prerequisites and rules and builds on existing Canadian GAAP
guidance by specifying how hedge accounting is applied and disclosed. Section 1530
introduces new standards for the presentation and disclosure of components of
comprehensive income. Comprehensive income is defined as the change in net assets of an
enterprise during a reporting period from transactions and other events and circumstances
from non-owner sources.
8
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
5. Adoption of new accounting policies (continued):
(a) Financial instruments (continued):
The Company has reported a foreign currency exchange gain of $2,314 in the statement of
comprehensive income for the three months ending June 30, 2007, as a result of its change
in reporting currency (note 2).
(b) Accounting changes:
The CICA issued Section 1506, Accounting Changes, applicable for annual or interim periods
beginning on or after January 1, 2007.
Section 1506 revised the standards on changes in accounting policy, estimates or errors to
require a change in accounting policy to be applied retrospectively, unless doing so is
impracticable, changes in estimates to be recorded prospectively, and prior period errors to
be corrected retrospectively. Voluntary changes in accounting policy are allowed only when
they result in financial statements that provide reliable and more relevant information. In
addition, these revised standards call for enhanced disclosures about the effect of changes in
accounting policies, estimates and errors on the financial statements. The impact of this
standard cannot be determined until such time as the Company makes a change in
accounting policy other than one resulting from implementation of new CICA Handbook
standards.
(c) Mineral properties:
Gold production property - Jerritt Canyon – Nevada, USA
Mineral properties are carried at cost less accumulated depletion. Cost includes acquisition
and related costs, capitalized asset retirement costs, long-term development costs incurred
on existing ore bodies, and development costs incurred to further define reserves deemed
capable of subsequent commercial production. Depletion of mineral properties including
deferred development costs is charged on a units-of-production basis over proven and
probable reserves.
(d) Revenue recognition:
Revenue is recognized when there is pervasive evidence that a metal sale contract exists,
delivery to the customer has occurred, legal title has passed and the sales price and timing of
payment has been fixed and timing of payment has been determined.
9
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
5. Adoption of new accounting policies (continued):
(e) Inventories:
Work-in-process inventories are valued at the lower of average production cost and net
realizable value, after a reasonable allowance for further processing and sales costs.
Purchased ore is recorded at cost based upon the contracted purchase price.
Finished goods inventories are valued at the lower of cost and net realizable value. Cost
valuations are based on the related three-month period’s average costs. Net realizable value
is after a reasonable allowance for sales costs.
Materials and supplies inventories are valued at the lower of average cost and replacement
cost, net of a provision for obsolescence with respect to identified inventory items.
Stockpiles represent ore that has been mined or purchased 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, including applicable overhead, depreciation, depletion and amortization
related to mining operations, and removed at each stockpile’s average cost per recoverable
ounce.
(f) Marketable securities:
Short-term investments in publicly traded marketable securities are valued at the lower of
cost and quoted market value.
6. Marketable securities:
Shares Amount
Balance acquired on June 20, 2007 and as at June 30, 2007 5,750 $ 32
Marketable securities, consisting of 5,750 Shares of U.S. Gold Corporation, a TSX and AMEX
listed company, are carried at market value.
10
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
7. Inventories:
June 30, December 31,
2007 2006
Finished goods $ 1,982 $ -
Stockpiled ore 3,660 -
Purchased ore 16,290 -
Work-in-process 352 -
Materials and supplies 3,328 -
$ 25,612 $ -
All of the Company’s inventories on hand as of June 30, 2007 are located at the Jerritt Canyon
mine in Nevada, USA.
8. Restricted funds:
June 30, December 31,
2007 2006
AIG commutation account $ 26,722 $ -
Cash restricted for future exploration in Canada 2,428 7,709
Cash pledged as security for letters of credit 1,063 129
$ 30,213 $ 7,838
On June 30, 2003, Queenstake purchased from American Insurance Group (AIG) an
environmental risk transfer program (the ERTP) (see note 11). As part of the ERTP, $25.8 million
was deposited in an interest-bearing account with AIG (the Commutation Account). The
Commutation Account principal plus interest earned on the principal is used to fund Jerritt
Canyon mine’s ongoing reclamation and mine closure obligations identified as at June 30, 2003.
In 2006, the Company raised funds by way of private placements of flow-through shares. Under
the conditions of these private placements, the funds must be spent in 2006 and 2007 on
Canadian Exploration Expenditures (CEE) on properties located in Canada. As at June 30, 2007,
the Company has an obligation remaining of $2.428 million (CDN$2.586 million).
11
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
9. Property, plant and equipment:
Accumulated Net book
June 30, 2007 Cost amortization value
Jerritt Canyon mine, USA $ 20,598 $ 151 $ 20,447
Ketza River project, Canada 1,355 292 1,063
Corporate and other, USA 24 - 24
Corporate and other, Canada 98 58 40
$ 22,075 $ 501 $ 21,574
Accumulated Net book
December 31, 2006 Cost amortization value
Ketza River project, Canada $ 672 $ 173 $ 499
Corporate and other, Canada 83 42 41
$ 755 $ 215 $ 540
10. Mineral properties:
Accumulated Net book
June 30, 2007 Cost amortization value
Jerritt Canyon mine, USA $ 92,068 $ 248 $ 91,820
Ketza River project, Canada 24,030 - 24,030
Silver Valley project, Canada 1,284 - 1,284
Arizona project, USA 502 - 502
Other Yukon and BC projects, Canada 22 - 22
$ 117,906 $ 248 $ 117,658
Accumulated Net book
December 31, 2006 Cost amortization value
Ketza River project, Canada $ 16,957 $ - $ 16,957
Silver Valley project, Canada 159 - 159
Arizona project, USA 433 - 433
Other Yukon and BC projects, Canada 16 - 16
$ 17,565 $ - $ 17,565
12
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
11. Other assets:
June 30, December 31,
2007 2006
Environmental Risk Transfer Program $ 1,105 $ -
Environmental Risk Transfer Program / Reclamation cost cap insurance
The ERTP that Queenstake purchased from AIG (see note 15) also includes a reclamation and
mine closure cost cap insurance policy. The insurance policy provides coverage for future
reclamation and mine closure costs in existence at June 30, 2003, if they exceed those funded by
the Commutation Account (Note 8). If these reclamation costs are less than the amount in the
Commutation Account, the Company would be refunded the excess cash. In the event that these
reclamation costs are more than the Commutation Account balance, the cost cap insurance
policy will pay the excess costs up to a defined maximum.
The insurance premium paid for the ERTP in June 2003 is being amortized over the estimated
proven and probable reserves at the inception of the policy. Amortization of the insurance
premium is calculated based on each respective period’s production ounces with respect to the
estimated proven and probable reserves.
Pollution legal liability
The ERTP also includes a pollution legal liability insurance coverage for third-party damage
claims against the Company for both pre-existing pollution conditions and new pollution
conditions, for a period of five years commencing June 30, 2003.
13
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
12. Related party transactions:
(a) Due to related parties:
June 30, December 31,
2007 2006
Loan from shareholders $ - $ 11
The amount showing as due to shareholders at December 31, 2006 was non-interest
bearing, unsecured and due on demand.
(b) Other related party transactions:
During the period, the Company was charged a total of $41 (2006 - $35) in management fees
by a company owned by a director of the Company.
During the period, the Company was charged a total of $151 (2006 - $16) in legal fees by a
law firm in which the corporate secretary of the Company is a partner in the firm. A portion of
these fees are included in both the transaction costs associated with the Queenstake
business combination and share issue costs for the June 2007 private placement, with the
remainder included under general and administrative expenses.
13. Other long-term liabilities:
June 30, December 31,
2007 2006
Capital leases $ 2,362 $ -
Current portion (875) -
$ 1,487 $ -
14
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
14. Future income taxes:
Future income tax liability – mineral property, balance as of
December 31, 2006 $ 3,729
Renunciation of qualifying eligible expenditures under Canadian
flow-through share program 1,167
Impact of foreign exchange on Canadian dollar future income tax
liability 386
$ 5,282
The Company renounced CDN$3.661 million of qualifying exploration expenditures under the
Canadian flow-through share program in April of 2007. The result of this renunciation was that the
Cumulative Canadian Exploration Expenses pool of the Company was reduced per CICA EIC-
146 and a liability for future income taxes was recorded on the date the renunciation was made.
The Company is in the process of obtaining independent valuations of assets acquired and
liabilities assumed in the business combination with Queenstake described in note 3, including
the valuation of income tax assets and liabilities. Upon completion of the valuation exercise, the
Company will adjust tax accounts as required.
15. Asset retirement obligation:
June 30, December 31,
2007 2006
Jerritt Canyon mine, USA $ 23,200 $ -
Ketza River project, Canada 2,158 1,903
$ 25,358 $ 1,903
Federal, state and local laws and regulations concerning environmental protection affect the
Company’s operations. Under current regulations, the Company is required to meet performance
standards to minimize environmental impact from operations and to perform site restoration and
other closure activities. The Company’s provisions for future site closure and reclamation costs
are based on known requirements. It is not currently possible to estimate the impact on operating
results, if any, of future legislative or regulatory developments. The Company’s estimate of the
present value of the obligation to reclaim the Jerritt Canyon property is based upon existing
reclamation standards at June 30, 2007.
15
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
15. Asset retirement obligation (continued):
As part of the consideration for the Jerritt Canyon mine acquisition, the Company assumed the
liability for final reclamation and closure of the mine. On June 30, 2003, the Company purchased
from AIG an ERTP (Note 8). The ERTP includes several components: a Commutation Account
(Note 6), reclamation cost cap insurance, pollution liability insurance, and surety bonds.
16. Share capital:
(a) Authorized share capital consists of an unlimited number of common shares
(b) Common shares issued and outstanding:
Number
of shares Amount
Balance, December 31, 2006 58,950,169 $ 32,025
Shares issued for cash, June 2007 private placement (i) 42,351,864 71,709
Shares issued to Queenstake shareholders, June 2007
business combination (ii) 58,436,531 96,744
Shares issued upon exercise of shareholder warrants 7,609,081 6,726
Shares issued upon exercise of agents’ options and warrants 494,138 479
Shares issued upon exercise of stock options 973,000 518
Shares issued to optionor pursuant to Silver Valley option
agreement 5,000 -
Fair value of shareholder warrants exercised - 606
Fair value of stock options and agents’ options exercised - 293
Flow through share renunciation - (1,167)
Fair value assigned to shareholder warrants, June 2007
private placement (iii) - (18,809)
Fair value assigned to agents’ options, June 2007 private
placement (iv) - (1,127)
Share issue costs - (3,820)
168,819,783 $ 184,177
16
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
16. Share capital (continued):
(b) Common shares issued and outstanding (continued):
(i) On June 20, 2007 the Company closed a private-placement of 42,351,864 common
share units at a price of CDN$1.80 per unit. Each unit contains one common share of the
Company and one-half of one share purchase warrant that entitles the holder to purchase
one common share of the Company for CDN$3.00. The share purchase warrants expire
on June 20, 2012.
(ii) On June 20, 2007 the Plan of Arrangement to combine the operations of the Company
and Queenstake was executed. Pursuant to the Plan of Arrangement, the Company
issued one common share for 10 shares of Queenstake for 100% of the outstanding
shares of Queenstake. The consideration for each 10 Queenstake shares was valued at
CDN$1.76, the closing price of the Company’s shares on the TSX on June 19, 2007. The
value of the shares of the Company issued to Queenstake shareholders has been
included in the purchase price consideration (see note 3).
(iii) The Company issued 21,175,932 share purchase warrants to investors that participated
in the private-placement referred to in (i). The fair value of these share purchase
warrants, using the Black-Scholes pricing model, was $18.809 million. The following
assumptions have been used to assign a fair value to the share purchase warrants:
Risk-free interest rate 4.25%
Dividend yield 0%
Weighted average expected life of warrants 5
Volatility 79%
(iv) The Company issued 1,798,725 agents’ options to brokers in connection with the
brokered portion of the June 20, 2007 private placement. Each agents’ option entitles the
holder to purchase one common share of the Company for CDN$2.10. The agents’
options expire on June 20, 2009. The following assumptions have been used to assign a
fair value of $1.127 million to the agents’ options, using the Black-Sholes pricing model:
Risk-free interest rate 4.25%
Dividend yield 0%
Weighted average expected life of warrants 2
Volatility 79%
17
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
16. Share capital (continued):
(c) Warrants:
Number
of warrants Amount
Balance, December 31, 2006 8,840,327 $ 687
Warrants exercised by shareholders (7,609,084) (606)
Warrants expired (20,000)
Warrants issued upon exercise of agents’ options 52,688
Warrants exercised by brokers (246,408)
Warrants issued to Queenstake shareholders, June 2007
business combination (i) 3,851,200 1,767
Warrants issued to shareholders, June 2007 private
placement 21,175,932 18,809
26,044,655 $ 20,657
(i) Pursuant to the terms of the Plan of Arrangement, the Company issued one share
purchase warrant for every 10 Queenstake share purchase warrants outstanding as of
the date of the business combination, June 20, 2007. The strike price of the Queenstake
warrants was multiplied by 10 to calculate the exercise price of the warrants issued by
the Company for the Queenstake warrants. The fair value of these warrants issued by the
Company was assigned a fair value using the Black-Scholes pricing model with the
following assumptions:
January 16, April 10,
2009 2012
expiring expiring
Risk-free interest rate 4.25% 4.25%
Dividend yield 0% 0%
Weighted average expected life of warrants 1.58 2.81
Volatility 79% 79%
The fair value of the warrants of $1.767 million issued to Queenstake warrant holders has
been included as part of the purchase price consideration (see note 3).
18
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
16. Share capital (continued):
(c) Warrants (continued):
(i) (continued):
The following is a summation of the warrants outstanding as of June 30, 2007:
December 31, June 30,
2006 2007
Expiry Exercise Number Warrants Warrants Warrants Number
date price outstanding exercised expired issued outstanding
Shareholder warrants January 31, 2007 2.40 20,000 - (20,000) -
Shareholder warrants April 13, 2007 1.00 5,724,084 (5,724,084) - -
Shareholder warrants July 29, 2007 1.00 2,405,001 (1,875,000) - 530,001
Shareholder warrants August 26, 2007 1.00 466,000 (10,000) - 456,000
Shareholder warrants January 16, 2009 1.80 - - - 1,000,000 1,000,000
Shareholder warrants April 12, 2010 5.50 - - - 2,851,200 2,851,200
Shareholder warrants June 20, 2012 3.00 - - - 21,175,932 21,175,932
Broker warrants April 13, 2007 1.05 193,720 (246,408) - 52,688 -
Broker warrants July 29, 2007 1.05 31,522 - - - 31,522
8,840,327 (7,855,492) 25,079,820 26,044,655
(d) Contributed surplus:
Contributed surplus as of June 30, 2007 is comprised as follows:
As at December 31, 2006 $ 1,155
Stock-based compensation (i) 2,594
Transfer to share capital for exercise of stock and agents’ options (293)
Fair value of stock options issued to Queenstake option holders 113
Fair value of agents’ options issued with June 2007 private placement 1,128
$ 4,697
(i) The Company issued the following stock options to employees and contractors during the
period ending June 30, 2007:
(a) 65,000 options on April 3, 2007 with an exercise price of $1.61, expiring on April 3, 2012
(b) 500,000 options on June 25, 2007 with an exercise price of $1.74, expiring on June 25,
2012.
19
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
16. Share capital (continued):
(d) Contributed surplus (continued):
The fair value of these options has been assigned a fair value using the Black-Scholes
pricing model as follows:
April, June 25,
2012 2012
expiring expiring
Risk-free interest rate 4.24% 4.25%
Dividend yield 0% 0%
Weighted average expected life of warrants 5 5
Volatility 81% 79%
The fair value of the stock options granted is included in the stock based compensation
expenses in the statement of operations or included in the cost of mineral properties (cost
allocated to fair value of options granted to Ketza River project contractors) and credited to
contributed surplus.
Continuity of stock options outstanding for the year to date ending June 30, 2007:
December 31, June 30,
2006 2007
Number of Stock Stock Number of
Exercise stock options options options stock options
Expiry date price outstanding granted exercised outstanding
April 13, 2010 0.60 1,390,000 - (510,000) 880,000
May 17, 2010 0.60 450,000 - (450,000) -
October 1, 2010 0.60 1,115,000 - (3,000) 1,112,000
January 25, 2011 0.82 370,000 - - 370,000
March 28, 2011 1.06 85,000 - (10,000) 75,000
November 10, 2011 1.71 10,000 - - 10,000
December 12, 2011 2.25 105,000 - - 105,000
January 5, 2012 2.77 - 1,275,000 - 1,275,000
April 3, 2012 1.61 - 65,000 - 65,000
June 25, 2012 1.74 - 500,000 - 500,000
August 17, 2007 3.70 - 15,000 - 15,000
November 3, 2007 2.15 - 5,000 - 5,000
July 27, 2008 3.85 - 145,000 - 145,000
July 5, 2009 5.70 - 90,500 - 90,500
October 25, 2009 5.70 - 96,500 - 96,500
May 3, 2010 2.25 - 50,000 - 50,000
3,525,000 2,242,000 (973,000) 4,794,000
20
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
16. Share capital (continued):
(d) Contributed surplus (continued):
Continuity of agents’ options outstanding for the year to date ending June 30, 2007:
December 31, June 30,
2006 2007
Number of Agents’ Agents’ Agents’ Number of
Exercise agents’ options options options options agents’ options
Expiry date price outstanding issued exercised expired outstanding
April 13, 2007 0.65 105,380 - (105,380) - -
July 28, 2007 0.75 191,085 - - - 191,085
May 30, 2007 1.55 273,017 - (142,350) (130,667) -
June 20, 2009 2.10 - 1,798,725 - - 1,798,725
569,482 1,798,725 (247,730) (130,667) 1,989,810
17. Segmented information:
All of the Company’s operations are related to the gold mining industry. As of the end of June 30,
2007 the Company had one gold producing property (Jerritt Canyon) located in Nevada, USA.
The Company has exploration properties in Canada and the USA.
Assets and liabilities held by geographic location are follows:
June 30, December 31,
2007 2006
Assets:
Canada $ 94,401 $ 31,479
USA 173,797 433
$ 268,198 $ 31,912
Liabilities:
Canada $ 10,851 $ 6,316
USA 58,338 -
$ 69,189 $ 6,316
21
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
18. Commitments and contingencies:
(a) Commitments:
The Company has certain contracted commitments and obligations under capital leases and
operating leases. Future payments for these contracted commitments and obligations with
initial or remaining terms in excess of one year at June 30, 2007 are as follows:
Less than More than
Total 1 year 1 – 3 years 4 – 5 years 5 years
Capital lease obligations 2,700 1,000 1,700 - -
Operating leases 300 200 100 - -
Total material contractual obligations 3,000 1,200 1,800 - -
Effective July 1, 2007 Queenstake Resources USA, Inc. signed an amended and restated
agreement for the purchase and sale of ore and concentrate with Newmont USA Limited
(Newmont). This agreement supercedes the original agreement dated March 29, 2006 and
amended December 22, 2006.
Per the terms of this agreement, the Company shall exercise its best efforts to process
1,000,000 tons of ore delivered by Newmont by December 31, 2008
(b) Legal:
The Company may be involved in various claims, legal proceedings and complaints arising in
the ordinary course of business. The Company does not believe that adverse decisions in
any pending or threatened proceedings related to any matter, or any amount which the
Company may be required to pay by reason thereof, will have a material effect on the future
conditions or future results of operations for the Company.
The Company filed suit on January 19, 2007 against American International Specialty Lines
Insurance Company, a subsidiary of AIG, (the Insurance Company) in United States District
Court for the District of Colorado. The suit seeks $8.4 million for construction of the
evaporation pond at the Company’s Jerritt Canyon operations in Nevada plus an unspecified
amount for additional damages as a result of the Insurance Company’s failure to reimburse
Queenstake under its reclamation costs insurance policy. The matter has been referred to
arbitration. Queenstake is being represented in this matter by Anderson Kill & Olick, P.C. of
New York.
22
YUKON-NEVADA GOLD CORP.
(Formerly YGC Resources Ltd.)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States dollars)
Three and six month periods ended June 30, 2007
19. Subsequent events:
Subsequent to June 30, 2007, the Company:
(a) on July 5, 2007, granted 500,000 stock options to employees of the Jerritt Canyon mine in
Nevada, USA;
(b) issued 530,000 common shares for proceeds of $497 pursuant to the exercise of shareholder
warrants;
(c) issued 318,147 common shares for proceeds of $260 pursuant to the exercise of agents’
options and warrants; and
(d) on August 10, 2007, granted 3,200,000 stock options to directors and officers of the
Company.