Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(MARK ONE)

 

 

COMMISSION FILE NUMBER 1-13627

 

GOLDEN MINERALS COMPANY

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

 

 

(303) 839-5060

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

 

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS:   YES x   NO o

 

INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS SUBMITTED ELECTRONICALLY AND POSTED ON ITS CORPORATE WEB SITE, IF ANY, EVERY INTERACTIVE DATA FILE REQUIRED TO BE SUBMITTED AND POSTED PURSUANT TO RULE 405 OF REGULATION S-T (§232.405 OF THIS CHAPTER) DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO SUBMIT AND POST SUCH FILES).   YES o   NO o

 

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN ACCELERATED FILER, A NON-ACCELERATED FILER, OR A SMALLER REPORTING COMPANY:

 

 

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT):   YES o   NO x

 

INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND REPORTS REQUIRED TO BE FILED BY SECTIONS 12, 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A COURT:   YES x   NO o

 

AT MAY 3, 2010, 9,274,786 SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE, WERE ISSUED AND OUTSTANDING.

 

 

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GOLDEN MINERALS COMPANY

FORM 10-Q

QUARTER ENDED MARCH 31, 2010

 

INDEX

 

		PAGE
PART I — FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS (Unaudited)	3
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	23
ITEM 4.	CONTROLS AND PROCEDURES	23
PART II — OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	24
ITEM 1A.	RISK FACTORS	24
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	24
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	24
ITEM 4.	REMOVED AND RESERVED	24
ITEM 5.	OTHER INFORMATION	24
ITEM 6.	EXHIBITS	24
SIGNATURES		25

 

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PART I. FINANCIAL INFORMATION

 

Item 1.    Financial Statements

 

GOLDEN MINERALS COMPANY

CONSOLIDATED BALANCE SHEETS

(Expressed in United States dollars)

(Unaudited)

 

		March 31,			December 31,
		2010			2009
		(in thousands, except share data)
Assets
Current assets
Cash and cash equivalents		$	40,618		$	8,570
Investments (Note 4)		5,270			444
Trade receivables		90			1,460
Prepaid expenses and other assets (Note 5)		1,448			2,087
Total current assets		47,426			12,561
Property, plant and equipment, net (Note 6)		7,904			7,774
Assets held for sale (Note 6)		700			813
Prepaid expenses and other assets (Note 5)		502			552
Total assets		$	56,532		$	21,700
Liabilities and Equity
Current liabilities
Accounts payable and other accrued liabilities (Note 7)		$	3,469		$	2,428
Other current liabilities		63			63
Total current liabilities		3,532			2,491
Other long term liabilities		640			651
Total liabilities		4,172			3,142
Commitments and contingencies (Note 13)
Equity (Note 10)
Common stock, $.01 par value, 50,000,000 shares authorized; 9,040,608 and 3,238,615 shares issued and outstanding		90			32
Additional paid in capital		79,719			37,854
Accumulated deficit		(27,315		)	(20,276		)
Accumulated other comprehensive income (loss)		(134		)	154
Parent company’s shareholder’s equity		52,360			17,764
Noncontrolling interest in subsidiaries (Note 11)		—			794
Total equity		52,360			18,558
Total liabilities and equity		$	56,532		$	21,700

 

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

 

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GOLDEN MINERALS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Expressed in United States dollars)

(Unaudited)

 

					For The Period				For The Period
		Three Months			March 25, 2009				January 1, 2009
		Ended			Through				Through
		March 31, 2010			March 31, 2009				March 24, 2009
		(Successor)							(Predecessor)
		(in thousands, except share data)
Revenue:
Management service fees (Note 12)		$	3,173		$	211			$	1,350
Costs and expenses:
Costs of services (Note 12)		(1,617		)	(80		)		—
Exploration expense		(3,226		)	(448		)		(3,482		)
El Quevar feasibility		(2,469		)	—				—
Administrative expense		(2,296		)	(352		)		(4,779		)
Stock based compensation		(522		)	—				(2,717		)
Depreciation, depletion and amortization		(109		)	(9		)		(102		)
Total costs and expenses		(10,239		)	(889		)		(11,080		)
Loss from operations		(7,066		)	(678		)		(9,730		)
Other income and expenses:
Interest and other income		683			124				1,010
Royalty income		—			—				88
Interest and other expense		(126		)	—				(345		)
Gain (loss) on foreign currency		13			—				(13		)
Gain on extingushment of debt		—			—				248,165
Loss on auction rate securities		—			—				(828		)
Reorganization costs, net		—			(103		)		(3,683		)
Fresh start accounting adjustments		—			—				9,122
Total other income and expenses		570			21				253,516
Income (loss) from continuing operations before income taxes		(6,496		)	(657		)		243,786
Income taxes		(543		)	(26		)		(165		)
Net income (loss) from continuing operations		(7,039		)	(683		)		243,621
Loss from discontinued operations		—			—				(4,153		)
Net income (loss)		$	(7,039	)	$	(683	)		$	239,468
Income attributable to noncontrolling interest		—			$	—			$	(7,869	)
Net income (loss) attributable to the Successor/Predecessor shareholders		$	(7,039	)	$	(683	)		$	231,599
Other comprehensive income (loss):
Unrealized gain (loss) on securities		(288		)	$	—			$	940
Comprehensive income (loss) attributable to Successor/Predecessor shareholders		$	(7,327	)	$	(683	)		$	232,539
Net income (loss) per Common/Ordinary Share — basic
Income (loss) from continuing operations attributable to the Successor/Predecessor shareholders		$	(1.57	)	$	(0.23	)		$	4.13
Loss from discontinued operations attributable to the Successor/Predecessor shareholders		—			—				(0.20		)
Income (loss) attributable to the Successor/Predecessor shareholders		$	(1.57	)	$	(0.23	)		$	3.93
Net income (loss) per Common/Ordinary Share — diluted
Loss from continuing operations attributable to the Successor/Predecessor shareholders		$	(1.57	)	$	(0.23	)		$	(0.06	)
Loss from discontinued operations attributable to the Successor/Predecessor shareholders		—			—				(0.17		)
Loss attributable to the Successor/Predecessor shareholders		$	(1.57	)	$	(0.23	)		$	(0.23	)
Weighted average Common Stock/Ordinary Shares outstanding - basic		4,497,126			2,987,735				59,000,832
Weighted average Common Stock/Ordinary Shares outstanding - diluted		4,497,126			2,987,735				69,171,400

 

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

 

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GOLDEN MINERALS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in United States dollars)

(Unaudited)

 

					For The Period				For The Period
		Three Months			March 25, 2009				January 1, 2009
		Ended			Through				Through
		March 31, 2010			March 31, 2009				March 24, 2009
		(Successor)							(Predecessor)
		(in thousands)
Cash flows from operating activities:
Net cash used in operating activities (Note 14)		$	(3,847	)	$	(1,247	)		$	(13,849	)
Cash flows from investing activities:
Purchase of available for sale investments		(5,005		)	—				(4,447		)
Sale of available for sale investments		296			—				21,113
Released from restricted cash to collateralize credit facility, letters of credit and interest payments, net		—			—				5,732
Proceeds from sale of interest in subsidiary, net		—			—				25,225
Proceeds from sale of assets		125			—				—
Capitalized costs and acquisitions of property, plant and equipment		(127		)	—				(4,580		)
Net cash provided by (used in) investing activities		$	(4,711	)	$	—			$	43,043
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issue costs		40,606			—				—
Payments of notes payable and long term debt		—			—				(47,297		)
Amounts drawn on DIP facility		—			—				6,500
Non-controlling interest contributions		—			—				3,500
Net cash (used in) provided by financing activities		$	40,606		$	—			$	(37,297	)
Net increase (decrease) in cash and cash equivalents		32,048			(1,247		)		(8,103		)
Cash and cash equivalents - beginning of period		8,570			25,620				33,723
Cash and cash equivalents - end of period		$	40,618		$	24,373			$	25,620

 

See Note 14 for supplemental cash flow information.

 

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

 

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GOLDEN MINERALS COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)

(Expressed in United States dollars)

(Unaudited)

 

													Accumulated
													Other
							Additional						Comprehensive						Total
		Common Stock					Paid-in			Accumulated			income			Noncontrolling			Equity
		Shares		Amount			Capital			Deficit			(loss)			Interest			(Deficit)
		(in thousands except share data)
(Predecessor)
Balance, December 31, 2008		59,000,832		$	590.0		$	680,901		$	(880,020	)	$	(551	)	$	150,792		$	(48,288	)
Stock compensation accrued		—		—			2,920			—			—			—			2,920
Ordinary Shares of Apex Silver Mines Limited to be canceled		(59,000,832	)	(590		)	(683,821		)	—			—			—			(684,411		)
Unrealized loss on marketable equity securities		—		—			—			—			940			—			940
Net income (loss)		—		—			—			231,599			—			7,869			239,468
Capital contributions		—		—			—			—			—			3,500			3,500
Interest payable to non controlling interest		—		—			—			—			—			7,899			7,899
Elimination of Predecessor accumulated deficit		—		—			—			648,421			—			—			648,421
Elimination of Predecessor accumulated OCI		—		—			—			—			(389		)	—			(389		)
Elimination of Predecessor Noncontrolling Interest		—		—			—			—			—			(170,060		)	(170,060		)
Balance, March 24, 2009		—		$	—		$	—		$	—		$	—		$	—		$	—
(Successor)
Issuance of new equity in connection with emergence from Chapter 11		3,000,000		$	30		$	36,230		$	—		$	—		$	—		$	36,260
Stock compensation accrued, net of forfeitures		242,500		2			1,664			—			—			—			1,666
Treasury shares acquired		(3,885	)	—			(40		)	—			—			—			(40		)
Unrealized gain on marketable equity securities		—		—			—			—			154			—			154
Noncontrolling interest in mineral properties		—		—			—			—			—			794			794
Net loss		—		—			—			(20,276		)	—			—			(20,276		)
Balance, December 31, 2009		3,238,615		$	32		$	37,854		$	(20,276	)	$	154		$	794		$	18,558
Purchase of El Quevar noncontrolling interest		400,000		4			790			—			—			(794		)	—
Private placements, net		1,749,759		18			12,949			—			—			—			12,967
Public offering, net		3,652,234		36			27,604			—			—			—			27,640
Stock compensation accrued		—		—			522			—			—			—			522
Unrealized loss on marketable equity securities		—		—			—			—			(288		)	—			(288		)
Net loss		—		—			—			(7,039		)	—			—			(7,039		)
Balance, March 31, 2010		9,040,608		$	90		$	79,719		$	(27,315	)	$	(134	)	$	—		$	52,360

 

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

 

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GOLDEN MINERALS COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

 

1.              Basis of Preparation of Financial Statements and Nature of Operations

 

Golden Minerals Company (the “Company”), a Delaware corporation, has prepared these unaudited interim consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), so long as such omissions do not render the financial statements misleading.

 

In the opinion of management, these financial statements reflect all adjustments that are necessary for a fair statement of the financial results for the periods presented. These interim financial statements should be read in conjunction with the annual financial statements included in the 2009 Annual Report on Form 10-K.

 

The Company is primarily engaged in the exploration and advancement of its portfolio of exploration properties in South America and Mexico and in providing operations management services to Sumitomo for the San Cristóbal mine.  The financial statements have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the normal course of business.  However, the continuing operations of the Company are dependent upon its ability to raise sufficient capital and to generate future profitable operations.  The underlying value and recoverability of the amounts shown as mineral properties in the consolidated balance sheet are dependent on the ability of the Company to continue to finance exploration and development activities that would lead to profitable production or proceeds from the disposition of the mineral properties.  There can be no assurance that the Company will be successful in raising additional financing in the future on terms acceptable to the Company or at all.

 

Prior to its emergence from Chapter 11 and the sale of the San Cristóbal mine, Apex Silver Mines Limited (“ASML”) was the 65% owner and operator of the San Cristóbal silver and zinc mine in Bolivia.  Upon emergence from Chapter 11 reorganization on March 24, 2009, the Company became the successor to ASML for purposes of reporting under the U.S. federal securities laws.  References in this Form 10-Q to “Successor” refer to the accounts of the Company and its subsidiaries on or after March 25, 2009, the day following emergence from Chapter 11.  References to “Predecessor” refer to the accounts of ASML and its subsidiaries prior to March 25, 2009.

 

2.              Discontinued Operations

 

Results of operations of the San Cristóbal mine and related subsidiaries are presented as discontinued operations for the periods on the Consolidated Statements of Operations and Comprehensive Income (Loss) through March 24, 2009, the date the San Cristóbal mine and related subsidiaries were sold, including all direct financing related to the San Cristóbal mine.  Additionally, costs incurred for management service fees that were previously eliminated upon consolidation have not been eliminated and are reflected as a cost of service between the discontinued operations and the Company.

 

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The results of discontinued operations for the period January 1, 2009 through March 24, 2009 are as follows (amounts in thousands):

 

		For The Period
		January 1, 2009
		Through
		March 24, 2009
		(in thousands)
Revenue:
Sale of concentrates, net		$	99,049
Costs and expenses:
Costs applicable to sales		(59,955		)
Management fee		(1,350		)
Asset retirement accretion expense		(232		)
Foreign currency gain		1,960
Depreciation, depletion and amortization		(10,527		)
Total costs and expenses		(70,104		)
Income (loss) from operations		28,945
Other income and expenses:
Interest and other income		67
Interest expense and other borrowing costs		(22,233		)
Total other income and expenses		(22,166		)
Income before income taxes		6,779
Income taxes		(2,523		)
Income before sale of interest in subsidiaries		4,256
Loss on sale of interest in subsidiaries		(8,409		)
Loss from discontinued operations		$	(4,153	)

 

3.              Significant Accounting Policies

 

Recently Adopted Standards

 

On January 1, 2010 the Company adopted the Accounting Standards Codification (“ASC”) guidance for consolidation accounting which was updated to require an entity to perform a qualitative analysis to determine whether the enterprise’s variable interest gives it a controlling financial interest in a variable interest entity (“VIE”). This analysis identifies a primary beneficiary of a VIE as an entity that has both of the following characteristics: (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses or receive benefits from the entity that could potentially be significant to the VIE. The updated guidance also requires ongoing reassessments of the primary beneficiary of a VIE. The Company currently has no VIEs.

 

Recently Issued Pronouncements

 

In January 2010, ASC guidance for fair value measurements and disclosure was updated to require additional disclosures related to: (i) transfers in and out of level 1 and 2 fair value measurements and (ii) enhanced detail in the level 3 reconciliation. The guidance was amended to provide clarity regarding the level of disaggregation required for assets and liabilities and the disclosures required for inputs and valuation techniques used to measure the fair value of assets and liabilities that fall in either level 2 or level 3.  The updated guidance is effective for the Company’s fiscal year beginning January 1, 2010, with the exception of the level 3 disaggregation which will be effective for the Company’s fiscal year beginning January 1, 2011. The adoption had no impact on the Company’s condensed consolidated financial position, results of operations or cash flows. Refer to Note 8 for further details regarding the Company’s assets and liabilities measured at fair value.

 

4.              Investments

 

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Short-term investments include investments with maturities greater than three months, but not exceeding 12 months, or highly liquid investments with maturities greater than 12 months that the Company intends to liquidate during the next 12 months for working capital needs.

 

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The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase and re-evaluates those classifications at each balance sheet date.  Debt securities are classified as held to maturity when the Company has the intent and ability to hold the securities to maturity. Held to maturity debt securities are stated at amortized cost.  Available for sale investments are marked to market at each reporting period with changes in value recorded as a component of other comprehensive income (loss). If declines in value are deemed other than temporary, a charge is made to net income (loss) for the period.

 

The following tables summarize the Company’s investments at March 31, 2010 and December 31, 2009:

 

March 31, 2010		Cost			Estimated Fair Value			Carrying Value
					(in thousands)
Investments:
Short-term:
Available for sale
U. S. treasury securities		$	5,005		$	5,005		$	5,005
Warrant to purchase common stock		124			64			64
Common stock		275			201			201
Total available for sale		5,404			5,270			5,270
Total short term		$	5,404		$	5,270		$	5,270

 

December 31, 2009		Cost			Estimated Fair Value			Carrying Value
					(in thousands)
Investments:
Short-term:
Available for sale
Common stock		$	191		$	444		$	444
Total available for sale		191			444			444
Total short term		$	191		$	444		$	444

 

Quoted market prices at March 31, 2010 and December 31, 2009 were used to determine the estimated fair values of the above investments except for the warrant to purchase common stock. The fair value of the warrant to purchase common stock was determined using a Black-Sholes model with inputs based on quoted market price, historic volatilities, risk free interest rates and the life of the warrant (see Note 8).

 

Credit Risk

 

Credit risk is the risk that a third party might fail to fulfill its performance obligations under the terms of a financial instrument. For cash and cash equivalents and investments, the Company’s maximum exposure to credit risk represents the carrying amount on the balance sheet. The Company attempts to mitigate credit risk for cash and cash equivalents and investments by placing its funds and investments with high credit-quality financial institutions, limiting the amount of exposure to each financial institution, monitoring the financial condition of the financial institutions and investing only in government and corporate securities rated “investment grade” or better. The Company invests with financial institutions that maintain a net worth of not less than $1.0 billion and are members in good standing of the Securities Investor Protection Corporation.

 

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5.   Prepaid expenses and other current assets

 

Prepaid expenses and other current assets consist of the following:

 

		March 31,			December 31,
		2010			2009
		(in thousands)
Prepaid insurance		$	283		$	306
Prepaid contractor fees and vendor advances		503			191
Deferred leasehold costs		283			329
Prepaid offering costs		—			576
Recoupable deposits and other		379			685
		$	1,448		$	2,087

 

March 31, 2010

 

The deferred leasehold costs are related to the Company’s headquarters office lease in Golden, Colorado.  Prepaid contractor fees and vendor advances consist primarily of advance payments made to contractors and suppliers primarily at our El Quevar project in Argentina.

 

In addition, included in non-current assets is approximately $469,000 of prepaid insurance on which amortization will be recognized through 2015.

 

December 31, 2009

 

The deferred leasehold costs are related to the Company’s headquarters office lease in Golden, Colorado.  Prepaid contractor fees and vendor advances consist primarily of advance payments made to contractors and suppliers for exploration related services.  Prepaid offering costs are related to direct costs and fees associated with the then anticipated public offering of common stock that had not been completed at year-end 2009.  These costs were netted against the proceeds from the offering in the first quarter 2010.  Included in recoupable deposits and other is a $188,000 receivable related to the sale of certain investments which settled January 4, 2010 and a $152,000 recoupable deposit made to a firm providing legal services related to the reorganization that was returned to the Company during the first quarter 2010.

 

6.   Property, Plant and Equipment and Assets Held for Sale

 

Property, plant and equipment

 

The components of property, plant and equipment are as follows:

 

		March 31,			December 31,
		2010			2009
		(in thousands)
Exploration properties		$	4,230		$	4,228
Royalty properties		1,207			1,207
Construction in progress		—			—
Buildings		619			383
Mining equipment and machinery		1,837			1,984
Other furniture and equipment		769			601
		8,662			8,403
Less: Accumulated depreciation		(758		)	(629		)
		7,904			7,774

 

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Assets Held for Sale

 

The Company has obtained approval from its board of directors to sell its Paca Pulacayo property in Bolivia. The $0.7 and $0.8 million carrying value of the property is reflected in assets held for sale in the accompanying consolidated balance sheets at March 31, 2010 and December 31, 2009, respectively, per the guidance of ASC 360, “Property, Plant and Equipment”.  Completion of the transaction is subject to negotiation and execution of definitive agreements, approval of our board of directors, consents and approvals of third parties including governmental entities and the TSX Venture Exchange, and other customary closing conditions.  The carrying value of the asset held for sale is adjusted at the end of each period per the guidance of ASC 360.  During the first quarter 2010 the Company recorded a negative adjustment of approximately $0.1 million to the carrying value of the property which is reflected in interest and other expense on the accompanying consolidated statements of operations.

 

7.   Accounts Payable and Other Accrued Liabilities

 

The Company’s accounts payable and other accrued liabilities consist of the following:

 

		March 31,			December 31,
		2010			2009
		(in thousands)
Accounts payable and accruals		$	1,738		$	1,863
Income taxes payable		19			22
Accrued employee compensation and benefits		1,045			543
Deferred revenue		667			—
		$	3,469		$	2,428

 

March 31, 2010

 

Accounts payable and accruals consist of $1.1 million related to our exploration and corporate administrative activities and $0.6 million related to amounts due to contractors and suppliers at our El Quevar project, respectively.

 

Accrued employee compensation and benefits consist of $0.5 million related to withholding taxes and benefits payable, $0.3 million related to bonuses payable and $0.2 million of accrued vacation payable.

 

Deferred revenue relates to fees collected under the Management Agreement for services not yet performed.

 

December 31, 2009

 

Accounts payable and accruals consist of $1.0 million related to our exploration and corporate administrative activities and $0.9 million related to amounts due to contractors and suppliers, respectively.

 

Accrued employee compensation and benefits consist $0.3 million related to withholding taxes and benefits payable and $0.2 million of accrued vacation payable.

 

8.             Fair Value Measurements

 

Effective January 1, 2008 the Company adopted ASC 820, “Fair Value Disclosure and Measurements”, for the financial assets and liabilities and nonfinancial assets and liabilities which are measured at fair value on a recurring (annual) basis.  ASC 820 establishes a framework for measuring fair value in the form of a fair value hierarchy which prioritizes the inputs into valuation techniques used to measure fair value into three broad levels.  This hierarchy gives the highest priority to quoted prices (unadjusted) in active markets and the lowest priority to unobservable inputs.  Further, financial assets and liabilities should be classified by level in their entirety based upon the lowest level of input that was significant to the fair value measurement.  The three levels of the fair value hierarchy per ASC 820 are as follows:

 

Level 1:  Unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.

 

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Level 2:  Quoted prices in inactive markets for identical assets or liabilities, quoted prices for similar assets or liabilities in active markets, or other observable inputs either directly related to the asset or liability or derived principally from corroborated observable market data.

 

Level 3:  Unobservable inputs due to the fact that there is little or no market activity. This entails using assumptions in models which estimate what market participants would use in pricing the asset or liability.

 

The following table summarizes the Company’s financial assets at fair value at March 31, 2010, by respective level of the fair value hierarchy:

 

		Level 1			Level 2			Level 3			Total
		(in thousands)
Assets:
Cash equivalents		$	31,629		$	—		$	—		$	31,629
Short-term available for sale securities		5,206			—			—			5,206
Warrant to purchase common stock		—			64			—			64
		$	36,835		$	64		$	—		$	36,899

 

The Company’s cash equivalents, comprised principally of U.S. treasury securities, are classified within Level 1 of the fair value hierarchy.

 

The Company’s short-term available for sale securities are classified within Level 1 of the fair value hierarchy.  These securities are comprised of common stock and U.S. treasury securities, which have been valued using quoted prices in active markets.

 

The Company’s warrant to purchase common stock is classified within Level 2 of the fair value hierarchy. The fair value of the warrant to purchase common stock was determined using a Black-Sholes model with inputs based on quoted market price, historic volatilities, risk free interest rates and the life of the warrant.

 

9.             Income Taxes

 

The Company, a Delaware corporation, and its subsidiaries file tax returns in the United States and in various foreign jurisdictions.  The tax rules and regulations in these countries are highly complex and subject to interpretation. The Company’s income tax returns are subject to examination by the relevant taxing authorities and in connection with such examinations, disputes can arise with the taxing authorities over the interpretation or application of certain tax rules within the country involved.  The Company’s total unrecognized tax benefits, representing uncertain tax positions taken or expected to be taken on tax returns, were $1.4 million as of March 31, 2010 and December 31, 2009, which resulted in a reduction to the Company’s deferred tax assets as of March 31, 2010 and December 31, 2009.

 

For the quarter ending March 31, 2010, the Company incurred operating losses and recognized income tax of $0.5 million consisting of $0.4 million Bolivian withholding tax on management services provided in Bolivia, and $0.1 million for the reversal of the tax effects of other comprehensive income reported as of December 31, 2009.  Based on the limited history of the Company, an estimated effective tax rate is not used to report the year-to-date results.  The Predecessor recognized income tax of $0.2 million for the period January through March 24, 2009, also due to Bolivia, withholding tax on management services, and income tax of $2.5 million is included in discontinued operations for the same period in the accompanying consolidated statement of operations and comprehensive income (loss).

 

Following the sale of the San Cristóbal mine, the Company received the remaining assets of the Predecessor, which included investments in subsidiaries, some of which are disregarded for U.S. tax purposes.  The US tax basis of the assets received from the Predecessor is limited to the fair value placed on them for fresh start purposes.  A deferred tax liability of $0.5 million was recognized for fresh start purposes for assets whose fresh start value exceeded the tax basis.  Deferred tax liabilities were reduced to $0.2 million as of March 31, 2010, and December 31, 2009, as the result of the recognition of $0.3 million of deferred tax benefits resulting from losses incurred during the period March 25, 2009 through December 31, 2009.

 

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10.   Equity

 

Issuance of common stock for mineral property interest

 

During January 2010 the Company acquired Hochschild Mining Group’s (“Hochschild”) 35% interest in Minera El Quevar S.A. in exchange for 400,000 shares of its common stock and a warrant to acquire 300,000 shares of its common stock exercisable for three years at an exercise price of $15.00 per share.  In accordance with ASC 810, “Consolidations”, the Company has reflected this transaction in equity with charges to common stock and additional paid in capital and the elimination of approximately $0.8 million of noncontrolling interest. No gain or loss was recognized on the transaction. With the completion of this transaction, the Company now owns or controls 100% of the concessions related to the El Quevar project.

 

Public offering and private placements of the Company’s common stock

 

During January 2010 the Company completed a private placement of 844,694 shares of its common stock to two investment funds managed by The Sentient Group (“Sentient”), which includes 745,318 shares issued in the initial private placement plus an additional 99,376 shares issued upon exercise of Sentient’s contractual pre-emptive right in order to maintain its 19.9% equity interest in the Company following completion of the Hochschild transaction. These shares were sold at a purchase price of Cdn$7.06 per share, resulting in net proceeds to the Company of approximately $5.5 million.

 

On March 24, 2010 the Company completed a public offering of 4,000,000 shares of common stock at an offering price of $8.50 per share. The Company sold 3,652,234 shares and a selling stockholder sold 347,766 shares.  Concurrent with the public offering, Sentient exercised its existing pre-emptive right and purchased in a private placement pursuant to Regulation S under the U.S. Securities Act of 1933 an additional 905,065 shares of common stock at the public offering price of $8.50 per share. The aggregate net proceeds to the Company from the sale of the shares in the public offering and the sale of the shares to Sentient was approximately $35.1 million after deducting underwriting discounts, commissions and expenses.

 

Equity Incentive Plans

 

In April 2009, the Company adopted the 2009 Equity Incentive Plan (the “Equity Plan”) pursuant to which awards of the Company’s common stock may be made to officers, directors, employees, consultants and agents of the Company and its subsidiaries.  The Company recognizes stock-based compensation costs using a graded vesting attribution method whereby costs are recognized over the requisite service period for each separately vesting portion of the award.

 

The following table summarizes the status of the Company’s restricted stock grants issued under the Equity Plan at March 31, 2010 and changes during the quarter then ended:

 

Restricted Stock Grants		Number of Shares		Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2009		230,000		$	10.75
Granted during the period		—		—
Restrictions lifted during the period		—		—
Forfeited during the period		—		—
Outstanding at March 31, 2010		230,000		$	10.75

 

The restricted share awards were granted in April 2009, vesting in two equal tranches on the first and second anniversaries of the grant date, provided that the officer or employee continues to be employed by or serve the Company through the applicable vesting date. For the period January 1, 2010 through March 31, 2010 the Company recognized approximately $0.4 million of compensation expense related to the restricted stock grants and the Company expects to recognize additional compensation expense related to these awards of approximately $0.6 million over the next 12 months.

 

Also, pursuant to the Equity Plan, the Company’s board of directors adopted the Non-Employee Director’s Deferred Compensation and Equity Award Plan (the “Deferred Compensation Plan”).  Pursuant to the Deferred Compensation Plan the non-employee directors have received a portion of their compensation in the form of Restricted Stock Units (“RSUs”) issued under the Equity Plan. The non-employee directors were granted a total of 25,000 RSUs, with a grant date of May 

 

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20, 2009. The RSUs vested on April 2, 2010. Each RSU entitles the director to receive one unrestricted share of common stock upon the termination of the director’s board service.

 

The following table summarizes the status of the RSU grants issued under the Deferred Compensation Plan at March 31, 2010 and changes during the quarter then ended:

 

Restricted Stock Units		Number of Underlying Shares		Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2009		25,000		$	10.92
Granted during the period		—		—
Restrictions lifted during the period		—		—
Forfeited during the period		—		—
Outstanding at March 31, 2010		25,000		$	10.92

 

For the period January 1, 2010 through March 31, 2010 the Company recognized approximately $0.1 million of compensation expense related to the RSU grants.

 

During April 2010, additional awards were granted under the Equity Plan as discussed in Note 15.

 

11.   Noncontrolling Interest

 

On January 1, 2009 the Company adopted the provisions of ASC 810 related to noncontrolling interest, previously called a minority interest.  A noncontrolling interest is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent.

 

At December 31, 2009 the major concessions at the Company’s El Quevar project were within a jointly owned subsidiary of which the Company held a 65% interest and Hochschild held the remaining 35%.  At December 31, 2009 Hochschild’s 35% interest was reflected in the consolidated balance sheets as a noncontrolling interest of $0.8 million and was included as a component of total equity.  In January 2010 the Company purchased Hochschild’s 35% interest in Minera El Quevar S.A. for stock and warrants (see Note 10).  As of March 31, 2010 the Company has no noncontrolling interests.

 

The following schedule sets forth the amounts of income from continuing operations and discontinued operations attributable to the Successor’s and Predecessor’s shareholders:

 

					For The Period				For The Period
		Three Months			March 25, 2009				January 1, 2009
		Ended			Through				Through
		March 31, 2010			March 31, 2009				March 24, 2009
		(Successor)							(Predecessor)
		(in thousands)
Amounts attributable to Golden Minerals common stockholders and Predecessor’s ordinary shareholders:
Income (loss) from continuing operations		$	(7,039	)	$	(683	)		$	243,621
Loss from discontinued operations		—			—				(12,022		)
Net income (loss)		$	(7,039	)	$	(683	)		$	231,599

 

12.   Revenue and Cost of Services

 

The Company entered into a Management Agreement with Sumitomo under which it provides certain management services with respect to the San Cristóbal mine. The Management Agreement provides for an annual fee of $11.4 million which includes approximately $5.4 million that constitutes reimbursement for direct administrative expenses the Company incurs on behalf of the San Cristóbal mine. Under the terms of the Management Agreement, the Company receives the fee and any reimbursements net of any Bolivian withholding taxes. The fee and reimbursements for administrative costs and Bolivian withholding taxes are reported as “Revenue from Services” in the statement of operations following the guidance of ASC 605, “Revenue Recognition” regarding “income statement characterization of reimbursements received for ‘out-of-

 

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