VISTA GOLD CORP - Quarter Report: 2011 September (Form 10-Q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2011

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                        to                      

 

Commission File Number 1-09025

 

 

VISTA GOLD CORP.

(Exact name of registrant as specified in its charter)

 

 

 

(720) 981-1185

(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 the 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  x  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.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 71,480,883 common shares, without par value, outstanding at November 3, 2011.

 

 

Table of Contents

 

VISTA GOLD CORP.

(An Exploration Stage Enterprise)

FORM 10-Q

For the Quarter Ended September 30, 2011

INDEX

 

		Page
PART I — FINANCIAL INFORMATION
ITEM 1.	UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	25
ITEM 4.	CONTROLS AND PROCEDURES	26
PART II — OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	26
ITEM 1A.	RISK FACTORS	26
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	26
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	26
ITEM 4.	[REMOVED AND RESERVED]	26
ITEM 5.	OTHER INFORMATION	27
ITEM 6.	EXHIBITS	27
SIGNATURES		28

 

Table of Contents

 

PART I — FINANCIAL INFORMATION

 

ITEM 1.  UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

VISTA GOLD CORP. (An Exploration Stage Enterprise)

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in U.S. dollars and in thousands, except shares)

 

		September 30,			December 31,
		2011			2010
Assets:
Current assets:
Cash and cash equivalents		$	26,946		$	39,838
Marketable securities (Note 5)		940			1,703
Other current assets		1,117			1,084
Total current assets		29,003			42,625
Non-current assets:
Mineral properties (Note 6)		16,401			16,622
Plant and equipment (Note 7)		18,817			18,809
Amayapampa disposal consideration (Notes 3)		4,813			4,813
Long-term investment - Midas Gold Corp. (Note 3 and 8)		110,267			—
Deferred debt issuance costs		—			103
Total non-current assets		150,298			40,347
Total assets		$	179,301		$	82,972
Liabilities and Shareholders’ Equity:
Current liabilities:
Convertible notes (Note 10)		$	—		$	23,000
Accounts payable		106			147
Accrued interest payable		—			109
Accrued liabilities and other		2,323			1,374
Total current liabilities		2,429			24,630
Non-current liabilities:
Deferred tax liability, net (Note 9)		33,546			—
Total non-current liabilities		33,546			—
Total liabilities		35,975			24,630
Shareholders’ equity:
Capital stock, no par value - unlimited shares authorized; shares outstanding: 2011 - 71,435,883 and 2010 - 61,919,752 (Note 11)		379,861			349,719
Stock-based compensation (Note 12)		4,489			4,695
Warrants (Note 13)		10,876			10,721
Additional paid-in capital (Note 14)		8,729			7,565
Accumulated other comprehensive income (Note 15)		38			929
Deficit		(239,086		)	(239,086		)
Accumulated deficit during exploration stage		(21,581		)	(76,201		)
Total shareholders’ equity		143,326			58,342
Total liabilities and shareholders’ equity		$	179,301		$	82,972

 

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

 

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VISTA GOLD CORP. (An Exploration Stage Enterprise)

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME/(LOSS) AND COMPREHENSIVE INCOME/(LOSS)

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

 

		Three Months ended September 30,						Nine Months ended September 30,						Cumulative during Exploration
		2011			2010			2011			2010			Stage
Operating income and (expenses):
Exploration, property evaluation and holding costs		$	(5,803	)	$	(3,324	)	$	(13,606	)	$	(9,860	)	$	(49,957	)
Corporate administration and investor relations		(1,312		)	(837		)	(4,069		)	(2,904		)	(30,641		)
Depreciation and amortization		(87		)	(70		)	(247		)	(202		)	(1,167		)
Loss on extinguishment of convertible debt		—			—			—			(1,565		)	(1,218		)
Gain/(loss) on currency translation		17			152			53			70			(110		)
Gain/(loss) on disposal of mineral property, net (Note 3)		(5		)	—			77,802			—			79,663
Total operating income/(loss)		(7,190		)	(4,079		)	59,933			(14,461		)	(3,430		)
Non-operating income and (expenses):
Gain/(loss) on sale of marketable securities		(2		)	52			445			265			7,788
Unrealized gain on long-term investment (Note 3)		27,762			—			27,762			—			27,762
Write down of marketable securities		—			—			—			—			(849		)
Interest income		11			17			37			106			2,800
Interest expense		—			(174		)	(120		)	(889		)	(4,096		)
Other income/(expense)		109			39			109			135			(5,147		)
Total non-operating income/(loss)		27,880			(66		)	28,233			(383		)	28,258
Income/(loss) from continuing operations before income taxes		20,690			(4,145		)	88,166			(14,844		)	24,828
Deferred income tax (expense)		(9,957		)	—			(33,546		)	—			(33,546		)
Income/(loss) from continuing operations after income taxes		10,733			(4,145		)	54,620			(14,844		)	(8,718		)
Loss from discontinued operations		—			—			—			—			(12,863		)
Net income/(loss)		$	10,733		$	(4,145	)	$	54,620		$	(14,844	)	$	(21,581	)
Other comprehensive income/(loss), net of tax:
Unrealized fair-value increase/(decrease) on available-for-sale securities		$	(319	)	$	233		$	(446	)	$	202
Realized (gain)/loss on available-for-sale securities		2			(46		)	(445		)	(233		)
		(317		)	187			(891		)	(31		)
Comprehensive income/(loss)		$	10,416		$	(3,958	)	$	53,729		$	(14,875	)
Earnings per share:
Basic:
Weighted average number of shares outstanding (Note 16)		71,213,543			46,586,708			67,441,707			45,897,307
Income/(loss) per share		$	0.15		$	(0.09	)	$	0.81		$	(0.32	)
Diluted:
Weighted average number of shares outstanding (Note 16)		72,781,902			46,586,708			68,202,974			45,897,307
Income/(loss) per share		$	0.15		$	(0.09	)	$	0.80		$	(0.32	)

 

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

 

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VISTA GOLD CORP. (An Exploration Stage Enterprise)

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollar amounts in U.S. dollars and in thousands)

 

		Common stock			Stock-based compensation			Warrants			Additional paid-in capital			Deficit			Accumulated other comprehensive income			Total shareholders’ equity
Balances at December 31, 2010		$	349,719		$	4,695		$	10,721		$	7,565		$	(315,287	)	$	929		$	58,342
Equity financing, net of transaction costs		28,396			671			588			—			—			—			29,655
Stock options exercised		1,055			(349		)	—			—			—			—			706
Stock options expensed		—			424			—			—			—			—			424
Stock options expired		—			(828		)	—			828			—			—			—
Restricted stock units exercised		392			(392		)	—			—			—			—			—
Restricted stock units expensed		—			268			—			—			—			—			268
Cash paid in lieu of capital stock issuances		(107		)	—			—			—			—			—			(107		)
Warrants expired		—			—			(336		)	336			—			—			—
Warrants exercised		406			—			(97		)	—			—			—			309
Other comprehensive loss		—			—			—			—			—			(891		)	(891		)
Net income		—			—			—			—			54,620			—			54,620
Balances at September 30, 2011		$	379,861		$	4,489		$	10,876		$	8,729		$	(260,667	)	$	38		$	143,326

 

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

 

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VISTA GOLD CORP. (An Exploration Stage Enterprise)

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in U.S. dollars and in thousands)

 

		Three months ended September 30,						Nine months ended September 30,						Cumulative during Exploration
		2011			2010			2011			2010			Stage
Cash flows from operating activities:
Net income/(loss) for the period		$	10,733		$	(4,145	)	$	54,620		$	(14,844	)	$	(8,718	)
Adjustments to reconcile income/(loss) for the period to net cash used in operations:
Depreciation and amortization		87			70			247			202			1,167
Stock-based compensation		415			427			1,363			501			6,403
(Gain)/loss on disposal of marketable securities		2			(52		)	(445		)	(265		)	(8,050		)
Loss on extinguishment of convertible notes		—			—			—			1,565			1,218
Accrued interest and accretion of interest		—			—			120			—			4,096
(Gain)/loss on disposal of mineral property		—			—			(78,072		)	—			(79,933		)
Transaction costs		—			—			—			—			1,841
Unrealized gain on long-term investment		(27,762		)	—			(27,762		)	—			(27,762		)
Write down of marketable securities		—			—			—			—			849
Deferred tax expense		9,957			—			33,546			—			33,546
Other non-cash items		—			(74		)	—			112			2,477
Change in working capital account items:
Other current assets		(64		)	(64		)	(33		)	(498		)	(1,379		)
Accrued interest payable		1			140			(504		)	(411		)	(8,090		)
Accounts payable, accrued liabilities and other		7			169			295			178			(489		)
Net cash used in operating activities		(6,624		)	(3,529		)	(16,625		)	(13,460		)	(82,824		)
Cash flows from investing activities:
Purchases of marketable securities		(139		)	(19		)	(267		)	(26		)	(1,626		)
Proceeds from sales of marketable securities		7			57			583			285			11,040
Acquisition of long-term investment - Midas Gold Corp.		—			—			(3,632		)	—			(3,632		)
Proceeds from sales of short-term investments		—			—			—			250			—
Additions to mineral property		(538		)	(141		)	(588		)	59			(7,351		)
Additions to plant and equipment		(165		)	(114		)	(255		)	(294		)	(19,727		)
Proceeds from additional option agreement		1,000			—			1,000			—			1,000
Proceeds on disposal of mineral property		—			—			—			—			188
Proceeds on disposal of plant and equipment		—			—			—			—			52
Cash transferred to Allied Nevada Gold Corp., net of receivable		—			—			—			—			(24,517		)
Net cash provided by/(used in) investing activities		165			(217		)	(3,159		)	274			(44,573		)
Cash flows from financing activities:
Net proceeds from equity financings		(4		)	—			28,984			—			137,070
Repayment of convertible notes		—			—			(23,000		)	(2,242		)	(26,108		)
Proceeds from exercise of warrants		261			—			309			—			39,329
Proceeds from exercise of stock options		264			8			706			8			3,797
Issuance of convertible notes		—			—			—			—			28,345
Cash paid in lieu of capital stock issuances		(107		)	—			(107		)	—			(107		)
Transaction costs		—			—			—			—			(1,841		)
Net cash provided by/(used in) financing activities		414			8			6,892			(2,234		)	180,485
Increase/(decrease) in cash and cash equivalents		(6,045		)	(3,738		)	(12,892		)	(15,420		)	53,088
Decrease in cash and cash equivalents - discontinued operations		—			—			—			—			(26,816		)
Net increase/(decrease) in cash and cash equivalents		(6,045		)	(3,738		)	(12,892		)	(15,420		)	26,272
Cash and cash equivalents, beginning of period		32,991			16,726			39,838			28,408			674
Cash and cash equivalents, end of period		$	26,946		$	12,988		$	26,946		$	12,988		$	26,946

 

Supplemental cash flow information — Note 17

 

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

 

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VISTA GOLD CORP. (An Exploration Stage Enterprise)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All dollar amounts in U.S. dollars and in thousands, except share, per share and per ounce data, unless otherwise noted)

 

1.                                      Nature of Operations

 

Vista Gold Corp. and its subsidiaries (collectively, “Vista,” the “Corporation,” “we,” “our” or “us”) operate in the mining industry and are focused on the evaluation, acquisition and exploration of gold exploration and potential development projects, which may lead to gold production, as well as the realization of market value of our assets. As such, we are considered an Exploration Stage Enterprise. Our approach to acquisitions of gold projects has generally been to seek projects within political jurisdictions with well-established mining, land ownership and tax laws, which have adequate drilling and geological data to support the completion of a third-party review of the geological data and to complete an estimate of the gold mineralization. In addition, we look for opportunities to improve the value of our gold projects through exploration drilling, and/or reengineering the operating assumptions underlying previous engineering work.

 

We are continuing to move our more advanced projects through technical, engineering and feasibility studies in preparation for mine development so that production decisions can be made on those projects.

 

2.                                      Significant Accounting Policies

 

Principles of Consolidation

 

The consolidated interim financial statements of Vista consolidate the accounts of entities in which we have a controlling financial interest under the voting control model. All intercompany balances and transactions have been eliminated in the consolidated financial statements. Our subsidiaries and percentage ownership in these entities as of September 30, 2011 are:

 

		Ownership
Vista Gold U.S., Inc. and its subsidiary		100	%
Vista California, LLC		100	%
Granges Inc.		100	%
Desarrollas Zapal Holding Corp. and its subsidiaries		100	%
Desarrollas Zapal S.A. de C.V. (1% owned by Granges Inc.) and its subsidiaries		99	%
Servicios Administrativos MPA S.A. de C.V. (1% owned by Granges Inc.)		99	%
Servicios Industriales MPA S.A. de C.V. (1% owned by Granges Inc.)		99	%
Vista Gold (Barbados) Corp. and its wholly-owned subsidiary		100	%
Salu Siwa Pty. Ltd and its subsidiary		100	%
PT Masmindo Dwi (1% owned by Vista Gold (Barbados) Corp.)		99	%
Vista Minerals (Barbados) Corp. and its wholly-owned subsidiary		100	%
Vista Australia Pty Ltd.		100	%
Vitliq Holdings Corp.		100	%
Vitliq S.A. de C.V. (1% owned by Granges Inc.)		99	%

 

Basis of Presentation

 

We have, from our inception until December 31, 2010, reported to securities regulators in both Canada and the U.S. using Canadian generally accepted accounting principles (“GAAP”) financial statements with reconciliation to U.S. GAAP.  However, a change in the position of the United States Securities and Exchange Commission (“SEC”) in late 2009 required Canadian companies, such as Vista, that do not qualify as foreign private issuers to file their financial statements in the U.S. using U.S. GAAP for periods beginning after December 31, 2010.  Therefore, we have retrospectively adopted U.S. GAAP effective January 1, 2011 for all U.S. and Canadian filings.  Canadian securities regulators announced that they will continue to accept financial statements prepared in accordance with U.S. GAAP.

 

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VISTA GOLD CORP. (An Exploration Stage Enterprise)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All dollar amounts in U.S. dollars and in thousands, except share, per share and per ounce data, unless otherwise noted)

 

A comparison of our September 30, 2011 and December 31, 2010 balance sheets in U.S. GAAP to our balance sheet at December 31, 2010 as reported in Canadian GAAP is as follows:

 

								Canadian
		U.S. GAAP			U.S. GAAP			GAAP
		September 30,			December 31,			December 31,
		2011			2010			2010
Assets:
Cash and cash equivalents		$	26,946		$	39,838		$	39,838
Mineral properties (1)		16,401			16,622			54,195
Other assets		135,954			26,512			26,409
Total assets		$	179,301		$	82,972		$	120,442
Liabilities		$	35,975		$	24,630		$	24,135
Shareholders’ equity (1)		143,326			58,342			96,307
Total liabilities and shareholders’ equity		$	179,301		$	82,972		$	120,442

 

Note:

 

(1)

The decrease in mineral properties and increase in the shareholders’ equity during exploration stage is primarily due to the conversion to U.S. GAAP from Canadian GAAP. In accordance with U.S. GAAP, our property acquisition costs, including directly related acquisition costs, are capitalized when incurred, and mineral property exploration costs are expensed as incurred. Under Canadian GAAP, however, both acquisition costs and exploration expenditures had been capitalized when incurred.

 

In accordance with U.S. GAAP for interim financial statements, these consolidated financial statements do not include certain information and note disclosures that are normally included in annual financial statements prepared in conformity with U.S. GAAP.  Accordingly, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2010 and 2009 and for each of the three years ended December 31, 2010 and with Note 20 — Differences between Canadian and United States generally accepted accounting principles included in our Annual Report on Form 10-K for the year ended December 31, 2010.  In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (which are of a normal, recurring nature) necessary to present fairly in all material respects our financial position as of September 30, 2011 and the results of our operations and cash flows for the nine months ended September 30, 2011 and 2010 in conformity with U.S. GAAP.  Interim results of operations for the nine months ended September 30, 2011 may not be indicative of results that will be realized for the full year ending December 31, 2011.

 

Use of Estimates

 

The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Significant areas requiring the use of estimates include capital costs of projects, mine closure and reclamation obligations, useful lives for asset depreciation purposes, impairment of mineral properties, valuation of investments and the calculation of stock-based compensation. Actual results could differ from these estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand, demand balances held with banks and certificates of deposit all with maturities of three months or less when purchased.

 

Marketable Securities

 

We classify marketable securities as available-for-sale.  Accordingly, these securities are carried at fair value with unrealized gains and losses being reported in other comprehensive income until such time that the securities are disposed of or become impaired.  At that time, any gains or losses will then be realized and reported in our Consolidated Statement of Income/(Loss). We use the specific identification method for determining cost in computing realized gains and losses on sales of investment securities.  We evaluate investments in a loss position to determine if such a loss is other-than-temporary.  If so, such loss will be recognized and reported during that period.

 

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VISTA GOLD CORP. (An Exploration Stage Enterprise)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All dollar amounts in U.S. dollars and in thousands, except share, per share and per ounce data, unless otherwise noted)

 

Mineral Properties

 

Mineral property acquisition costs, including directly related acquisition costs, are capitalized when incurred, and mineral property exploration costs are expensed as incurred.  When we determine that a mineral property can be economically developed in accordance with U.S. GAAP, the costs then incurred to develop such property are capitalized.  When ore reserves associated with the projects can be determined, capitalized costs will be depleted using the units-of-production method over the estimated life of the proven and probable reserves.  If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to loss in that period.

 

We assess the carrying cost of our mineral properties for impairment whenever information or circumstances indicate the potential for impairment.  Such evaluations compare estimated future net cash flows with our carrying costs and future obligations on an undiscounted basis.  If it is determined that the future undiscounted cash flows are less than the carrying value of the property, a write down to the estimated fair value is charged to loss for the period.  Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses if the carrying value can be recovered.

 

Plant and Equipment

 

Plant and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, ranging primarily from three to ten years. Significant expenditures that increase the life of an asset, including interest capitalized on expenditures on qualifying assets, are capitalized and depreciated over the remaining estimated useful life of the asset. Upon sale or retirement of assets, the costs and related accumulated depreciation or amortization are eliminated from the respective accounts and any resulting gains or losses are reflected in operations.

 

Asset Retirement Obligation and Closure Costs

 

The fair value of a liability for our legal obligations associated with the retirement of long-lived assets is recognized in the period in which it is incurred. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset unless the asset has been previously written off, in which case the amount is expensed.

 

The liability will be adjusted for changes in the expected amounts and timing of cash flows required to discharge the liability and accreted to the full value over time through periodic charges to income.

 

Warrants

 

Warrants and compensation options issued are recorded at fair value.

 

Stock-Based Compensation

 

We record compensation expense on the granting of all stock-based compensation awards, including stock options grants, restricted stock units grants and restricted stock awards grants, calculated using the fair-value method. We use the Hull-White Trinomial method of determining the fair value of the stock option on the date of the grant. When an option is granted, the fair value of the immediately vested portion is expensed and included within the stock-based compensation balance within shareholders’ equity. As to the options vesting, the fair value is amortized using the straight-line method over the vesting period and expensed on a monthly basis. When an option is exercised, the grant-date fair value of the options is transferred to common stock. When options are cancelled, the vested fair-value balance of the stock options is transferred to additional paid-in capital. When stock options are forfeited prior to becoming fully vested, any expense previously recorded is reversed through income. When options expire, the related fair value is transferred to additional paid-in capital.

 

We use the fair-value method of determining the fair value of restricted stock units and restricted stock awards on the date of grant.  The fair value is amortized using the straight-line method over the vesting period and expensed on a monthly basis.  On the date of vesting, the grant-date fair value of the restricted stock units or restricted stock awards is transferred to common stock.  When restricted stock units or restricted stock awards are forfeited prior to vesting, any expense previously recorded is reversed through income.

 

Foreign Currency Exchange Gains or Losses

 

Our functional currency is the U.S. dollar.  All of our foreign subsidiaries are direct and integral components of Vista and are dependent upon the economic environment of our functional currency.  Therefore, the functional currency of our foreign entities is considered to be the U.S. dollar in accordance with the Accounting Standards Codification (“ASC”) Topic 830, “Foreign Currency Matters,” and accordingly, translation gains and losses are reported in the loss for that period.  Assets and liabilities of these foreign operations are translated using period-end exchange rates and revenues and expenses are translated using average exchange rates during each period.

 

Income Taxes

 

We provide for income taxes using the liability method of tax allocation.  Under this method, future income tax assets and liabilities

 

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VISTA GOLD CORP. (An Exploration Stage Enterprise)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All dollar amounts in U.S. dollars and in thousands, except share, per share and per ounce data, unless otherwise noted)

 

are determined based on deductible or taxable temporary differences between financial statement values and tax values of assets and liabilities using enacted income tax rates expected to be in effect for the year in which the difference are expected to reverse.

 

Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is recognized as income or an expense and included in the profit or loss for the period, except when it arises from a transaction that is recognized directly in equity, in which case the deferred tax is also recognized directly in equity, or when it arises from a business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwill or the amount of any excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the combination.

 

We establish a valuation allowance against the future income tax assets if, based on available information, it is more likely than not that all of the assets will not be realized.

 

Uncertainty in Income Tax Positions

 

The Company recognizes tax benefits from uncertain tax positions only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement with the taxing authorities. The Company records the related interest expense and penalties, if any, as tax expense in the tax provision.

 

Net Income/(Loss) Per Share

 

Basic income/(loss) per share amounts are calculated by using the weighted average number of common shares outstanding during the period. Diluted income per share amounts reflect the potential dilution that could occur if securities or other contracts that may require the issuance of common shares in the future were converted unless their inclusion would be anti-dilutive. As Vista incurred a net loss in 2010, potential shares to be issued from the assumed exercise of stock options, warrants and restricted share units were not included in the computation of diluted earnings per share in 2010, since their result would have been anti-dilutive.

 

Subsequent Events

 

We have evaluated events, if any, which occurred subsequent to September 30, 2011 to ensure that such events have been properly reflected in these consolidated financial statements.

 

Recent Accounting Pronouncements

 

Business Combinations

 

In December 2010, ASC guidance for business combinations was updated to clarify existing guidance that requires a public entity to disclose pro forma revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual period only.  The update also expands the supplemental pro forma disclosures required to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.  The updated guidance became effective for our fiscal year that began on January 1, 2011.  Adoption of this guidance has had no impact on our consolidated financial position, results of operations or cash flows.

 

Fair Value Accounting

 

In January 2010, the ASC guidance for fair-value measurements and disclosures was updated to require enhanced detail in the Level 3 reconciliation, which includes financial instruments valued using management’s judgment and estimations.  The updated guidance became effective for our fiscal year that began on January 1, 2011.  Adoption of this guidance had no impact on our consolidated financial statements for the nine months ended September 30, 2011 and is expected to have minimal impact for the full year ending December 31, 2011.

 

3.                                      Disposal Activity

 

Midas Gold Corp. Combination

 

On April 6, 2011, Vista completed a combination (the “Combination”) with Midas Gold, Inc. (“Midas”).  As part of the Combination, each of Midas and Vista Gold U.S. Inc. (“Vista US”) contributed their respective interests in gold assets in the Yellow Pine-Stibnite District in Idaho to a new Canadian private company named Midas Gold Corp. (“Midas Gold”). In exchange for the contribution of its equity interests in Idaho Gold Holding Company, Vista US was issued 30,402,615 common shares in the capital of Midas Gold (“Midas Gold Shares”).  Concurrently with the Combination, Midas Gold completed a private placement of 6,129,800 Midas Gold Shares at a purchase price of Cdn$2.50 ($2.59 based on the exchange rate on April 6, 2011) per share to raise gross proceeds of Cdn$15,325 ($15,876 based on the exchange rate on April 6, 2011) (the “Private Placement”).  We purchased 1,400,000 Midas Gold Shares through the Private Placement for an aggregate purchase price of Cdn$3,500 ($3,632 based on the exchange rate on April 6,

 

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Table of Contents

 

VISTA GOLD CORP. (An Exploration Stage Enterprise)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All dollar amounts in U.S. dollars and in thousands, except share, per share and per ounce data, unless otherwise noted)

 

2011). Following completion of the Combination and the Private Placement, Vista and Vista US together hold 31,802,615 Midas Gold Shares representing as at April 6, 2011 approximately 37.4% (basic) and 34.2% (fully diluted basis) of the issued and outstanding Midas Gold Shares.

 

On July 14, 2011, Midas Gold successfully completed an initial public offering (“IPO”), issuing 13,930,855 Midas Gold Shares.  Midas Gold Shares began trading on the Toronto Stock Exchange (“TSX”) under the symbol “MAX.”  Vista owns 31,802,615 Midas Gold Shares, which following the completion of Midas Gold’s IPO, represents 30.2% of the issued and outstanding Midas Gold Shares.

 

Upon initial recognition of its investment in the Midas Gold Shares, Vista elected to apply the fair value option, and as such, the investment is recorded at fair value in the Consolidated Balance Sheet.  Subsequent changes in fair value are recorded in the Consolidated Statement of Income/(Loss) in the period in which they occur.  The difference between the fair value of the 30,402,615 Midas Gold Shares and the carrying value of our Yellow Pine assets has been recorded as a gain on disposal of mineral property given that Vista ceased to have a controlling financial interest in the Yellow Pine gold project upon completion of the Combination.

 

The Midas Gold Shares are currently subject to a contractual restriction on transfer from the date of Midas’ IPO.  Because management intends on holding this investment for the long term, we have classified our investment in the Midas Gold Shares as a long-term investment.

 

Amayapampa Disposal Consideration

 

On April 7, 2008, we entered into an agreement to dispose of our wholly-owned subsidiary Vista Gold (Antigua) Corp. (“Vista Gold Antigua”) to Republic Gold Limited (“Republic”). Vista Gold Antigua indirectly held our interest in the Amayapampa gold project in Bolivia. Under the terms of the transaction, Republic agreed to pay to us a total amount of $3,000 in three payments of $1,000. The first of these payments will be due and payable upon the start of commercial production (as defined in the purchase and sale agreement) at the Amayapampa gold project followed by $1,000 payments on each of the first and second anniversaries of the start of Commercial Production.  In addition, Republic agreed to pay to us a net smelter return royalty (“NSR”) on the gold produced by or on behalf of Republic from the Amayapampa gold project in varying percentages depending on the price of gold per ounce. When the price of gold is between $500.01 and $650.00 per ounce, a 2% NSR is payable; when the price of gold is between $650.01 and $750.00 per ounce, a 3% NSR is payable; and when the price of gold is $750.01 per ounce and above, an NSR of 3.5% is payable. The NSR is capped at 720,000 gold equivalent ounces, and no NSR payments are due to us if the gold price is below $500 per ounce. The Amayapampa disposal consideration has been accounted for in accordance with ASC Topic 820, “Fair Value Measurements and Disclosures.” The balance of the Amayapampa disposal consideration at September 30, 2011 was $4,813. See Note 4 below for details regarding inputs used in determining the fair value of this asset.

 

4.                                      Fair Value of Financial Instruments

 

U.S. GAAP defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and establishes a fair-value hierarchy that prioritizes the inputs used to measure fair value using the following definitions (from highest to lowest priority):

 

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

 

·                  Level 2 — Observable inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.

 

·                  Level 3 — Prices or valuation techniques requiring inputs that are both significant to the fair-value measurement and unobservable.

 

Our financial instruments include cash and cash equivalents, marketable securities, Amayapampa disposal consideration, long-term investment, accounts payable and certain other current assets and liabilities.  Due to the short-term nature of our cash and cash equivalents, accounts payable and certain other current assets and liabilities, we believe that their carrying amounts approximated fair value.  Our marketable securities are classified as available-for-sale. Accordingly, these securities are carried at fair value, which is based upon quoted market prices in an active market, with unrealized gains and losses being reported in other comprehensive income until such time that the securities are disposed of or become impaired.  As such, these financial instruments are included in Level 1 in our fair-value hierarchy.  The value of our long-term investment in the Midas Gold Shares is based upon its quoted market price in an active market, discounted to the extent considered appropriate by management for the contractual restriction on transfer.  Based on these factors, this financial instrument is included in Level 2 in our fair-value hierarchy.  The value of the Amayapampa disposal consideration was estimated at $4,813 based on probability-weighted cash flow scenarios and assumptions, including future gold prices, estimated gold production and the timing of commencement of commercial production, which are management’s best estimates based on current available information.  As such, this financial instrument is included in Level 3 in our fair-value hierarchy.

 

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Table of Contents

 

VISTA GOLD CORP. (An Exploration Stage Enterprise)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All dollar amounts in U.S. dollars and in thousands, except share, per share and per ounce data, unless otherwise noted)

 

5.                                      Marketable Securities

 

		At September 30, 2011									At December 31, 2010
		Cost			Unrealized gain/(loss)			Fair value			Cost			Unrealized gain			Fair value
Esperanza Silver Corp.		$	10		$	106		$	116		$	10		$	203		$	213
Black Isle Resources		50			(19		)	31			50			13			63
Nevgold Resources Corp.		87			24			111			87			205			292
Sprott Resources Corp.		138			69			207			220			150			370
Canadian Phoenix		99			(4		)	95			99			12			111
Other		518			(138		)	380			308			346			654
		$	902		$	38		$	940		$	774		$	929		$	1,703

 

6.                                      Mineral Properties

 

		2010			2011
		December 31,			Acquisition costs			Option payments			Capitalized interest			Cost recovery			Disposals			Year to date activity			September 30,
Long Valley, United States		$	750		$	—		$	—		$	—		$	—		$	—		$	—		$	750
Yellow Pine, United States		800			—			—			—			—			(800		)	(800		)	—
Concordia, Mexico		8,588			1,150			50			379			—			—			1,579			10,167
Guadalupe de los Reyes, Mexico		2,752			—			—			—			—			—			—			2,752
Awak Mas, Indonesia		1,586			—			—			—			(1,000		)	—			(1,000		)	586
Mt. Todd, Australia		2,146			—			—			—			—			—			—			2,146
		$	16,622		$	1,150		$	50		$	379		$	(1,000	)	$	(800	)	$	(221	)	$	16,401

 

The amounts disclosed as mineral properties as of December 31, 2010 differ from those previously presented in the U.S. GAAP reconciliation to our Canadian GAAP financial statements by $2,206.   This amount represents option payments expensed as incurred in the years 2002 to 2006, which have been treated as property acquisition costs in these consolidated financial statements prepared in accordance with U.S. GAAP.

 

On April 6, 2011, the Combination with Midas Gold was completed.  As part of the Combination, Midas and Vista US contributed each of their respective gold assets in the Yellow Pine-Stibnite District in Idaho to Midas Gold.  See Note 3.

 

On June 13, 2011, our subsidiary Vista Gold (Barbados) Corp. (“Vista Barbados,”) entered into an additional option agreement (“Additional Option Agreement”) with Pan Asia Resources Corp. (“Pan Asia”).  The Additional Option Agreement provides Pan Asia with the opportunity to earn an additional 20% interest in our Awak Mas gold project in Indonesia after it has earned a 60% interest in the project pursuant to the JV Agreement (as defined below).  Pan Asia can acquire the additional 20% interest by (a) making cash payments totaling $2,500 over a nine-month period; (b) issuing shares with a value equal to $2,000 or making a cash payment of $2,000 within 12 months, depending on whether Pan Asia completes an initial public offering; and (c) carrying out a 5,000 meter drilling program in an area outside of the current project resource area within 18 months.  In September 2011, the Additional Option Agreement and JV agreement were assigned from Pan Asia to Awak Mas Holdings Pty. Ltd. (an affiliate of Pan Asia). During the nine months ended September 30, 2011, Vista received $1,000 under the Additional Option Agreement and has recorded these proceeds as a cost recovery against the carrying value of the Awak Mas gold project.  Any further proceeds received under these option agreements will be applied against the carrying value of the Awak Mas gold project until the carrying value is reduced to zero.  Any proceeds received in excess of the carrying value of the project will be recorded as a realized gain in the Consolidated Statement of Income/(Loss).

 

In December 2009, Pan Asia and Vista Barbados executed a joint venture agreement (“JV Agreement”) allowing Pan Asia to earn a 60% interest in the project by: (a) expending $3,000 on the project within a specified period of time; (b) completing an environmental impact assessment and feasibility study (in compliance with Canadian National Instrument 43-101); and (c) issuing to Vista 2,000,000 shares of Pan Asia and the right to purchase up to an additional 2,000,000 shares of Pan Asia in the event Pan Asia completes an initial public offering of its shares. The 2,000,000 shares of Pan Asia received under the JV agreement were subsequently exchanged for equivalent shares of One Asia Resources Ltd.

 

If Awak Mas Holdings Pty. Ltd. completes the undertakings required in the JV Agreement and the Additional Option Agreement, it will hold an 80% indirect interest in the Awak Mas gold project.

 

In September 2011, the Company acquired some additional land from a third party for $1,150 as part of Vista’s efforts to advance the Concordia gold project. Vista paid $538 in cash, while the remaining $612 is due upon the achievement of certain milestones and is included in accrued liabilities and other on our Consolidated Balance Sheet.

 

The recoverability of the carrying values our mineral properties is dependent upon the successful start-up and commercial production

 

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