ENTREE GOLD INC, 40-F filed on 4/2/2013
Annual Report (foreign private issuer)
Document and Entity Information
12 Months Ended
Dec. 31, 2012
Document And Entity Information
Entity Registrant Name
ENTREE GOLD INC†
Entity Central Index Key
0001271554†
Document Type
40-F†
Document Period End Date
Dec. 31, 2012†
Amendment Flag
false†
Current Fiscal Year End Date
--12-31†
Is Entity a Well-known Seasoned Issuer?
No†
Is Entity a Voluntary Filer?
No†
Is Entity's Reporting Status Current?
Yes†
Entity Filer Category
Smaller Reporting Company†
Entity Common Stock, Shares Outstanding
128,877,243†
Document Fiscal Period Focus
FY†
Document Fiscal Year Focus
2012†
CONSOLIDATED BALANCE SHEETS†(USD $)
Dec. 31, 2012
Dec. 31, 2011
ASSETS
Cash and cash equivalents (Note 3)
$†4,255,508†
$†14,512,198†
Short-term investments (Note 3)
0†
4,916,421†
Receivables
223,722†
424,522†
Prepaid expenses
779,605†
955,121†
Total current assets
5,258,835†
20,808,262†
Equipment (Note 5)
539,567†
754,846†
Mineral property interests (Note 6)
57,616,924†
52,678,763†
Reclamation deposits
606,155†
215,066†
Other assets
152,049†
132,873†
Total assets
64,173,530†
74,589,810†
Current
Accounts payable and accrued liabilities
559,579†
1,804,126†
Loans payable to Oyu Tolgoi LLC (Note 7)
5,563,657†
4,327,878†
Deferred income tax liabilities (Note 10)
9,722,384†
9,392,614†
Total liabilities
15,845,620†
15,524,618†
Stockholders' equity
Common stock, no par value, unlimited number authorized, (Note 8) 128,877,243 (December 31, 2011 - 127,016,788) issued and outstanding
167,428,814†
165,574,192†
Additional paid-in capital
18,672,864†
17,420,307†
Accumulated other comprehensive income (Note 12)
3,253,019†
1,901,351†
Accumulated deficit during the exploration stage
(141,026,787)
(125,830,658)
Total stockholders' equity
48,327,910†
59,065,192†
Total liabilities and stockholders' equity
$†64,173,530†
$†74,589,810†
CONSOLIDATED BALANCE SHEETS (Parenthetical)†(USD $)
Dec. 31, 2012
Dec. 31, 2011
Stockholders equity:
Common stock, par value
$†0†
$†0†
Common stock, Unlimited authorized shares
  †
  †
Common stock, issued shares
128,877,243†
127,016,788†
Common stock, outstanding shares
128,877,243†
127,016,788†
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS†(USD $)
12 Months Ended 206 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2012
EXPENSES
Exploration (Note 6)
$†8,234,354†
$†17,679,174†
$†92,989,677†
General and administration
5,236,226†
5,766,102†
53,347,249†
Depreciation
150,654†
196,221†
1,427,067†
Foreign exchange loss (gain)
(187,773)
491,504†
81,725†
Impairment of mineral property interests (Note 6)
486,746†
531,005†
1,017,751†
Gain on sale of mineral property interests (Note 6)
(104,914)
(1,574,523)
(1,679,437)
Loss from operations
(13,815,293)
(23,089,483)
(147,184,032)
Gain on sale of investments (Note 4)
0†
3,326,275†
3,326,275†
Interest income
190,449†
342,343†
5,503,268†
Interest expense (Note 4)
(229,359)
(151,952)
(454,318)
Loss from equity investee (Note 4)
(1,012,156)
(2,397,085)
(4,930,785)
Fair value adjustment of asset backed commercial paper
0†
0†
(2,332,531)
Loss from operations before income taxes
(14,866,359)
(21,969,902)
(146,072,123)
Current income tax expense
0†
(152,190)
(152,190)
Deferred income tax recovery (expense) (Note 10)
(329,770)
4,981,884†
5,197,526†
Net loss
(15,196,129)
(17,140,208)
(141,026,787)
Comprehensive income (loss):
Net loss
(15,196,129)
(17,140,208)
(141,026,787)
Unrealized gain (loss) on available for sale securities (Note 12)
0†
(2,747,997)
0†
Foreign currency translation adjustment (Note 12)
1,351,668†
(1,101,366)
3,253,019†
Comprehensive loss
$†(13,844,461)
$†(20,989,571)
$†(137,773,768)
Basic and diluted net loss per share
$†(0.12)
$†(0.15)
Weighted average number of common shares outstanding
128,650,791†
115,978,815†
CONSOLIDATED STATEMENTS OF CASH FLOWS†(USD $)
12 Months Ended 206 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$†(15,196,129)
$†(17,140,208)
$†(141,026,787)
Items not affecting cash:
Depreciation
150,654†
196,221†
1,427,067†
Stock-based compensation
1,207,878†
991,161†
22,753,760†
Fair value adjustment of asset backed commercial paper
0†
0†
2,332,531†
Escrow shares compensation
0†
0†
2,001,832†
Mineral property interest paid in stock and warrants
0†
0†
4,052,698†
Loss from equity investee
1,012,156†
2,397,085†
4,930,785†
Interest expense
229,359†
151,952†
454,318†
Deferred income tax expense (recovery)
329,770†
(4,981,884)
(5,197,526)
Gain on sale of mineral property interest
(104,914)
(1,574,523)
(1,679,437)
Impairment of mineral property interests
486,746†
531,005†
1,017,751†
Gain on sale of investments
0†
(3,326,275)
(3,326,275)
Other items not affecting cash
(111,618)
(111,807)
(66,201)
Changes in assets and liabilities:
Receivables
209,098†
(126,216)
(120,955)
Prepaid expenses
197,321†
165,271†
(653,240)
Other assets
22,913†
0†
22,913†
Accounts payable and accrued liabilities
(1,235,090)
438,197†
277,404†
Net cash used in operating activities
(12,801,856)
(22,390,021)
(112,799,362)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of capital stock
1,628,583†
14,683,949†
131,003,994†
Share issue costs
(108,058)
(1,065,065)
(4,866,271)
Net cash provided by financing activities
1,520,525†
13,618,884†
126,137,723†
CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired on acquisition
0†
0†
837,263†
Mineral property interest
(3,910,000)
(777,517)
(4,904,610)
Reclamation deposits
(207,962)
(62,127)
(419,150)
Short term investments
5,076,271†
(5,076,271)
0†
Purchase of asset backed commercial paper
0†
0†
(4,031,122)
Acquisition of PacMag Metals Limited
0†
0†
(7,465,495)
Acquisition of equipment
(35,893)
(223,176)
(2,123,612)
Proceeds from sale of mineral property interest
104,914†
1,491,391†
1,596,305†
Proceeds from sale of investments
0†
5,734,895†
5,734,895†
Net cash provided by (used in) investing activities
1,027,330†
1,087,195†
(10,775,526)
Effect of foreign currency translation on cash and cash equivalents
(2,689)
899,971†
1,692,673†
Change in cash and cash equivalents during the period
(10,256,690)
(6,783,971)
4,255,508†
Cash and cash equivalents, beginning of period
14,512,198†
21,296,169†
0†
Cash and cash equivalents, end of period
4,255,508†
14,512,198†
4,255,508†
Cash paid for interest during the period
0†
0†
0†
Cash paid for income taxes during the period
$†0†
$†0†
$†0†
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY†(USD $)
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income
Accumulated Deficit During the Exploration Stage
Total
Beginning Balance - Amount at Jul. 18, 1995
$†0†
$†0†
$†0†
$†0†
$†0†
Beginning Balance - Shares at Jul. 18, 1995
0†
Private Placements, Shares
4,200,000†
Private Placements, Amount
60,852†
60,852†
Acquisition of mineral property interests, Shares
3,200,000†
Acquisition of mineral property interests, Amount
147,520†
147,520†
Foreign currency translation adjustment
(756)
(756)
Net loss
(175,714)
(175,714)
Ending Balance, Amount at Apr. 30, 1996
208,372†
(756)
(175,714)
31,902†
Ending Balance, Shares at Apr. 30, 1996
7,400,000†
Private Placements, Shares
3,880,000†
Private Placements, Amount
274,718†
274,718†
Foreign currency translation adjustment
(8,568)
(8,568)
Net loss
(56,250)
(56,250)
Ending Balance, Amount at Apr. 30, 1997
483,090†
(9,324)
(231,964)
241,802†
Ending Balance, Shares at Apr. 30, 1997
11,280,000†
Foreign currency translation adjustment
  †
  †
(5,216)
  †
(5,216)
Net loss
  †
  †
  †
(33,381)
(33,381)
Ending Balance, Amount at Apr. 30, 1998
483,090†
  †
(14,540)
(265,345)
203,205†
Ending Balance, Shares at Apr. 30, 1998
11,280,000†
Foreign currency translation adjustment
  †
  †
(3,425)
  †
(3,425)
Net loss
  †
  †
  †
(40,341)
(40,341)
Ending Balance, Amount at Apr. 30, 1999
483,090†
  †
(17,965)
(305,686)
159,439†
Ending Balance, Shares at Apr. 30, 1999
11,280,000†
Exercise of stock options, Shares
1,128,000†
Exercise of stock options, Value
113,922†
  †
  †
  †
113,922†
Escrow shares compensation
  †
41,593†
  †
  †
41,593†
Foreign currency translation adjustment
  †
  †
(896)
  †
(896)
Net loss
  †
  †
  †
(154,218)
(154,218)
Ending Balance, Amount at Apr. 30, 2000
597,012†
41,593†
(18,861)
(459,904)
159,840†
Ending Balance, Shares at Apr. 30, 2000
12,408,000†
Foreign currency translation adjustment
  †
  †
(5,627)
  †
(5,627)
Net loss
  †
  †
  †
(18,399)
(18,399)
Ending Balance, Amount at Apr. 30, 2001
597,012†
41,593†
(24,488)
(478,303)
135,814†
Ending Balance, Shares at Apr. 30, 2001
12,408,000†
Foreign currency translation adjustment
  †
  †
(2,561)
  †
(2,561)
Net loss
  †
  †
  †
(22,490)
(22,490)
Ending Balance, Amount at Apr. 30, 2002
597,012†
41,593†
(27,049)
(500,793)
110,763†
Ending Balance, Shares at Apr. 30, 2002
12,408,000†
Private Placements, Shares
7,500,000†
Private Placements, Amount
1,351,055†
  †
  †
  †
1,351,055†
Exercise of warrants, Shares
12,500†
Exercise of warrants, Value
3,288†
  †
  †
  †
3,288†
Agent's finder fee, Shares
310,000†
Agent's finder fee, Value
39,178†
  †
  †
  †
39,178†
Finderís fee for mineral property interests, Shares
100,000†
Finderís fee for mineral property interests, Value
35,827†
  †
  †
  †
35,827†
Debt settlement, Shares
135,416†
Debt settlement, Amount
45,839†
5,252†
  †
  †
51,091†
Agentís warrants
  †
16,877†
  †
  †
16,877†
Escrow shares compensation
  †
40,205†
  †
  †
40,205†
Stock-based compensation
  †
16,660†
  †
  †
16,660†
Share issue costs
(211,207)
  †
  †
  †
(211,207)
Foreign currency translation adjustment
  †
  †
73,080†
  †
73,080†
Net loss
  †
  †
  †
(1,073,320)
(1,073,320)
Ending Balance, Amount at Apr. 30, 2003
1,860,992†
120,587†
46,031†
(1,574,113)
453,497†
Ending Balance, Shares at Apr. 30, 2003
20,465,916†
Private Placements, Shares
16,352,942†
Private Placements, Amount
10,891,160†
  †
  †
  †
10,891,160†
Exercise of stock options, Shares
35,000†
Exercise of stock options, Value
18,730†
(4,026)
  †
  †
14,704†
Exercise of warrants, Shares
3,730,372†
Exercise of warrants, Value
1,316,664†
(6,443)
  †
  †
1,310,221†
Agentís corporate finance fee, Shares
100,000†
Agent's corporate finance fee, Value
64,192†
8,384†
  †
  †
72,576†
Agentís warrants
  †
370,741†
  †
  †
370,741†
Escrow shares compensation
  †
1,949,878†
  †
  †
1,949,878†
Stock-based compensation
  †
414,847†
  †
  †
414,847†
Share issue costs
(1,302,715)
  †
  †
  †
(1,302,715)
Acquisition of mineral property interests, Shares
5,000,000†
Acquisition of mineral property interests, Amount
3,806,000†
  †
  †
  †
3,806,000†
Foreign currency translation adjustment
  †
  †
1,950†
  †
1,950†
Net loss
  †
  †
  †
(12,505,759)
(12,505,759)
Ending Balance, Amount at Dec. 31, 2003
16,655,023†
2,853,968†
47,981†
(14,079,872)
5,477,100†
Ending Balance, Shares at Dec. 31, 2003
45,684,230†
Private Placements, Shares
4,600,000†
Private Placements, Amount
3,846,521†
  †
  †
  †
3,846,521†
Exercise of stock options, Shares
50,000†
Exercise of stock options, Value
26,180†
(8,238)
  †
  †
17,942†
Exercise of warrants, Shares
533,836†
Exercise of warrants, Value
186,208†
(13,197)
  †
  †
173,011†
Warrants issued for cancellation of price guarantee
  †
129,266†
  †
  †
129,266†
Escrow shares compensation
  †
405,739†
  †
  †
405,739†
Stock-based compensation
  †
1,530,712†
  †
  †
1,530,712†
Share issue costs
(21,026)
  †
  †
  †
(21,026)
Foreign currency translation adjustment
  †
  †
132,501†
  †
132,501†
Net loss
  †
  †
  †
(5,528,114)
(5,528,114)
Ending Balance, Amount at Dec. 31, 2004
20,692,906†
4,898,250†
180,482†
(19,607,986)
6,163,652†
Ending Balance, Shares at Dec. 31, 2004
50,868,066†
Private Placements, Shares
7,542,410†
Private Placements, Amount
13,538,097†
  †
  †
  †
13,538,097†
Exercise of stock options, Shares
772,000†
Exercise of stock options, Value
1,238,581†
(532,908)
  †
  †
705,673†
Exercise of warrants, Shares
10,456,450†
Exercise of warrants, Value
10,475,291†
  †
  †
  †
10,475,291†
Escrow shares compensation
  †
(435,583)
  †
  †
(435,583)
Stock-based compensation
  †
5,074,100†
  †
  †
5,074,100†
Share issue costs
(521,798)
  †
  †
  †
(521,798)
Foreign currency translation adjustment
  †
  †
1,099,954†
  †
1,099,954†
Net loss
  †
  †
  †
(13,691,767)
(13,691,767)
Ending Balance, Amount at Dec. 31, 2005
45,423,077†
9,003,859†
1,280,436†
(33,299,753)
22,407,619†
Ending Balance, Shares at Dec. 31, 2005
69,638,926†
Membership paid in stock, Shares
4,167†
Membership paid in stock, Amount
8,870†
  †
  †
  †
8,870†
Exercise of stock options, Shares
1,215,000†
Exercise of stock options, Value
1,862,345†
(753,628)
  †
  †
1,108,717†
Stock-based compensation
  †
1,031,683†
  †
  †
1,031,683†
Foreign currency translation adjustment
  †
  †
252,317†
  †
252,317†
Net loss
  †
  †
  †
(9,655,341)
(9,655,341)
Ending Balance, Amount at Dec. 31, 2006
47,294,292†
9,281,914†
1,532,753†
(42,955,094)
15,153,865†
Ending Balance, Shares at Dec. 31, 2006
70,858,093†
Private Placements, Shares
14,428,640†
Private Placements, Amount
43,826,994†
  †
  †
  †
43,826,994†
Exercise of stock options, Shares
728,700†
Exercise of stock options, Value
926,364†
(322,880)
  †
  †
603,484†
Exercise of warrants, Shares
7,542,408†
Exercise of warrants, Value
20,392,043†
  †
  †
  †
20,392,043†
Stock-based compensation
  †
1,732,839†
  †
  †
1,732,839†
Share issue costs
(1,981,360)
  †
  †
  †
(1,981,360)
Acquisition of mineral property interests, Shares
15,000†
Acquisition of mineral property interests, Amount
33,976†
  †
  †
  †
33,976†
Foreign currency translation adjustment
  †
  †
3,539,535†
  †
3,539,535†
Net loss
  †
  †
  †
(11,833,416)
(11,833,416)
Ending Balance, Amount at Dec. 31, 2007
110,492,309†
10,691,873†
5,072,288†
(54,788,510)
71,467,960†
Ending Balance, Shares at Dec. 31, 2007
93,572,841†
Exercise of stock options, Shares
958,057†
Exercise of stock options, Value
1,447,926†
(591,456)
  †
  †
856,470†
Stock-based compensation
  †
3,672,358†
  †
  †
3,672,358†
Share issue costs
(7,186)
  †
  †
  †
(7,186)
Acquisition of mineral property interests, Shares
30,000†
Acquisition of mineral property interests, Amount
60,941†
  †
  †
  †
60,941†
Foreign currency translation adjustment
  †
  †
(12,483,218)
  †
(12,483,218)
Net loss
  †
  †
  †
(16,730,278)
(16,730,278)
Ending Balance, Amount at Dec. 31, 2008
111,993,990†
13,772,775†
(7,410,930)
(71,518,788)
46,837,047†
Ending Balance, Shares at Dec. 31, 2008
94,560,898†
Exercise of stock options, Shares
2,355,948†
Exercise of stock options, Value
4,330,539†
(2,050,489)
  †
  †
2,280,050†
Stock-based compensation
  †
4,183,677†
  †
  †
4,183,677†
Acquisition of mineral property interests, Shares
142,500†
Acquisition of mineral property interests, Amount
275,122†
  †
  †
  †
275,122†
Foreign currency translation adjustment
  †
  †
6,930,002†
  †
6,930,002†
Unrealized gain on available for sale securities
  †
  †
563,481†
  †
563,481†
Net loss
  †
  †
  †
(17,102,254)
(17,102,254)
Ending Balance, Amount at Dec. 31, 2009
116,599,651†
15,905,963†
82,553†
(88,621,042)
43,967,125†
Ending Balance, Shares at Dec. 31, 2009
97,059,346†
Exercise of stock options, Shares
2,122,278†
Exercise of stock options, Value
4,632,135†
(1,932,407)
  †
  †
2,699,728†
Acquistion of PacMag, Shares
15,020,801†
Acquistion of PacMag, Amount
28,325,101†
  †
  †
  †
28,325,101†
Stock-based compensation
  †
2,897,845†
  †
  †
2,897,845†
Share issue costs
(147,228)
  †
  †
  †
(147,228)
Acquisition of mineral property interests, Shares
152,500†
Acquisition of mineral property interests, Amount
382,284†
  †
  †
  †
382,284†
Foreign currency translation adjustment
  †
  †
3,483,645†
  †
3,483,645†
Unrealized gain on available for sale securities
  †
  †
2,184,516†
  †
2,184,516†
Net loss
  †
  †
  †
(20,069,408)
(20,069,408)
Ending Balance, Amount at Dec. 31, 2010
149,791,943†
16,871,401†
5,750,714†
(108,690,450)
63,723,608†
Ending Balance, Shares at Dec. 31, 2010
114,354,925†
Marketed offering, Shares
11,482,216†
Marketed offering, Amount
14,075,483†
  †
  †
  †
14,075,483†
Exercise of stock options, Shares
427,147†
Exercise of stock options, Value
1,050,721†
(442,255)
  †
  †
608,466†
Stock-based compensation
  †
991,161†
  †
  †
991,161†
Share issue costs
(1,065,065)
  †
  †
  †
(1,065,065)
Acquisition of mineral property interests, Shares
752,500†
Acquisition of mineral property interests, Amount
1,721,110†
1,721,110†
Foreign currency translation adjustment
  †
  †
(1,101,366)
  †
(1,101,366)
Unrealized gain on available for sale securities
  †
  †
(2,747,997)
  †
(2,747,997)
Net loss
  †
  †
  †
(17,140,208)
(17,140,208)
Ending Balance, Amount at Dec. 31, 2011
165,574,192†
17,420,307†
1,901,351†
(125,830,658)
59,065,192†
Ending Balance, Shares at Dec. 31, 2011
127,016,788†
Exercise of over allotment, Shares
1,320,455†
Exercise of over allotment, Amount
1,628,583†
1,628,583†
Exercise of stock options, Value
(44,679)
44,679†
Stock-based compensation
1,207,878†
1,207,878†
Share issue costs
(108,058)
(108,058)
Acquisition of mineral property interests, Shares
540,000†
Acquisition of mineral property interests, Amount
378,776†
378,776†
Foreign currency translation adjustment
1,351,668†
1,351,668†
Net loss
(15,196,129)
(15,196,129)
Ending Balance, Amount at Dec. 31, 2012
$†167,428,814†
$†18,672,864†
$†3,253,019†
$†(141,026,787)
$†48,327,910†
Ending Balance, Shares at Dec. 31, 2012
128,877,243†
1. NATURE AND CONTINUANCE OF OPERATIONS
Note 1. NATURE AND CONTINUANCE OF OPERATIONS

1.           NATURE AND CONTINUANCE OF OPERATIONS

 

Entrée Gold Inc. was incorporated under the laws of the Province of British Columbia on July 19, 1995 and continued under the laws of the Yukon Territory on January 22, 2003. On May 27, 2005, Entrée Gold Inc. changed its governing jurisdiction from the Yukon Territory to British Columbia by continuing into British Columbia under the Business Corporations Act (British Columbia). The principal business activity of Entrée Gold Inc., together with its subsidiaries (collectively referred to as “the Company”), is the exploration of mineral property interests. To date, the Company has not generated significant revenues from its operations and is considered to be in the exploration stage.

 

All amounts are expressed in United States dollars, except for certain amounts denoted in Canadian dollars ("C$"), and Australian dollars ("A$").

 

These consolidated financial statements have been prepared on the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company currently earns no operating revenues. Continued operations of the Company are dependent upon the Company’s ability to secure additional equity capital or receive other financial support, and in the longer term to generate profits from business operations. Management believes that the Company has sufficient working capital to maintain its operations for the next fiscal year.

2. SIGNIFICANT ACCOUNTING POLICIES
Note 2. SIGNIFICANT ACCOUNTING POLICIES

2.           SIGNIFICANT ACCOUNTING POLICIES

 

Principles of consolidation

 

These consolidated financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") in the United States of America and include the accounts of the Company and all of its subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation.

 

Use of estimates

 

The preparation of consolidated financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to deferred income tax asset valuations, asset impairment, stock-based compensation, valuation of asset-backed commercial paper and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between estimates and the actual results, future results of operations will be affected.

 

Cash and cash equivalents

 

Cash and cash equivalents includes cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value. The Company had $4,255,508 in cash at December 31, 2012.

 

Short-term investments

 

Short-term investments consist of money market instruments with maturities of three months or more at date of purchase. The Company had $Nil in short-term investments as at December 31, 2012.

 

 Long-term investments

 

Long-term investments in companies in which the Company has voting interests of 20% to 50% or where the Company has the ability to exercise significant influence, are accounted for using the equity method. Under this method, the Company’s share of the investees’ earnings and losses is included in operations and its investments therein are adjusted by a like amount. Dividends received are credited to the long-term investment accounts.

 

Other long-term investments are classified as "available-for-sale" investments and unrealized gains and losses on these investments are recorded in accumulated other comprehensive income as a separate component of stockholders’ equity, unless the declines in market value are judged to be other than temporary, in which case the losses are recognized in income in the period. Gains and losses from the sale of these investments are included in income in the period.

 

Equipment

 

Equipment, consisting of office, computer, field equipment and buildings, is recorded at cost less accumulated depreciation. Depreciation is recorded on a declining balance basis at rates ranging from 20% to 30% per annum.

 

Mineral property interests

 

Costs of exploration and costs of carrying and retaining unproven properties are expensed as incurred. The Company considers mineral rights to be tangible assets and accordingly, the Company capitalizes certain costs related to the acquisition of mineral rights.

 

Asset retirement obligation

 

The Company records the fair value of the liability for closure and removal costs associated with the legal obligations upon retirement or removal of any tangible long-lived assets where the initial recognition of any liability will be capitalized as part of the asset cost and depreciated over its estimated useful life. To date, the Company has not incurred any asset retirement obligations.

 

Impairment of long-lived assets

 

Long-lived assets are continually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the discounted carrying amount of the assets exceeds the fair value of the assets.

 

Stock-based compensation

 

The Company applies the fair value method of accounting for all stock option awards, whereby the Company recognizes a compensation expense for all stock options awarded to employees, officers and consultants based on the fair value of the options on the date of grant, which is determined using the Black Scholes option pricing model. The options are expensed over the vesting period of the options.

 

 

Financial instruments

 

The Company measures the fair value of financial assets and liabilities based on GAAP guidance which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

 

Under GAAP, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is also established, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable.

Level 3 – Inputs that are unobservable (for example cash flow modelling inputs based on assumptions).

 

Income taxes

 

The Company follows the asset and liability method of accounting for income taxes whereby deferred income taxes are recognized for the deferred income tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases (temporary differences). Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is included in income in the period in which the change occurs. The amount of deferred income tax assets recognized is limited to the amount that is more likely than not to be realized.

 

Foreign currency translation

 

The functional currency of the Company is the Canadian dollar. Accordingly, monetary assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the balance sheet date while non-monetary assets and liabilities denominated in a foreign currency are translated at historical rates. Revenue and expense items denominated in a foreign currency are translated at exchange rates prevailing when such items are recognized in the statement of operations and comprehensive loss. Exchange gains or losses arising on translation of foreign currency items are included in the statement of operations and comprehensive loss.

 

The Company follows the current rate method of translation with respect to its presentation of these consolidated financial statements in the reporting currency, which is the United States dollar. Accordingly, assets and liabilities are translated into United States dollars at the period-end exchange rates while revenue and expenses are translated at the prevailing exchange rates during the period. Related exchange gains and losses are included in a separate component of stockholders’ equity as accumulated other comprehensive income.

 

Net loss per share

 

Basic net loss per share is computed by dividing the net loss for the period attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic loss per share) and potentially dilutive shares of common stock. Diluted net loss per share is not presented separately from basic net loss per share as the conversion of outstanding stock options and warrants into common shares would be anti-dilutive. At December 31, 2012, the total number of potentially dilutive shares of common stock excluded from basic net loss per share was 9,223,000 (December 31, 2011 - 9,135,500).

 

Comparative figures

 

Certain comparative figures have been reclassified to conform with the current year’s presentation.

 

Recent accounting pronouncements

 

The accounting pronouncements issued by the Financial Accounting Standards Board during the year ended December 31, 2012 were not applicable to the Company.

3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Note 3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

3.           CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS


 

Cash, cash equivalents and short-term investments consist of the following:

             
             
    December 31, 2012     December 31, 2011
Cash at bank and in hand   $ 4,255,508     $ 10,579,061  
Cash equivalent investments     -       3,933,137  
Short-term investments     -       4,916,421  
    $ 4,255,508     $ 19,428,619  

 

4. LONG-TERM INVESTMENTS
Note 4. LONG-TERM INVESTMENTS

4.           LONG-TERM INVESTMENTS

 

Equity Method Investment

 

The Company has a 20% interest in a joint venture with Oyu Tolgoi LLC (“OTLLC”), a company owned 66% by Turquoise Hill Resources Ltd. (formerly Ivanhoe Mines Ltd.) (“Turquoise Hill”) and 34% by the Government of Mongolia (Note 6). The Company’s share of the loss of the joint venture is $1,012,156 for the year ended December 31, 2012 (December 31, 2011 - $2,397,085) plus accrued interest expense of $229,359 for the year ended December 31, 2012 (December 31, 2011 - $151,952).

 

Asset Backed Commercial Paper

 

During the year ended December 31, 2011, the Company sold its asset backed notes (“AB Notes”) with a face value of C$4,007,068, and an expected maturity date of December 20, 2016, for gross cash proceeds of $2,560,687. The Company had designated the notes as available for sale and the notes were recorded at fair value using a discounted cash flow approach. The Company recorded a gain on sale of investments of $1,178,254 for the year ended December 31, 2011.

 

 Australia Listed Equity Securities

 

During the year ended December 31, 2011, the Company sold its Australian listed securities for gross cash proceeds of $3,174,208. The Company recorded a gain on sale of investments of $2,148,021 for the year ended December 31, 2011.

5. EQUIPMENT
Note 5. EQUIPMENT

5.           EQUIPMENT

 

          December 31, 2012           December 31, 2011  
    Cost     Accumulated Depreciation    

Net Book

Value

    Cost     Accumulated Depreciation    

Net Book

Value

 
                                     
Office equipment   $ 122,931     $ 90,900     $ 32,031     $ 125,486     $ 83,346     $ 42,140  
Computer equipment     523,893       353,944       169,949       577,249       322,882       254,367  
Field equipment     540,422       274,694       265,728       568,984       246,363       322,621  
Buildings     280,936       209,077       71,859       422,468       286,750       135,718  
    $ 1,468,182     $ 928,615     $ 539,567     $ 1,694,187     $ 939,341     $ 754,846  
6. MINERAL PROPERTY INTERESTS
Note 6. MINERAL PROPERTY INTERESTS

6.           MINERAL PROPERTY INTERESTS

 

Title to mineral property interests involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mineral property interests. The Company has investigated title to its mineral property interests and, except as otherwise disclosed below, to the best of its knowledge, title to the mineral property interests is in good standing.

 

Material Properties

 

The Company’s two principal assets are its interest in the Lookout Hill property in Mongolia, and the Ann Mason project in Nevada.

 

Lookout Hill, Mongolia

 

The Lookout Hill property in the South Gobi region of Mongolia is comprised of two mining licences, Shivee Tolgoi and Javhlant, granted by the Mineral Resources Authority of Mongolia in October 2009. Title to the two licences is held by the Company.

 

In October 2004, the Company entered into an arm’s-length Equity Participation and Earn-In Agreement (the "Earn-In Agreement") with Turquoise Hill. Under the Earn-In Agreement, Turquoise Hill agreed to purchase equity securities of the Company, and was granted the right to earn an interest in what is now the eastern portion of the Shivee Tolgoi mining licence and all of the Javhlant mining licence (together the "Joint Venture Property"). Most of Turquoise Hill’s rights and obligations under the Earn-In Agreement were subsequently assigned by Turquoise Hill to what was then its wholly-owned subsidiary, OTLLC. The Government of Mongolia subsequently acquired a 34% interest in OTLLC from Turquoise Hill.

 

On June 30, 2008, OTLLC gave notice that it had completed its earn-in obligations by expending a total of $35 million on exploration of the Joint Venture Property. OTLLC earned an 80% interest in all minerals extracted below a sub-surface depth of 560 metres from the Joint Venture Property and a 70% interest in all minerals extracted from surface to a depth of 560 metres from the Joint Venture Property. In accordance with the Earn-In Agreement, the Company and OTLLC formed a joint venture (the "Entrée-OTLLC Joint Venture") on terms annexed to the Earn-In Agreement.

 

The portion of the Shivee Tolgoi mining licence outside of the Joint Venture Property ("Shivee West") is 100% owned by the Company, but is subject to a right of first refusal by OTLLC.

 

The conversion of the original Shivee Tolgoi and Javhlant exploration licences into mining licences was a condition precedent to the Investment Agreement (the "Investment Agreement") among Turquoise Hill, OTLLC, the Government of Mongolia and Rio Tinto International Holdings Limited.  The licences are part of the contract area covered by the Investment Agreement, although the Company is not a party to the Investment Agreement.  The Shivee Tolgoi and Javhlant mining licences were each issued for a 30 year term and have rights of renewal for two further 20 year terms.

 

On February 27, 2013, notice (the "Notice") was delivered to the Company by the Mineral Resources Authority of Mongolia ("MRAM") that by Order No. 43 dated February 22, 2013, the Ministry of Mining had cancelled the July 10, 2009 Order of the Ministry of Mineral Resources and Energy (the "2009 Order") registering the Hugo North Extension and Heruga reserves.  The registration of reserves is a pre-condition to applying for the conversion of an exploration licence into a mining licence.  The Notice stated that the 2009 Order breached Clause 48.4 of the Minerals Law of Mongolia and Clause 9 of the Charter of the Minerals Resource Counsel.  The Notice, which was not concerned with the issuing of the mining licences, futher advised that any transfer, sale or lease of the Shivee Tolgoi and Javhlant mining licences is temporarily suspended. The mining licences have not been revoked or cancelled, but the Company is currently working to resolve the temporary suspension of transfers, sales or leases of the licences.

 

As of December 31, 2012, the Entrée-OTLLC Joint Venture had expended approximately $25.5 million to advance the Joint Venture Property. Under the terms of the Entrée-OTLLC Joint Venture, OTLLC contributed on behalf of the Company its required participation amount charging interest at prime plus 2% (Note 8).

 

Ann Mason, Nevada, United States

 

The Ann Mason Project is defined by a series of both unpatented lode claims on public land administered by the Bureau of Land Management, and title to patented lode claims. The Company assembled this package of claims through a combination of staking and a series of transactions undertaken since August 2009, including the June 30, 2010 acquisition of PacMag Metals Limited (now PacMag Metals Pty Ltd.) (“PacMag”). The project area includes the Ann Mason and the Blue Hill deposits, and several early-stage copper porphyry targets including the Blackjack, Roulette and Minnesota targets. 

 

Certain of the unpatented lode claims (part of the area formerly known as the Blackjack property) are leased to the Company pursuant to a mining lease and option to purchase agreement (“MLOPA”) with two individuals. Under the MLOPA, the Company is granted the option to purchase the claims for $500,000. If the Company exercises its option, the claims will be subject to a 3% net smelter returns ("NSR") royalty (which may be bought down to a 1% NSR royalty for $2 million). The MLOPA also provides for annual advance minimum royalty payments of $27,500 which commenced in June 2011 and will continue until the commencement of sustained commercial production. The advance payments will be credited against future royalty payments or the buy down of the royalty.

 

In September 2009, the Company entered into an agreement with Bronco Creek Exploration Inc. ("Bronco Creek"), a wholly-owned subsidiary of Eurasian Minerals Inc., whereby the Company may acquire an 80% interest in certain unpatented lode claims formerly known as the Roulette property. In order to acquire its interest, the Company must: (a) incur expenditures of $1,000,000, make cash payments of $140,000 and issue 85,000 common shares of the Company within three years (completed); (b) make aggregate advance royalty payments totalling $375,000 between the fifth and tenth anniversaries of the agreement; and (c) deliver a bankable feasibility study before the tenth anniversary of the agreement.

 

Certain of the patented lode claims are subject to a 2% NSR royalty in favour of AngloGold Ashanti (Nevada) Corp.  Certain of the unpatented lode claims, including the claims covering the Ann Mason and Blue Hill deposits, are subject to a 0.4% NSR royalty in favour of Sandstorm Gold Ltd.

 

During the year ended December 31, 2012, the Company, through a combination of staking and purchase agreements, acquired certain patented and unpatented lode claims within or contiguous to the boundaries of its Ann Mason Project pursuant to which the Company paid $3,721,170 and issued 40,000 common shares valued at $52,293.

 

Other Properties

 

During the year ended December 31, 2012, the Company also had interests in non-material properties in Australia, United States, and Peru. Non-material properties include the following:

 

Australia Properties

 

The Company has mineral property interests in Australia which it acquired in conjunction with the PacMag acquisition, namely the Blue Rose joint venture and the Mystique earn-in. The Company holds a 51.6% interest in the Blue Rose copper-iron-gold-molybdenum joint venture property, with Giralia Resources Pty Ltd., now a subsidiary of Atlas Iron Limited (ASX:AGO - "Atlas"), retaining the remaining 48.4% interest.

 

The Company recorded a gain on sale of mineral property interests of $104,914 on the Northling property and an impairment of mineral property interests of $486,746 on the Mystique property during the year ended December 31, 2012.

 

Empirical

 

During the year ended December 31, 2012, the Company entered into an agreement with Empirical Discovery, LLC to purchase a 100% interest in the Lordsburg and Oak Grove properties, subject to a 2% NSR royalty, pursuant to which the Company paid $100,000 and issued 500,000 common shares valued at $326,483. Empirical has an option, until June 1, 2013, to reacquire the Oak Grove property for no consideration as Entrée did not complete a minimum amount of drilling prior to January 1, 2013.
 

 

Capitalized mineral property acquisition costs are summarized as follows:

    December 31, 2012     December 31, 2011  
USA            
Ann Mason   $ 55,752,523     $ 50,973,368  
Empirical     990,797       532,550  
Other     302,262       199,754  
Total USA     57,045,582       51,705,672  
                 
AUSTRALIA                
Blue Rose JV     571,342       558,927  
Mystique     -       414,164  
Total Australia     571,342       973,091  
                 
Total all locations   $ 57,616,924     $ 52,678,763  

Expensed exploration costs are summarized as follows:

 

    Year Ended December 31, 2012     Year Ended December 31, 2011  
US   $ 5,857,999     $ 14,088,428  
Mongolia     1,964,883       3,255,588  
Other     411,472       335,158  
                 
Total all locations   $ 8,234,354     $ 17,679,174  

 

7. LOANS PAYABLE
Note 7. LOANS PAYABLE

7.           LOANS PAYABLE

 

Under the terms of the Entrée-OTLLC Joint Venture (Note 6), OTLLC will contribute funds to approved joint venture programs and budgets on the Company’s behalf. Interest on each loan advance shall accrue at an annual rate equal to OTLLC’s actual cost of capital or the prime rate of the Royal Bank of Canada, plus two percent (2%) per annum, whichever is less, as at the date of the advance. The loans will be repayable by the Company monthly from ninety percent (90%) of the Company’s share of available cash flow from the Entrée-OTLLC Joint Venture. In the absence of available cash flow, the loans will not be repayable. The loans are not expected to be repaid within one year.

8. COMMON STOCK
Note 8. COMMON STOCK

 

8.           COMMON STOCK

 

Share issuances

 

In July 1995, the Company completed a private placement consisting of 4,200,000 common shares issued at a price of C$0.02 per share for gross proceeds of $60,852.

 

In July 1995, the Company issued 3,200,000 shares at a value of $147,520 for the acquisition of a mineral property interest in Costa Rica. This mineral property was abandoned in 2001.

 

In January 1997, the Company completed a private placement consisting of 1,680,000 common shares issued at a price of C$0.06 per share for gross proceeds of $77,553.

 

In April 1997, the Company completed a private placement consisting of 2,200,000 common shares issued at a price of C$0.12 per share for gross proceeds of $197,165.

 

In February 2000, the Company issued 1,128,000 common shares for cash proceeds of $113,922 on the exercise of stock options.

 

In September 2002, the Company completed a brokered private placement consisting of 4,000,000 units issued at a price of C$0.20 per unit for gross proceeds of $505,520. Each unit consisted of one common share and one-half non-transferable share purchase warrant. Each whole share purchase warrant entitled the holder to acquire one additional common share at a price of C$0.40 per share for a period of one year. As part of this private placement, the Company issued 310,000 units as a finder's fee to the agent. Related share issue costs of $112,338 were comprised

of cash costs totalling $72,556 and the fair value of 310,000 units estimated at $39,782, of which $39,178 was assigned to the common shares.

 

In January 2003, the Company completed a combination brokered and non-brokered private placement consisting of 2,500,000 units issued at a price of C$0.35 per unit for gross proceeds of $569,975. Each unit consisted of one common share and one-half non-transferable share purchase warrant. As part of this private placement, the Company issued 329,723 agent's warrants. Each whole share purchase warrant entitled the holder to acquire one additional common share at a price of C$0.40 per share for a period of one year. Related share issue costs of $94,461 were comprised of cash costs totalling $78,188 and the fair value of the agents warrants estimated at $16,273.

 

In January 2003, the Company issued 100,000 common shares at a value of $35,827 as a finder's fee towards the acquisition of mineral property interests.

 

In February 2003, the Company issued 12,500 common shares for proceeds of $3,288 on the exercise of warrants.

 

In March 2003, the Company issued 135,416 common shares at a value of $45,839 and 67,708 non-transferable share purchase warrants with a value of $5,252 to settle accounts payable totalling $45,839. Each share purchase warrant entitled the holder to acquire one additional common share at a price of C$0.60 per share for a period of one year.

 

In April 2003, the Company completed a non-brokered private placement consisting of 1,000,000 units issued at a price of C$0.40 per unit for proceeds of $275,560. Each unit consisted of one common share and one non-transferable share purchase warrant. Each share purchase warrant entitled the holder to acquire one additional common share at a price of C$0.50 per share for the first year and at C$0.60 per share for the second year. The Company incurred costs of $4,408 with respect to this private placement. 

 

In August 2003, the Company completed a non-brokered private placement consisting of 2,000,000 common shares issued at a price of C$0.20 per share for gross proceeds of $288,360. Related share issue costs were $15,270.

 

In October 2003, the Company completed a short-form offering and issued 2,352,942 units at a price of C$0.85 per unit for gross proceeds of $1,510,400. Each unit consisted of one common share and one-half of one non-transferable share purchase warrant. Each whole share purchase warrant allowed the holder to purchase one additional common share at an exercise price of C$1.06 on or before October 22, 2005. The agent for the offering was paid a cash commission of 8.5% of the gross proceeds received, or $128,384, in respect of units sold and received agent's warrants to acquire common shares equal to 10% of the number of units sold, or 235,294 warrants. The agent's warrants allowed the agent to purchase one additional common share at an exercise price of C$0.95 per share on or before October 22, 2004. The agent was also issued 100,000 units as a corporate finance fee. Each agent's unit consisted of one common share and one-half of one non-transferable share purchase warrant. Each whole share purchase warrant allowed the agent to purchase one additional common share at an exercise price of C$0.95 on or before October 22, 2004. Related share issue costs of $296,296 were comprised of cash costs totalling $164,004 and the fair value of 100,000 agents units estimated at $72,576 and the fair value of 235,294 agent's warrants estimated at $59,716. The fair value of the agent's units of $72,576 consisted of $64,192 assigned to the common shares and $8,384 assigned to the warrants.

 

In October 2003, the Company completed a brokered private placement consisting of 12,000,000 units at a price of C$1.00 per unit for gross proceeds of $9,092,400. Each unit consisted of one common share and one-half of one non-transferable share purchase warrant. Each whole share purchase warrant allowed the holder to purchase one additional common share at an exercise price of C$1.35 on or before October 31, 2005. The agent for the offering was paid a cash commission of $566,381, and received 920,000 agent's warrants. The agent's warrants allowed the agent to purchase one additional common share at an exercise price of C$1.35 per share on or before April 30, 2005. Related share issue costs of $991,149 were comprised of cash costs totalling $680,124 and the fair value of the agents warrants estimated at $311,025.

 

In November 2003, the Company issued 5,000,000 shares at a value of $3,806,000 pursuant to the Lookout Hill mineral property purchase agreement.

 

During the eight month period ended December 31, 2003 the Company issued 3,730,372 common shares for cash proceeds of $1,310,221 on the exercise of warrants. The warrants exercised had a fair value of $6,443 when issued.

 

During the eight month period ended December 31, 2003, the Company issued 35,000 common shares for cash proceeds of $14,704 on the exercise of stock options. The options exercised had a fair value of $4,026 when granted.

 

In January 2004, the Company issued 50,000 common shares for cash proceeds of $17,942 on the exercise of stock options. The options exercised had a fair value of $8,238 when granted.

 

In November 2004, the Company completed a non-brokered private placement consisting of 4,600,000 units at a price of C$1.00 per unit for gross proceeds of $3,846,521. Each unit consisted of one common share and one non-transferable share purchase warrant. Each share purchase warrant entitled the holder to purchase one additional common share at a price of C$1.10 on or before November 9, 2006. Related share issue costs were comprised of cash costs totalling $21,026.

 

 

During the year ended December 31, 2004, the Company issued 533,836 common shares for cash proceeds of $173,011 on the exercise of warrants. The warrants exercised had a fair value of $13,197 when issued.

 

In June 2005, the Company completed a non-brokered private placement consisting of 5,665,730 units at a price of C$2.20 per unit for gross proceeds of $10,170,207. Each unit consisted of one common share, one non-transferable share purchase A warrant and one non-transferable share purchase B warrant. Two A warrants entitled the holder to purchase one common share of the Company at a price of C$2.75 for a period of 2 years. Two B warrants entitled the holder to purchase one common share of the Company at a price of C$3.00 for a period of two years. Pursuant to an agreement with the Company, the placee, Kennecott Canada Exploration Inc. (now Rio Tinto Exploration Canada Inc. (“Rio Tinto”)) (indirect wholly-owned subsidiary of Rio Tinto plc) had the right to acquire additional securities and participate in future financings by the Company so as to maintain its proportional equity in the Company. This right was subsequently assigned to Rio Tinto International Holdings Limited, and terminated on March 1, 2013.  Related share issue costs were $521,798.

 

In July 2005, the Company completed a non-brokered private placement consisting of 1,876,680 units at a price of C$2.20 per unit for gross proceeds of $3,367,890. Each unit consisted of one common share, one non-transferable share purchase A warrant and one non-transferable share purchase B warrant. Two A warrants entitled the holder to purchase one common share of the Company at a price of C$2.75 for a period of 2 years. Two B warrants entitled the holder to purchase one common share of the Company at a price of C$3.00 for a period of two years.

 

During the year ended December 31, 2005, the Company issued 10,456,450 common shares for cash proceeds of $10,475,291 on the exercise of warrants.

 

During the year ended December 31, 2005, the Company issued 772,000 common shares for cash proceeds of $705,673 on the exercise of stock options. The fair value recorded when the options were granted was $532,908.

 

During the year ended December 31, 2006, the Company issued 1,215,000 common shares for cash proceeds of $1,108,717 on the exercise of stock options. The fair value recorded when the options were granted was $753,628.

 

In June 2006, the Company issued 4,167 common shares to the University of British Columbia as a donation to become a member of the Mineral Deposit Research Unit. The fair value recorded when the shares were issued of $8,870 was recorded as a donation expense.

 

In June 2007, the Company issued 7,542,408 common shares for cash proceeds of $20,392,043 on the exercise of warrants.

 

In August 2007, the Company issued 15,000 shares at a value of $33,976 to Empirical Discovery, LLC (“Empirical”) pursuant to a mineral property option agreement.

 

In November 2007, the Company completed an underwriten short form prospectus offering of 10,000,000 common shares at price of C$3.00 per share for gross proceeds of C$30,000,000. Turquoise Hill and Rio Tinto elected to exercise their respective rights to maintain their percentage ownership interests.  Turqoise Hill acquired 2,128,356 shares at C$3.00 for gross proceeds of C$6,464,881. Rio Tinto acquired 2,300,284 shares at C$3.00 for proceeds of C$6,987,113. Related share issuance costs were $1,981,360.

 

 

During the year ended December 31, 2007, the Company issued 728,700 common shares for cash proceeds of $603,684 on the exercise of stock options. The fair value recorded when the options were granted was $322,880.

 

In February 2008, the Company issued 10,000 shares at a fair value of $20,066 pursuant to a mineral property option agreement.

 

In August 2008, the Company issued 20,000 shares at a fair value of $40,875 pursuant to a mineral property option agreement.

 

During the year ended December 31, 2008, the Company issued 958,057 common shares for cash proceeds of $856,470 on the exercise of stock options. The fair value recorded when the options were granted of $591,456 has been transferred from additional paid–in capital to common stock on the exercise of the options. Included in the issued shares were 144,169 common shares issued pursuant to the cashless exercise of 296,112 options with an exercise price of C$1.00, with the remaining 151,943 options treated as cancelled.

 

In February 2009, the Company issued 20,000 shares at a fair value of $22,515 pursuant to a mineral property option agreement.

 

In August 2009, the Company issued 72,500 shares at a fair value of $130,056 pursuant to mineral property option agreements.

 

In November 2009, the Company issued 50,000 shares at a fair value of $122,551 pursuant to a mineral property option agreement.

 

During the year ended December 31, 2009, the Company issued 2,355,948 common shares for cash proceeds of $2,280,050 on the exercise of stock options. The fair value recorded when the options were granted was $2,050,489. Included in the issued shares were 415,448 common shares issued pursuant to the cashless exercise of 705,000 options with an exercise price of C$1.15, with the remaining 289,552 options treated as cancelled.

 

In February 2010, the Company issued 30,000 shares at a fair value of $82,391 pursuant to a mineral property option agreement.

 

In June 2010, the Company issued 15,020,801 shares at a fair value of $28,325,101 pursuant to the acquisition of PacMag and incurred $147,228 of share issue costs.

 

In August 2010, the Company issued 80,000 shares at a fair value of $185,863 pursuant to a mineral property option agreement covering the Lordsburg and Oak Grove properties in New Mexico.

 

In October 2010, the Company issued 20,000 shares at a fair value of $53,797 pursuant to a finder’s fee agreement in connection with a mineral property option agreement.

 

In October 2010, the Company issued 22,500 shares at a fair value of $60,233 pursuant to a mineral property option agreement.

 

During the year ended December 31, 2010, the Company issued 2,122,278 common shares for cash proceeds of $2,699,728 on the exercise of stock options. The fair value recorded when the options were granted was $1,932,407. Included in the issued shares were 430,078 common shares issued pursuant to the cashless exercise of 100,000 options with an exercise price of C$1.32, 1,535,300 options with an exercise price of C$1.75, and 7,500 options with an exercise price of C$2.60, with the remaining 1,212,722 options treated as cancelled.

 

 

In February 2011, the Company issued 40,000 shares at a fair value of $122,189 pursuant to a mineral property option agreement.

 

In July 2011, the Company issued 550,000 shares at a fair value of $1,271,371 to acquire Honey Badger Exploration Inc.’s remaining 49% interest in what was then known as the Blackjack property.

 

In August 2011, the Company issued 150,000 shares at a fair value of $304,793 pursuant to a mineral property option agreement.

 

In October 2011, the Company issued 12,500 shares at a fair value of $19,753 pursuant to a mineral property option agreement.

 

In November 2011, the Company completed a marketed offering and issued 10,000,000 shares at a price of C$1.25 per share. Rio Tinto elected to exercise its pre-emptive rights and purchased an additional 1,482,216 shares at a price of C$1.25 per share. The total gross proceeds from the offering were $14,075,483. Related share issuance costs were $1,065,065.

 

During the year ended December 31, 2011, the Company issued 427,147 common shares for cash proceeds of $608,466 on the exercise of stock options. The fair value recorded when the options were granted was $442,255. Included in the issued shares were 87,847 common shares issued pursuant to the cashless exercise of 245,000 options with an exercise price of C$1.32, with the remaining 157,153 options treated as cancelled.

 

In January 2012, the underwriters for the Company’s November 2011 marketed offering exercised their over allotment option pursuant to which the Company issued 1,150,000 common shares at a price of C$1.25 per share. Rio Tinto elected to exercise its pre-emptive rights and purchased an additional 170,455 shares at a price of C$1.25 per share. The total gross proceeds from the over allotment were $1,628,583. Related share issuance costs were $108,058.

 

In January 2012, the Company issued 40,000 shares at a fair value of $52,293 to acquire certain claims within or contiguous to the boundaries of its Ann Mason Project.

 

In June 2012, the Company issued 500,000 shares at a fair value of $326,483 to purchase a 100% interest in the Lordsburg and Oak Grove properties.

 

Stock options

 

The Company has adopted a stock option plan (the "Plan") to grant options to directors, officers, employees and consultants. Under the Plan, the Company may grant options to acquire up to 10% of the issued and outstanding shares of the Company. Options granted can have a term of up to ten years and an exercise price typically not less than the Company's closing stock price on the last trading day before the date of grant. Vesting is determined at the discretion of the Board of Directors.

 

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted. For employees, the compensation expense is amortized on a straight-line basis over the requisite service period which approximates the vesting period. Compensation expense for stock options granted to non-employees is recognized over the contract services period or, if none exists, from the date of grant until the options vest. Compensation associated with unvested options granted to non-employees is re-measured on each balance sheet date using the Black-Scholes option pricing model.

  

 

The Company uses historical data to estimate option exercise, forfeiture and employee termination within the valuation model. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company has not paid and does not anticipate paying dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. Companies are required to utilize an estimated forfeiture rate when calculating the expense for the reporting period. Based on the best estimate, management applied the estimated forfeiture rate of Nil in determining the expense recorded in the accompanying Statements of Operations and Comprehensive Loss.

 

Stock option transactions are summarized as follows:

 

             
   

Number of

 Options

   

Weighted Average

 Exercise Price

 (C$)

 
Balance at December 31, 2010     9,292,800       2.09  
   Granted     575,000       2.77  
   Exercised     (427,147 )     1.66  
   Cancelled     (157,153 )     1.32  
   Forfeited     (148,000 )     2.31  
Balance at December 31, 2011     9,135,500       2.16  
   Granted     1,882,000       1.22  
   Expired     (1,177,500 )     2.14  
   Forfeited     (617,000 )     2.05  
Balance at December 31, 2012     9,223,000       1.98  

 

There were 1,882,000 stock options granted during the year ended December 31, 2012 with a weighted average exercise price of C$1.22 and a weighted average fair value of C$0.60. The number of stock options exercisable at December 31, 2012 was 9,198,000.

 

 

At December 31, 2012, the following stock options were outstanding:

 

                             
Number of Options    

Exercise

Price

(C$)

    Aggregate Intrinsic Value (C$)   Expiry Date   Number of Options Exercisable     Aggregate Intrinsic Value (C$)  
                             
  1,292,500       2.00       -   April 3, 2013     1,292,500       -  
  12,500       1.55       -   May 21, 2013     12,500       -  
  37,500       2.02       -   July 17, 2013     37,500       -  
  1,032,000       1.55       -   September 17, 2013     1,032,000       -  
  5,000       1.55       -   October 10, 2013     5,000       -  
  1,289,000       1.32       -   February 12, 2014     1,289,000       -  
  1,472,500       2.60       -   December 29, 2014     1,472,500       -  
  300,000       2.34       -   September 22, 2015     300,000       -  
  1,372,500       2.86       -   November 22, 2015     1,372,500       -  
  200,000       3.47       -   January 4, 2016     200,000       -  
  125,000       2.94       -   March 8, 2016     125,000       -  
  150,000       2.05       -   July 7, 2016     150,000       -  
  100,000       2.23       -   July 15, 2016     100,000       -  
  1,684,500       1.25       -   January 6, 2017     1,684,500       -  
  50,000       1.27       -   January 18, 2014     50,000       -  
  100,000       0.73       -   June 18, 2017     75,000       -  
  9,223,000             $ -         9,198,000     $ -  

 

The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Company’s closing stock price of C$0.45 per share as of December 31, 2012, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options vested and exercisable as of December 31, 2012 was Nil. The total intrinsic value of options exercised during the year ended December 31, 2012 was $Nil (December 31, 2011 - $437,770).

 

Subsequent to December 31, 2012, the Company granted 4,985,00 stock options with an exercise price of C$0.56.

 

Stock-based compensation

 

1,882,000 stock options were granted during the year ended December 31, 2012. The fair value of stock options granted during the year ended December 31, 2012 was $1,124,930 (December 31, 2011 - $944,319). 2,119,500 options fully vested during the year ended December 31, 2012 and 25,000 options will fully vest in 2013. Stock-based compensation recognized during the year ended December 31, 2012 was $1,207,878 (December 31, 2011 - $991,161) which has been recorded in the consolidated statements of operations as follows with corresponding additional paid-in capital recorded in stockholders' equity:

 

 

                   
   

Year Ended 

December 31, 

2012

   

 

Year Ended 

December 31,

 2011

Cumulative to

December 31,

 2012

 
Exploration   $ 267,452     $ 146,343     $ 4,074,853  
General and administration     940,426       844,818       18,678,907  
    $ 1,207,878     $ 991,161     $ 22,753,760  

 

The following weighted-average assumptions were used for the Black-Scholes valuation of stock options granted:

 

             
             
   

December 31, 

2012

   

December 31, 

2011

 
             
Risk-free interest rate     1.13 %     2.06 %
Expected life of options (years)     4.9       4.2  
Annualized volatility     73 %     74 %
Dividend rate     0.00 %     0.00 %
                 

 

 

 

9. SEGMENT INFORMATION
Note 9. SEGMENT INFORMATION

9.           SEGMENT INFORMATION

 

The Company operates in one business segment being the exploration of mineral property interests.

 

Geographic information is as follows:

 

             
             
    December 31, 2012     December 31, 2011  
             
Identifiable assets            
   USA   $ 58,094,222     $ 52,424,129  
   Canada     3,953,053       18,345,690  
   Australia     1,487,117       1,993,279  
   Mongolia     613,723       1,781,099  
   Other     25,415       45,613  
    $ 64,173,530     $ 74,589,810  
10. INCOME TAXES
10. INCOME TAXES

 

10.           INCOME TAXES

 

A reconciliation of income taxes at statutory rates with the reported taxes is as follows:

 

             
   

Year Ended

December 31,

2012

   

Year Ended

December 31,

2011

 
             
Loss for the year   $ (14,866,359 )   $ (21,969,902 )
Statutory rate     25.0 %     26.5 %
Expected income tax recovery     (3,716,590 )     (5,822,024 )
Permanent differences and other     270,521       (22,083 )
Difference in foreign tax rates and enacted tax rates     (577,544 )     (1,152,540 )
Change in valuation allowance     4,353,383       2,014,763  
Withholding taxes     -       152,190  
Total income tax expense (recovery)   $ 329,770     $ (4,829,694 )
                 
Current income tax expense   $ -     $ 152,190  
Deferred income tax expense (recovery)     329,770       (4,981,884 )
Total income taxes   $ 329,770     $ (4,829,694 )

 

 

The significant components of the Company’s deferred income tax assets and liabilities are as follows:

 

             
   

Year Ended

December 31,

2012

   

Year Ended

December 31,

2011

 
             
Deferred income tax assets:            
Non-capital loss carry forward   $ 18,940,044     $ 16,310,423  
Resource expenditures     9,116,317       6,717,013  
Equipment     127,684       76,811  
Share issue and legal costs     248,806       318,999  
Other     317,704       255,619  
      28,750,555       23,678,865  
Valuation allowance     (22,362,426 )     (18,009,043 )
Net deferred income tax assets   $ 6,388,129     $ 5,669,822  
                 
Deferred income tax liabilities:                
Mineral property interests   $ (16,110,513 )   $ (15,062,436 )
Net deferred income tax liabilities   $ (16,110,513 )   $ (15,062,436 )
                 
Net deferred income tax liabilities   $ (9,722,384 )   $ (9,392,614 )

 

 

The Company has available for deduction against future taxable income non-capital losses of approximately $30,380,000 (2011: $25,340,000) in Canada, $690,000 (2011: $680,000) in China, $8,860,000 (2011: $8,570,000) in Mongolia, $25,470,000 (2011: $22,000,000) in the United States of America, $580,000 (2011: $400,000) in Australia and $300,000 (2011: $240,000) in Peru. These losses, if not utilized, will expire through 2032. Subject to certain restrictions, the Company also has foreign resource expenditures available to reduce taxable income in future years. The Company has recognized $6,388,129 of deferred tax benefits arising as a result of these losses, resource expenditures, equipment, share issue and legal costs in these financial statements.

 

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. As of December 31, 2012, there was no accrued interest or accrued penalties.

 

The Company files income tax returns in Canada and several foreign jurisdictions. The Company’s Canadian income tax returns from 2004 to 2012 are open. For other foreign jurisdictions, including Mongolia and the U.S., all years remain open.

 

11. FINANCIAL INSTRUMENTS
Note 11. FINANCIAL INSTRUMENTS

11.           FINANCIAL INSTRUMENTS

 

The Company's financial instruments generally consist of cash and cash equivalents, short-term investments, receivables, deposits, accounts payable and accrued liabilities and loans payable. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying values, except as noted below.

 

The Company is exposed to currency risk by incurring certain expenditures in currencies other than the Canadian dollar. The Company does not use derivative instruments to reduce this currency risk.

 

Fair value measurement is based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value which are:

 

Level 1 — Quoted prices that are available in active markets for identical assets or liabilities.

 

Level 2 — Quoted prices in active markets for similar assets that are observable.

 

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

At December 31, 2012, the Company had Level 1 financial instruments, consisting of cash, with a fair value of $4,255,508.

 

12. ACCUMULATED OTHER COMPREHENSIVE INCOME (OCI)
Note 12. ACCUMULATED OTHER COMPREHENSIVE INCOME (OCI)

 

 

Year Ended

December 31,

2012

   

Year Ended

December 31,

2011

   
             
Accumulated OCI, beginning of year:            
Currency translation adjustment   $ 1,901,351     $ 3,002,717  
Available for sale securities     -       2,747,997  
    $ 1,901,351     $ 5,750,714  
                 
Other comprehensive income (loss) for the year:                
Currency translation adjustments   $ 1,351,668     $ (1,101,366 )
Unrealized gain on available for sale investments     -       715,428  
Release of OCI on available for sale investments     -       (3,463,425 )
    $ 1,351,668     $ (3,849,363 )
                 
Accumulated OCI, end of year:                
Currency translation adjustment   $ 3,253,019     $ 1,901,351  
Available for sale securities     -       -  
    $ 3,253,019     $ 1,901,351  

13. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
Note 13. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

 

13. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

 

The significant non-cash transactions for the year ended December 31, 2012 consisted of the following items:

 

●   issuance of 540,000 common shares (December 31, 2011 – 752,500) in payment of mineral property acquisitions valued at $378,776 (December 31, 2011 – $1,721,110) which have been capitalized as mineral property interests.
   
●   funding by OTLLC of the Company’s investment requirements for the Entrée-OTLLC Joint Venture of $1,012,156 (December 31, 3011 – $2,397,085).

14. COMMITMENTS
Note 14. COMMITMENTS

 

14.           COMMITMENTS

 

The Company is committed to make lease payments for the rental of office space as follows:

 

2013      $ 291,380  
2014       217,233  
2015      221,133  
2016      223,919  
2017     93,299  
    $ 1,046,964  

            

The Company incurred lease expense of $398,266 (December 31, 2011 – $382,878) for the year ended December 31, 2012.

 

16. SUBSEQUENT EVENTS
Note 16. SUBSEQUENT EVENTS

 

16.           SUBSEQUENT EVENTS

 

Subsequent to December 31, 2012:

 

The Company granted 4,985,000 stock options with an exercise price of C$0.56.

 

On February 15, 2013, the Company entered into a financing package with Sandstorm Gold Ltd. (“Sandstorm”) for gross proceeds of approximately $55 million consisting of three components:

 

         1) An equity participation and funding agreement that provided an upfront deposit (the “Deposit”) from Sandstorm of $40 million. The Company will use future payments that it receives from its mineral property interests to purchase and deliver metal credits to Sandstorm, in amounts that are indexed to the Company’s share of gold, silver and copper production from the Joint Venture Property as follows:

 

·   25.7% of the Company’s share of gold and silver, and 2.5% of the Company’s share of copper, produced from the portion of the Shivee Tolgoi mining licence included in the Joint Venture Property; and

 

·   33.8% of the Company’s share of gold and silver, and 2.5% of the Company’s share of copper, produced from the Javhlant mining licence.

 

 

 

 

In addition to the Deposit, upon delivery of the metal credits Sandstorm will make a cash payment to the Company equal to the lesser of the prevailing market price and $220 per ounce of gold, $5 per ounce of silver and $0.50 per pound of copper (subject to inflation adjustments).  After approximately 8.6 million ounces of gold, 40.3 million ounces of silver and 9.1 billion pounds of copper have been produced from the entire Joint Venture Property, the cash payment will increase to the lesser of the prevailing market price or $500 per ounce of gold, $10 per ounce of silver and $1.10 per pound of copper (subject to inflation adjustments).  To the extent that the prevailing market price is greater than the amount of the cash payment, the difference between the two will be credited against the Deposit (the net amount of the Deposit being the “Unearned Balance”).  If an event of a partial expropriation of Entrée’s interest in the Joint Venture Property, which is not reversed during the abeyance period provided for in the equity participation and funding agreement, the Company will be required to return a pro rata portion of the Deposit (the amount of the repayment not to exceed the amount of the Unearned Balance).  In the event of a full expropriation, the full amount of the Unearned Balance must be returned with interest.

 

The Company is not required to deliver actual metal, and the Company may use revenue from any of its assets to purchase the requisite amount of metal credits.

 

2)   A C$10 million private placement pursuant to which the Company issued 17,857,142 common shares to Sandstorm at a price of C$0.56 per share closed on March 1, 2013.  Rio Tinto International Holdings Limited did not exercise it’s pre-emptive rights.  The pre-emptive rights accordingly terminated effective March 1, 2013.

 

3)   A $5 million payment from Sandstorm in return for a 0.4% NSR royalty on the Ann Mason and Blue Hill deposits.

 

 

2. SIGNIFICANT ACCOUNTING POLICIES (Policies)

Principles of consolidation

 

These consolidated financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") in the United States of America and include the accounts of the Company and all of its subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation.

Use of estimates

 

The preparation of consolidated financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to deferred income tax asset valuations, asset impairment, stock-based compensation, valuation of asset-backed commercial paper and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between estimates and the actual results, future results of operations will be affected.

Cash and cash equivalents

 

Cash and cash equivalents includes cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value. The Company had $4,255,508 in cash at December 31, 2012.

Short-term investments

 

Short-term investments consist of money market instruments with maturities of three months or more at date of purchase. The Company had $Nil in short-term investments as at December 31, 2012.

 

Long-term investments

 

Long-term investments in companies in which the Company has voting interests of 20% to 50% or where the Company has the ability to exercise significant influence, are accounted for using the equity method. Under this method, the Company’s share of the investees’ earnings and losses is included in operations and its investments therein are adjusted by a like amount. Dividends received are credited to the long-term investment accounts.

 

Other long-term investments are classified as "available-for-sale" investments and unrealized gains and losses on these investments are recorded in accumulated other comprehensive income as a separate component of stockholders’ equity, unless the declines in market value are judged to be other than temporary, in which case the losses are recognized in income in the period. Gains and losses from the sale of these investments are included in income in the period.

Equipment

 

Equipment, consisting of office, computer, field equipment and buildings, is recorded at cost less accumulated depreciation. Depreciation is recorded on a declining balance basis at rates ranging from 20% to 30% per annum.

Mineral property interests

 

Costs of exploration and costs of carrying and retaining unproven properties are expensed as incurred. The Company considers mineral rights to be tangible assets and accordingly, the Company capitalizes certain costs related to the acquisition of mineral rights.

 

Asset retirement obligation

 

The Company records the fair value of the liability for closure and removal costs associated with the legal obligations upon retirement or removal of any tangible long-lived assets where the initial recognition of any liability will be capitalized as part of the asset cost and depreciated over its estimated useful life. To date, the Company has not incurred any asset retirement obligations.

Impairment of long-lived assets

 

Long-lived assets are continually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the discounted carrying amount of the assets exceeds the fair value of the assets.

Stock-based compensation

 

The Company applies the fair value method of accounting for all stock option awards, whereby the Company recognizes a compensation expense for all stock options awarded to employees, officers and consultants based on the fair value of the options on the date of grant, which is determined using the Black Scholes option pricing model. The options are expensed over the vesting period of the options.

Financial instruments

 

The Company measures the fair value of financial assets and liabilities based on GAAP guidance which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

 

Under GAAP, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is also established, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable.

Level 3 – Inputs that are unobservable (for example cash flow modelling inputs based on assumptions).

Income taxes

 

The Company follows the asset and liability method of accounting for income taxes whereby deferred income taxes are recognized for the deferred income tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases (temporary differences). Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is included in income in the period in which the change occurs. The amount of deferred income tax assets recognized is limited to the amount that is more likely than not to be realized.

Foreign currency translation

 

The functional currency of the Company is the Canadian dollar. Accordingly, monetary assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the balance sheet date while non-monetary assets and liabilities denominated in a foreign currency are translated at historical rates. Revenue and expense items denominated in a foreign currency are translated at exchange rates prevailing when such items are recognized in the statement of operations and comprehensive loss. Exchange gains or losses arising on translation of foreign currency items are included in the statement of operations and comprehensive loss.

 

The Company follows the current rate method of translation with respect to its presentation of these consolidated financial statements in the reporting currency, which is the United States dollar. Accordingly, assets and liabilities are translated into United States dollars at the period-end exchange rates while revenue and expenses are translated at the prevailing exchange rates during the period. Related exchange gains and losses are included in a separate component of stockholders’ equity as accumulated other comprehensive income.

Net loss per share

 

Basic net loss per share is computed by dividing the net loss for the period attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic loss per share) and potentially dilutive shares of common stock. Diluted net loss per share is not presented separately from basic net loss per share as the conversion of outstanding stock options and warrants into common shares would be anti-dilutive. At December 31, 2012, the total number of potentially dilutive shares of common stock excluded from basic net loss per share was 9,223,000 (December 31, 2011 - 9,135,500).

Comparative figures

 

Certain comparative figures have been reclassified to conform with the current year’s presentation.

Recent accounting pronouncements

 

The accounting pronouncements issued by the Financial Accounting Standards Board during the year ended December 31, 2012 were not applicable to the Company.

 

3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS (Tables)
Cash, cash equivalents and short-term investments
             
             
    December 31, 2012     December 31, 2011
Cash at bank and in hand   $ 4,255,508     $ 10,579,061  
Cash equivalent investments     -       3,933,137  
Short-term investments     -       4,916,421  
    $ 4,255,508     $ 19,428,619  
5. EQUIPMENT (Tables)
Equipment
          December 31, 2012           December 31, 2011  
    Cost     Accumulated Depreciation    

Net Book

Value

    Cost     Accumulated Depreciation    

Net Book

Value

 
                                     
Office equipment   $ 122,931     $ 90,900     $ 32,031     $ 125,486     $ 83,346     $ 42,140  
Computer equipment     523,893       353,944       169,949       577,249       322,882       254,367  
Field equipment     540,422       274,694       265,728       568,984       246,363       322,621  
Buildings     280,936       209,077       71,859       422,468       286,750       135,718  
    $ 1,468,182     $ 928,615     $ 539,567     $ 1,694,187     $ 939,341     $ 754,846  
6. MINERAL PROPERTY INTERESTS (Tables)
    December 31, 2012     December 31, 2011  
USA            
Ann Mason   $ 55,752,523     $ 50,973,368  
Empirical     990,797       532,550  
Other     302,262       199,754  
Total USA     57,045,582       51,705,672  
                 
AUSTRALIA                
Blue Rose JV     571,342       558,927  
Mystique     -       414,164  
Total Australia     571,342       973,091  
                 
Total all locations   $ 57,616,924     $ 52,678,763  
    Year Ended December 31, 2012     Year Ended December 31, 2011  
US   $ 5,857,999     $ 14,088,428  
Mongolia     1,964,883       3,255,588  
Other     411,472       335,158  
                 
Total all locations   $ 8,234,354     $ 17,679,174  
8. COMMON STOCK (Tables)

 

             
   

Number of

 Options

   

Weighted Average

 Exercise Price

 (C$)

 
Balance at December 31, 2010     9,292,800       2.09  
   Granted     575,000       2.77  
   Exercised     (427,147 )     1.66  
   Cancelled     (157,153 )     1.32  
   Forfeited     (148,000 )     2.31  
Balance at December 31, 2011     9,135,500       2.16  
   Granted     1,882,000       1.22  
   Expired     (1,177,500 )     2.14  
   Forfeited     (617,000 )     2.05  
Balance at December 31, 2012     9,223,000       1.98  

                             
Number of Options    

Exercise

Price

(C$)

    Aggregate Intrinsic Value (C$)   Expiry Date   Number of Options Exercisable     Aggregate Intrinsic Value (C$)  
                             
  1,292,500       2.00       -   April 3, 2013     1,292,500       -  
  12,500       1.55       -   May 21, 2013     12,500       -  
  37,500       2.02       -   July 17, 2013     37,500       -  
  1,032,000       1.55       -   September 17, 2013     1,032,000       -  
  5,000       1.55       -   October 10, 2013     5,000       -  
  1,289,000       1.32       -   February 12, 2014     1,289,000       -  
  1,472,500       2.60       -   December 29, 2014     1,472,500       -  
  300,000       2.34       -   September 22, 2015     300,000       -  
  1,372,500       2.86       -   November 22, 2015     1,372,500       -  
  200,000       3.47       -   January 4, 2016     200,000       -  
  125,000       2.94       -   March 8, 2016     125,000       -  
  150,000       2.05       -   July 7, 2016     150,000       -  
  100,000       2.23       -   July 15, 2016     100,000       -  
  1,684,500       1.25       -   January 6, 2017     1,684,500       -  
  50,000       1.27       -   January 18, 2014     50,000       -  
  100,000       0.73       -   June 18, 2017     75,000       -  
  9,223,000             $ -         9,198,000     $ -  

 

                   
   

Year Ended 

December 31, 

2012

   

 

Year Ended 

December 31,

 2011

Cumulative to

December 31,

 2012

 
Exploration   $ 267,452     $ 146,343     $ 4,074,853  
General and administration     940,426       844,818       18,678,907  
    $ 1,207,878     $ 991,161     $ 22,753,760  

 

             
             
   

December 31, 

2012

   

December 31, 

2011

 
             
Risk-free interest rate     1.13 %     2.06 %
Expected life of options (years)     4.9       4.2  
Annualized volatility     73 %     74 %
Dividend rate     0.00 %     0.00 %
                 

9. SEGMENT INFORMATION (Tables)
SEGMENT INFORMATION

 

     December 31,      December 31,
     2012     2011
           
Identifiable assets          
   USA   $ 58,094,222     $ 52,424,129
   Canada     3,953,053       18,345,690
   Australia     1,487,117       1,993,279
   Mongolia     613,723       1,781,099
   Other     25,415       45,613
    $ 64,173,530     $ 74,589,810

10. INCOME TAXES (Tables)

 

             
   

Year Ended

December 31,

2012

   

Year Ended

December 31,

2011

 
             
Loss for the year   $ (14,866,359 )   $ (21,969,902 )
Statutory rate     25.0 %     26.5 %
Expected income tax recovery     (3,716,590 )     (5,822,024 )
Permanent differences and other     270,521       (22,083 )
Difference in foreign tax rates and enacted tax rates     (577,544 )     (1,152,540 )
Change in valuation allowance     4,353,383       2,014,763  
Withholding taxes     -       152,190  
Total income tax expense (recovery)   $ 329,770     $ (4,829,694 )
                 
Current income tax expense   $ -     $ 152,190  
Deferred income tax expense (recovery)     329,770       (4,981,884 )
Total income taxes   $ 329,770     $ (4,829,694 )

 

             
   

Year Ended

December 31,

2012

   

Year Ended

December 31,

2011

 
             
Deferred income tax assets:            
Non-capital loss carry forward   $ 18,940,044     $ 16,310,423  
Resource expenditures     9,116,317       6,717,013  
Equipment     127,684       76,811  
Share issue and legal costs     248,806       318,999  
Other     317,704       255,619  
      28,750,555       23,678,865  
Valuation allowance     (22,362,426 )     (18,009,043 )
Net deferred income tax assets   $ 6,388,129     $ 5,669,822  
                 
Deferred income tax liabilities:                
Mineral property interests   $ (16,110,513 )   $ (15,062,436 )
Net deferred income tax liabilities   $ (16,110,513 )   $ (15,062,436 )
                 
Net deferred income tax liabilities   $ (9,722,384 )   $ (9,392,614 )

12. ACCUMULATED OTHER COMPREHENSIVE INCOME (OCI) (Tables)
ACCUMULATED OTHER COMPREHENSIVE INCOME

 

 

Year Ended

December 31,

2012

   

Year Ended

December 31,

2011

   
             
Accumulated OCI, beginning of year:            
Currency translation adjustment   $ 1,901,351     $ 3,002,717  
Available for sale securities     -       2,747,997  
    $ 1,901,351     $ 5,750,714  
                 
Other comprehensive income (loss) for the year:                
Currency translation adjustments   $ 1,351,668     $ (1,101,366 )
Unrealized gain on available for sale investments     -       715,428  
Release of OCI on available for sale investments     -       (3,463,425 )
    $ 1,351,668     $ (3,849,363 )
                 
Accumulated OCI, end of year:                
Currency translation adjustment   $ 3,253,019     $ 1,901,351  
Available for sale securities     -       -  
    $ 3,253,019     $ 1,901,351  

14. COMMITMENTS (Tables)
Lease payments

 

2013      $ 291,380  
2014       217,233  
2015      221,133  
2016      223,919  
2017     93,299  
    $ 1,046,964  

3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS (Details)†(USD $)
Dec. 31, 2012
Dec. 31, 2011
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash at bank and in hand
$†4,255,508†
$†10,579,061†
Cash equivalent investments
0†
3,933,137†
Short-term investments
0†
4,916,421†
Total cash and cash equivalents
$†4,255,508†
$†19,428,619†
5. EQUIPMENT (Details)†(USD $)
Dec. 31, 2012
Dec. 31, 2011
PropertyPlant and Equipment
Cost
$†1,468,182†
$†1,694,187†
Accumulated Depreciation
928,615†
939,341†
Net Book Value
539,567†
754,846†
OfficeEquipmentMember
PropertyPlant and Equipment
Cost
122,931†
125,486†
Accumulated Depreciation
90,900†
83,346†
Net Book Value
32,031†
42,140†
ComputerEquipmentMember
PropertyPlant and Equipment
Cost
523,893†
577,249†
Accumulated Depreciation
353,944†
322,882†
Net Book Value
169,949†
254,367†
FieldEquipmentMember
PropertyPlant and Equipment
Cost
540,422†
568,984†
Accumulated Depreciation
274,694†
246,363†
Net Book Value
265,728†
322,621†
BuildingMember
PropertyPlant and Equipment
Cost
280,936†
422,468†
Accumulated Depreciation
209,077†
286,750†
Net Book Value
$†71,859†
$†135,718†
6. MINERAL PROPERTY INTERESTS (Details)†(USD $)
Dec. 31, 2012
Dec. 31, 2011
PaymentsToAcquireMineralRightsLineItems [Line Items]
Capitalized mineral property acquisition Cost
$†57,616,924†
$†52,678,763†
AustraliaMember
PaymentsToAcquireMineralRightsLineItems [Line Items]
Capitalized mineral property acquisition Cost
571,342†
973,091†
USAMember
PaymentsToAcquireMineralRightsLineItems [Line Items]
Capitalized mineral property acquisition Cost
57,045,582†
51,705,672†
BlueRoseJVMember |
AustraliaMember
PaymentsToAcquireMineralRightsLineItems [Line Items]
Capitalized mineral property acquisition Cost
571,342†
558,927†
MystiqueMember |
AustraliaMember
PaymentsToAcquireMineralRightsLineItems [Line Items]
Capitalized mineral property acquisition Cost
0†
414,164†
AnnMasonMember |
USAMember
PaymentsToAcquireMineralRightsLineItems [Line Items]
Capitalized mineral property acquisition Cost
55,752,523†
50,973,368†
EmpiricalMember |
USAMember
PaymentsToAcquireMineralRightsLineItems [Line Items]
Capitalized mineral property acquisition Cost
990,797†
532,550†
OtherProperty |
USAMember
PaymentsToAcquireMineralRightsLineItems [Line Items]
Capitalized mineral property acquisition Cost
$†302,262†
$†199,754†
6. MINERAL PROPERTY INTERESTS (Details 1)†(USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
ExplorationCostsLineItems [Line Items]
Exploration costs
$†8,234,354†
$†17,679,174†
USMember
ExplorationCostsLineItems [Line Items]
Exploration costs
5,857,999†
14,088,428†
MongoliaMember
ExplorationCostsLineItems [Line Items]
Exploration costs
1,964,883†
3,255,588†
OtherCountryMember
ExplorationCostsLineItems [Line Items]
Exploration costs
$†411,472†
$†335,158†
8. COMMON STOCK (Details) (Stock Options, USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Stock Options
Number of option
Beginning Balance
9,135,500†
9,292,800†
Granted
1,882,000†
575,000†
Exercised
(427,147)
Cancelled
(157,153)
Expired
(1,177,500)
Forfeited
(617,000)
(148,000)
Ending Balance
9,223,000†
9,135,500†
Weighted Average Exercise Price
Beginning Balance
$†2.16†
$†2.09†
Granted
$†1.22†
$†2.77†
Exercised
$†1.66†
Cancelled
$†1.32†
Expired
$†2.14†
Forfeited
$†2.05†
$†2.31†
Ending Balance
$†1.98†
$†2.16†
8. COMMON STOCK (Details 1)†(USD $)
Dec. 31, 2012
Option Outstanding
Number of Shares
9,223,000†
Number of Options Exercisable
Number of Shares
9,198,000†
ShareBasedCompensationStockOptionOneMember
Option Outstanding
Number of Shares
1,292,500†
Exercise Price, ($C)
$†2.00†
Aggregate Intrinsic Value, (C$)
$†0†
Expiry Date
Apr. 03, 2013†
Number of Options Exercisable
Number of Shares
1,292,500†
Aggregate Intrinsic Value ($C)
0†
ShareBasedCompensationStockOptionTwoMember
Option Outstanding
Number of Shares
12,500†
Exercise Price, ($C)
$†1.55†
Aggregate Intrinsic Value, (C$)
0†
Expiry Date
May 21, 2013†