Touchstone Gold Limited Announces Results for the Year Ended 31 December 2012 and for 2011
TORONTO, ONTARIO -- (Marketwire) -- 04/01/13 -- Touchstone Gold (TSX: TCH)(AIM: TGL) ("Touchstone" or the "Company") reported its financial results for the year ended December 31, 2012 and 2011. The consolidated financial statements for the year ended December 31, 2012 and 2011 and notes thereto, as well as the Management's Discussion and Analysis and the Annual Information Form are available at www.sedar.com and www.touchstonegold.com. Unless otherwise noted, all financial information is expressed in US dollars.
Highlights
Financial and corporate:
-- Cash and cash equivalents of $4,087,940 at 31 December 2012
-- Net loss of $10,171,565 or $0.08 per share for the year ended 31
December 2012 (2011: loss of $9,828,749 or $0.11 per share) Private
placement raising gross proceeds of approximately $5.5 million completed
in December 2012, as previously reported
Operational:
-- Stage 4 Drilling Program focussing on the 1141 Zone, Tagual Zone and
Bern Zone commenced in February 2013
-- Segovia Gold Project's land package increased over 500% to 24,699-
hectares via two successful strategic acquisitions
-- Trading on the Toronto Stock Exchange ("TSX") commenced on 12 December
2012 under the ticker "TCH"
"2012 was a transformational year for Touchstone, as we achieved several key operational and corporate milestones. We begin 2013 with a substantially expanded land package following the two strategic acquisitions we completed in 2012, together with the listing on the Toronto Stock Exchange, we also begin the year with an expanded and strengthen shareholder base," commented David Wiley, CEO of Touchstone Gold Limited. "The Stage 4 Drilling Program at our Segovia Gold Project is currently underway, with assay results expected in the coming weeks. We aim to drill-test and expand the strike length of our high-grade, near-surface deposit and are excited to see the initial drill results from the new target zones. We look forward to continuing to deliver value at our operations over the months to come."
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As at As at
December 31, December 31,
U.S. Dollars 2012 2011
------------------------------
Statements of financial position
Cash and cash equivalents $ 4,087,940 $ 9,704,345
Total current assets $ 4,251,847 $ 9,747,044
Total assets $ 19,464,508 $ 10,216,383
Total current liabilities $ 1,044,485 $ 1,012,122
Total liabilities $ 1,520,337 $ 1,012,122
Total equity attributed to common shareholders $ 1,520,337 $ 1,012,122
Total liabilities and equity $ 19,464,508 $ 10,216,383
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For the years ended December
U.S. Dollars except per share amounts 31,
Statements of Operations 2012 2011
------------------------------
Exploration expenditures $ (4,363,258) $ (3,908,350)
Share-based payment expense (2,383,284) (2,493,474)
Depreciation (112,608) (110,634)
Professional and consulting fees (2,320,817) (2,168,608)
Travel (206,369) (172,046)
Office and sundry expenses (109,186) (73,391)
Salaries (391,284) (220,279)
Other operating costs (394,643) (241,506)
Other - -
Other financial income (expense) 109,884 (440,461)
------------------------------
Net loss $ (10,171,565) $ (9,828,749)
------------------------------
------------------------------
Net loss per share attributed to common
shareholders
Basic $ (0.08) $ (0.11)
Diluted $ (0.08) $ (0.11)
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About Touchstone Gold Limited
Touchstone Gold Limited (TSX: TCH)(AIM: TGL) is a gold exploration company with a highly-prospective gold project in the Segovia District of Colombia. The Company's Segovia Gold Project hosts a high-grade near-surface gold deposit, Rio Pescado Deposit, which spans along more than 15km of potential strike length. Only 5% of the Company's property has been drilled to date and several identified target zones, which host high-grade gold geochemical anomalies are due to be drilled in the near-term. A maiden NI 43-101-compliant resource estimate on the Company's project is scheduled to be released by the end of 2013.
With a strategy of creating value through the systematic exploration and development of Touchstone's existing assets as well as the acquisition of suitable exploration and development mineral projects, Touchstone's long-term intention is to build a significant gold exploration and production company.
For additional technical information on the Rio Pescado Deposit, please refer to the Company's technical report (the "Technical Report") entitled "Technical Report on The Rio Pescado Gold Property, Republic of Colombia" dated June 30, 2012, prepared by Peter A. Christopher PhD., P.Eng. of PAC Geological Consulting available on SEDAR at www.sedar.com and on the Company website at www.touchstonegold.com.
Cautionary Note Regarding Forward-Looking Information
Certain information set forth in this press release contains "forward-looking information" under applicable securities laws. Except for statements of historical fact, certain information contained herein constitutes forward-looking information which includes the completion of the Acquisition, the drill program and management's assessment of Touchstone's future plans and operations and are based on Touchstone's current internal expectations, estimates, projections, assumptions and beliefs, which may prove to be incorrect. Some of the forward-looking information may be identified by words such as "expects" "anticipates", "believes", "projects", "plans", and similar expressions. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking information may necessarily involve known and unknown risks and uncertainties, which may cause Touchstone's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking information. These risks and uncertainties include, but are not limited to: liabilities inherent in mine development and production; geological, mining and processing technical problems; Touchstone's inability to obtain required mine licenses, mine permits and regulatory approvals required in connection with mining and mineral processing operations; competition for, among other things, capital, acquisitions of resources and reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in commodity prices and exchange rates; currency and interest rate fluctuations; various events which could disrupt exploration and development, including labour stoppages and severe weather conditions; and management's ability to anticipate and manage the foregoing factors and risks. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Touchstone undertakes no obligation to update forward-looking information if circumstances or management's estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking information.
Touchstone Gold Limited
Consolidated Financial Statements
For the years ended December 31, 2012 and 2011
Presented in U.S. dollars except for per share amounts
MANAGEMENT'S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS
All of the information in the accompanying consolidated financial statements of Touchstone Gold Limited is the responsibility of management. The consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards. Where necessary, management has made judgments and estimates in preparing the consolidated financial statements, and such statements have been prepared within acceptable limits of materiality.
Management maintains appropriate systems of internal control given its size to give reasonable assurance that its assets are safeguarded, and the financial records are properly maintained.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal control and exercises this responsibility principally through the Audit Committee. The Audit Committee meets with management to review the consolidated financial statements to satisfy itself that management is properly discharging its responsibilities to the Directors, who approve the consolidated financial statements.
(signed) "David Wiley" (signed) "Brian Morales"
David Wiley Brian Morales
Chief Executive Officer Chief Financial Officer
Toronto, Canada
April 1, 2013
March 28, 2013
Independent Auditor's Report
To the Shareholders of Touchstone Gold Limited
We have audited the accompanying consolidated financial statements of Touchstone Gold Limited and its subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2012 and December 31, 2011 and the consolidated statements of operations, comprehensive loss, shareholders' equity and cash flows for the years ended December 31, 2012 and December 31, 2011 and the related notes, which comprise a summary of significant accounting policies and other explanatory information.
Management's responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Touchstone Gold Limited and its subsidiaries as at December 31, 2012 and December 31, 2011 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.
(Signed) "PricewaterhouseCoopers LLP"
Chartered Accountants, Licensed Public Accountants
Toronto, Ontario, Canada
TOUCHSTONE GOLD LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Expressed in U.S. Dollars)
December 31, December 31,
ASSETS Note 2012 2011
------------------------------
Current assets
Cash and cash equivalents 7 $ 4,087,940 $ 9,704,345
Accounts receivable 7 157,947 42,699
Prepaid expenses and other current
assets 5,960 -
------------------------------
Total current assets 4,251,847 9,747,044
Property, plant and equipment, net 4 559,160 469,339
Mineral interests 3 14,653,501 -
------------------------------
$ 19,464,508 $ 10,216,383
------------------------------
------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable 7 $ 804,938 $ 905,511
Taxes payable 55,131 60,222
Accrued and other liabilities 7 177,441 46,389
Fair value of warrant liability 3 6,975 -
------------------------------
Total current liabilities 1,044,485 1,012,122
------------------------------
Fair value of warrant liability 475,852 -
------------------------------
Total liabilities 1,520,337 1,012,122
------------------------------
Shareholders' equity
Share capital 6 $ 33,857,857 $ 17,371,890
Stock option reserve 6 4,876,758 2,493,474
Warrant reserve 6 212,722 161,920
Accumulated deficit (20,927,393) (10,755,828)
Accumulated other comprehensive loss (75,773) (67,195)
------------------------------
17,944,171 9,204,261
------------------------------
$ 19,464,508 $ 10,216,383
------------------------------
------------------------------
Commitments and contingent liabilities 11
See accompanying notes to the consolidated financial statements
Signed on behalf of the Board of Directors:
Fraser Buchan (signed), Director David Wiley (signed), Director
TOUCHSTONE GOLD LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars, except per share amounts)
Years ended December 31,
Note 2012 2011
------------------------------
Costs and expenses
Exploration expenditures $ (4,363,258) $ (3,908,350)
Share-based payment expense 6 (2,383,284) (2,493,474)
Depreciation (112,608) (110,634)
Professional and consulting fees 5 (2,320,817) (2,168,608)
Travel (206,369) (172,046)
Office and sundry expenses (109,186) (73,391)
Salaries 5 (391,284) (220,279)
Other operating costs (394,643) (241,506)
------------------------------
(10,281,449) (9,388,288)
------------------------------
Other income (expense)
Financial income 16,811 11,875
Change in fair value of derivative
liability 78,322 -
Bank fees, commissions and financial
fees (37,198) (23,516)
Foreign exchange gain (loss) 7 51,949 (428,820)
------------------------------
109,884 (440,461)
------------------------------
Loss before income taxes (10,171,565) (9,828,749)
------------------------------
Net loss $ (10,171,565) $ (9,828,749)
------------------------------
------------------------------
Net loss per share - basic and diluted 9 $ (0.08) $ (0.11)
Weighted average number of common shares
outstanding - basic and diluted 9 124,768,852 87,671,234
See accompanying notes to the consolidated financial statements
TOUCHSTONE GOLD LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Expressed in U.S. Dollars)
Years ended December 31,
2012 2011
------------------------------
Net loss $ (10,171,565) $ (9,828,749)
Currency translation adjustments (8,578) (47,853)
------------------------------
Comprehensive loss $ (10,180,143) $ (9,876,602)
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------------------------------
See accompanying notes to the consolidated financial statements
TOUCHSTONE GOLD LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Expressed in U.S. Dollars)
Common shares
-------------------------
Share Stock
Number premium option
Note of Shares Dollars reserve reserve
-----------------------------------------------------
December 31,
2010 124,919 $ 104 $ 3,000,001 $ -
Capital re-
organisation 6 66,541,748 3,000,001 (3,000,001) -
Issuance of
common shares 37,037,038 14,371,785 - -
Share-based
compensation
expense - - - 2,493,474
Comprehensive
income - - - -
Net loss - - - -
-----------------------------------------------------
December 31,
2011 103,703,705 17,371,890 - 2,493,474
Common shares
issued in
respect of the
acquisition of
Atlantis 3 59,108,300 11,406,764 - -
Common shares
issued in
respect of the
acquisition of
El Cinco 3 4,089,762 721,553 - -
Units issued in
respect of
private
placement, net
of transaction
cash
transaction
costs 6 34,427,500 4,883,073 - -
Warrants issued
in respect of
private
placement 6 - (525,423) - -
Share-based
compensation
expense 6 - - - 2,383,284
Foreign currency
translation - - - -
Net loss - - - -
-----------------------------------------------------
December 31,
2012 201,329,267 $ 33,857,857 $ - $ 4,876,758
-----------------------------------------------------
-----------------------------------------------------
Accumulated
other
Warrant comprehensive
Note reserve Deficit loss Total
-------------------------------------------------------
December 31,
2010 $ - $ (927,079) $ (19,342) $ 2,053,684
Capital re-
organisation 6 - - - -
Issuance of
common shares 161,920 - - 14,533,705
Share-based
compensation
expense - - - 2,493,474
Comprehensive
income - - (47,853) (47,853)
Net loss - (9,828,749) - (9,828,749)
-------------------------------------------------------
December 31,
2011 161,920 (10,755,828) (67,195) 9,204,261
Common shares
issued in
respect of the
acquisition of
Atlantis 3 - - - 11,406,764
Common shares
issued in
respect of the
acquisition of
El Cinco 3 - - - 721,553
Units issued in
respect of
private
placement, net
of transaction
cash
transaction
costs 6 50,802 - - 4,933,875
Warrants issued
in respect of
private
placement 6 - - - (525,423)
Share-based
compensation
expense 6 - - - 2,383,284
Foreign currency
translation - - (8,578) (8,578)
Net loss - (10,171,565) - (10,171,565)
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December 31,
2012 $ 212,722 $(20,927,393) $ (75,773) $ 17,944,171
-------------------------------------------------------
-------------------------------------------------------
See accompanying notes to the consolidated financial statements
TOUCHSTONE GOLD LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
Note Years ended December 31,
2012 2011
------------------------------
Cash flow from operating activities
Net loss $ (10,171,565) $ (9,828,749)
Non-cash items:
Share-based payment expense 6 2,383,284 2,493,474
Depreciation 112,608 110,634
Foreign exchange loss (51,949) 428,820
Change in fair value of warrants (78,322) -
Adjustments to reconcile net income
(loss) to net cash used in operating
activities
Changes in non-cash operating assets and
liabilities
Accounts receivable (41,526) (36,599)
Prepaid expenses and other current
assets (5,862) 9,726
Trade accounts payable and taxes
payable (534,044) 923,887
Accrued liabilities 131,052 33,924
------------------------------
Net cash used in operating activities (8,256,324) (5,864,883)
------------------------------
Cash flow from investing activities
Purchases of property and equipment (75,598) (500,280)
Asset acquisitions, net of cash
acquired 3 (2,251,269) -
------------------------------
Net cash used in investing activities (2,326,867) (500,280)
------------------------------
Cash flow from financing activities
Issuance of equity, net of transaction
costs 4,933,876 14,533,705
------------------------------
Net cash provided by financing
activities 4,933,876 14,533,705
------------------------------
Effect of exchange rate changes on cash
not held in U.S. dollars 32,910 (461,282)
Net (decrease) increase in Cash and Cash
Equivalents (5,616,405) 7,707,260
Cash and Cash Equivalents, beginning of
period 9,704,345 1,997,085
------------------------------
Cash and Cash Equivalents, end of period $ 4,087,940 $ 9,704,345
------------------------------
------------------------------
See accompanying notes to the consolidated financial statements
TOUCHSTONE GOLD LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars, except per share amounts)
NOTE 1 - NATURE OF OPERATIONS
Touchstone Gold Limited ("Touchstone Gold") and its wholly-owned subsidiaries, which are noted below, (collectively "the Company") is an exploration stage company engaged in the exploration and development of gold properties in Colombia.
Touchstone Gold was incorporated under the laws of the British Virgin Islands on 29 June 2009 and existed under the provisions of British Virgin Islands Companies Act, 2004, as Company number 1536599. On 7 September 2012, after the approval of a resolution by the Company's shareholders, the Company was redomiciled via a continuance of the Company from the British Virgin Islands to the province of Ontario, Canada, where a majority of the Board of Directors and the Company's officers are located. The registered head office of the Company is #200-83 Yonge Street, Toronto, Ontario Canada.
As a result of the acquisition further described in note 3, the wholly-owned direct and indirect subsidiaries controlled by the Company are as follows:
Jurisdiction
------------
Touchstone Atlantis Mining Inc. Canada
Touchstone Gold Holdings S.A. Panama
Touchstone Colombia (foreign branch) Colombia
Placencia Corp. Panama
Saint Miguel Mining S.A.S Colombia
Concesiones United Gold S.A.S Colombia
On June 7, 2011, the Company's directors and shareholders approved a share re-organisation as a result, all per share amounts have been restated to reflect the share re-organisation.
On June 7, 2011, the Company completed a placing of new Ordinary Shares at a price of 27 pence per Ordinary Share, raising a total of approximately GBP 10,000,000 (U.S. $16,442,000). Additionally, 586,106 broker warrants were issued as part of the Placing.
These consolidated financial statements have been prepared using International Financial Reporting Standards ("IFRS") applicable to a going concern, which assumes that assets will be realized and liabilities will be settled in the normal course of business as they become due. Additionally, the consolidated financial statements have been prepared using the historical cost basis except for certain financial instruments, which are measured in accordance with the policies described below. The financial year-end for Touchstone Gold is December 31.
Statement of Compliance: These consolidated financial statements are audited and have been prepared using accounting policies consistent with the International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and Interpretations of the International Financial Reporting Interpretations Committee ("IFRIC").
The consolidated financial statements of the Company for the years ended December 31, 2012 and 2011, have been prepared by management, reviewed by the Audit Committee and approved and authorized for issue by the Board of Directors on April 1, 2013.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING CHANGES AND RECENT ACCOUNTING PRONOUNCEMENTS
SIGNIFICANT ACCOUNTING POLICIES
Functional and presentation currency: All monetary references expressed in the financial statements and the notes thereto are in United States dollars. The functional currency of Touchstone Colombia, Saint Miguel S.A.S and Concesiones United Gold S.A.S is the Colombian peso. The remaining entities in the consolidated group have a functional currency of U.S. dollars. All financial information has been presented in U.S. dollars.
Items included in the financial statements of each of the Company's consolidated entities are measured using the currency of the primary environment in which the entity operates.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of operations and comprehensive income.
The results and financial position of Touchstone Colombia, San Miguel S.A.S and Concesiones United Gold S.A.S are translated as follows:
-- assets and liabilities for each statement of financial position
presented are translated at the closing rate at the date of that
financial period end;
-- income and expenses for each statement of operations and comprehensive
income are translated at average exchange rate, unless the average is
not a reasonable approximation of the cumulative effect of the rates
prevailing on the transaction dates, in which case income and expenses
are translated at the rate on the dates of the transactions;
-- equity transactions are translated using the rate of exchange on the
date of the transactions; and
-- all resulting exchange differences are recognized in Other Comprehensive
Income.
Use of Estimates: The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The assets and liabilities which require management to make significant estimates and assumptions in determining carrying values include, but are not limited to, mineral interests, provision for income taxes and share-based payments.
The areas where management has made significant judgments include:
Reserves and resources
Proven and probable reserves are the economically mineable parts of the Company's measured and indicated mineral resources, demonstrated by a feasibility study. The Company estimates its proven and probable reserves and measured and indicated and inferred mineral resources based on information compiled by appropriately qualified persons. The information related to the geological data on the size, depth shape of the ore body requires complex geological judgments to interpret the data. The estimation of future cash flows based on proven and probable reserves is based on factors, which include but are not limited to, foreign exchange rates, commodity prices, future capital requirements and production costs and geological assumptions and judgments made in estimating the size and grade of the ore body and engineering assumptions based on the mining and processing methods to be used. Changes in proven and probable reserves, measured and indicated and inferred resources may impact carrying values of property plant and equipment and mineral interests and the recognition of deferred tax amounts.
Deferred taxes
The Company recognizes the deferred tax benefit related to deferred income and resource tax assets to the extent recovery is probable. Assessing the recoverability of deferred income tax assets requires management to make significant estimates of future taxable profit and the income tax rate at which the future tax assets will be realized. To the extent that future cash flows, taxable profit and income tax rates differ significantly from estimates, the ability of the Company to realize deferred tax assets could be impacted. In addition, future changes in tax laws could limit the ability of the Company to obtain tax deductions in future periods from deferred income and resource tax assets.
Share-based payments expense
The recognition of share-based payments expense is based on factors which require management to make estimates on factors such as volatility and forfeiture rates. Changes in the estimates may have a material impact on the amount of share-based payments expense.
Basis of consolidation: The consolidated financial statements comprise the accounts of Touchstone Gold, the parent company and its wholly-owned controlled subsidiaries, after the elimination of all material intercompany balances and transactions.
Subsidiaries are all entities (including special purpose entities) over which the Company, either directly or indirectly, has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Where the group does not directly hold more than one half of the voting rights, significant judgment is used to determine whether control exists. These significant judgments include assessing whether the group can control the operating policies through the group's ability to appoint the majority of directors to the board. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group until the date on which control ceases.
The accounts of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Company. A list of subsidiaries are noted below.
Jurisdiction 2012 2011
----------------------------
Touchstone Atlantis Mining Inc. Canada 100% -
Touchstone Gold Holdings S.A. Panama 100% 100%
Touchstone Colombia (foreign branch) Colombia 100% 100%
Placencia Corp. Panama 100% -
Saint Miguel Mining S.A.S Colombia 100% -
Concesiones United Gold S.A.S Colombia 100% -
Touchstone Atlantis Mining Inc. is a wholly owned direct subsidiary, of the Company, which in turn owns 100% of Placencia Corp, which in turn owns Saint Miguel Mining S.A.S and Concesiones United Gold S.A.S.
Touchstone Gold Holdings is a wholly owned direct subsidiary of the Company which directs Touchstone Colombia.
Financial Instruments: Financial instruments are classified into one of the following five categories: fair value through profit or loss assets or liabilities, held to maturity investments, loans and receivables, available for sale financial assets or other financial liabilities. Fair value through profit or loss financial instruments are measured at fair value and all gains and losses are included in net income in the period in which they arise. Available for sale financial instruments are measured at fair value upon initial recognition and at fair value at each reporting period, with revaluation gains and losses included in accumulated other comprehensive income until the instruments are derecognized or impaired. Loans and receivables, investments held to maturity and other financial liabilities are measured at amortized cost using the effective interest method.
The Company's financial instruments consist of cash and cash equivalents accounts receivable, trade accounts payable and accrued liabilities, and derivative liabilities. Cash and cash equivalents are classified as fair value through profit or loss, and are measured at fair value at initial recognition and at each reporting date. Accounts receivable are designated as loans and receivables and accounted for at amortized cost on initial recognition and at each reporting date. Trade accounts payable, accrued liabilities and income taxes payable are classified as other financial liabilities and accounted for at amortized cost upon initial recognition and at each reporting date. The Company's non-functional currency denominated common share purchase warrants are considered derivative instruments and were measured at fair value on initial recognition. Changes in fair value at each reporting date is recognized in the consolidated statement of operations.
Cash and Cash Equivalents: Cash and cash equivalents include demand deposits held with banks and highly liquid investments with remaining maturities of three months or less at acquisition date. For purposes of reporting cash flows, the Company considers all cash accounts that are not subject to withdrawal restrictions or penalties to be cash and cash equivalents.
Property, Plant and Equipment: Property, plant and equipment are stated at historic cost. The Company has the following sub-categories of equipment with useful lives and depreciation methods as follows:
-- Machinery and equipment - 10 years, 10% per year
-- Office equipment - 10 years, 10% per year
-- Computer and communication equipment - 5 years, 20% per year
-- Fleet and transportation equipment - 5 years, 20% per year
The cost of assets sold, retired, or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts. Expenditures for maintenance and repairs are charged to expense as incurred.
Exploration Costs: Exploration costs are incurred in gathering the information necessary to determine whether a particular property can become a commercially viable operating mine and include costs to determine whether a property adjacent to a property with Proven and Probable Reserves has Proven and Probable Reserves, whether Inferred Resources can be classified as Measured and Indicated Resources, or whether Measured and Indicated Resources can be converted to Proven and Probable Reserves. These costs are expensed as incurred. When it has been determined than an exploration property can be economically developed as a result of establishing Proven and Probable Reserves, costs incurred prospectively to develop the property and place it into commercial production are classified as development costs and capitalized as they are incurred until the asset is ready for its intended use.
Costs to acquire mineral properties as part of an asset acquisition are capitalized and represent the property's fair value at the time it was acquired.
Interest cost is capitalized for qualifying assets during the period in which the asset is being installed and prepared for its intended use. Capitalized interest cost is amortized on the same basis as the related asset. No interest costs were capitalized for the periods ended 31 December 2011 and 2010.
Impairment of non-financial assets: The carrying amount of the Company's property plant and equipment is reviewed at a minimum each reporting period to determine if there is any indication of impairment. If indicators of impairment exists, the fair value less costs to sell of the asset is estimated and compared to the carrying value to determine the extent of the impairment and is recorded in the statement of operations and comprehensive income.
The recoverable amount of assets is the greater of an asset's fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
An impairment loss is only reversed if there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount, however, not to an amount higher than the carrying amount that would have been determined had no impairment loss been recognized in previous years.
Income Taxes: Deferred taxation is recognised using the liability method, on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. However, the deferred taxation is not recognised for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred taxation is determined using tax rates (and laws) that have been enacted or substantially enacted by reporting date and are expected to apply when the related deferred taxation asset is realised or the deferred taxation liability is settled.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Loss per Share: The Company calculates the dilutive effect on loss per share based on the use of the proceeds that could be obtained upon exercise of options and warrants. It assumes that the proceeds would be used to purchase common shares at the average market price during the period. For loss per share, the dilutive effect has not been presented, as it would prove to be anti-dilutive. Basic loss per common share is calculated using the weighted-average number of common shares dilutive outstanding during the period. Dilutive loss per share includes the impact of dilutive instruments.
Share-based Payments: The fair value of share options under the employee share incentive schemes and other equity instruments granted to Company's employees is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and expensed over the period during which the employee becomes unconditionally entitled to the equity instruments. The total amount to be expensed is determined by reference to the fair value of the options granted, excluding the impact of any non-market service and performance vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest.
The fair value of the instruments granted is measured using generally accepted valuation techniques, taking into account the terms and conditions upon which the instruments are granted. At each reporting date, the entity revises its estimates of the number of options that are expected to vest based on the non-marketing vesting conditions. It recognises the impact of the revision to original estimates, if any, in the statement of operations and comprehensive income, with a corresponding adjustment to equity. When share options are cancelled by the Company, the unrecognized expense is recognized immediately in the statement of operations. The proceeds received, net of any directly attributable transaction costs, are credited to share capital when the options are exercised.
ACCOUNTING CHANGES
On 1 January, 2012, the Company adopted the amendments required by IFRS 7 "Financial instruments - Disclosures" ("IFRS 7"). The amendments introduce new disclosure requirements for transfers of financial assets including disclosures for financial assets that are not derecognized in their entirety, and for financial assets that are derecognized in their entirety but for which continuing involvement is retained. The adoption of IFRS 7 did not have an impact on the Company's consolidated financial statements.
RECENT ACCOUNTING PRONCOUNEMENTS
The IASB and the International Financial Reporting Interpretations Committee has issued certain pronouncements which will be effective for accounting periods beginning on or after January 1, 2013. Many of these pronouncements are not applicable and have been excluded from the discussion below.
In May 2011, the IASB issued the following IFRS standards and amended standards:
-- IFRS 10 Consolidated Financial Statements,
-- IFRS 11 Joint Arrangements,
-- IFRS 12 Disclosure of Interests in Other Entities,
-- IFRS 13 Fair Value Measurement,
-- IAS 27 Separate Financial Statements, and
-- IAS 28 Investments in Associates and Joint Ventures
IFRS 10 Consolidated Financial Statements ("IFRS 10") will replace portions of IAS 27 Consolidated and Separate Financial Statements and interpretation SIC-12 Consolidation - Special Purpose Entities. IFRS 10 builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements. The standard provides additional guidance to assist in determining control where this is difficult to assess. Under IFRS 10, an investor is deemed to control an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those rights through its power over the investee.
IFRS 11 Joint Arrangements applies when accounting for interests in joint arrangements where there is joint control. Joint arrangements would be classified as either joint operations or joint ventures. The structure of the joint arrangement would no longer be the most significant factor when classifying the joint arrangement as either a joint operation or a joint venture. The option to account for joint ventures (previously called jointly controlled entities) using proportionate consolidation would be removed and equity accounting would be required. Venturers would transition the accounting for joint ventures from the proportionate consolidation method to the equity method by aggregating the carrying values of the proportionately consolidated assets and liabilities into a single line item.
IFRS 12 Disclosure of Involvement with Other Entities, includes disclosure requirements about subsidiaries, joint ventures, and associates, as well as unconsolidated structured entities and replaces existing disclosure requirements.
IFRS 13 Fair Value Measurement will generally converge the IFRS and US GAAP requirements for how to measure fair value and the related disclosures. IFRS 13 establishes a single source of guidance for fair value measurements, when fair value is required or permitted by IFRS.
IAS 27 Separate Financial Statements ("IAS 27"): As a result of the issue of the new consolidation suite of standards, IAS 27 has been reissued as the consolidation guidance will now be included in IFRS 10. IAS 27 will now only prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements.
IAS 28 Investments in Associates and Joint Ventures ("IAS 28") - As a consequence of the issue of IFRS 10, IFRS 11 and IFRS 12, IAS 28 has been amended and will provide the accounting guidance for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.
These amendments are effective for annual periods beginning on or after January 1, 2013 and will be adopted by the Company. The Company expects no impact on the financial statements from the adoption of the pronouncements noted above. However, the Company will include additional disclosures as required and applicable by the new pronouncements.
NOTE 3 -ACQUISITIONS
Atlantis
On 10 September 2012, the Company completed the acquisition of all of the issued and outstanding common shares of Atlantis Gold Mines Corp. ("Atlantis"). Atlantis was the owner of certain gold exploration projects, located in Colombia.
The acquisition was completed pursuant to a three-cornered amalgamation, whereby a wholly-owned subsidiary of the Company amalgamated with Atlantis to form Touchstone Atlantis Mining Inc. All of the holders of Atlantis Shares received one common share of the Company for each Atlantis Share held. The Company issued a total of 59,108,300 shares in respect of the acquisition. Additionally, the Company assumed 6,975,000 Atlantis warrants outstanding. The warrants are exercisable for one common share of the Company at an exercise price of C$0.60 and expire on 15 November 2013.
The Atlantis portfolio encompasses a similar geological setting to the Company's Rio Pescado project. Previous exploration has identified several prospective targets for gold mineralization.
The cost of the acquisition is noted in the table below.
----------------------------------------------------------------------------
Consideration
----------------------------------------------------------------------------
Common shares issued $ 11,406,764
Transaction costs 1,959,170
----------------------------------------------------------------------------
Total consideration $ 13,365,934
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net assets acquired
----------------------------------------------------------------------------
Cash and cash equivalents $ 4,637
Other current assets 44,425
Equipment 94,711
Mineral interests 13,632,774
Accounts payable (374,887)
Fair value of warrants assumed (35,726)
----------------------------------------------------------------------------
Total net assets $ 13,365,934
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Bolivar
On 5 March 2012, the Company entered into an option agreement with a private company to acquire a 90% interest in four mining concessions, over a total area of 57 square kilometres that together comprise the important Santa Rosa Project located in the well-known gold mining district in the south of the Bolivar Department, Colombia.
The material terms of the Agreement are summarised below:
-- Initial payment of US$59,000 to the current concession holders, a non-
related private company, upon signing the option agreement;
-- An additional payment of US$50,000 upon the mining concessions being
registered to Touchstone Colombia on the National Mining Registry of
Colombia;
-- Four annual payments of US$327,750 that will commence one year after the
mining concessions have been registered;
-- US$1,000,000 in exploration expenditures on the property before earning
the 90% interest;
-- The Company has secured a right of first refusal to acquire the
remaining 10% of the Santa Rosa Project.
El Cinco
On 5 November 2012, the Company completed the acquisition of a 60% interest in the El Cinco property, through a wholly-owned subsidiary of the Company, which took effect on 2 November 2012, through the issue of 4,089,762 shares and an issue of a short-term convertible unsecured promissory note to the vendor for C$250,000, which was repaid by December 31, 2012. The total cost of the acquisition was $1,020,728.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, NET
Machinery Computer and Fleet and
and Office communication transportation
Cost equipment equipment equipment equipment Total
---------------------------------------------------------------
Balance at
December 31,
2010 $ 26,518 $ - $ 22,259 $ 60,722 $ 109,499
Additions 81,458 84,517 53,833 280,472 500,280
Foreign
exchange and
other (4,001) (3,909) (2,686) (13,508) (24,104)
---------------------------------------------------------------
Balance at
December 31,
2011 $ 103,975 $ 80,608 $ 73,406 $ 327,686 $ 585,675
Additions 3,256 28,609 43,150 583 75,598
Acquisitions - 6,140 21,999 66,572 94,711
Foreign
exchange and
other 9,411 11,213 1,023 19,987 41,634
---------------------------------------------------------------
Balance at
December 31,
2012 $ 116,642 $ 126,570 $ 139,578 $ 414,828 $ 797,618
---------------------------------------------------------------
---------------------------------------------------------------
Machinery Computer and Fleet and
Accumulated and Office communication transportation
depreciation equipment equipment equipment equipment Total
---------------------------------------------------------------
Balance at
December 31,
2010 $ (1,316) $ - $ (3,685) $ (5,914) $ (10,915)
Depreciation (12,216) (23,816) (26,863) (47,739) (110,634)
Foreign
exchange and
other 576 1,101 1,275 2,261 5,213
---------------------------------------------------------------
Balance at
December 31,
2011 $ (12,956) $ (22,715) $ (29,273) $ (51,392) $(116,336)
Depreciation (11,054) (14,894) (15,200) (71,460) (112,608)
Foreign
exchange (1,432) (2,436) (1,572) (4,074) (9,514)
---------------------------------------------------------------
Balance at
December 31,
2012 $ (25,442) $ (40,045) $ (46,045) $ (126,926) $(238,458)
---------------------------------------------------------------
---------------------------------------------------------------
Plant, and
equipment,
net
December 31,
2011 $ 91,019 $ 57,893 $ 44,133 $ 276,294 $ 469,339
Balance at
December 31,
2012 $ 91,200 $ 86,525 $ 93,533 $ 287,902 $ 559,160
NOTE 5 - RELATED PARTY TRANSACTIONS
Compensation of Directors and management
For the years ended December 31, 2012, and 2011, the Company paid $283,164 and $182,159, respectively, in salaries and consulting costs to the Chief Executive Officer and Chief Financial Officer of the Company.
For the years ended December 31, 2012 and 2011, the Company incurred $1,396,760 and $1,418,460, respectively in geologic consulting costs and supply reimbursements to a Company owned by and controlled by an officer of the Company. These transactions were in the normal course of operations and all transactions are measured at the exchange amount, which is the amount agreed to by the related parties and is recorded in professional and consulting fees. A total of $55,723 was owing at December 31, 2012 (December 31, 2011 - $397,605).
For the years ended December 31, 2012 and 2011, the Company paid $117,673 and $59,898, respectively in fees to a Director of the Company.
A total of $1,354,746 and $588,057 in share-based payment expense was recognized in respect of options granted to Officers, Directors and employees of the Company for the years ended December 31, 2012 and 2011, respectively.
Commitments
In 2009, the Company entered into a contract with an employee of the Company for the purchase of a mining interest payable over a five year period as of the date of the registration of the mining interest on behalf of the Company. The total payable under the contract is $587,500. Approximately $50,000 has been paid under this contract.
Under the contract, the Company reserves the right to continue the agreement based on the results obtained from exploration, economical assessment and construction. At any time while the contract is in force the agreement may be terminated by the Company with no further payments required.
NOTE 6 - SHARE CAPITAL AND CAPITAL MANAGEMENT, STOCK OPTIONS AND SHARE-BASED PAYMENTS
Share capital
The Company is authorized to issue an unlimited number of shares with no par value.
Private Placement
In December 2012, the Company raised approximately $5.5 million in gross proceeds through the issuance of 34,427,500 units as a result of a private placement. Each Unit consists of one common share and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder thereof to acquire one additional common share of Touchstone at an exercise price of 15 pence per share until December 6, 2014. Additionally, as part of the private placements a total of 1,664,375 warrants ("broker warrants") were issued to the agents and arm's length parties. The broker warrants have the same terms as the common share purchase warrants.
The increase to share capital as a result of the private placement is as follows:
----------------------------------------------------------------------------
Gross proceeds $ 5,543,495
Cash transaction costs (609,619)
Fair value of broker warrants issued (50,803)
Fair value of warrants issued (525,423)
----------------------------------------------------------------------------
Increase to share capital 4,357,650
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Share reorganization and issuance of common shares
In June 2011, the shareholders of the Company passed a written resolution to approving the following:
-- consolidation of all of the issued and outstanding Ordinary shares of
the Company on the basis of one post consolidation share for each 40
pre-consolidation shares. The result of the resolution was that the
issued and outstanding shares was reduced from 124,919 to 3,123;
-- immediately following the consolidation, reclassification of the 3,123
ordinary shares into 2,630 A shares and 493 B shares;
-- immediately following the share consolidation and reclassification, the
issue of 13,307 bonus A shares for each existing A share held and 64,218
bonus B shares for each existing B share, the result of which was that
the aggregate number of shares issued and outstanding was then
66,666,667;
-- immediately following the bonus issue, the reclassification of both the
A shares and B shares into 66,666,667 Ordinary Shares; and
-- cancellation of the warrants issued in October 2010.
As a result of the resolution described above, the share reserve premium made of $2,109,324 on the shares issued in October 2011 and $890,677 allocated to the warrants issued in October 2011 was reclassified to share capital.
The following tables denote the movement in share capital and warrants to December 31.
Common shares
-----------------------------------------
Share Share premium
Shares capital reserve
-----------------------------------------
31 December 2010 124,919 $ 104 $ 2,109,324
Share re-organization 66,541,748 3,000,001 (2,109,324)
Issuance of common shares - initial
public placing 37,037,038 14,371,785 -
-----------------------------------------
December 31, 2011 103,703,705 $ 17,371,890 $ -
Issued in respect of the
acquisition of Atlantis 59,108,300 11,406,764
Issued in respect of the
acquisition of El Cinco 4,089,762 721,553
Private placement - December 6,
2012 34,427,500 4,357,650
-----------------------------------------
December 31, 2012 201,369,267 $ 33,857,857
-----------------------------------------
-----------------------------------------
Warrants
---------------------------------------
Warrant
Expiry Warrants reserve
----------------------------
31 December 2010 19,724 890,677
Share re-organisation (19,724) (890,677)
Issuance of warrants 586,106 161,920
----------------------------
December 31, 2011 Jun. - 2014 586,106 $ 161,920
Assumed as part of the acquisition
of Atlantis Nov. - 2013 6,975,000 -
Broker warrants issued in respect of
private placement Dec. - 2014 1,664,375 50,802
Issued in respect of the private
placement Dec. - 2014 17,213,750 -
----------------------------
December 31, 2012 26,439,231 $ 212,722
----------------------------
----------------------------
The warrants assumed as part of the acquisition of Atlantis have an exercise price of C$0.60, expire on November 15, 2013 and are denominated in Canadian dollars. As the Company's functional currency is the US dollar, the fair value of the warrants is reflected as a derivative liability in the statement of financial position. The warrants were valued using a Black-Scholes valuation with a risk free interest rate of 0.5% an expected life of 1.2 years, a share price of 12.05p and a volatility of 65%, which is based on a historic volatility of the Company's shares. Changes in the fair value of the warrants are reflected in the statement of operations.
The warrants issued in respect of the private placement have an exercise price of 15p, expire on December 6, 2014 and are denominated in pound sterling. As the Company's functional currency is the US dollar, the fair value of the warrant is reflected as a derivative liability in the statement of financial position. The warrants were valued using a Black-Scholes valuation with a risk free interest rate of 0.5% an expected life of 2 years, a share price of 9p and a volatility of 65%, which is based on a historic volatility of the Company's shares. Changes in the fair value of the warrants are reflected in the statement of operations.
The broker warrants issued to the agents and other arm's length parties in respect of the private placement have an exercise price of 15p, expire on December 6, 2014. The broker warrants issued in respect of the private placement were valued using a Black-Scholes valuation with a risk free interest rate of 0.5% an expected life of 2 years, a share price of 9p and a volatility of 65%, which is based on a historic volatility of the Company's shares.
The Company has recorded a warrant reserve on the statement of financial position, which represents the allocated fair value of the warrants which are determined to be equity instruments.
Stock options
During the year ended December 31, 2012, a total 12,784,043 options were cancelled and as a result, the associated expense with the options that had not been previously recognized of $506,454 was recognized in the statement of operations.
In December 2012, the Company granted 16,066,840 options primarily to Directors, Officers, employees and consultants of the Company. The options have an exercise price of 11p, with half of the options vesting immediately and the remaining half vesting on the one year anniversary of the grant date and have no other vesting conditions.
The options were valued using a Black-Scholes valuation with a weighted average risk free rate of 0.5% an expected life of ten years, an average share price of 9p and a volatility of 65%, which is based on the historic volatility of the Company's shares. The fair value of one option was approximately 6p.
As at December 31, 2012, the following options were outstanding.
Exercise Price Fair value Expiration
Number of Options per Option per Option Date
----------------------------------------------------------------------------
16,066,840 11p 6p December 2022
----------------------------------
16,066,840
A total of 8,033,420 options were exercisable at December 31, 2012.
The Company has recorded a warrant reserve on the statement of financial position, which represents the allocated fair value of the stock options, which are determined to be equity instruments.
Capital management
The Company includes equity, comprised of issued Ordinary Shares, options and warrants and deficit, in the definition of capital. The Company's primary objectives when managing capital are to safeguard the Company's ability to fund the exploration and development of its gold properties in Colombia.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size and stage of the Company is reasonable. The Company is not subject to other externally imposed capital requirements.
NOTE 7 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS
The Company has exposure to liquidity risk and foreign currency risk. The Company's risk management objective is to protect cash flow and, ultimately, shareholder value. Risk management strategies, as discussed below, are designed and implemented to ensure the Company's risks and the related exposure are consistent with the business objectives and risk tolerance.
Liquidity Risk: Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages its liquidity by ensuring that there is sufficient capital to meet short and long-term business requirements, after taking into account cash flows from operations and the Company's holdings of cash, cash equivalents, and short-term investments. The Company also strives to maintain sufficient financial liquidity at all times in order to participate in investment opportunities as they arise, as well as to withstand sudden adverse changes in economic circumstances.
The Company's primary source of additional liquidity is financing transactions. The Company's primary use of cash to December 31, 2012, included transaction costs in respect of the acquisition of Atlantis and exploration and evaluation expenses at the Rio Pescado project as well as general and administrative expenses.
The following are the maturities, excluding interest payments, reflecting undiscounted future cash disbursements of the Company's financial liabilities based on the year ending December 31, 2012.
2014
2013 and later
----------------------------
Trade accounts payable $ 804,938 $ -
Taxes payable 55,131 -
Accrued liabilities 177,441 -
----------------------------
$ 1,037,510 $ -
----------------------------
----------------------------
Additionally, the Company has certain discretionary payments related to its properties, which will have to be made to maintain an interest in those properties.
Management forecasts cash flows for its current and subsequent fiscal years to predict future financing requirements. Future requirements may be met through a combination of credit and access to capital markets. The Company's cash requirements are dependent on the level of operating activity, a large portion of which is discretionary. Should management decide to increase its operating activity more funds, then what is currently in place would be required. It is not possible to predict whether financing efforts will be successful or sufficient in the future. At December 31, 2012, the Company had $4,087,940 (December 31, 2011 - $9,704,345) in cash and cash equivalents.
Currency risk: The Company's expenditures are incurred in Colombian peso, British pounds, U.S. dollars and Canadian dollars. The results of the Company's operations are subject to currency transaction risk. The Company mitigates foreign exchange risk through forecasting its foreign currency denominated expenditures and maintaining an appropriate balance of cash in each currency to meet the expenditures. As the Company's reporting currency is the U.S. dollar, fluctuations in the Colombian peso, British pound and Canadian dollar relative to the U.S. dollar will affect the results of the Company. A 10% change in foreign exchange rates would have an impact of approximately $323,000.
Credit risk: Credit risk is the risk of loss associated with a counterparty's inability to fulfill its payment obligations. As at December 31, 2012 the Company's credit risk is primarily attributable to cash. At December 31, 2012, the majority of the Company's cash was held with a reputable bank with a Standard and Poor's investment rating of AA-.
Interest rate risk: Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company's most significant interest rate risk arises from its investments in cash equivalents. However, the maturity on these investments is less than ninety days, thereby mitigating the exposure to the impact of changing interest rates. As at December 31, 2012, the Company had $100,000 in Banker's Acceptances. The effect of a 1% increase in interest rates would have resulted in an immaterial impact in forecasted interest income.
Fair Values: The Company's cash and cash equivalents, receivables and accounts payables and accrued liabilities all had fair values which approximate their carrying values, are expected to be realized within the next financial year and are considered Level 2 in the fair value hierarchy. The fair value of the warrant liability is based on quoted market prices for comparable contracts and represents the amount the Company would have received from, or paid to, a counterparty for an equivalent contract. The warrant liability is considered Level 2 in the fair value hierarchy.
NOTE 8 - INCOME TAXES
During the year ended December 31, 2011, Touchstone Gold Limited became a Canadian resident for tax purposes.
No income tax expense was recognized for the years ended December 31, 2012 and 2011.
A reconciliation of the differences between the statutory Canadian income tax rate and the Company's effective tax rate is as follows:
For the year ended
December 31,
------------------------------
2012 2011
------------------------------
Federal tax (benefit) provision at statutory
rates $ (2,694,194) $ (2,776,621)
Permanent items
Non-deductible items 606,804 306,309
Share-based compensation 631,570 704,406
Unrealized losses and other permanent
differences 1,654 742
Foreign tax rate differential (242,572) (129,503)
------------------------------
Total current year permanent items (1,696,738) (1,894,667)
Tax assets not recognized 1,696,738 1,894,667
------------------------------
$ - $ -
------------------------------
------------------------------
During the year ended December 31, 2012, the Company's long-term Canadian effective tax rate was decreased to 26.5% from 28.5% for the year ended December 31, 2011.
The total temporary differences for which a benefit has not been recognised is $16,024,313 (December 31, 2011 - $9,773,456).
The Company has $1,040,000 in non-capital losses to apply against future taxable income in Canada which expire in 2030, $2,810,000 in non capital losses which expire in 2031 and $3,311,000 which expire in 2032.
NOTE 9 - LOSS PER SHARE
The following table details the weighted average number of outstanding common shares for the purposes of computing basic and diluted loss per common share for the years ended December 31, 2012 and 2011.
For the years ended
December 31,
------------------------------
2012 2011
------------------------------
Weighted average shares outstanding - basic 124,768,852 87,671,234
Dilutive effect of share options and warrants - -
------------------------------
Weighted average shares outstanding - diluted 124,768,852 87,671,234
Net loss $ (10,171,565) $ (9,828,749)
------------------------------
Net loss per share - basic $ (0.08) $ (0.11)
Net loss per share - diluted $ (0.08) $ (0.11)
------------------------------
------------------------------
As a result of the losses for the years ended December 31, 2012 and 2011, there is no dilutive effect of options and warrants.
NOTE 10 - SEGMENT INFORMATION
The Company operates in one reportable operating segment, being the development of mineral properties in Colombia. The Company also has an administrative office in Toronto, Canada. In order to determine reportable operating segments, the chief operating decision maker reviews various factors including geographical location, quantitative thresholds and managerial structure. Currently the Company's reportable segment is geographic. Segmented information is as follows:
As at December 31,
Total assets 2012 2011
------------------------------
Colombia $ 14,440,020 $ 635,227
Corporate 5,024,488 9,581,156
------------------------------
Total $ 19,464,508 $ 10,216,383
------------------------------
------------------------------
Years ended December 31,
Net loss 2012 2011
------------------------------
Colombia $ (6,282,815) $ (5,691,618)
Corporate (3,888,750) (4,137,131)
------------------------------
Total $ (10,171,565) $ (9,828,749)
------------------------------
------------------------------
As at December 31, 2012, the total corporate liabilities amounted to $1,363,473 (December 31, 2011 - $497,312).
The amounts reported above are allocated based on the location where the amounts are incurred.
NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES
In 2009, the Company entered into a contract with an employee of the Company for the purchase of a mining interest payable over a five year period as of the date of the registration of the mining interest on behalf of the Company. The total payable under the contract is $587,500 of which approximately $50,000 has been paid by December 31, 2012.
In 2009, the Company entered into a contract for the purchase of a mining interest payable over a five year period as of the date of the registration of the mining interest on behalf of the Company. The total payable under the contract is $2,000,000 of which approximately $250,000 has been paid by December 31, 2012.
Under the contract, the Company reserves the right to continue the agreement based on the results obtained from exploration, economical assessment and construction. At any time while the contract is in force the agreement may be terminated by the Company with no further payments required.
The Company has additional payments related to the Santa Rosa project as noted in note 3.
Contacts:
Touchstone Gold Limited
Elina Chow
VP, IR & Corporate Communications
+1.416.845.8495
info@touchstonegold.com
www.touchstonegold.com