10. Long-Term Debt Obligations

 

Long-term debt obligations at September 30, 2012 and December 31, 2011 consisted of the following:

 

Note Description		2012				2011
Note Payable (Auramet Facility)		$	5,100,766			$	-
Note Payable (Caterpillar Equipment Facility)			4,875,552				-
Note Payable (Dayton Property "Golden Goose")			2,074,062				-
Note Payable (Donovan Property)			655,965				680,882
Note Payable (Gold Hill Hotel)			318,177				330,613
Note Payable (White House)			298,010				-
Note Payable (Railroad & Gold Property)			235,290				-
Notes Payable - Other			525,114				425,586
Subtotal			14,082,936				1,437,081
Less current portion			(7,431,601	)			(138,245	)
Long-term portion of long-term debt obligations		$	6,651,335			$	1,298,836

 

In January 2012, the Company finalized the purchase of the Dayton property, effectively purchasing the four patented lode claims totaling 95 acres known as the "Dayton". These mineral claims are contiguous with our Spring Valley mineral holdings. The purchase price was $3,000,000 plus a 3% net smelter royalty. In addition, the net smelter royalty will be reduced by 75% until the Company receives credit through the reduction of net smelter royalties for the $3,000,000 purchase price. The purchase price consisted of a $500,000 cash payment. The majority of the purchase price was financed through the issuance of a $2.5 million note payable. The note bears interest at 0% and is payable in quarterly installments of $50,000 increasing to $125,000 in October 2013 with a balloon payment for the remaining principal due on or before August 1, 2017. The note is secured by a first deed of trust on the land. The note has been recorded at a discount using a discount rate of 5.0%. At September 30, 2012, the note payable was net of imputed interest of $325,938.

 

In March 2012, the Company finalized the purchase of the Railroad & Gold property. A portion of the purchase price was financed through the issuance of a $240,000 note payable. The note bears interest at 4.5% and is payable in monthly installments of $1,835 with the final remaining principal payment due on or before April 1, 2015. The note is secured by a first deed of trust on the land.

 

In April 2012, the Company purchased the White House property. The purchase price consisted of a $100,000 cash payment and the issuance of a $300,000 note payable. The note bears interest at 4.5% and is payable in monthly installments of $1,520 with a final remaining principal payment due on April 1, 2017. The note is secured by a first deed of trust on the land.

 

In July 2012, the Company entered into a Master Loan and Security Agreement and other arrangements with Caterpillar Financial Services Corporation (the "Cat Equipment Facility") pursuant to which the Company may borrow up to $5 million secured by certain equipment of the Company. As of September 30, 2012, the Company had borrowed $5 million under the Cat Equipment Facility. The Cat Equipment Facility bears interest at a rate of 5.85% with a term of 30 months except in the event of a default, including the occurrence of certain liquidity events, in which case the principal balance will bear interest at a rate of the lesser of 18% per annum or the highest applicable rate allowed by law.

 

In July 2012, the Company entered into an agreement with Resource Income Fund ("RIF"), with Auramet Trading, LLC ("Auramet") acting as gold agent, pursuant to which the Company may borrow up to $5 million outstanding at any one time (the "Auramet Facility"). The Company's obligations under the Auramet Facility are secured by a security interest in all personal property of the Company and certain real estate owned by the Company within the Company's starter mine (the "Starter Mine Patents"). The proceeds will be repaid through the delivery of 3,720 ounces of gold payable in 12 semi-monthly deliveries of 310 ounces each beginning February 2013 and ending July 2013, or December 2013, if any amounts are redrawn under the agreement. The agreement is non-interest bearing except in the event of a default, in which case the balance would then bear interest at the lesser rate of 15% per annum or the highest applicable rate allowed by law. In connection with entry into the Auramet Facility, the Company also entered into a purchase and sale agreement with Auramet, and the Company entered into a trading agreement the terms of which will govern all transactions of metals between Auramet and the Company. The Company drew down $5 million under the agreement in July 2012. The proceeds from the agreement have been recorded using an imputed interest rate of approximately 24%. The agreements contain a covenant that require the Company to maintain a minimum liquidity balance of $3 million (including cash and cash equivalents and short term securities). The agreements additionally contain customary representations, warranties, affirmative covenants, negative covenants, and events of default, as well as conditions to borrowings.

 

In connection with the Auramet Facility, the Company granted RIF a call option to purchase 5,950 ounces of gold at a strike price of $2,000 per ounce, exercisable on, and expiring on, July 24, 2013. The value of the option of $124,691 was accounted for as a reduction to the debt proceeds and will be amortized as interest expense over the term of the agreement. Additionally, the Company purchased an option to put 10,000 ounces of gold to Auramet at a strike price of $1,250 per ounce for $172,500. The put option expires on January 29, 2013. Each of these options has been recognized in the accompanying condensed consolidated balance sheets at fair value as a derivative asset or liability by the Company. Changes in the fair value of these derivatives have been recognized currently within the condensed consolidated statements of operations.

 

As the Auramet Facility is repaid in ounces of gold, the Company has recorded an embedded forward derivative that has been recognized as a derivative asset or liability based on changes in the forward prices of gold as of each measurement date. Changes in the fair value of this derivative have been recognized currently within the condensed consolidated statements of operations. At September 30, 2012, this forward derivative liability was valued at $716,000.

 

In the nine months ended September 30, 2012, we purchased various additional properties, plant and equipment, and mineral rights and properties of which $166,400 was paid via the issuance of notes included in the Notes Payable - Other category in the table above.