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Annual Report 2012 Annual Report 2012 Document Transcript

  • TSX:CRJ | NYSE AMEX: CGR TSX:CRJ | NYSE MKT: CGR
  • Annual Report 2011 1 Annual Report 2012 1
  • 2 TSX:CRJ | NYSE AMEX: CGR 2 TSX:CRJ | NYSE MKT: CGR
  • Annual Report 2011 3 Annual Report 2012 3
  • 4 TSX:CRJ | NYSE MKT: CGR
  • Annual Report 2012 5
  • Annual Report 2011 101 6 TSX:CRJ | NYSE MKT: CGR
  • MANAGEMENT’S DISCUSSION AND ANALYSISThe following Management’s Discussion and Analysis (“MD&A”) of the consolidated operating andfinancial performance of Claude Resources Inc. (“Claude” or the “Company”) for the years endedDecember 31, 2012 and 2011 is prepared as of March 27, 2013. This discussion is the responsibilityof Management and has been prepared using International Financial Reporting Standards (“IFRS”),as issued by the International Accounting Standards Board. This discussion should be read inconjunction with the Company’s audited consolidated financial statements and notes thereto. TheBoard of Directors has approved the disclosure presented herein. All amounts referred to in thisdiscussion are expressed in Canadian dollars, except where otherwise indicated.OVERVIEWClaude Resources Inc., incorporated pursuant to the Canada Business Corporations Act, is a gold producerwith shares listed on both the Toronto Stock Exchange (TSX-CRJ) and the NYSE MKT (NYSE MKT-CGR). The Company is also engaged in the exploration and development of gold mineral reserves andmineral resources. The Company’s entire asset base is located in Canada.The Company’s revenue generating asset is the 100 percent owned Seabee Gold Operation, located innorthern Saskatchewan, which includes 43,900 acres (17,750 hectares) and is comprised of five mineralleases and extensive surface infrastructure. Claude also owns 100 percent of the Amisk Gold Project innortheastern Saskatchewan. The Amisk Gold Project is located 20 kilometres southwest of Flin Flon,Manitoba and hosts the Amisk Gold Deposit and a large number of gold occurrences and prospects. At99,800 acres (40,400 hectares), this gold and silver exploration property is one of the largest land positionsin the Flin Flon mineral district. Claude also owns 100 percent of the Madsen Property located in the RedLake gold camp of northwestern Ontario. The Madsen Project comprises over 10,000 acres (4,000hectares) and boasts historical production in excess of 2.4 million ounces, making it the third largest goldproducer in the Red Lake camp in Ontario, Canada. Infrastructure includes a fully functional 500 ton perday mill, a 4,125 foot deep shaft and permitted tailings facility. (1)The Company’s Seabee, Amisk and Madsen properties contain large, long life mineral resources in thepolitically safe jurisdiction of Canada. All three properties, and their related deposits, contain over onemillion ounces of gold in the ground inventory and have significant leverage to the price of gold andprovide valuable long-term opportunities for the Company and its shareholders. Management intends tofurther develop shareholder value by maintaining and advancing these projects in a financially prudentmanner, which will include the monitoring of the attractiveness of these projects and the evaluation ofalternatives to improve their economics.GOING CONCERNThe Company’s consolidated financial statements have been prepared on the assumption that the Companywill continue as a going concern and realize its assets and discharge its liabilities in the normal course ofbusiness, which assumes the Company will be able to meet the mandatory debenture repayment comingdue on May 23, 2013 (Note 11). As at December 31, 2012, the Company has a working capital deficiencyof $4.1 million. The working capital deficiency results primarily from the Company’s debenturesamounting to $9.7 million (Note 11) that are classified as a current liability as their contractual repaymentsterms are due in less than one year.As a part of the Company’s plan to refinance the outstanding debenture obligations, the Company,subsequent to December 31, 2012, executed a non-binding term sheet with Crown Capital Partners Inc.(“CCP”) for an additional long-term debt facility of $25.0 million (Note 22). The Company is currently infinal negotiations to close this new debt facility which will provide liquidity for the repayment of theoutstanding debentures as they come due on May 23, 2013. There can be no assurance that the Companywill be able to finalize and close the debt facility at the terms specified in the non-binding term sheet, or atall. The uncertainty of closing the new debt facility to refinance the Company’s working capitaldeficiency, attributable to the debenture repayment requirement in May 2013, results in a materialAnnual Report 2012 7
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 2Claude Resources Inc.uncertainty and therefore casts substantial doubt as to the Company’s ability to continue as a goingconcern. If the Company is unable to finalize and close the debt facility, it would be required to obtainadditional sources of financing (debt or equity).The Company’s financial statements do not reflect adjustments that would be necessary if the goingconcern assumption were not appropriate. If the going concern basis was not appropriate for these financialstatements, then adjustments would be necessary to the carrying value of assets and liabilities, the reportedrevenues and expenses, and the statement of financial position classifications used.PRODUCTION, EXPLORATION, AND FINANCIAL HIGHLIGHTSSeabee Gold Operation Production• Production: 49,570 ounces produced (2011: 44,756 ounces produced) and 48,672 ounces sold(2011: 44,632 ounces sold). The increase in ounces sold and in average realized price per ounce,partially offset by increased production costs, has positively impacted net cash margin per ouncesold year over year. For fiscal 2013, the Company is forecasting production of 50,000 to 54,000ounces. Claude expects significant reduction in total Company expenditures which is largelyattributable to the completion of major upgrades to the Seabee Operations (including equipmentand facilities) in 2012, major projects being completed and a reduced capital spend in 2013 ($12.4million in 2013; $27.9 million in 2012). After achieving a record mill throughput of 275,235tonnes in 2012, the Company is forecasting that this trend will continue in 2013 with productionand milling of approximately 300,000 tonnes.• Seabee Mine Shaft Extension Project: After a 20 day shutdown, the shaft resumed hoisting orefrom the 980 metre level early in the first quarter of 2013. The reduction of trucking distance andore handling is anticipated to result in lower diesel consumption, reduced maintenance costs andimproved ventilation. Overall, Seabee Deep and L62 mining costs are expected to improve by asmuch as 10 percent per tonne.• L62 Zone: has been accessed and development is active on three levels. Development tonnagewas accessed during the third quarter and production tonnage commenced during the fourthquarter.• Development: $18.6 million was spent on underground development, including access to the L62Zone and advancement towards the Santoy Gap, to increase the number of working faces in 2013.ExplorationMineral Reserves and Mineral Resources:• During 2012, the Company was able to effectively upgrade nearly half of the Santoy Gap inferredresource into the indicated category while continuing to grow the deposit (which was expanded by29 percent and observed a four percent increase in grade). Furthermore, the infill drill programdemonstrated that a high grade core exists with widths of up to 20 metres. The Santoy Gapdeposit, part of the Santoy Mine Complex, represents a great opportunity for the Company due toits proximity to permitted mine infrastructure, low development cost and near-term productionpotential.• Proven and Probable Mineral Reserves at December 31, 2012 were 311,100 ounces of gold.Measured and Indicated (“M&I”) Mineral Resources at December 31, 2012 were 344,200 ouncesof contained gold. The Santoy Gap deposit contributed 281,200 ounces of this total.Seabee Gold Operation:• Approximately 41,000 metres of regional drilling and 60,000 metres of underground drilling werecompleted during 2012. The Company’s focus was on L62 and Santoy Gap deposit.• Exploration at Santoy Gap was ongoing with one rig performing infill and step-out drilling.Santoy Gap drill results released during the fourth quarter extended the mineralized system down-dip to 650 metres depth and along strike to the south toward the Santoy 8 deposit within the8 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 3Claude Resources Inc.Santoy Mine Complex. In addition, the program discovered a sub-parallel lens to the Santoy Gap,approximately 150 metres to the east. Drill intercepts released during the fourth quarter continueto affirm the high prospectivity of the Santoy Regional Shear Zone, hosting multiple deposits overa three kilometre strike length. Results from this drilling are included in the 2012 resource updatereleased during the first quarter of 2013.• Future exploration will focus on evaluating the down-plunge extension of the Santoy Gap andSantoy 8 deposits, expanding recently discovered parallel zones near Santoy and on initial drilltesting of several near-Seabee targets. Infill drilling at Santoy Gap, which will begin in the firsthalf of 2013, will also be prioritized to convert additional ounces from the inferred to indicatedcategory.Amisk Gold Project:• The 2012 regional exploration campaign at Amisk, which included approximately 2,600 metres ofdrilling, investigated a number of high-priority targets, some of which warrant further testing inthe future. Consultants will be used to re-interpret historical geophysical data in order to rank andprioritize regional drill targets. Regional potential remains high and exploration maturity low.Field work and extensive compilation in 2012 have resulted in the emergence of an extensive listof exploration targets that are currently being prioritized for assessment in 2013.• Advancement of the Preliminary Economic Assessment of the Amisk Gold Project (“AmiskPEA”) will be ongoing in the future.Madsen:• Exploration during 2012 included two underground rigs and one surface rig; 19,000 metres werecompleted. Testing focused on the 8 Zone Trend as well as the McVeigh and Austin Tuff depthcontinuity. Encouraging results were returned from the 2012 program, extending the 8 Zonesystem at depth and confirming conceptual potential beneath the Austin Tuff.• Phase I and II drill programs at Madsen were successful in confirming and extending the 8 Zoneand Austin and McVeigh systems. The Company has demonstrated that Madsen is a high gradegold project that has strong vertical continuity, remaining open at depth and along strike to thenortheast. Based on these results, the significant existing resource base and advancedinfrastructure, the Company believes that the Madsen Project warrants scoping level analysis. Theanalysis will provide key input into a decision to advance Madsen towards a pre-feasibility study(which may include further field and underground work) and Preliminary Economic Assessment(“Madsen PEA”), conceptually evaluating the value and development potential of the project.Financial• Revenue: Sales of 48,672 ounces (2011 – 44,632 ounces) at an average price of $1,660 (U.S.$1,661) generated revenue of $80.8 million, a 16 percent increase revenue over full year 2011.• Canadian dollar cash cost per ounce of gold (2): CDN $997 (U.S. $998) per ounce, 10 percenthigher than the cash cost per ounce of CDN $908 (U.S. $918) reported during the year endedDecember 31, 2011. The increases are primarily a result of the higher direct mining costs,including labour, energy, maintenance and consumable costs, year over year. The Company iscontinuing to pursue best practices with the intention of lowering these costs. In addition toexternal consultants being engaged to provide feedback and recommendations on improvingoperational efficiencies to reduce unit operating costs, the Company anticipates that the continuedcontribution of the Santoy Mine Complex (including the Santoy 8 and Santoy Gap deposits), orefeedstock from the L62 Zone and completion of the shaft extension will be positive catalysts inimproving production and lowering overall unit operating costs at the Seabee Gold Operation.• Net cash margin: Improved to $663 per ounce from $653 per ounce in 2011.• Net profit: $5.6 million, or $0.03 per share (2011 – $9.5 million, or $0.06 per share) after a non-cash deferred income tax expense of $3.0 million.• Cash flow from operations before net changes in non-cash operating working capital (3):$25.8 million, or $0.15 per share (2011 - $22.2 million, or $0.14 per share).Annual Report 2012 9
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 4Claude Resources Inc.OUTLOOKLooking forward, the Company expects to see a return from its investment in capital projects andequipment over the past two years. In the future, Claude will continue to:i) Pursue best practices in the areas of safety, health and the environment in all of ouroperations;ii) Improve unit operating costs at the Seabee Gold Operation by implementing a cash flowoptimization plan designed to maximize cash flow while further developing satellite depositsincluding the Company’s Santoy Gap deposit;iii) Sustain or increase reserves and resources at the Seabee Gold Operation through targetedexploration and development;iv) Advance a scoping level analysis on the Companys 100 percent owned Madsen ExplorationProject; andv) Complete the Amisk PEA on the Amisk Gold Project.Operating and FinancialThe Company completed its shaft extension project at the Seabee Mine in January 2013. During theremainder of 2013, the Company will see the completion of many milestones including:• full production from the L62 deposit;• record mill and mine throughput; and• access to underground drill chambers to explore and infill drill the Santoy Gap deposit.For 2013, forecast gold production at the Seabee Gold Operation is estimated to range from 50,000 ouncesto 54,000 ounces. Unit costs for 2013 are expected to improve slightly from 2012’s unit cash costs of $997CDN per ounce. Quarterly operating results are expected to fluctuate throughout 2013; as such, they willnot necessarily be reflective of the full year average.Access to the Seabee Gold Operation is by fixed wing aircraft to an airstrip located on the property. Largeconsumables (including diesel and propane) and items related to the upgrading of the mining fleet and mineinfrastructure are trucked to the site via a 60 kilometre annual winter ice road from Brabant Lake onHighway 102. The winter ice road is typically in use from January through March. This seasonal trend ofpurchasing and delivering inventories to the Seabee Gold Operation results in significant cash outflowsduring the first quarter of the year.During 2013, the Company expects 350 to 400 semi-trailer loads (2012 winter road – over 500 semi-trailerloads), a result of improved operating effectiveness and fewer capital projects in 2013. The Company hasalso benefited from lower prices on several of its consumable inventory items, year over year.At current gold prices and forecast production, Management believes that operating cash flows, in additionto the increased credit facilities negotiated during the first quarter of 2013, will be sufficient to fund the2013 Winter Ice Road resupply requirements and further development opportunities at the Seabee GoldOperation. With respect to the Company’s outstanding debentures that mature in May of 2013, theCompany believes that the closing of the debt financing announced in January 2013 will provide sufficientfunding for the redemption.CapitalDuring 2013, capital expenditures are expected to include continued investment and expected upgrades atthe Seabee Gold Operation.Capital expenditures at the Seabee Gold Operation in 2013 are estimated to total approximately $31.9million, funded from a combination of cash on hand, operating cash flow and demand loans. Thisreduction from 2012 is due to the completion of several major projects, including the shaft extension.10 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 5Claude Resources Inc.Table 1: Estimate of 2013 Capital Expenditures (millions)CapitalDevelopment $ 16.7Sustaining capital 9.0Expansion capital 6.2$ 31.9Development expenditures are expected to be roughly equal between Seabee and Santoy. Sustainingcapital costs include expenditures on equipment replacement and tailings water treatment facilities.Expansion capital is expected to focus in the Santoy Gap area to support the Company’s Life of Mine Planand to generate future returns for the Company.ExplorationDue to the success of its 2011 and 2012 exploration programs, Claude has elected to reduce its explorationspending during 2013 to $2.7 million from the $14.2 million incurred during 2012. The Company’sexploration program is flexible enough to be adjusted throughout the year.At the Seabee Gold Operation, exploration expenditures will focus on low cost per ounce targets, proximalto infrastructure with the potential to materially impact near-term production, drive resource growth and topositively impact the Company’s Mineral Reserves and Mineral Resources. The Seabee Gold Operation,consisting of the producing Seabee Mine and Santoy Mine Complex, is Claude’s sole producing asset, hasdelivered consistent exploration results, remains underexplored and has a number of advanced resource-stage/near-infrastructure targets. Drilling at Seabee is anticipated to consist of the following:Table 2: Summary of Estimated 2013 Drilling at SeabeeArea Target MetresSeabee Regional Santoy Gap/8 and Near-mine Seabee (surface) 10,000Seabee Operations Seabee underground 40,000Santoy Mine Complex Santoy 8, 8E and Gap underground 20,000Total: 70,000At the Amisk Gold Project, Claude will update its National Instrument 43-101 (“NI 43-101”) resourcecalculation in conjunction with the completion of the Amisk PEA.At Madsen, the 2013 operating costs are estimated to be $2.2 million. Contingent on results of the scopinganalysis, the operating budget will be re-evaluated.Continued success from the Company’s exploration programs should serve to:• further extend the mine life at Seabee;• potentially improve the project economics at the Company’s Amisk and Madsen Projects; and• further increase the Company’s total resource base.MISSION AND VISIONThe Company’s mission is to create and deliver outstanding stakeholder value through the exploration,development and mining of gold and other precious metals. Its vision is to be valued by all stakeholdersfor its ability to discover, develop and produce gold and other precious metals in a disciplined, safe,environmentally responsible and profitable manner.GOALS AND KEY PERFORMANCE DRIVERS – MEASURING THE COMPANY’S RESULTSThe Company’s goals and key performance drivers include:Annual Report 2012 11
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 6Claude Resources Inc.• Improving operating margins at the Seabee Gold Operation;• Sustaining reserves and resources at the Seabee Gold Operation through targeted exploration anddevelopment;• Pursuing best practices in the areas of safety, health and the environment in all of our operations;• Maintaining financial capacity and liquidity in order to reduce financial risk;• Considering strategically attractive opportunities and accretive transactions; and• Ensuring that the Company’s share price reflects underlying value.Production and Unit Operating Costs at the Seabee Gold OperationThe combination of strong average realized gold prices per ounce during 2012 has offset the increasedmine operating costs, year over year, resulting in improved operating margins for the Company.During 2012, the Company observed a six percent improvement in Canadian dollar gold prices realized(2012 - $1,660 (U.S. $1,661); 2011 - $1,561 (U.S. $1,578) and increased gold sales volume (2012 – 48,672ounces; 2011 – 44,632 ounces).Total Canadian dollar cash cost per ounce of gold (2)for 2012 increased 10 percent to CDN $997 (U.S.$998) per ounce from CDN $908 (U.S. $918) in 2011, primarily as a result of the higher direct miningcosts, including labour, energy, maintenance and consumable costs, year over year.During 2012, net cash margin (2)improved to $663 per ounce from $653 per ounce in 2011.During 2013, the Company will continue to focus on the profitability of the Seabee Gold Operation througha combination of improved grade control, cost controls (including engaging external consultants to providefeedback and recommendations on improving operational efficiencies) and developing the productionprofile at lower cost satellite ore bodies, including the Santoy 8 and Santoy Gap deposits.Safety, Health and the EnvironmentThe Company strives to protect the safety and health of its employees and the environment it operates in.Claude is continuing to look for ways to improve processes to increase Safety, Health and Environmentalperformance.During 2012, the Company continued to pursue best practices in the areas of Safety, Health and theEnvironment and its stated goal of “Mission Zero” in matters related to Safety, Health and theEnvironment. Claude has expanded its Safety, Training and Environment Departments as well as retainedexternal professionals to conduct periodic reviews of its work practices, workplaces and managementsystems. As part of Claude’s commitment towards “Zero Injury” and “Zero Environmental Exceedence”,the Company established operational objectives of reducing these incidents year over year.To measure its objectives relating to Safety, Health and the Environment, the Company utilizes a Safety,Health and Environment Managements System (“SHEMS”). For Safety and Health, the Company utilizesthe Total Recordable Incident Rate (“TRIR”) metric, a common industry rating that is used to determine thenumber of serious injuries (medical incidents and higher) that a company has for every 200,000 hoursworked. Management utilizes the TRIR metric because it considers all incidents that have caused seriousharm to the Company’s workforce, thereby enabling the Company to be more proactive with its policiesand procedures designed to improve and maintain safety.Management believes having success in these critical areas will place Claude in a position to be recognizedas a leader in matters related to Safety, Health and the Environment.12 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 7Claude Resources Inc.Resource BaseResults obtained from drilling completed during 2012 from the Santoy Gap deposit were incorporated into,and had a material impact on, the Seabee Mine’s updated NI 43-101 resource calculation as at December31, 2012 (Please see Claude news release “Claude Resources Inc. Increases Resource Base and Grade atSantoy Gap” dated December 3, 2012). At December 31, 2012, Proven and Probable reserves in theSeabee Gold Operation were 1,575,200 tonnes, grading 6.14 grams per tonne or 311,100 ounces of gold.Mineral Resources at the Seabee Gold Operation included Measured and Indicated Mineral Resources of344,200 ounces and Inferred Mineral Resources totalling 603,400 ounces.Financial CapacityDuring the first quarter of 2013, the Company expanded its current debt facilities with its existing bank to$25.0 million and executed a non-binding term sheet with Crown Capital Partners Inc. (“CCP”) for anadditional debt facility of $25.0 million (please see financing section below). The new debt facilities willfacilitate the retirement of the Company’s outstanding debentures (which mature in May 2013) and allowfor the necessary expansion capital at Santoy Gap to support the updated Life of Mine Plan.Strategically Attractive and Accretive TransactionsLate in 2011, Claude and St. Eugene jointly announced that they had entered into a definitive agreementpursuant to which Claude would acquire, by way of a court-approved plan of arrangement, all of the sharesof St. Eugene that it did not already own. The acquisition closed on February 1, 2012 and is the logicalconsolidation of the Amisk Gold Project, including its mineral resources. Claude issued 8.7 million sharesas consideration for St. Eugene.Looking forward, Management remains focused on executing strategically attractive and accretivetransactions that are consistent with the strategic plan and focus of the Company.Shareholder ValueManagement believes that, with current market conditions and share performance, the Company isundervalued. However, the Company continues to make what it believes to be the best decisions tomaximize shareholder value. These decisions include:• improving the treasury of the Company with the potential completion of the debt restructuring inthe first half of 2013;• improving or sustaining the resource base at the Seabee Gold operation;• developing an updated Life of Mine Plan at Seabee which forecasts an increase to annualproduction; and• taking steps to complete accretive and strategically attractive transactions.During 2013 and beyond, the Company will continue to advance these projects in order to further developshareholder value by:• rationalizing the application of capital and further implementing cost control programs andsystems and processes intended to reduce unit operating costs at the Seabee Gold Operation;• advancing a scoping level analysis on the Company’s 100 percent owned Madsen ExplorationProject; and• completing the Amisk PEA.In addition to the above, the Company has added seven new managers at the Seabee Gold Operation with acombined 75 years of operating experience. With the continued support from a strong gold price andexpanding resources, Claude is confident that the combination of the Company’s Seabee, Amisk andMadsen properties provide a strong production and asset base in established politically safe Canadianmining and exploration districts.Annual Report 2012 13
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 8Claude Resources Inc.MINING OPERATIONS RESULTSSeabee Gold OperationAt the Seabee Gold Operation, Claude is focused on executing the expansion of its production profile andlowering unit costs over the next several years by maximizing gold output from the near surface Santoy 8and Santoy Gap deposits as well as increasing margins at the Seabee Mine via the shaft extension projectwhich will provide more efficient transportation of ore and waste from the Seabee Deep and L62 deposits.The Company is also continuing with its review of operating processes and procedures to identify andimplement efficiencies designed to increase production and lower operating costs.During 2012, the Company milled 275,235 tonnes at a grade of 5.86 grams of gold per tonne (2011 –257,181 tonnes at a grade of 5.68 grams of gold per tonne). With mill recoveries relatively unchanged yearover year, the increase in ounces produced is attributable to increased tonnes milled and slightly grade. Theincrease in tonnes milled and lower grade year over year was due to increased mining activity at the lowergrade Santoy 8 deposit offset by fewer tonnes from Seabee, a function of mine sequencing anddevelopment schedules.Table 3: Seabee Gold Operation Annual Production and Cost StatisticsDec 31 Dec 312012 2011Operating DataTonnes Milled 275,235 257,181Head Grade (grams per tonne) 5.86 5.68Recovery (%) 95.6% 95.3%Gold Produced (ounces) 49,570 44,756Gold Sold (ounces) 48,672 44,632Financial DataRevenues (CDN$ million) $80.8 $69.7Production Costs (CDN$ million) $48.5 $40.5Cash Operating Costs (CDN$/oz) (2)$997 $908Cash Operating Costs (U.S.$/oz) (2)$998 $918Seabee MineDuring 2012, the Seabee Mine produced 32,626 ounces (2011 – 31,448 ounces). This increase wasattributable to a 13 percent increase in grade offset by a decrease in tonnes milled which were impacted byprioritization of the Shaft Extension Project.Table 4: Seabee Mine Annual Production StatisticsDec 31 Dec 312012 2011Tonnes Milled 147,051 160,811Tonnes per Day 402 441Head Grade (grams per tonne) 7.21 6.39Gold Produced (ounces) 32,626 31,448At the L62 Zone, the series of intercepts with above average true widths and economic gold gradesrepresent a near term opportunity to improve operating margins at the Seabee Operation. These interceptsare near existing underground infrastructure. Development at the L62 Zone was initiated during the thirdquarter with long-hole production initiated during the fourth quarter.14 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 9Claude Resources Inc.Santoy Mine ComplexDuring 2012, the Santoy Mine Complex produced 16,944 ounces of gold (2011 – 13,308). These resultswere attributable to increased tonnes partially offset by a decrease in grade. Tonnage throughput per daywas in line with Management’s expectation for 2012 and is expected to increase during 2013.Table 5: Santoy 8 Mine Annual Production StatisticsDec 31 Dec 312012 2011Tonnes Milled 128,184 96,370Tonnes per Day 350 264Head Grade (grams per tonne) 4.31 4.50Gold Produced (ounces) 16,944 13,308Capital ProjectsMillThe Seabee Gold Operation’s Mill consists of a single stage crushing circuit and a two stage grindingcircuit, followed by leaching. The Mill has been expanded to a peak capacity of 1,050 tonnes, with theoperation capable of sustaining approximately 850 tonnes per day on average under the Seabee GoldOperation’s current Life of Mine Plan. During the first half of 2012, major upgrade work on the #1 regrindball mill and an upgrade to the CIP tanks was completed. An eight day planned shutdown, originallyscheduled for the third quarter, was completed early in the fourth quarter. Stockpiling of ore occurredduring the shutdown and full year production numbers were not impacted.Further expansions to the Mill are being evaluated to accommodate future sustained capacity andproduction increases expected from the L62 Zone and the Santoy Gap deposit.Shaft ExtensionThe Company’s shaft extension project at the Seabee Mine deepened the shaft from 600 metres to 980metres. After a 20 day shutdown, this project was completed early in the first quarter of 2013. During the20 day shutdown the Company was able to maintain production that averaged over 700 tonnes per daythroughput to the Seabee Mill which originated from the Santoy Mine Complex and from the upperportions of the Seabee Mine. During the shutdown the Company continued underground development andmining at Seabee Deep and L62 between the 900 and 1100 metre levels.The shaft extension project was undertaken to provide more efficient transportation of ore and waste fromunderground to surface. The reduction of trucking distance and ore handling are anticipated to result inlower diesel consumption, reduced maintenance costs and improved ventilation. Overall Seabee Deep andL62 mining costs are expected to improve by as much as 10 percent per tonne.CampIn order to accommodate the increased workforce at the Seabee Gold Operation, the Company’s Board ofDirectors approved upgrades to Seabee’s camp facilities. Modular accommodation facilities werepurchased and transported to the Seabee Gold Operation over the annual winter ice road with installationcompleted early in the second quarter. In addition to the modular facilities, on site construction of othernew accommodations began during the first quarter with occupancy beginning late in the third quarter.EXPLORATION RESULTSClaude continued to advance its exploration and development strategy during 2012. Exploration at theSeabee Gold Operation focused on expanding and delineating the L62 Zone and Santoy Gap deposit andadvancing several regional targets. At the Amisk Gold Project, exploration during the year continued toAnnual Report 2012 15
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 10Claude Resources Inc.expand and confirm the NI 43-101 open-pit resource estimate. At Madsen, the Company completed itsthree-rig, surface and underground drill program during 2012. The program focused on evaluating the 8Zone Trend, the Austin and McVeigh Tuff and the Main Madsen Trend below the 4,000 foot level.All exploration activities were carried out under the direction of Qualified Person, Brian Skanderbeg, P.Geo., Senior Vice President and Chief Operating Officer.Seabee Gold OperationThe Seabee Gold Operation is located northeast of La Ronge, Saskatchewan and is host to the producingSeabee Mine and Santoy Mine Complex as well as the L62 Zone, Santoy Gap and Regional explorationtargets.Figure 1: Seabee Property regional map showing significant gold deposits and occurrences.At the Seabee Property, exploration in 2012 was successful in expanding the Gap while converting nearlyhalf of the inferred ounces to an indicated resource. Drilling tested over one kilometre of prospective strike-length north of Santoy Gap deposit toward the Santoy 7 deposit as well as completed the proposed programat the Neptune target. The L62 deposit at Seabee was also expanded up-plunge during the fourth quarterand has been incorporated into the Company’s December 31, 2012 Mineral Reserve and Mineral Resourceestimate.Santoy RegionThe Santoy Region includes the Santoy 8 and Santoy Gap deposits, which are part of the Santoy MineComplex. During 2013, exploration will focus on evaluating the down-plunge extension of the Santoy Gapand Santoy 8A deposits, expanding recently discovered parallel zones near the Santoy Region and on initialdrill testing of several near-Seabee targets. Infill drilling at the Santoy Gap deposit will also be prioritizedto convert additional ounces from the inferred to indicated category.Gold mineralization at the Santoy Region is hosted in siliceous, shear structures with sulfide-chlorite-quartzveins and in silicified granitoid sills. The mineralized lenses dip moderately to steeply eastward and are16 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 11Claude Resources Inc.amenable to bulk mining techniques. Gold mineralization of the Santoy 8 ore lens occurs over a strikelength of 600 metres, a depth of 500 metres and remains open along strike and down plunge to the north.The Santoy 8E ore lens has been intercepted over a strike length of 200 metres, depth of 250 metres andremains open along strike and down plunge to the north. The true thickness of the Santoy 8 deposits variesfrom 1.5 metres to 15 metres.The Santoy Gap deposit is located 400 to 900 metres north of underground infrastructure, immediately onstrike and adjacent to the Santoy 8 deposit within the Santoy Mine Complex. The Company’s 2012exploration program focused on aggressively exploring the Santoy Gap deposit and its relationship to theSantoy 8 ore body to depths up to 750 metres. Infill and exploration drilling continued to confirm andexpand the Santoy Gap system.A total of 71 holes and 35,000 metres were completed in and around the Santoy Gap and along the SantoyRegional Shear Zone during 2012. The Santoy Gap system remains open down plunge to the north, alongstrike to the south and at depth. These recent intercepts at depth may link with the existing Santoy 8resource 300 metres to the south.Highlights from 2012 Santoy Gap drilling include:Table 6: Highlights from 2012 Santoy Gap drillingHole ID Easting NorthingFrom(m)To (m) Grade (g/t)Width(m)ZoneJOY-12-630 598791 6170890 272.27 272.77 13.60 0.50 GAPJOY-12-636 599035 6170957 415.77 432.50 6.91 16.73 GAPJOY-12-638 599035 6170957 398.00 400.30 13.94 2.30 GAPJOY-12-643 598950 6170670 181.75 183.57 41.88 1.82 GAPJOY-12-648 599073 6170506 61.92 62.42 17.25 0.50 OtherAnd 158.00 159.00 11.45 1.00 GAPJOY-12-665 599094 6170889 378.25 380.00 13.84 1.75 GAPJOY-12-667 599000 6170595 124.57 126.24 10.75 1.67 GAPJOY-12-670 599010 6170745 253.59 255.97 11.50 2.38 GAPJOY-12-674 599207 6170942 520.15 526.45 4.67 6.30 GAPAnd 566.25 567.25 49.50 1.00 FWJOY-12-677 599154 6170781 321.04 350.78 14.58 29.74 GAPJOY-12-678 598827 6170985 230.50 231.50 50.30 1.00 GAPJOY-12-679 599155 6170775 343.99 364.28 13.81 20.29 GAPJOY-12-682 599155 6170775 374.60 375.60 27.20 1.00 GAPAnd 400.80 405.50 11.07 4.70 GAPJOY-12-686 599287 6170925 642.40 648.33 8.16 5.93 GAPJOY-12-688 599481 6170719 416.20 422.20 5.07 6.00 HWJOY-12-689 599537 6170658 382.84 387.37 3.51 4.53 HWAnd 603.00 604.32 4.68 1.41 GAPAnd 607.50 609.08 5.03 1.58 GAPNote: Composites were calculated using a 3.0 g/t Au cut-off grade and may include internal dilution. True widths are interpreted tobe 75 to 95 percent of drilled width. Assay results are uncut.Annual Report 2012 17
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 12Claude Resources Inc.Figure 2: Santoy Region Composite Longitudinal Section.In addition to extending the mineralized system, the program discovered a sub-parallel lens to the SantoyGap, approximately 150 metres to the east. These latest drill intercepts continue to affirm the highprospectivity of the Santoy Regional Shear Zone, hosting multiple deposits over a three kilometre strikelength.Based on the Santoy Gap inferred resource, positive exploration results and proximity to the existingSantoy 8 infrastructure, the Company has initiated an 850 metre long exploration drift to allow for infilldrilling and upgrading of the inferred resource.Figure 3: Map of the Santoy Region18 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 13Claude Resources Inc.L62 ZoneThe L62 Zone is located approximately 200 metres from existing Seabee Underground infrastructure onmultiple levels. Exploration of this zone defined a resource base between 500 and 1,000 metres belowsurface. Drilling continued during the fourth quarter of 2012 and will continue through the first half of2013. The deposit remains open up dip and results have been incorporated into the Company’s 2012 year-end Mineral Reserve and Mineral Resource update.Figure 4: Seabee Mine Composite Longitudinal Section (L62 Zone Discovery)Seabee RegionalExploration of the Seabee Regional area has included work in the Pine, Pigeon and Laonil Lake areas.Grass roots work has focused on examining these prospective regional structures.Amisk Gold ProjectThe potential of the Amisk Gold Project continues to be critically evaluated by the Company. The AmiskGold Project is located in the Flin Flon-Snow Lake Greenstone Belt. The project is host to the Amisk GoldDeposit as well as a large number of gold occurrences and prospects.While the Amisk PEA is advanced, future exploration at Amisk during 2013 has been reduced and isdependent to some degree on the results of the Amisk PEA. The 2012 regional exploration campaign atAmisk investigated a number of high-priority targets, some of which warrant further testing in 2013.Consultants will be used to re-interpret historical geophysical data in order to rank and prioritize regionaldrill targets. Regional potential remains high and exploration maturity low. Field work and extensivecompilation in 2012 have resulted in the emergence of an extensive list of exploration targets that arecurrently being prioritized for assessment in 2013. Completion of the Amisk PEA is expected during Q22013.Annual Report 2012 19
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 14Claude Resources Inc.During 2012, the Company also staked an additional 16,033 hectares on the western portion of the AmiskGold Project during 2012. During the second half of 2012, on the Company’s newly acquired claims andwestern block of the Amisk Gold Project, reconnaissance work occurred with the goal of identifyingsimilarities to Amisk’s historical geology and for potential drill targets. The newly acquired claims hostpotential for Amisk-style gold-silver (“Au-Ag”) mineralization as well as conventional base-metal depositstypical of the Flin Flon belt. No drilling is planned for 2013 on the newly acquired claims; however, theCompany expects to continue with target development, ranking and ground-base reconnaissance in thearea.Figure 5: Amisk Gold ProjectResults from a summer historic core sampling program and 2011 and 2012 drilling expanded themineralized system and confirmed grade continuity of the resource model. Gold and silver mineralizationis associated with a sequence of quartz porphyritic, rhyolitic lapilli tuffs and flows hosting disseminationsand stringers of pyrite, sphalerite, galena, tetrahedrite and chalcopyrite. Drilling has intercepted themineralized system over a strike length of 1,200 metres, width of 400 metres and depths of in excess of 600metres. The system remains open to the southwest, southeast, northwest and at depth.20 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 15Claude Resources Inc.Figure 6: Cross Section A-A’ of the Amisk Gold PropertyThe Company’s 2011 and 2012 drill programs at Amisk focused specifically on testing the limits of themineralized footprint north of the current pit outline, targeting depth extension below the pit bottom andinfill drilling to evaluate potential upgrade of categories in the resource estimate completed by SRK.Drilling successfully confirmed continuity of gold mineralization within the northern and eastern portion ofthe deposit as well as demonstrated the potential for expansion to the east and southeast.Mineralization intercepted in the drilling is consistent with the current resource model and is associatedwith a sequence of quartz porphyritic, rhyolitic lapilli tuffs and basaltic tuffs and argillite hostingdisseminations, stringers and semi-massive intervals of pyrite, sphalerite, galena, tetrahedrite, pyrrhotiteand chalcopyrite. Drill hole AL-11-319 confirmed continuity of gold mineralization within thesoutheastern portion of the deposit as well as demonstrated the potential for expansion to the east andsoutheast.The program tested from surface to in excess of 700 metres depth and was designed to expand the limits ofthe Amisk Gold deposit as well as infill within the northern and eastern portion of the deposit.During 2011, the Company reported positive metallurgical testwork results at the Amisk Gold Project.Initial metallurgical testing indicates that gold and silver mineralization is amenable to conventionalcyanide leaching. Results from testing on three composite samples from the Amisk Gold deposit havereturned an average of 89.4 percent recovery for gold, ranging from 85.2 percent to 91.7 percent and anaverage of 80.8 percent recovery for silver, ranging from 66.4 percent to 92.8 percent. Detailed results arepresented in the table below.Annual Report 2012 21
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 16Claude Resources Inc.Table 7: Metallurgical Testwork Results, Amisk Gold ProjectGradeRecovery(Cyanidation)SizeFractionComposite IDAu(g/T)Ag(g/T)Au (%) Ag (%) P 80 (um)*Low Grade 0.50 7.4 89.8 70.9 72Medium Grade 0.85 9.2 85.2 88.9 146Medium Grade 0.85 9.2 89.1 84.8 117Medium Grade 0.85 9.2 91.0 92.8 72High Grade 1.68 8.4 91.7 66.4 92* Denotes size fraction of grind that 80 percent of material passed.During 2012, in addition to focusing on growth of the gold and silver resource base, the presence ofsignificant grades of zinc and lead in the hanging wall were evaluated and further evaluation of pit-proximal base-metal targets has resulted in advancement of these targets to a drill-ready stage. Work onthe external Amisk PEA continued during 2012 and an initial draft is expected to be received during thesecond quarter of 2013. Looking forward at Amisk, exploration will focus on completion of preliminaryeconomic studies and further evaluation of the underground potential.Madsen ProjectFollowing the four year advanced exploration program and moving into 2013, Claude plans to advance theMadsen project into a scoping level study as well as evaluate further surface exploration targets. Theevaluation will provide key input into a decision to advance a Madsen PEA, conceptually evaluating thevalue and development potential of all significant resource domains.The Madsen Mine property currently hosts a NI 43-101 compliant Indicated Resource of 928,000 ounces at8.93 grams per tonne and an Inferred Resource of 297,000 ounces at 11.74 grams per tonne. The propertyalso hosts significant surface and underground infrastructure including a permitted tailings facility, 500tonne per day mill and a 1,250 metre deep shaft.Figure 7: Madsen Longitudinal Section22 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 17Claude Resources Inc.Figure 8: Madsen Property OverviewExploration efforts at the Madsen Project continued to focus on the 8 Zone Trend which hosts the past-producing 8 Zone and is highly prospective for future high grade discoveries. During 2012, Phase IIunderground and surface drilling completed 16 holes totaling over 19,000 metres. Targeting the 8 Zoneplunge and strike continuity as well as the Austin and McVeigh Tuff plunge continuity, the Companyutilized two underground drill rigs, active on the 16thlevel, and one surface drill rig. Drilling continued toexpand the 8 Zone plunge at depth and demonstrated significant depth extension to the Austin andMcVeigh Tuff. Encouraging results were returned from the 2012 program, extending the 8 Zone system atdepth and confirming conceptual potential beneath the Austin Tuff.8 ZoneDuring 2012, Phase II underground drilling continued from the 16thlevel which provides the ideal drillplatform to explore both at depth as well as the strike potential of the 8 Zone Trend. A total of nine drillholes, targeting the down plunge continuity of the 8 Zone, were completed in 2012. Drill holes MUG-12-20, -26, -28 and -30 confirmed plunge continuity, returning visible-gold bearing intercepts of up to 26.50grams per tonne over 2.00 metres. Drill hole MUG-12-25b intercepted a strong footwall zone returning14.55 grams per tonne over 2.00 metres. These intercepts confirmed the 8 Zone system 250 metres downplunge from historic mining as well as indicate potential for high grade, sub-parallel lenses. The systemcontinues to remain open down plunge and along strike to the east.Drill holes targeting the western strike continuity of the 8 Zone include MUG-11-19, MUG-12-21, -22, -23and -24 (Figure 9). Drill hole 21 intercepted silicified, biotite-altered basalt and returned gold assays of9.53 grams per tonne over 2.00 metres, approximately 850 metres below surface. This intercept is in thehanging-wall of the 8 Zone system and interpreted to correlate with and be an extension of the Austin Tuff.Importantly, 2011 drilling in this area intercepted several high grade intervals within the McVeigh Tuff.The combination of well-mineralized Austin and McVeigh intercepts, 500 metres along strike and westfrom historic stopes, indicates the potential for a new shoot development.Annual Report 2012 23
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 18Claude Resources Inc.Figure 9: 8 Zone Longitudinal SectionDrill holes targeting the strike continuity of the 8 Zone included MUG-11-10, 11, 13, 15, 17 and 19. Drillhole 13 and drill hole 17 intercepted silicified, biotite-altered basalt and returned 15.70 grams per tonneover 2.00 metres and 53.70 grams per tonne over 0.70 metres, approximately 950 metres below surface.These intercepts are in the hanging-wall of the 8 Zone system and interpreted to correlate with and be anextension of the McVeigh Tuff, located approximately 650 metres up-dip. The McVeigh Tuff hosts acurrent Indicated Resource of 115,000 ounces at 9.59 grams per tonne and has seen very limited drilltesting below 350 metres. In addition to the McVeigh mineralization, the 8 Zone structure is developed inall holes completed along strike and is characterized by anomalous gold associated with biotite-altered,variably silicified basaltic and ultramafic lithologies.Table 8: Summary of 2012 Phase II drill results from Madsen drillingHole-ID From To Width (m) Grade (g/t) ZoneAD-11-01 2,376.0 2,378.0 2.0 14.30 Austin TuffAD-12-01b 1,887.0 1,889.0 2.0 3.43 Austin TuffAD-12-02a AnomalousMUG-11-18d AnomalousMUG-12-18d 821.0 823.0 2.0 6.52 8 Zone – MainMUG-11-19 AnomalousMUG-12-20 795.0 797.0 2.0 26.50 8 Zone - Mainand 882.9 884.2 1.3 8.12 8 Zone - FWMUG-11-21 102.0 104.0 2.0 9.53 Austin TuffMUG-12-22 AnomalousMUG-12-23 AnomalousMUG-12-24 547.0 549.0 2.0 4.55 8 Zone - MainMUG-12-25b 1,045.0 1,047.0 2.0 14.55 8 Zone - FWMUG-12-26 833.0 834.5 1.5 12.00 8 Zone - Main24 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 19Claude Resources Inc.Table 8: Summary of 2012 Phase II drill results from Madsen drillingHole-ID From To Width (m) Grade (g/t) ZoneMUG-12-27 NSIMUG-12-28 787.5 789.0 1.5 4.75 8 Zone – HWand 834.0 835.5 1.5 29.60 8 Zone - MainMUG-12-29 361.0 363.0 2.0 17.70 McVeigh TuffMUG-12-30 951.0 952.0 1.0 7.77 8 Zone - FW∗ Composites calculated using a 3 grams per tonne Au cut-off grade. Reported width is drilled length and interpreted torepresent 65 - 85 percent of true width. NSI - No Significant Intercept. Anomalous - Assayed between 1 and 3 grams pertonne of gold.Results obtained from 2011 and 2012 drilling have been encouraging and continue to demonstrate that the8 Zone is a high grade gold system that has strong vertical continuity and remains open at depth and alongstrike to the northeast. Furthermore, the discovery of economic grades and widths hosted within the depthcontinuity of the McVeigh Tuff opens up significant exploration potential. During 2013, Claude plans toadvance the Madsen project into a scoping level study as well as evaluate further surface explorationtargets.Austin and McVeigh TuffsIn addition to Phase II underground drilling, the Company completed three deep surface drill holes toevaluate the Austin Tuff at elevations of 1,200 to 2,000 metres below surface. Drill holes AD-11-01, AD-12-01b and -02a intercepted widespread alteration and mineralization, returning gold assays of up to 14.30grams per tonne over 2.00 metres. These holes are the deepest completed to date on the property andconfirm the development of the Austin Tuff 700 metres below historic mine stopes. The Austin Tuffcontinues to remain open down plunge and along strike to the east.Quality Assurance and Quality Control ProceduresRigorous quality assurance and quality control procedures have been implemented including the use ofblanks, standards and duplicates. Geochemical analyses were submitted to ALS Chemex in Vancouver,British Columbia and or the Seabee minesite lab. The former laboratory is ISO approved. Core sampleswere analyzed by a 30 gram gold fire assay with an atomic absorption and gravimetric and or screen firefinish.MINERAL RESERVES AND MINERAL RESOURCESThe Mineral Reserves and Mineral Resources estimates are conducted under the direction of QualifiedPersons Brian Skanderbeg, P.Geo., Senior Vice President and Chief Operating Officer and Peter Longo,P.Eng., Vice President, Operations.Seabee Gold OperationAt December 31, 2012, Proven and Probable Reserves in the Seabee Gold Operation were 1,575,200tonnes, grading 6.14 grams per tonne or 311,100 ounces of gold. The Company’s Mineral Resources at itsSeabee Gold Operation included Measured and Indicated Mineral Resources of 344,200 ounces andInferred Mineral Resources totalling 603,400 ounces.Results obtained from drilling completed during 2012 from the Santoy Gap deposit were incorporated intoand had a material impact on the Seabee Operation’s updated NI 43-101 resource calculation as atDecember 31, 2012 (Please see Claude news release “Claude Resources Inc. Increases Resource Base andGrade at Santoy Gap” dated December 3, 2012).Annual Report 2012 25
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 20Claude Resources Inc.Table 9: Seabee Gold Operation Mineral Reserves and Mineral ResourcesProven and Probable ReservesProjectsDecember 31, 2012 December 31, 2011Tonnes Grade (g/t) Ozs Tonnes Grade (g/t) OzsSeabee 947,100 7.26 221,100 1,062,900 6.58 224,900Santoy 8 628,100 4.45 89,900 997,100 4.08 130,600Totals 1,575,200 6.14 311,100 2,059,900 5.37 355,600Measured and Indicated Mineral ResourcesProjects Tonnes Grade (g/t) Ozs Tonnes Grade (g/t) OzsSeabee 45,400 4.86 7,100 127,400 4.65 19,000Santoy 8 59,300 3.28 6,200 12,600 5.04 2,000Santoy Gap 994,000 8.80 281,200 - - -Porky Main 160,000 7.50 38,600 160,000 7.50 38,600Porky West 111,000 3.10 11,000 111,000 3.10 11,000Totals 1,369,600 7.82 344,200 410,900 5.35 70,700Inferred Mineral ResourcesProjects Tonnes Grade (g/t) Ozs Tonnes Grade (g/t) OzsSeabee 355,600 8.55 97,700 813,900 6.83 178,800Santoy 8 518,700 5.91 98,600 850,000 5.46 149,300Santoy Gap 1,875,000 5.92 356,900 2,321,000 6.63 495,000Porky Main 70,000 10.43 23,500 70,000 10.43 23,500Porky West 138,300 6.03 26,800 138,300 6.03 26,800Totals 2,957,600 6.35 603,400 4,193,200 6.48 873,400For the above table of reserves, the following mining and economic factors have been applied:•In 2012, Mineral Reserves and Mineral Resources estimates were conducted under the direction of Qualified Persons BrianSkanderbeg, P.Geo., Senior Vice President and Chief Operating Officer and Peter Longo, P.Eng., Vice President,Operations.•In 2011, mineral reserves and mineral resources were estimated by Claude personnel and audited by SRK.•Mineral Reserves and Mineral Resources estimates have been completed in accordance with CIM Standards and arereported in accordance with Canadian Securities Administrators’ NI 43-101. Mineral Resources are exclusive of MineralReserves.•Mineral Reserves and Mineral Resources are reported at a cut-off grade of 4.5 grams per tonne for the Seabee Mine and 3.0grams per tonne for Santoy 8, Santoy Gap, Porky Main and Porky West. This is based on a gold price of CDN $1,500 perounce.•A dilution factor averaging approximately 15 percent is applied.•Historic stope recovery averages 85 percent.•A specific gravity of 2.8 to 2.9 is utilized in tonnage estimates.•All figures are rounded to reflect the relative accuracy of the estimates. Totals may not represent the sum of the parts due torounding.•Mineral resources are not mineral reserves and do not have demonstrated economic viability.Amisk Gold ProjectAt the Amisk Gold Project, Claude’s independent NI 43-101 compliant resource calculation outlines anIndicated Resource of 921,000 ounces of 0.95 grams of Au Eq per tonne and an Inferred Resource of645,000 ounces at 0.70 grams of Au Eq per tonne.Table 10: Amisk Gold Project Consolidated Mineral Resource Statement*Resource ClassQuantity Grade (g/tonne) Contained Ounces (000’s)(000’s tonnes) Au Ag Au Eq Au Ag Au EqIndicated 30,150 0.85 6.17 0.95 827 5,978 921Inferred 28,653 0.64 4.01 0.70 589 3,692 645* Reported at a cut-off of 0.40 grams of gold equivalent (Au Eq) per tonne using a price of U.S. $1,100 per ounce of gold and U.S. $16per ounce of silver inside a conceptual pit shell optimized using metallurgical and process recovery of 87 percent, overall ore mining26 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 21Claude Resources Inc.and processing costs of U.S. $15 per tonne and overall pit slope of 50 degrees. All figures are rounded to reflect the relative accuracyof the estimates. Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability.The mineral resources for the Amisk Gold Project are sensitive to the selection of cut-off grade. The tablebelow presents the quantity and grade estimates at a range of cut-off grades inside the conceptual pit shellconsidered for reporting the Mineral Resource Statement. A cut-off value of 0.4 grams of gold equivalentper tonne was selected based on optimization results and benchmarking against similar deposits.Table 11: Global Block Model Quantity and Grade Estimates, Amisk Lake Gold Project at VariousCut-off Grades.Grade Indicated InferredAu Eq(gpt)Quantity(tonnes)Au Eq(gpt)OuncesAu EqQuantity(tonnes)Au Eq(gpt)OuncesAu Eq0.10 47,496,802 0.70 1,068,940 102,734,810 0.36 1,189,0800.20 44,036,914 0.75 1,061,865 72,604,675 0.45 1,050,4330.30 37,422,417 0.83 998,622 45,000,464 0.57 824,6750.40 30,150,090 0.95 920,881 28,653,135 0.70 644,8540.50 23,533,117 1.09 824,702 19,446,358 0.82 512,6760.60 18,322,858 1.25 736,367 13,665,490 0.94 412,9940.70 14,359,129 1.41 650,936 9,491,034 1.07 326,5040.80 11,418,785 1.58 580,054 6,659,786 1.20 256,9410.90 9,206,976 1.76 520,980 4,825,758 1.34 207,9031.00 7,606,617 1.93 471,998 3,589,543 1.48 170,8021.50 3,472,946 2.80 312,642 1,078,945 2.16 74,928Note: The reader is cautioned that the figures in this table should not be misconstrued with a MineralResource Statement. The figures are only presented to show the sensitivity of the block model estimates tothe selection of cut-off grade.For the Amisk Gold Project, an updated NI 43-101 resource statement, inclusive of all 2012 drilling, is willbe completed in conjunction with the external Amisk PEA for the Amisk Gold Project.Madsen Exploration ProjectAt the Madsen Exploration Project, Claude’s independent NI 43-101 compliant resource calculationoutlines an Indicated Resource of 928,000 ounces of 8.93 grams per tonne and an Inferred Resource of297,000 ounces at 11.74 grams per tonne.Table 12: Consolidated Mineral Resource Statement (1)for the Madsen Mine, OntarioResourceClassZone TonnesGrade(g/tonne)Grade(oz/ton)ContainedGold (oz)Indicated Austin 1,677,000 7.92 0.23 427,000South Austin 850,000 9.32 0.27 254,000McVeigh 374,000 9.59 0.28 115,0008 Zone 335,000 12.21 0.36 132,000Total 3,236,000 8.93 0.26 928,000Inferred Austin 108,000 6.30 0.18 22,000South Austin 259,000 8.45 0.25 70,000McVeigh 104,000 6.11 0.18 20,0008 Zone 317,000 18.14 0.53 185,000Total 788,000 11.74 0.34 297,000Note: mineral resources are not mineral reserves and do not have demonstrated economic viability. All figures have been rounded toreflect the relative accuracy of the estimates. Reported at a cut-off grade of 5.0 g/t gold based on U.S. $1,000 per troy ounce of goldand gold metallurgical recoveries of 94 percent.Annual Report 2012 27
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 22Claude Resources Inc.The Company’s independent NI 43-101 Mineral Resource evaluation for the Madsen Mine was completedby SRK in December 2010. This Mineral Resource evaluation was based on historical exploration andmining data, Phase I underground drilling results up to September 27, 2009 and geological and resourcemodeling. The Mineral Resource evaluation was undertaken on the four separate zones, Austin, SouthAustin, McVeigh and 8 Zone that comprise the Madsen Gold Mine. The NI 43-101 Technical Report wasfiled on January 20, 2010.The mineral resources of the Madsen Exploration Project are sensitive to the selection of cut-off grade. Theglobal quantities and grade estimates at three gold cut-off grades are presented in Table 13. The reader iscautioned that the figures presented in this table should not be misconstrued with the mineral resourcestatement. The figures are only presented to show the sensitivity of the mineral resources to the selection ofcut-off grade.Table 13: Global Block Model Quantities and Grade Estimates* at Various Cut-off Grades.Class Zone QuantityTonnage (000’t)GradeGold (gpt)Contained MetalGold (000’oz)Cut-off (gpt Au) 3 4 5 3 4 5 3 4 5Indicated Austin‡ 4,299 2,565 1,677 5.40 6.72 7.92 746 554 427South Austin#1,553 1,140 850 6.85 8.08 9.32 342 296 254McVeigh‡637 465 374 7.20 8.57 9.59 148 128 115Zone 8^422 370 335 10.49 11.49 12.21 142 136 132Inferred Austin‡782 288 108 4.04 5.12 6.30 101 47 22South Austin#630 390 259 5.70 7.09 8.45 116 89 70McVeigh‡155 105 104 5.33 6.09 6.11 27 21 20Zone 8^ 321 320 317 17.93 17.98 18.14 185 185 185* The reader is cautioned that the quantities and grade estimates in this table are not included in the resource statement forthe MGP. The figures are presented to show the sensitivity of the block model estimates to the selection of cut-off grade.‡ Reported considering a geotechnical buffer of 15 feet (4.6 metres).# Reported considering a geotechnical buffer of 10 feet (3.0 metres).^Reported with no geotechnical buffer.FINANCIAL RESULTS OF OPERATIONSHighlightsTable 14: Highlights of Financial Results of OperationsDec 31 Dec 312012 2011Revenue $ 80,808 $ 69,659Divided by ounces sold 48,672 44,632Average Realized Price per Ounce (CDN$) $ 1,660 $ 1,561Production costs $ 48,535 $ 40,542Divided by ounces sold 48,672 44,632Total cash costs per ounce (CDN$) $ 997 $ 908Net Cash Margin per Ounce Sold (CDN$) $ 663 $ 653Depreciation and depletion $ 15,681 $ 11,407Gross profit $ 16,592 $ 17,710Net profit $ 5,569 $ 9,454Earnings per share (basic and diluted) $ 0.03 $ 0.0628 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 23Claude Resources Inc.CashCost,$709CashCost,$908CashCost,$997Margin,$564Margin,$653Margin,$663$-$1,000$2,0002010 2011 2012The increase in ounces sold and in average realized price per ounce, partially offset by increased productioncosts, has positively impacted net cash margin per ounce sold year over year. The Company intends toimprove profitability of the Seabee Gold Operation through a combination of improved grade control, costcontrols and developing the production profile at lower cost satellite ore bodies, including Santoy 8 andeventually the Santoy Gap deposit. Also, in addition to external consultants being engaged to providefeedback and recommendations on improving operational efficiencies reducing unit operating costs, theCompany anticipates that the continued contribution of the Santoy Mine Complex (including the Santoy 8and Santoy Gap deposits), contribution of ore from the L62 Zone and completion of the shaft extension willbe positive catalysts in improving production and lowering overall unit operating costs at the Seabee GoldOperation.Figure 10: Average Gold Price Realized (CDN$) Figure 11: Cash Cost and Margin Realized (CDN$)Per Ounce Sold Per Ounce SoldNet ProfitFor the year ended December 31, 2012, the Company recorded net profit of $5.6 million, or $0.03 pershare, after a $3.0 million non-cash deferred income tax expense. This compares to a net profit of $9.5million, or $0.06 per share, after a $0.4 million non-cash deferred income tax expense, for the year endedDecember 31, 2011 (2010 – $10.3 million, or $0.08 per share). Profit from continuing operations beforeincome tax in 2012 was $8.5 million, or $0.05 per share (2011 - $9.8 million, or $0.06 per share; 2010 -$8.3 million, or $0.05 per share), reflecting a change in the Company’s deferred tax base year over year.Three-year trendThe Company’s profit trends with changes in revenue, which has been significantly impacted by the priceof gold, and is offset by increasing production costs attributable to increasing labour and input costs.Management is focused on continuing to pursue best practices intended to stabilize unit production costsand has engaged external consultants to provide additional feedback and recommendations on improvingoperational efficiencies.RevenueIn the discussion below, gold revenues for the comparable figures in 2010, net of expenditures, fromprojects not yet in commercial production have not been included in earnings; rather, these amounts havebeen offset against the carrying value of the assets.Gold revenue from the Company’s Seabee Gold Operation for the year ended December 31, 2012 increased16 percent to $80.8 million from $69.7 million reported for the year ended December 31, 2011 (December31, 2010 - $56.0 million).$1,273$1,561 $1,660$-$1,000$2,0002010 2011 2012Annual Report 2012 29
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 24Claude Resources Inc.Three-year trendThe increase in gold revenue in 2012 was attributable to a six percent improvement in Canadian dollar goldprices realized (2012 - $1,660 (U.S. $1,661); 2011 - $1,561 (U.S. $1,578); and 2010 - $1,273 (U.S.$1,236)) and by increased gold sales volume (2012 – 48,672 ounces; 2011 – 44,632 ounces; and 2010 –44,003 ounces). The increase in realized price for the year period ended December 31, 2012 reflects theincrease in market gold prices which averaged U.S. $1,669 per ounce during 2012 compared to market goldprices of U.S. $1,572 per ounce during 2011 (2010 – U.S. $1,224).Figure 12: Average Gold Price (London PM Fix – US$)Production CostsFor the year ended December 31, 2012, mine production costs of $48.5 million (2011 - $40.5 million) were20 percent higher year over year. This increase was primarily attributable to increased personnel, wageincreases and increases in mining and maintenance costs.Total cash cost per ounce of gold (2)for 2012 increased 10 percent to CDN $997 (U.S. $998) per ouncefrom CDN $908 (U.S. $918) in 2011, primarily as a result of the higher direct mining costs, includinglabour, energy, maintenance and consumable costs, year over year. The Company is continuing to pursuebest practices with the intention of lowering these costs.Depreciation and DepletionFor the year ended December 31, 2012, depreciation and depletion was $15.7 million (2011 - $11.4million), up 38 percent year over year. These results are attributable to an increase in tonnes throughputand an increase in the Seabee Gold Operation’s asset base.General and Administrative ExpenseGeneral and administrative expense for the year ended December 31, 2012 increased to $7.9 million, up 16percent from the $6.8 million reported in 2011. The variances noted below primarily relate to increases inpersonnel, stock-based compensation and professional fees.$700.00$1,700.00$2,700.00JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DECAverage Gold 2010 London PM Fix - U.S. $ Claude 2010 Average Gold Price Realized - U.S. $Average Gold 2011 London PM Fix - U.S. $ Claude 2011Average Gold Price Realized - U.S. $Average Gold 2012 London PM Fix - U.S. $ Claude 2012 Average Gold Price Realized - U.S. $30 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 25Claude Resources Inc.Table 15: Corporate General and Administrative ExpenseDec 31 Dec 312012 2011Direct administration $ 5,464 $ 4,788Stock-based compensation 2,280 1,991Deferred share units 153 -Total General and Administrative $ 7,897 $ 6,779Finance ExpenseFinance expense includes interest expense, accretion expense and derivative gains or losses (if any). Forthe year ended December 31, 2012, finance expense was $1.5 million, down 52 percent from the $3.1million reported during 2011. The decreases were attributable to the Company settling certain out-of-the-money derivative instruments during the third quarter of 2011.Finance and Other IncomeFinance and other income consists of interest income, production royalties pursuant to the Red Miletransactions and other income. For the year ended December 31, 2012, finance and other income of $1.5million was relatively unchanged year over year.Deferred Income Tax ExpenseDeferred income tax expense for the year ended December 31, 2012 was $3.0 million (2011 - $0.4 million).This increase in this expense is primarily attributable to the recognition of previously unrecognizeddeferred tax assets in 2011 of approximately $3.8 million.Liquidity, Financial Resources and Capital StructureThe Company monitors its spending plans, repayment obligations and cash resources on a continuous basiswith the objective of ensuring that there is sufficient capital within the Company to meet businessrequirements, after taking into account cash flows from operations and the Company’s holdings of cash andcash equivalents and short-term investments. The Company’s typical cash requirement over the first andsecond quarters of each year is significant because of the Seabee Gold Operation’s winter ice roadresupply, which includes restocking diesel, propane and other large consumables as well as the continuedinvestment in maintenance and growth capital relating to the mining fleet and mine infrastructure.The Company had bank indebtedness of $3.5 million at December 31, 2012 (December 31, 2011 - $2.5million of cash and cash equivalents and short-term investments of $33.2 million).At December 31, 2012, the Company had a working capital deficiency of $4.1 million (December 31, 2011- surplus of $42.4 million). Included in the working capital calculation at December 31, 2012 are demandloans and outstanding debentures totaling $5.3 million and $9.7 million, respectively. Demand loans havebeen classified as current liabilities due to their demand feature. As the debenture is due in less than oneyear, its balance has been classified as a current liability.Table 16: Working Capital and Current RatioDec 31 Dec 31 Percent2012 2011 ChangeCurrent assets $ 24,300 $ 52,004 (53)Current liabilities $ 28,397 $ 9,606 196Working capital $ (4,097) $ 42,398 (110)Current ratio 0.86 5.4 (84)Annual Report 2012 31
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 26Claude Resources Inc.The Company’s objective when managing capital is to safeguard its ability to continue as a going concernso that it can continue to provide adequate returns to shareholders and benefits to other stakeholders. TheCompany manages the capital structure and makes adjustments to it in light of changes in economicconditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capitalstructure, the Company may issue new shares, sell assets or incur debt. The Company is not subject toexternally imposed capital requirements.The Company’s capital structure is comprised of a combination of short-term and long-term debt andshareholders’ equity.The Capital structure of the Company is as follows:Table 17: Schedule of Capital Structure of the CompanyCapital Structure December 31 December 31Interest Maturity 2012 2011Demand loan Repaid during 2012 $ - $ 896Demand loans Prime + 1.50% Jan-Apr/2015 5,337 -Debenture 12.00% May/2013 9,665 9,452Total debt $ 15,002 $ 10,348Shareholders’ equity 192,364 172,895Debt to equity 7.80% 5.99 %In January 2013, the Company expanded its current debt facilities with its existing bank to $25.0 millionand executed a non-binding term sheet with CCP for an additional long-term debt facility of $25.0 million(please see financing section below). The new debt facilities are intended for the retirement of theCompany’s outstanding debentures (which mature in May 2013), for expansion capital at the Seabee GoldOperation and for general working capital purposes.InvestingMineral property expenditures during 2012 were $62.5 million, an $11.3 million increase from 2011.Expenditures were comprised of Seabee Mine and shaft development of $22.3 million, exploration costs(focusing on the Santoy Gap deposit, Seabee North, Amisk and Madsen exploration projects) of $20.0million and property, plant and equipment additions of $20.2 million. Property, plant and equipmentadditions include mining equipment, camp infrastructure and tailings management facility expansion. TheCompany utilized its cash on hand and short-term investments to fund these additions.FinancingFinancing activities during 2012 included the issuance of 338,676 common shares (2011 – 235,614)pursuant to the Company’s Employee Share Purchase Plan and 75,402 common shares (2011 – 648,667)pursuant to the Company’s Stock Option Plan.During 2012, the Company repaid $4.9 million of its demand loans and capital leases outstanding. Theproceeds and repayments of demand loans relate to production equipment at the Seabee Gold Operation.During the first quarter of 2013, the Company has expanded its current debt facilities with its existingfinancial institution, Canadian Western Bank (“CWB”), to $25.0 million and executed a non-binding termsheet with CCP for an additional long-term debt facility of $25.0 million.32 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 27Claude Resources Inc.CWB Financing SummaryThe CWB facilities consist of leases, demand loans and of a line of credit. The debt expansion is structuredas follows:Facility Previous Amount Current AmountLine of Credit $5,000,000 $10,000,000Leases/Demand Loans $7,000,000 $10,000,000Revolving Loan NIL $5,000,000Interest rates are both fixed and floating and carry a weighted average rate of approximately 4.5 percent.CCP Financing SummaryUpon closing, the CCP offering is anticipated to consist of a five (5) year $25 million debt facility whichcarries an interest rate of 10 percent of the outstanding principal, compounded and payable monthly.Principal payments, due to begin in 2014, are payable monthly. The facility will include 5.75 millionwarrants at a strike price of $0.70 which can be exercisable at any time from the closing of the transactionto 5 years following the closing of the transaction.Sources / UsesSources of Funds Use of Funds *CCP Term Loan $25,000,000 Refinancing $10,000,000Working Capital $15,000,000Total Sources $25,000,000 Total Use $25,000,000* Approximate balancesPrincipal Repayment TermsPeriod Monthly Amount Annual AmountMonths 1 - 12 NIL NILMonths 13 – 59 $300,000 $3,600,000Due at Maturity $10,900,000Prepayment TermsMonths Following Closing Prepayment FeeMonths 13 – 24 2%Months 25 – 36 1%Months 37 – 60 0%Financial and Other InstrumentsIn the normal course of its operations, the Company is exposed to gold price, foreign exchange, interestrate, liquidity, equity price and counterparty risks. The overall financial risk management program focuseson preservation of capital and protecting current and future Company assets and cash flows by reducingexposure to risks posed by the uncertainties and volatilities of financial markets.The Company may use derivative financial instruments to hedge some of its exposure to fluctuations ingold prices and foreign exchange rates. The Company does not acquire, hold or issue derivatives for tradingpurposes. The Company’s management of financial risks is aimed at ensuring that net cash flows areAnnual Report 2012 33
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 28Claude Resources Inc.sufficient to meet all its financial commitments as and when they fall due and to maintain the capacity tofund its forecast project development and exploration strategies.The value of the Company’s mineral resources is related to the price of gold and the outlook for thismineral. Gold and precious metal prices historically have fluctuated widely and are affected by numerousfactors outside of the Company’s control, including, but not limited to, industrial and retail demand, centralbank lending, forward sales by producers and speculators, levels of worldwide production, short-termchanges in supply and demand because of speculative hedging activities and certain other factors relatedspecifically to gold. The profitability of the Company’s operations is highly correlated to the market priceof gold. If the gold price declines below the cost of production at the Company’s operations, for aprolonged period of time, it may not be economically feasible to continue production.The Company’s revenues from the production and sale of gold are denominated in U.S. dollars. However,the Company’s operating expenses are primarily incurred in Canadian dollars and its liabilities areprimarily denominated in Canadian dollars. The results of the Company’s operations are subject tocurrency risks. The operating results and financial position of the Company are reported in Canadiandollars in the Company’s consolidated financial statements.The Company did not have any derivative instruments outstanding at December 31, 2012 or December 31,2011. The Company’s main interest rate risk arises from interest earning cash deposits that expose theCompany to interest rate risk.The Company’s liquidity position is managed to ensure sufficient liquid funds are available to meet itsfinancial obligations in a timely manner. The Company manages liquidity risk by continuously monitoringforecast and actual cash flows and ensuring that the Company has the ability to access required funding.The Company is exposed to equity securities price risk arising from investments classified on the balancesheet as available-for-sale. Investments in equity securities are approved by the Board on a case-by-casebasis. All of the Company’s available-for-sale equity investments are in junior resource companies listed onthe TSX Venture Exchange.The Company is exposed to counterparty risk which is the risk that a counterparty will not complete itsobligations under a financial instrument resulting in a financial loss for the Company. The Company doesnot generally obtain collateral or other security to support financial instruments subject to credit risk;however, the Company only deals with credit worthy counterparties. Accounts receivable compriseinstitutions purchasing gold under normal settlement terms of two working days. Counterparty risk underderivative financial instruments is to reputable institutions. All significant cash balances are on deposit withhigh-rated banking institutions. The carrying amount of financial assets recorded in the financial statementsrepresents the Company’s maximum exposure to credit risk without taking account of the value of anycollateral or other security obtained.34 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 29Claude Resources Inc.Contractual ObligationsThe Company’s contractual and other obligations as at December 31, 2012 are summarized as follows:Table 18: Schedule of Payments / Commitments due by PeriodTotalLess than1 year2-3Years4-5YearsMore than5 yearsContractual ObligationDemand loans 5,337 2,387 2,950 - -Interest on demand loans 276 191 85 - -Debenture 9,751 9,751 - - -Debenture interest 458 458 - - -Capital lease obligations 1,786 1,495 291 - -Interest on capital leases 58 56 2 - -Office lease 197 123 74 - -17,863 14,461 3,402 - -During 2012 (and subsequent to December 31, 2012), the Company has been updating its decommissioningand reclamation plans for the Madsen and Seabee properties. It is expected that additional security(approximately $6.5 million) will need to be provided to the applicable regulatory authorities. However,the timing of this security has not yet been determined.As noted above, near-term funding requirements pursuant to the redemption of its outstanding debentures(due on May 23, 2013), have placed the Company in a working capital deficiency. In order to address thisworking capital deficiency, the Company, subsequent to December 31, 2012, increased its current debtfacilities with CWB to the following:• $10.0 million operating line of credit (previous amount: $5.0 million);• $10.0 million finance lease line (previous amount: $7.0 million); and• $5.0 million revolving loan (new).In addition to the above, the Company has executed a non-binding term sheet with CCP for an additionallong-term debt facility of $25.0 million (Note 22). As of the date of this MD&A, the Company is innegotiations to close the CCP debt facility. Management believes that repayment of the outstandingdebentures will occur as required on May 23, 2013. If for any reason the Company is unable to close theCCP debt facility, it could have an impact on the Company’s ability to continue as a going concern andrealize assets at their recognized values and to extinguish liabilities in the normal course of business at theamounts stated in the consolidated financial statements.STATEMENTS OF FINANCIAL POSITIONTable 19: Select Statements of Financial Position DataPercentDec 31 Dec 31 Dec 31 Change2012 2011 2010 2012 to 2011Total assets $ 234,517 $ 207,887 $ 136,369 13Non-current liabilities $ 13,756 $ 25,386 $ 11,266 (46)The Company’s total assets were $234.5 million at December 31, 2012, compared to $207.9 million atDecember 31, 2011; Claude’s asset base primarily consists of non-current assets comprising mineral properties,reflecting the capital intensive nature of the exploration and mining business and the impact of the significantcapital expenditures relating to its operations and exploration projects. The $26.6 million net increase resultedfrom increases of: $5.8 million in Inventories; $2.1 million in Accounts receivable, attributable to the timing ofAnnual Report 2012 35
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 30Claude Resources Inc.gold sales and receipt of funds; and $57.8 million in Mineral properties attributable to Seabee Minedevelopment and shaft extension, exploration costs (focusing on the Santoy Gap deposit, Seabee North,Amisk and Madsen exploration projects) and additions to property, plant and equipment. These increaseswere offset by decreases of: $35.7 million in Cash and cash equivalents and Short-term investments, attributableto the Company’s annual winter road resupply and investment in exploration and Seabee capital projects; $1.0million in Deferred income tax asset attributable to a change in the Company’s deferred tax base; and $2.5million in Investments due to the disposition of certain of the Company’s available for sale securities and adecrease in the market value of the remainder these securities.Total liabilities were $42.2 million at December 31, 2012, up $7.2 million from December 31, 2011. Thisresult was attributable to a $3.5 million increase in bank indebtedness and a $1.8 million increase inAccounts payable and accrued liabilities, attributable to the timing and payment of expenditures relating toconsumables at the Seabee Gold Operation; a net increase of $2.3 million in the Company’s current andnon-current Loans and borrowings attributable to demand loans obtained to fund a portion of the capitalequipment resupply at the Seabee Gold Operation; an increase of $9.7 million to the Company’s currentdebenture payable (offset by a decrease to the long-term portion of the debenture payable) due to thedebenture being payable in less than one year; and an increase of $1.1 million in Deferred income taxliability attributable to a change in the Company’s deferred tax base.Shareholders’ equity increased by $19.5 million to $192.4 million at December 31, 2012, from $172.9 million atDecember 31, 2011. This variance is attributable to an increase in Share capital of $12.7 million due to theissuance of Company stock pursuant to the acquisition of St. Eugene; an increase of $1.9 million to Contributedsurplus, a $5.6 million decrease to Accumulated deficit, a result of the net profit for the year; and, a $0.6 milliondecrease to Accumulated other comprehensive income (loss).Comprehensive income consists of net profit, together with certain other economic gains and losses that arecollectively referred to as “other comprehensive income (loss)” or “OCI” and are excluded from the IncomeStatement. During the year ended December 31, 2012, other comprehensive income decreased to a loss of $0.03million (December 31, 2011 – comprehensive income of $0.6 million) due to the Company’s disposition ofcertain available-for-sale securities.KEY SENSITIVITIESEarnings from Claude’s gold operation are sensitive to fluctuations in both commodity and currency prices.The key factors and their approximate effect on earnings, earnings per share and cash flow, based onassumptions comparable to 2012 actuals, are as follows:GoldFor a U.S. $10 movement in gold price per ounce, earnings and cash flow will have a correspondingmovement of CDN $0.5 million, or $0.00 per share. For a $0.01 movement in the US$/CDN$ exchangerate, earnings and cash flow will have a corresponding movement of $0.8 million, or $0.00 per share.GradeFor a 0.25 gram per tonne movement in grade, earnings and cash flow will have a corresponding movementof CDN $3.6 million, or $0.02 per share.SELECTED QUARTERLY FINANCIAL DATAFor the quarter ended December 31, 2012, the Company recorded a net profit of $2.4 million, or $0.01 pershare, compared to a net loss of $0.2 million, or $0.00 per share, for the comparable period in 2011.Gold revenue generated during the fourth quarter was $21.2 million, a seven percent increase over the$19.9 million reported for the same period in 2011. This was a result of increased gold sales volumecompared to the fourth quarter of 2011 (Q4 2012 – 12,732 ounces; Q4 2011 – 11,855 ounces) offset by36 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 31Claude Resources Inc.slightly lower Canadian dollar gold prices realized Q4 2012 - $1,668 (U.S. $1,683); Q4 2011 - $1,678 (U.S.$1,641).For the three months ended December 31, 2012, total mine operating costs were $10.5 million, down $2.9million period over period. Operating efficiencies being implemented at the Seabee Gold Operationresulted in mining and maintenance costs being down period over period and resulted in a 27 percentdecrease in Canadian dollar cash operating cost per ounce: Q4 2012 – CDN $822 (U.S. $829); Q4 2011 –CDN $1,130 (U.S. $1,105)During the fourth quarter of 2012, depreciation, depletion and accretion of the Company’s gold assets of$4.4 million represented a 13 percent increase compared to the $3.9 million reported during the comparableperiod in 2011. These results are attributable to a larger asset base being depreciated period over period.Dec 31 Sept 30 June 30 Mar 31 Dec 31 Sept 30 Jun 30 Mar 312012 2012 2012 2012 2011 2011 2011 2011Tonnes milled 69,698 66,173 72,808 66,556 74,456 66,722 65,502 50,501Grade processed (grams per tonne) 5.94 7.34 5.45 4.74 4.97 5.51 6.26 6.20Ounces produced 12,700 15,100 12,200 9,600 11,300 11,300 12,600 9,500Ounces sold 12,700 14,100 12,300 9,500 11,900 10,900 12,400 9,500Gold sales ($ millions) 21.2 23.4 20.1 16.1 19.9 18.2 18.2 13.3Net profit (loss) ($ millions) 2.4 3.0 0.7 (0.5) (0.2) 2.6 5.2 1.8Net profit (loss) per share (a)0.01 0.02 0.00 (0.00) 0.00 0.02 0.03 0.01Average realized gold price (CDN$ per ounce) 1,668 1,663 1,633 1,681 1,678 1,670 1,469 1,408Average realized gold price (US$ per ounce) 1,683 1,671 1,616 1,679 1,641 1,704 1,518 1,428Cash cost per ounce (b)(CDN$ per ounce) 822 920 1,082 1,236 1,130 871 717 924Cash cost per ounce (b)(US$ per ounce) 829 924 1,071 1,234 1,105 888 741 938Cash flow from operations before netchanges in non-cash operating workingcapital ($ millions) (c)9.4 8.6 5.3 2.6 7.2 5.7 8.3 3.6Cash flow from operations per share 0.05 0.05 0.03 0.02 0.04 0.03 0.05 0.03Weighted average shares outstanding(basic)173,746 173,746 173,741 170,481 164,351 163,911 155,275 140,361CDN$/US$ Exchange 0.9914 0.9949 1.0101 1.0012 1.0230 0.9804 0.9676 0.9861(a)Basic and diluted, calculated based on the number of shares issued and outstanding during the quarter.(b)Denotes a non-IFRS performance measure. For an explanation of non-IFRS performance measures, refer to the “Non-IFRSPerformance Measures” section of this MD&A.(c)For an explanation of this performance measure, refer to the “Other Performance Measures” section of this MD&A.The financial results for the last eight quarters reflect the following general trends: improved averagerealized gold price (which has improved gold revenue and net profit (loss)); lower grade attributable tomore feedstock from the Santoy 8 deposit; and increasing cash cost per ounce.ACCOUNTING ESTIMATESCertain of the Company’s accounting policies require that Management make decisions with respect to theformulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenuesand expenses. Claude’s significant accounting policies are contained in Note 3 to the consolidatedfinancial statements. The following is a discussion of the accounting estimates that are critical indetermining the Company’s financial results.Annual Report 2012 37
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 32Claude Resources Inc.ReservesEstimation of reserves involves the exercise of judgment. Forecasts are based on geological, geophysical,engineering and economic data, all of which are subject to many uncertainties and interpretations. TheCompany expects that, over time, reserve estimates may be revised upward or downward based on updatedinformation. Such information may include revisions to geological data or assumptions, a change ineconomic data, and the results of drilling and exploration activities. Reserve estimates can have asignificant impact on net earnings, as they are a key component in the calculation of depreciation anddepletion. In addition, changes in reserve estimates, commodity prices and future operating and capitalcosts can have a significant impact on the impairment assessments of the applicable assets.Valuation of PropertiesClaude assesses the carrying values of its properties at the end of each reporting period, or more frequentlyif warranted by a change in circumstances, to determine whether any indication of impairment exists. If itis determined that carrying values of assets cannot be recovered, the unrecoverable amounts are written offagainst current earnings. Recoverability is dependent upon assumptions and judgments regarding futureprices, costs of production, sustaining capital requirements and economically recoverable ore reserves. Achange in assumptions may materially impact the potential impairment of these assets.Decommissioning and ReclamationClaude’s mining, exploration and development activities are subject to various levels of Federal andProvincial Law as well as environmental regulations, including requirements for closure and reclamation.Management’s judgment and estimates are used when estimating reclamation and closure costs. In somecases, these costs will be incurred many years from the date of estimate. Estimates may be revised as aresult of changes in government regulations or assumptions.FUTURE ACCOUNTING PRONOUNCEMENTSCertain new accounting standards and interpretations have been published that are not mandatory for theDecember 31, 2012 reporting period:• IFRS 9, Financial Instruments: effective for accounting periods commencing on or after January1, 2015. The Company is currently evaluating the impact of IFRS 9 on its financial statements.• IFRS 10, Consolidated Financial Statements, was issued by the IASB in May 2011 and iseffective for annual periods beginning on or after January 1, 2013 with early adoption permitted.The Company does not expect the adoption of this standard to have a material impact on itsfinancial statements.• IFRS 11, Joint Arrangements, was issued by the IASB in May 2011 and is effective for annualperiods beginning on or after January 1, 2013 with early adoption permitted. The Company doesnot expect the adoption of this standard to have a material impact on its financial statements..• IFRS 12, Disclosure of Interests in Other Entities, was issued by the IASB in May 2011 and iseffective for the Company beginning on January 1, 2013. It is expected that IFRS 12 will increasethe current level of disclosure related to the Company’s interests in other entities upon adoption.• In May 2011, the IASB published IFRS 13, Fair Value Measurement, which is effectiveprospectively for annual periods beginning on or after January 1, 2013. The Company does notexpect the adoption of this standard to have a material impact on its financial statements.• In June 2011, the IASB issued IAS 1, Presentation of Items of OCI: Amendments to IAS 1Presentation of Financial Statements. The amendments stipulate the presentation of net profit andOCI and also require the Company to group items within OCI based on whether the items may besubsequently reclassified to profit or loss. Amendments to IAS 1 are effective for annual periodsbeginning on or after July 1, 2012. The Company does not expect the adoption of the amendmentsto this standard to have a material impact on its financial statements.• In May 2011, the IASB issued amendments to IAS 28, Investments in Associates and JointVentures, which are effective for annual periods beginning on or after January 1, 2013 with early38 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 33Claude Resources Inc.adoption permitted. The Company does not expect the amendments to IAS 28 to have a materialimpact on the financial statements.• In December 2011, the IASB published Offsetting Financial Assets and Financial Liabilities andissued new disclosure requirements in IFRS 7, Financial Instruments: Disclosures. Theamendments to IAS 32 clarify that if an entity currently has a legally enforceable right to set-off ifthat right is not contingent on a future event, and enforceable both in the normal course ofbusiness and in the event of default, insolvency or bankruptcy of the entity and all counterparties.The amendments to IAS 32 also clarify when a settlement mechanism provides for net settlementor gross settlement that is equivalent to net settlement. The amendments to IFRS 7 contain newdisclosure requirements for financial assets and liabilities that are offset in the statement offinancial position, or subject to master netting arrangements or similar arrangements. Theeffective date for the amendments to IAS 32 is annual periods beginning on or after January 1,2014. The effective date for the amendments to IFRS 7 is annual periods beginning on or afterJanuary 1, 2013. These amendments are to be applied retrospectively. The Company does notexpect the amendments to have a material impact on the financial statements.BUSINESS RISKSThe profitability and operating cash flow of the Company is dependent on several factors: the quantity ofgold produced, related gold prices, foreign exchange, operating costs, capital expenditures, explorationlevels and environmental, health and safety regulations. These and other risk factors listed below relate tothe mining industry in general while others are specific to Claude. A complete list of risk factors iscontained within the Company’s Annual Information Form. Whenever possible, the Company seeks tomitigate these risk factors.Inherent Exploration and Mining RisksThe exploration for and development of mineral deposits involves significant risks, which even thecombination of careful evaluation, experience and knowledge may not eliminate. It is impossible toguarantee that current or future exploration programs on existing mineral properties will establish reserves.The level of profitability of the Company in future years will depend mainly on gold prices, the cost ofproduction at the Seabee Operation and whether any of the Company’s exploration stage properties can bebrought into production. Whether an ore body will continue to be commercially viable depends on anumber of factors, some of which are the particular attributes of the deposit such as: size, grade andproximity to infrastructure; precious metal prices, which cannot be predicted and which have been highlyvolatile in the past; mining costs; and government regulations, including regulations relating to prices,taxes, royalties, land tenure, land use, importing and exporting of minerals, environmental protection andreclamation and closure obligations. The effect of these factors cannot be accurately predicted, but thecombination of these factors may cause a mineral deposit that has been mined profitably in the past, such asthe Seabee Operation, to become unprofitable. The Company is subject to the risks normally encounteredin the mining industry, such as unusual or unexpected geological formations, cave-ins or flooding. TheCompany may become subject to liability for pollution, cave-ins or other hazards against which it cannotinsure or against which it may elect not to insure.The development of gold and other mineral properties is affected by many factors, including the cost ofoperations, variations in the grade of ore, fluctuations in commodity markets, costs of processingequipment and other factors such as government regulations, including regulations relating to royalties,fluctuations in the U.S. dollar versus Canadian dollar exchange rate, allowable production, importing andexporting of minerals and environmental protection.Gold Price VolatilityThe economics of developing gold and other metal properties are affected by many factors, including the cost ofoperations, variations in the grade of ore mined and the price of gold or other metals. Depending on the price ofgold, the Company may determine that it is impractical to commence or continue commercial production. TheAnnual Report 2012 39
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 34Claude Resources Inc.price of gold has fluctuated in recent years. During the year ended December 31, 2012, the market price perounce for gold ranged from a low of U.S. $1,540 to a high of U.S. $1,792, with an average price of U.S. $1,669.Any significant drop in the price of gold adversely impacts the Company’s revenues, profitability and cash flows.Also, sustained low gold prices can:1. Reduce production revenues as a result of cutbacks caused by the cessation of miningoperations involving deposits or portions of deposits that have become uneconomic at theprevailing price of gold;2. Cause the cessation or deferral of new mining projects;3. Decrease the amount of capital available for exploration activities;4. Reduce existing reserves by removing ore from reserves that cannot be economically minedat prevailing prices; or,5. Cause the write-off of an asset whose value is impaired by the low price of gold.Gold prices may fluctuate widely and are affected by numerous industry factors, such as demand forprecious metals, forward selling by producers and central bank sales and purchases of gold. Moreover, goldprices are also affected by macro-economic factors such as expectations for inflation, interest rates,currency exchange rates and global or regional political and economic situations. The current demand forand supply of gold affects gold prices, but not necessarily in the same manner as current demand andsupply affects the price of other commodities. The potential supply of gold consists of new mineproduction plus existing stocks of bullion and fabricated gold held by governments, financial institutions,industrial organizations and individuals. If gold prices remain at low market levels for a sustained period,the Company could determine that it is not economically feasible to continue mining operations orexploration activities.There can be no assurance that the price of gold will remain stable or that such price will be at a level thatwill prove feasible to continue the Company’s exploration activities, or if applicable, begin development ofits properties, commence or, if commenced, continue commercial production.Foreign Exchange RiskThe price of gold is denominated in U.S. dollars and, accordingly, the Company’s proceeds from gold saleswill be denominated and received in U.S. dollars. As a result, fluctuations in the U.S. dollar against theCanadian dollar could result in unanticipated fluctuations in the Company’s financial results, which arereported in Canadian dollars. During the year ended December 31, 2012, the CDN$/US$ exchange rateranged from a low of $0.9784 to a high of $1.0275, with an average of $0.9994.Access to FundingThe Company’s ability to continue its production, exploration and development activities depends in parton its ability to generate revenues from its operations or to obtain financing through joint ventures, debtfinancing, equity financing and production sharing arrangements or other means.The failure of the Company to meet its ongoing obligations on a timely basis could result in the loss orsubstantial dilution of its interest (as existing or as proposed to be acquired) in its properties. In addition,Management estimates that approximately $2.7 million is the minimum annual expenditure required tofulfill the Company’s intended exploration and dewatering programs in 2013.At current gold prices and forecast production, Management believes operating cash flows will not besufficient to fund the debenture maturing in May 2013. The Company expects that operating cash flowscombined with the closing of the debt financing announced in January 2013 will provide sufficient fundingfor 2013 and the Q1 2014 winter road resupply at the Seabee Gold Operation.40 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 35Claude Resources Inc.Unfavourable Government Regulatory ChangesThe Company’s exploration activities and mining operations are affected to varying degrees by governmentregulations relating to mining operations, the acquisition of land, pollution control and environmentalprotection, safety, production and expropriation of property. Changes in these regulations or in theirapplication are beyond the control of the Company and may adversely affect its operations, business andresults of operations. Failure to comply with the conditions set out in any permit or failure to comply withapplicable statutes and regulations may result in orders to cease or curtail operations or to install additionalequipment. The Company may be required to compensate those suffering loss or damage by reason of itsoperating or exploration activities.Currently, all of the Company’s properties are subject to the federal laws of Canada and, depending uponthe location of the Company’s properties, may be subject to the provincial laws of Saskatchewan andOntario as well as local municipal laws. Mineral exploration and mining may be affected in varyingdegrees by government regulations relating to the mining industry. Any changes in regulations or shifts inpolitical conditions are beyond the control of the Company and may adversely affect its business.Operations may be affected in varying degrees by government regulations with respect to price controls, exportcontrols, foreign exchange controls, income taxes, expropriation of property, environmental and mine safetylegislation.Aboriginal Rights, Title Claims and the Duty to Consult May Delay ProjectsExploration, development and mining activities at the Company’s Saskatchewan and Ontario properties mayaffect established or potential treaty or Aboriginal rights, title or other claims held by Aboriginal groups, in thesecircumstances, First Nation and Métis, with related duty to consult issues. The Company is committed toeffectively managing any impacts to such rights, title and claims and any resulting consultation requirements thatmay arise. However, there is no assurance that the Company will not face material adverse consequencesbecause of the legal and factual uncertainties associated with these issues.Failure to Effectively Manage the Company’s Tailings Facilities could Negatively Impact GoldProductionThe Company’s Seabee Mill produces tailings. Managing these tailings is integral to gold production. TheSeabee Operation’s East Lake and Triangle Lake tailings management facilities have the capacity to store tailingsfrom milling ore from the Seabee Mill until approximately 2016. The Company is currently in the process ofplanning tailings capacity expansion beyond 2016. This will support the extension of Seabee’s mine life andprovide additional tailings capacity to process ore from the Santoy 8 deposit and other potential sources such asSantoy Gap deposit within the Santoy Mine Complex. If the Company does not receive regulatory approval fornew or expanded tailings facilities, gold production could be constrained.Changes to Safety, Health and Environmental Regulations Could Have a Material AdverseEffect on Future OperationsSafety, health and environmental legislation affects nearly all aspects of the Company’s operationsincluding exploration, mine development, working conditions, waste disposal, emission controls andprotection of endangered and protected species. Compliance with safety, health and environmentallegislation can require significant expenditures and failure to comply with such safety, health andenvironmental legislation may result in the imposition of fines and penalties, the temporary or permanentsuspension of operations, clean-up costs resulting from contaminated properties, damages and the loss ofimportant permits. Exposure to these liabilities arises not only from the Company’s existing operations, butfrom operations that have been closed or sold to third parties. Generally, the Company is required toreclaim properties after mining is completed and specific requirements vary among jurisdictions. TheCompany is required to provide financial assurances as security for reclamation costs, which may exceedthe Company’s estimates for such costs. The Company could also be held liable for worker exposure tohazardous substances and for accidents causing injury or death. There can be no assurances that theAnnual Report 2012 41
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 36Claude Resources Inc.Company will at all times be in compliance with all safety, health and environmental regulations or thatsteps to achieve compliance would not materially adversely affect the Company’s business.Safety, health and environmental laws and regulations are evolving in all jurisdictions where the Companyhas activities. The Company is not able to determine the specific impact that future changes in safety,health and environmental laws and regulations may have on its operations and activities, and its resultingfinancial position; however, the Company anticipates that capital expenditures and operating expenses willincrease in the future as a result of the implementation of new and increasingly stringent safety, health andenvironmental regulation. For example, emissions standards are poised to become increasingly stringent.Further changes in safety, health and environmental laws, new information on existing safety, health andenvironmental conditions or other events, including legal proceedings based upon such conditions or aninability to obtain necessary permits, may require increased financial reserves or compliance expendituresor otherwise have a material adverse effect on the Company.Environmental and regulatory review is a long and complex process that can delay the opening,modification or expansion of a mine, extend decommissioning at a closed mine, or restrict areas whereexploration activities may take place.Decommissioning and Reclamation Obligations May Constrain ProductionEnvironmental regulators are demanding more and more financial assurances so that the parties involved,and not the government, bear the costs of decommissioning and reclaiming sites. Decommissioning planshave been filed for the Seabee and Madsen properties. These plans are reviewed, as necessary, or at thetime of an amendment or renewal of an operating license. Regulators may conduct a further review of thedetailed decommissioning plans, and this can lead to additional requirements, costs and financialassurances. It is not possible to predict what level of decommissioning and reclamation and financialassurances regulators may require in the future.Imprecise Ore Reserves and Ore Grade Estimates May Negatively Impact Gold Production andOperating ProfitabilityAlthough the Company has assessed the Mineral Reserve and Mineral Resource estimates contained inthis document and believes that the methods used to estimate such Mineral Reserves and MineralResources are appropriate, such figures are estimates. Estimates of Mineral Reserves and MineralResources are inherently imprecise and depend to some extent on statistical inferences drawn fromlimited drilling, which may prove unreliable. Furthermore, the indicated level of recovery of gold maynot be realized. Market price fluctuations of gold may render reserves and deposits containingrelatively lower grades of mineralization uneconomic. Moreover, short-term operating factors relatingto Mineral Reserves, such as the need for orderly development of the deposits or the processing ofnew or different grades, may cause mining operations to be unprofitable in any particular period.Potential Shareholder Dilution Could Impact Share Price and New Equity IssuesAs of December 31, 2012, there were stock options outstanding to purchase 6,948,527 common shares andshare purchase warrants outstanding to purchase 1,693,200 common shares. Subsequent to December 31,2012, and subject to due diligence, the Company may issue an additional 5,750,000 common sharepurchase warrants pursuant to a debt financing. These options and warrants, if fully exercised, wouldconstitute approximately 7.6 percent of the Company’s resulting share capital. The exercise of such optionsor warrants and the subsequent resale of such shares in the public market could adversely affect theprevailing share market price and the Company’s ability to raise equity capital in the future at a time andprice which it deems appropriate. The Company may also enter into commitments in the future whichwould require the issuance of additional common shares and the Company may grant additional sharepurchase warrants and stock options. Any share issuances from the Company’s treasury could result inimmediate dilution to existing shareholders.42 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 37Claude Resources Inc.Industry Competition May Hinder Corporate GrowthThe Company’s business is intensely competitive and the Company competes with other miningcompanies, some of which have greater resources and experience. Competition in the precious metalsmining industry is primarily for mineral rich properties which can be developed and producedeconomically, the technical expertise to find, develop and produce such properties, the labour to operate theproperties and the capital for the purpose of financing development of such properties. Many competitorsnot only explore for and mine precious metals, but also conduct refining and marketing operations on aworldwide basis and some of these companies have much greater financial and technical resources than theCompany. Such competition may result in the Company being unable to acquire desired properties, torecruit or retain qualified employees or to acquire the capital necessary to fund its operations and developits properties. The Company’s inability to compete with other mining companies could have a materialadverse effect on the Company’s results of operations and its business.Extreme and Persistent Weather Conditions Could Cause Operating and ExplorationDifficultiesThe Company’s mining and exploration properties are all located in the northern portions of Saskatchewanand Ontario. Access to these properties and the ability to conduct work on them can be affected by adverseweather conditions. Adverse weather conditions can also increase the costs of both access and work on theCompany’s properties.Title to Company Properties Could be Challenged with Potential Loss of OwnershipAcquisition of title to mineral properties is a very detailed and time-consuming process. The Companybelieves it has investigated title to all of its mineral properties and has obtained title opinions with respectto its most significant properties. To the best of the Company’s knowledge, titles to all such properties arein good standing. For the Madsen property, Claude has searched title records for any and all encumbrances.For the Seabee and Amisk properties, the Company has examined property search abstracts from theSaskatchewan Ministry of the Economy as well as made inquiries and reviewed lease files from theMinistry. It has also received confirmation of title from Saskatchewan Environment.The title to the Company’s properties could be challenged or impugned. The properties may have beenacquired in error from parties who did not possess transferable title, may be subject to prior unregisteredagreements or transfers and title may be affected by undetected defects.We May Not be Able to Hire Enough Skilled Employees to Support OperationsMany of the projects undertaken by the Company rely on the availability of skilled labour and the capitaloutlays required to employ such labour. The Company employs full and part time employees, contractorsand consultants to assist in executing operations and providing technical guidance. In the event of a skilledlabour shortage, various projects of the Company may not become operational due to increased capitaloutlays associated with labour. Further, a skilled labour shortage could result in operational issues such asproduction shortfalls and higher mining costs.Uninsured Risks could Negatively Impact ProfitabilityIn the course of exploration, development and production of mineral properties, certain risks and inparticular, unexpected or unusual geological operating conditions including rock bursts, cave-ins, fire andflooding and earthquakes may occur. It is not always possible to fully insure against such risks and theCompany may decide not to take out insurance against such risks as a result of high premiums or otherreasons. Should such liabilities arise, they could reduce or eliminate any future profitability and result inincreased costs and a decline in the value of the securities of the Company.Annual Report 2012 43
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 38Claude Resources Inc.The Company is Subject to Evolving Corporate Governance and Public Disclosure Regulationsthat have Increased the Cost of Compliance and the Risk of Non-complianceThe Company is subject to changing rules and regulations promulgated by a number of Canadian andUnited States governmental and self-regulating organizations, including the Canadian SecuritiesAdministrators, the Toronto Stock Exchange, the U.S. Securities and Exchange Commission, the NYSEMKT and the International Accounting Standards Board. These rules and regulations continue to evolve inscope and complexity making compliance more difficult and uncertain. Efforts to comply with newregulations have resulted, and are likely to continue to result in, increased general and administrativeexpenses and a diversion of Management time and attention from revenue-generating activities tocompliance activities.Due to the Company’s Canadian Jurisdiction, Investors may be Deterred from TradingCompany Stock as it may be Difficult for United States (“U.S.”) Investors to Effect Service ofProcess Against the CompanyThe Company is incorporated under the laws of Canada. All of the Company’s directors and officers areresidents of Canada and all of the Company’s assets and its subsidiaries are located in Canada.Consequently, it may be difficult for U.S. investors to affect service of process in the U.S. upon theCompany’s directors or officers or to realize in the U.S. upon judgments of U.S. courts predicated uponcivil liabilities under the United States Securities Exchange Act of 1934, as amended. A judgment of aU.S. court predicated solely upon such civil liabilities may be enforceable in Canada by a Canadian court ifthe U.S. court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, inthe matter. There is substantial doubt whether an original action could be brought successfully in Canadaagainst any of such persons or the Company predicated solely upon such civil liabilities.Internal Controls Provide No Absolute Assurances as to Reliability of Financial ReportingThe Company has invested resources to document and assess its system of internal controls over financialreporting and it is continuing its evaluation of such internal controls. Internal controls over financialreporting are procedures designed to provide reasonable assurance that transactions are properly authorized,assets are safeguarded against unauthorized or improper use, and transactions are properly recorded andreported. A control system, no matter how well designed and operated, can provide only reasonable, notabsolute, assurance with respect to the reliability of financial reporting and financial statement preparation.The Company is required to satisfy the requirement of Section 404 of the U.S. Sarbanes-Oxley Act of 2002(the “Sarbanes-Oxley Act”), which requires an annual assessment by management of the effectiveness ofthe Company’s internal control over financial reporting.If the Company fails to maintain the adequacy of its internal control over financial reporting, as suchstandards are modified, supplemented, or amended from time to time, the Company may not be able toensure that it can conclude on an ongoing basis that it has effective internal controls over financialreporting in accordance with Section 404 of the Sarbanes-Oxley Act. The Company’s failure to satisfy therequirement of Section 404 of the Sarbanes-Oxley Act on an ongoing, timely basis could result in the lossof investor confidence in the reality of its financial statements, which in turn could harm the Company’sbusiness and negatively impact the trading price of its common shares. In addition, any failure toimplement required new or improved controls, or difficulties encountered in their implementation, couldharm the Company’s operating results or cause it to fail to meet its reporting obligations.Although the Company intends to devote substantial time and incur substantial costs, as necessary, toensure ongoing compliance, the Company cannot be certain that it will be successful in complying withSection 404 of the Sarbanes-Oxley Act.44 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 39Claude Resources Inc.The Company is Subject to Certain Legal Proceedings and may be Subject to AdditionalLitigation in the FutureAll industries, including the mining industry, are subject to legal claims, with and without merit. TheCompany is currently involved in litigation of a non-material nature and may become involved in legaldisputes in the future. Defence and settlement costs can be substantial, even with respect to claims thathave no merit. Due to the inherent uncertainty of the litigation process, there can be no assurance that theresolution of any particular legal proceedings will not have a material adverse effect on the Company’sfinancial position or results of operations.Conflicts of InterestCertain of the directors of the Company are also directors and officers of other companies engaged inmineral exploration and development and mineral property acquisitions. As such, situations may arisewhere such directors are in a conflict of interest with the Company. The Company will resolve any actualconflicts of interest if and when the same arise in accordance with the Company’s Code of Ethics Policy.OUTSTANDING SHARE DATAThe authorized share capital of the Company consists of an unlimited number of common shares and twoclasses of unlimited preferred shares issuable in series. At December 31, 2012, there were 173,745,564common shares outstanding. This compares to 164,630,231 common shares outstanding at December 31,2011.During 2012, the Company issued 414,078 common shares pursuant to the Company’s Employee SharePurchase Plan and the Company’s Stock Option plan. An additional 8,701,255 shares were issued asconsideration for Claude’s acquisition of St. Eugene (please see Claude news release “Claude ResourcesInc. Completes Acquisition of St. Eugene Mining Corporation Limited” dated February 2, 2012).Subsequent to December 31, 2012, Claude issued 2,065,812 common shares pursuant to the Company’sEmployee Share Purchase Program. At March 27, 2013, there were 175,811,376 common shares of theCompany issued and outstanding.OUTSTANDING STOCK OPTIONS AND WARRANTSAt December 31, 2012, there were 6.9 million director, officer and key employee stock options outstandingwith exercise prices ranging from $0.50 to $2.38 per share. This compares to 5.5 million director, officerand key employee stock options outstanding at December 31, 2011 with similar prices.Table 20: Schedule of Outstanding Stock Options and Weighted Average Exercise PriceDecember 31, 2012 December 31, 2011NumberWeightedAverageExercise Price NumberWeightedAverageExercise PriceBeginning of period 5,484,250 $1.57 3,916,737 $ 1.15Options granted 1,896,290 1.04 2,478,768 2.06Options exercised (75,402) 0.78 (648,667) 0.75Options forfeited (316,611) 1.82 (241,876) 1.86Options expired (40,000) 1.51 (20,712) 1.04End of period 6,948,527 $1.43 5,484,250 $1.57For options outstanding at December 31, 2012, the range of exercise prices, the number vested, theweighted average exercise price and the weighted average remaining contractual life are as follows:Annual Report 2012 45
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 40Claude Resources Inc.Table 21: Schedule of Outstanding Stock Options by Price RangeOptions Outstanding Options ExercisableOption Price PerShare QuantityWeightedAverageRemainingLifeWeightedAverageExercisePrice QuantityWeightedAverageRemainingLifeWeightedAverageExercisePrice$0.50 - $1.00 1,329,845 6.24 $0.72 846,512 6.03 $0.76$1.01 - $1.50 2,633,731 5.86 1.20 2,199,898 5.79 1.19$1.51 - $2.00 2,432,000 7.06 1.86 1,512,000 6.20 1.80$2.01 - $2.38 552,951 7.80 2.30 338,903 7.53 2.266,948,527 6.51 $1.43 4,897,313 6.08 $1.38At December 31, 2012, there were 1.7 million common share purchase warrants outstanding. Eachcommon share purchase warrant entitles the holder to acquire one common share of the Company at pricesdetermined at the time of issue. The range of exercise prices and dates of expiration of the warrantsoutstanding are as follows:Table 22: Schedule of Warrants OutstandingNumber NumberExercise Outstanding at Outstanding atPrice Expiry Date December 31, 2011 Granted Expired December 31, 2012$ 1.60 May 22, 2013 1,693,200 - - 1,693,200$ 0.90 November 16, 2012 1,023,000 - 1,023,000 -$ 1.77 April 7, 2012 - 319,545 319,545 -$ 1.77 April 12, 2012 - 10,257 10,257 -$ 3.17 March 31, 2012 - 79,980 79,980 -$ 4.44 March 31, 2012 - 443,812 443,812 -2,716,200 853,594 1,876,594 1,693,200The warrants granted during 2012 relate to outstanding warrants assumed as part of the St. Eugeneacquisition completed in the first quarter.FOOTNOTES(1)Historically, Madsen results have been reported in ounces per ton and feet (Imperial).(2)See description and reconciliation of non-IFRS measures in the “Non-IFRS PerformanceMeasures and Reconciliations” section of this MD&A.(3)See description and reconciliation of this performance measure in the “Other PerformanceMeasures and Reconciliations” section of this MD&A.NON-IFRS PERFORMANCE MEASURES AND RECONCILIATIONSThe Company utilizes non-IFRS financial measures as supplemental indicators of operating performanceand financial position. These non-IFRS financial measures are used internally by the Company forcomparing actual results from one period to another. The Company believes that, in addition toconventional measures prepared in accordance with IFRS, certain investors use this information to evaluatethe Company’s performance and ability to generate cash flow. Accordingly, such information is intendedto provide additional information and should not be considered in isolation or as a substitute for measuresof performance prepared in accordance with IFRS.46 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 41Claude Resources Inc.Cash Cost Per OunceThe Company reports its cash costs on a per-ounce basis, based on uniform standards developed by theGold Institute, an independent researcher and evaluator of the gold market and gold industry. Managementuses this measure to analyze the profitability, compared to average realized gold prices, of the Seabee GoldOperation. Investors are cautioned that the above measures may not be comparable to similarly titledmeasures of other companies, should these companies not follow Gold Institute standards.Table 23: Total Cash Cost per Gold Ounce SoldDecember 31 December 312012 2011Production cost (CDN$) $ 48,535 $ 40,542Divided by ounces sold 48,672 44,632Total cash cost per ounce (CDN$) $ 997 $ 908CDN$ Exchange Rate $ 0.9994 $ 0.9893Total cash cost per ounce (US$) $ 998 $ 918Net Cash MarginThe Company uses net cash margin, which represents realized price per ounce less net cash costs perounce. This measure is used by Management to analyze profitability trends and to assess the cash-generating capability from the sale of gold on a consolidated basis in each reporting period, expressed on aunit basis. Management believes that this measurement illustrates the performance of the Company’sbusiness on a consolidated basis and enables investors to better understand Claude’s performance incomparison to other gold producers who present results on a similar basis and is an important indicator ofexpected performance in future periods.The Company’s net cash margin is intended to provide additional information, does not have anystandardized meaning prescribed by IFRS and should not be considered in isolation or as a substitute formeasures of performance prepared in accordance with IFRS. This measure is not necessarily indicative ofoperating profit or cash flow from operations as determined under IFRS. Other companies may calculatenet cash margin differently. This non-IFRS measure is calculated from realized gold price per ounce andtotal cash costs per ounce, as determined in the net cash cost reconciliation. Net cash margin could also bederived from realized price per ounce and net cash costs per ounce.Table 24: Net Cash MarginDec 31 Dec 312012 2011Revenue $ 80,808 $ 69,659Divided by ounces sold 48,672 44,632Average Realized Price per Ounce (CDN$) $ 1,660 $ 1,561Production costs $ 48,535 $ 40,542Divided by ounces sold 48,672 44,632Total cash costs per ounce (CDN$) $ 997 $ 908Net Cash Margin per Ounce Sold (CDN$) $ 663 $ 653Annual Report 2012 47
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 42Claude Resources Inc.OTHER PERFORMANCE MEASURES AND RECONCILIATIONSCash Flow from Operations before Net Changes in Non-Cash Operating Working CapitalThe Company uses Cash Flow from Operations before Net Changes in Non-Cash Operating WorkingCapital as a supplemental measure of its financial performance. The Company uses this measure to analyzethe cash generated by its operations. These measures are not necessarily indicative of operating profit orcash flow from operations as determined under IFRS. Investors are cautioned that the above measures maynot be comparable to similarly titled measures of other companies.Table 25: Calculation of Cash Flow from Operations before Net Changes in Non-Cash OperatingWorking CapitalDec 31 Dec 312012 2011Net Profit $ 5,569 $ 9,454Adjustments for non-cash items:Depreciation and depletion 15,681 11,407Finance expense 388 361Finance and other income (1,248) (1,109)Loss (Gain) on investments 199 (35)Stock-based compensation 2,280 1,991Write-down of mineral property - 851Gain on sale of exploration property - (1,131)Deferred income tax expense 2,972 364$ 25,841 $ 22,153Weighted Average shares outstanding (basic) 172,993 156,062Weighted Average shares outstanding (diluted) 173,232 158,410Per share cash flows from operating activities (basic and diluted) $ 0.15 $ 0.14DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTINGDisclosure Controls and ProceduresAs at December 31, 2012, we evaluated our disclosure controls and procedures as defined in the rules ofthe U.S. Securities and Exchange Commission (“SEC”) and the Canadian Securities Administrators. Thisevaluation was carried out under the supervision and participation of Management, including the Presidentand Chief Executive Officer and the Chief Financial Officer. Based on that evaluation, the President andChief Executive Officer and Chief Financial Officer concluded that the design and operation of thesedisclosure controls and procedures were effective.Internal Control Over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financialreporting. Internal control over financial reporting, no matter how well designed, has inherent limitationsand can only provide reasonable assurance with respect to the preparation and fair presentation of publishedfinancial statements. Under the supervision and with the participation of the President and Chief ExecutiveOfficer and the Chief Financial Officer, management conducted an evaluation of the effectiveness of itsinternal control over financial reporting based on the framework in Internal Control – IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based onthis evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded thatinternal control over financial reporting is effective as at December 31, 2012.No significant changes were made in our internal controls over financial reporting during the period endedDecember 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internalcontrol over financial reporting.48 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 43Claude Resources Inc.Limitations of Controls and ProceduresThe Company’s management, including the President and Chief Executive Officer and Vice President andChief Financial Officer, believes that any disclosure controls and procedures or internal control overfinancial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of the control system are met. Further, the design of a control system mustreflect the fact that there are resource constraints, and the benefits of controls must be considered relative totheir costs. Because of the inherent limitations in all control systems, they cannot provide absoluteassurance that all control issues and instances of fraud, if any, within the Company have been prevented ordetected. These inherent limitations include the realities that judgments in decision-making can be faulty,and that breakdowns can occur because of simple error or mistake. Additionally, controls can becircumvented by the individual acts of some persons, by collusion of two or more people, or byunauthorized override of the control. The design of any control system also is based in part upon certainassumptions about the likelihood of future events, and there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions. Accordingly, because of theinherent limitations in a cost effective control system, misstatements due to error or fraud may occur andnot be detected.CAUTIONARY NOTE TO U.S. INVESTORS CONCERNING RESOURCE ESTIMATESResource EstimatesThe resource estimates in this Management’s Discussion and Analysis were prepared in accordance withNational Instrument 43-101, adopted by the Canadian Securities Administrators. The requirements ofNational Instrument 43-101 differ significantly from the requirements of the SEC. In this Management’sDiscussion and Analysis, the Company uses certain terms such as “measured”, “indicated” and “inferred”resources. Although these terms are recognized and required in Canada, the SEC does not recognize them.The SEC permits U.S. mining companies, in their filings with the SEC, to disclose only those mineraldeposits that constitute “reserves”. Under U.S. standards, mineralization may not be classified as a reserveunless the determination has been made that the mineralization could be economically and legally extractedat the time the determination is made. U.S. investors should not assume that all or any portion of ameasured or indicated resource will ever be converted into “reserves”. Further, “inferred resources” have agreat amount of uncertainty as to their existence and whether they can be mined economically or legally,and U.S. investors should not assume that “inferred resources” exist or can be legally or economicallymined, or that they will ever be upgraded to a more certain category.Compliance with Canadian Securities RegulationsThis annual report is intended to comply with the requirements of the Toronto Stock Exchange andapplicable Canadian securities legislation, which differ in certain respects from the rules and regulationspromulgated under the United States Securities Exchange Act of 1934, as amended (“Exchange Act”), aspromulgated by the SEC.U.S. investors are urged to consider the disclosure in our Annual Report on Form 40-F, File No. 001-31956, as filed with the SEC under the Exchange Act, which may be obtained from the Company (withoutcost) or from the SEC’s Web site: http://sec.gov/edgar.shtml.CAUTION REGARDING FORWARD-LOOKING INFORMATIONAll statements, other than statements of historical fact, contained or incorporated by reference in thisMD&A constitute “forward-looking information” within the meaning of applicable Canadian securitieslaws and “forward-looking statements” within the meaning of the United States Private SecuritiesLitigation Reform Act of 1995 (referred to herein as “forward-looking statements”). Forward-lookingstatements include, but are not limited to, statements with respect to the future price of gold, the estimationof mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount ofestimated future production, costs of production, capital expenditures, costs and timing of the developmentAnnual Report 2012 49
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 44Claude Resources Inc.of new deposits, success of exploration activities, permitting time lines, currency exchange ratefluctuations, requirements for additional capital, government regulation of mining operations,environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations oninsurance coverage. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”,“estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate” or “believes”, or the negativeconnotation thereof or variations of such words and phrases or state that certain actions, events or results,“may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved” or the negative connotationthereof.All forward-looking statements are based on various assumptions, including, without limitation, theexpectations and beliefs of management, the assumed long-term price of gold, that the Company willreceive required permits and access to surface rights, that the Company can access financing, appropriateequipment and sufficient labour, and that the political environment within Canada will continue to supportthe development of mining projects in Canada.Forward-looking statements are subject to known and unknown risks, uncertainties and other factors thatmay cause the actual results, level of activity, performance or achievements of Claude to be materiallydifferent from those expressed or implied by such forward-looking statements, including but not limited to:actual results of current exploration activities; environmental risks; future prices of gold; possible variationsin ore reserves, grade or recovery rates; mine development and operating risks; accidents, labour issues andother risks of the mining industry; delays in obtaining government approvals or financing or in thecompletion of development or construction activities; and other risks and uncertainties, including but notlimited to those discussed in the section entitled “Business Risk” in this MD&A. These risks anduncertainties are not, and should not be construed as being, exhaustive.Although Claude has attempted to identify important factors that could cause actual results to differmaterially from those contained in forward-looking statements, there may be other factors that cause resultsnot to be as anticipated, estimated or intended. There can be no assurance that such statements will proveto be accurate, as actual results and future events could differ materially from those anticipated in suchstatements. Accordingly, readers should not place undue reliance on forward-looking statements.Forward-looking statements in this MD&A are made as of the date of this MD&A, being March 27, 2012and, accordingly, are subject to change after such date. Except as otherwise indicated by Claude, thesestatements do not reflect the potential impact of any non-recurring or other special items that may occurafter the date hereof. Forward-looking statements are provided for the purpose of providing informationabout management’s current expectations and plans and allowing investors and others to get a betterunderstanding of our operating environment.Claude does not undertake to update any forward-looking statements that are incorporated by referenceherein, except in accordance with applicable securities laws.The forward-looking statements contained in this Management’s Discussion and Analysis areexpressly qualified by these cautionary statements.ADDITIONAL INFORMATIONAdditional information related to the Company, including its Annual Information Form (Form 40-F in theU.S.), is available on Canadian (www.sedar.com) and U.S. (www.sec.gov) securities regulatory authorities’websites. Certain documents are also available on the Company’s website at www.clauderesources.com.50 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 45Claude Resources Inc.CONVERSION MULTIPLESFor ease of reference, the following factors for converting metric measurements into imperial equivalentsare provided:To Convert from Metric To Imperial Multiply Metric Units byMetres Feet (ft.) 3.281Kilometres (km) Miles 0.621Tonnes Tons (2,000 pounds) 1.102Grams Troy Ounces 0.032Hectares Acres 2.471GLOSSARY OF FINANCIAL TERMSCurrent ratio = (current asset / current liabilities)Debt to capital = (total debt – cash and cash equivalents) / (total debt – cash and cash equivalents + totalshareholders’ equity)Working capital = (current asset – current liabilities)GLOSSARY OF TECHNICAL TERMSAlteration – any change in the mineral composition of a rock brought about by physical or chemicalmeans.Assaying - laboratory examination that determines the content or proportion of a specific metal (i.e.: silver)contained within a sample. Technique usually involves firing/smelting.Au Eq (“gold equivalent”) – a measure of contained metal expressed in equivalent gold grade.Biotite – a widely distributed and important rock-forming mineral of the mica group.Brecciated – broken into sharp-angled fragments surrounded by finer-grained material.Bulk Sample – a collection of representative mineralized material whose location, geologic character andmetal assay content can be determined and then used for metallurgical or geotechnical testing purposes.Chalcopyrite - a sulphide mineral of copper and iron.Chlorite – a group of platy, monoclinic, usually greenish minerals.Chloritic alteration – the replacement by, conversion into, or introduction of chlorite into a rock.Core Samples - the cylindrical form of rock called “core” that is extracted from a diamond drill hole.Mineralized sections are separated and these samples are sent to a laboratory for analysis.Cross-cut - a horizontal opening driven from a shaft or haulage drift at an oblique or right angle to thestrike of a vein or other orebody.Cut-off Grade - the lowest grade of mineralized material that qualifies as a reserve in a deposit (i.e.:contributing material of the lowest assay that is included in a reserve estimate).Annual Report 2012 51
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 46Claude Resources Inc.Diamond Drilling – a type of rotary drilling in which diamond bits are used as the rock-cutting tool toproduce a recoverable drill core sample of rock for observation and analysis.Dip – the angle that a structural surface, a bedding or fault plane makes with the horizontal, measuredperpendicular to the strike of the structure.Drift - a horizontal underground opening that follows along the length of a vein or rock formation.Duty to Consult - governments in Canada may have a duty to consult with and potentially accommodateAboriginal groups prior to making decisions which may impact lands and resources subject to establishedor potential treaty or Aboriginal rights, title or other claims. These governments, in turn, may delegateprocedural aspects of this duty to industry.Exploration – work involved in searching for ore, from prospecting to diamond drilling or driving a drift.Fault – a fracture or break in rock along which there has been movement.Feasibility Study – a comprehensive technical and economic study of the selected development option fora mineral project that includes appropriately detailed assessments of realistically assumed mining,processing, metallurgical, economic, marketing, legal, environmental, social and governmentalconsiderations together with any other relevant operational factors and detailed financial analysis, that arenecessary to demonstrate at the time of reporting that extraction is reasonably justified (economicallymineable). The results of the study may reasonably serve as the basis for a final decision by a proponent orfinancial institution to proceed with, or finance, the development of the project. The confidence level of thestudy will be higher than that of a Prefeasibility Study.Fire Assay - the assaying of metallic minerals by use of a miniature smelting procedure with variousagents.Footwall - the rock on the underside of a vein or ore structure.Fracture – a break or crack in rock.Geophysical Survey - a scientific method of prospecting that measures the physical properties of rockformations. Common properties investigated include magnetism, specific gravity, electrical conductivityand radioactivity.Grade – the metal content of rock with precious metals, grade can be expressed as troy ounces or gramsper tonne of rock.Granitoid – a light-coloured, plutonic rock with quartz between 20 and 60 percent.Head Grade – the average grade of ore fed into a mill.Hydrothermal – the products or the actions of heated waters in a rock mass such as a mineral depositprecipitating from a hot solution.Igneous – a primary type of rock formed by the cooling of molten material.Indicated Mineral Resource – is that part of a Mineral Resource for which quantity, grade or quality,densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow theappropriate application of technical and economic parameters, to support mine planning and evaluation of theeconomic viability of the deposit. The estimate is based on detailed and reliable exploration and testinginformation gathered through appropriate techniques from locations such as outcrops, trenches, pits, workingsand drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.52 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 47Claude Resources Inc.Inferred Mineral Resource – is that part of a Mineral Resource for which quantity and grade or quality canbe estimated on the basis of geological evidence and limited sampling and reasonably assumed, but notverified, geological and grade continuity. The estimate is based on limited information and sampling gatheredthrough appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.Lens - a body of ore that is thick in the middle and tapers towards the ends.Lithostructural – an assemblage of rocks that is unified on the basis of structural and lithological features.Mafic - igneous rocks composed mostly of dark, iron and magnesium-rich minerals.Measured Mineral Resource - is that part of a Mineral Resource for which quantity, grade or quality,densities, shape, and physical characteristics are so well established that they can be estimated withconfidence sufficient to allow the appropriate application of technical and economic parameters, to supportproduction planning and evaluation of the economic viability of the deposit. The estimate is based ondetailed and reliable exploration, sampling and testing information gathered through appropriate techniquesfrom locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough toconfirm both geological and grade continuity.Metallurgy – the study of the extractive processes which produce minerals from their host rocks.Mill - a processing facility where ore is finely ground and thereafter undergoes physical or chemicaltreatment to extract the valuable metals.Mineral – a naturally formed chemical element or compound having a definitive chemical composition andusually a characteristic crystal form.Mineralization – a natural concentration in rocks or soil of one or more minerals.Mineral Reserve – the economically mineable part of a Measured or Indicated Mineral Resourcedemonstrated by at least a Prefeasibility Study. This study must include adequate information on mining,processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting,that economic extraction can be justified. A Mineral Reserve includes diluting materials and allowancesfor losses that may occur when material is mined.Mineral Resource – a concentration or occurrence of natural, solid, inorganic, or fossilized organicmaterial in or on the Earth’s crust in such form and quantity and of such a grade or quality that it hasreasonable prospects for economic extraction. The location, quantity, grade, geological characteristics, andcontinuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence andknowledge.National Instrument 43-101 or NI 43-101 – National Instrument 43-101 Standards of Disclosure forMineral Projects of the Canadian Securities Administrators.Ounces - troy ounces of a fineness of 999.9 parts per 1,000 parts.Ore - rock, generally containing metallic or non-metallic minerals, which can be mined and processed at aprofit.Ore Body - a sufficiently large amount of ore that can be mined economically.Plunge - the vertical angle a linear geological feature makes with the horizontal plane.Porphyry - any igneous rock in which relatively large crystals are set in a fine-grained groundmass.Annual Report 2012 53
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 48Claude Resources Inc.Prefeasibility Study – a comprehensive study of the viability of a mineral project that has advanced to astage where the mining method, in the case of underground mining, or the pit configuration, in the case ofan open pit, has been established, and where an effective method of mineral processing has beendetermined. This study must include a financial analysis based on reasonable assumptions of technicalengineering, operating, and economic factors, which are sufficient for a Qualified Person acting reasonably,to determine if all or part of the Mineral Resource may be classified as a Mineral Reserve.Probable Mineral Reserve – the economically mineable part of an Indicated, and in some circumstances,a Measured Mineral Resource, demonstrated by at least a Prefeasibility Study. This study must includeadequate information on mining, processing, metallurgical, economic and other relevant factors thatdemonstrate, at the time of reporting, that economic extraction can be justified.Proven Mineral Reserve – the economically mineable part of a Measured Mineral Resource demonstratedby at least a Prefeasibility Study. This study must include adequate information on mining, processing,metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economicextraction is justified.Pulp - a mixture of ground ore and water.Pyrite - an iron sulphide mineral (FeS2), the most common naturally occurring sulphide mineral.Pyrrhotite - a bronze-colored, often magnetic iron sulphide mineral.Qualified Person – an individual who is an engineer or geoscientist with at least five (5) years ofexperience in mineral exploration, mine development, mine operation, project assessment or anycombination of these; has experience relevant to the subject matter of the mineral project and technicalreport; and is a member in good standing of a professional association.Quartz – crystalline silica; often forming veins in fractures and faults within older rocks.Raise - a vertical or inclined underground working that has been excavated from the bottom upward.Ramp - an inclined underground opening.Sericite – a fine-grained potassium mica found in various metamorphic rocks.Shear Zone - a zone in which shearing has occurred on a large scale so that the rock is crushed andbrecciated.Showing - surface occurrence of mineral.Shrinkage Stoping – any mining method in which broken ore is temporarily retained in the stope toprovide a working platform and/or to offer temporary support to the stope walls during active mining.Sill - an intrusive sheet of igneous rock of roughly uniform thickness that has been forced between thebedding planes of existing rock; the initial horizontal drift along the strike of the ore vein.Specific Gravity - the ratio between the weight of a unit volume of a substance and that of a unit volume ofwater.Stope - an underground excavation from which ore has been extracted, either above or below a level. Accessto stopes is usually by way of adjacent raises.Stratigraphy – the sequence of bedded rocks in a particular area.54 TSX:CRJ | NYSE MKT: CGR
  • 2012 Annual Management’s Discussion and Analysis(in thousands of CDN dollars, except as otherwise noted) Page 49Claude Resources Inc.Tailings - Tailings consist of ground rock and process effluents that are generated in a mine processing plantor mill. Mechanical and chemical processes are used to extract gold from mine ore and produce a wastestream known as tailings. This process of product extraction is never 100 percent efficient, nor is it possible toreclaim all reusable and expended processing reagents and chemicals. The unrecoverable and uneconomicmetals, minerals, chemicals, organics and process water are discharged, normally as slurry, to a final storagearea commonly known as a Tailings Management Facility (TMF) or Tailings Storage Facility (TSF).Till - is unsorted glacial sediment. Its content may vary from clays to mixtures of clay, sand, gravel andboulders. This material is typically derived from the subglacial erosion and incorporated by the moving ice ofthe glaciers of previously available unconsolidated sediments.Tonne – a metric ton or 2,204 pounds.Trenching - the process of exploration by which till is removed from a trench cut from the earth’s surface.Vein – a thin, sheet-like, cross-cutting body of hydrothermal mineralization, principally quartz.Waste – barren rock in a mine, or mineralized material that is too low in grade to be mined and milled at aprofit.Working interest or WI - means the interest held by Claude in property. This interest normally bears itsproportionate share of capital and operating costs as well as royalties or other production burdens. Theworking interest percentage is expressed before royalty interests.Annual Report 2012 55
  • MANAGEMENTS RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTSNeil McMillan Rick Johnson, C.A.Chief Executive Officer Chief Financial OfficerDate: March 27, 2013The accompanying consolidated financial statements of Claude Resources Inc. are the responsibility of Management andhave been approved by the Board of Directors.The consolidated financial statements have been prepared by Management in conformity with International FinancialReporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). The consolidatedfinancial statements include amounts that are based on estimates and judgments. Financial information used elsewhere in theannual report is consistent with that in the financial statements.The Management of the Company, in furtherance of the integrity and objectivity of data in the financial statements, hasdeveloped and maintains a system of internal accounting controls. These internal accounting controls provide reasonableassurance that financial records are reliable, form a proper basis for preparation of financial statements and that assets areproperly accounted for and safeguarded. The internal accounting control process includes Managements communication toemployees of policies which govern ethical business conduct.The Board of Directors carries out its responsibility for the consolidated financial statements in this annual report principallythrough its audit committee, consisting of independent directors. The audit committee reviews the Companys annualconsolidated financial statements and recommends their approval to the Board of Directors. The shareholders auditors havefull access to the audit committee, with and without Management being present.These consolidated financial statements have been audited by the shareholders auditors, KPMG LLP, CharteredAccountants, in accordance with Canadian generally accepted auditing standards.Page 5056 TSX:CRJ | NYSE MKT: CGR
  • KPMG LLP Telephone (306) 934-6200Chartered Accountants Fax (306) 934-6233500 – 475 Second Avenue South Internet www.kpmg.caSaskatoon Saskatchewan S7K 1P4CanadaKPMG LLP, is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMGInternational Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.INDEPENDENT AUDITORS’ REPORTTo the Shareholders of Claude Resources Inc.We have audited the accompanying consolidated financial statements of Claude Resources Inc., whichcomprise the consolidated statements of financial position as at December 31, 2012 and December 31,2011, the consolidated statements of income, comprehensive income, changes in equity and cash flowsfor the years then ended, and notes, comprising a summary of significant accounting policies and otherexplanatory information.Management’s Responsibility for the Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with International Financial Reporting Standards as issued by the InternationalAccounting Standards Board, and for such internal control as management determines is necessary toenable the preparation of consolidated financial statements that are free from material misstatement,whether due to fraud or error.Auditors’ ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on ouraudits. 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 toobtain reasonable assurance about whether the consolidated financial statements are free from materialmisstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe consolidated financial statements. The procedures selected depend on our judgment, including theassessment of the risks of material misstatement of the consolidated financial statements, whether due tofraud or error. In making those risk assessments, we consider internal control relevant to the entity’spreparation and fair presentation of the consolidated financial statements in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion onthe effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by management, as wellas 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 providea basis for our audit opinion.OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, theconsolidated financial position of Claude Resources Inc. as at December 31, 2012 and December 31,2011, and its consolidated financial performance and its consolidated cash flows for the years then endedin accordance with International Financial Reporting Standards as issued by the International AccountingStandards Board.Page 51Annual Report 2012 57
  • KPMG LLP, is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMGInternational Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.Emphasis of MatterWithout qualifying our opinion, we draw attention to Note 2 in the consolidated financial statements, whichindicates that Claude Resources Inc. has a working capital deficiency of $4,100,000 which includesdebentures amounting to $9,665,000 that are due to be repaid on May 23, 2013. This condition, alongwith matters as set forth in Note 2 in the consolidated financial statements, indicate the existence of amaterial uncertainty that casts substantial doubt about Claude Resources Inc.’s ability to continue as agoing concern.Chartered AccountantsMarch 27, 2013Saskatoon, CanadaPage 5258 TSX:CRJ | NYSE MKT: CGR
  • Annual Report 2012 59 Consolidated Statements of Financial Position(In Thousands of Canadian Dollars)DECEMBER 31 DECEMBER 312012 2011NoteAssetsCash and cash equivalents $ - $ 2,529Short-term investments - 33,168Accounts receivable 4,845 2,714Inventories 6 19,178 13,366Prepaid expenses and deposits 277 227Current assets 24,300 52,004Mineral properties 7 207,602 149,794Deferred income tax asset - 998Investments 8 378 2,854Deposits for reclamation costs 9 2,237 2,237Non-current assets 210,217 155,883Total assets $ 234,517 $ 207,887LiabilitiesBank indebtedness $ 3,531 $ -Accounts payable and accrued liabilities 7,533 5,737Debenture 11 9,665 -Loans and borrowings 11 6,832 3,015Net royalty obligation 10 836 854Current liabilities 28,397 9,606Debenture 11 - 9,452Loans and borrowings 11 291 1,786Deferred income tax liability 17 1,097 -Net royalty obligation 10 3,205 4,435Decommissioning and reclamation 9 9,163 9,713Non-current liabilities 13,756 25,386Shareholders equityShare capital 12 193,189 180,531Contributed surplus 6,652 4,796Accumulated deficit (7,502) (13,071)Accumulated other comprehensive income 25 639Total shareholders equity 192,364 172,895Total liabilities and shareholders equity $ 234,517 $ 207,887Going concern 2Commitments and contingencies 19Subsequent event 22See accompanying notes to consolidated financial statements.On behalf of the Board:Ted J. Nieman, Q.C. Ronald J. Hicks, C.A.Chairman Chairman, Audit Committee
  • 60 TSX:CRJ | NYSE MKT: CGR Consolidated Statements of Income(In Thousands of Canadian Dollars, except per share amounts)DECEMBER 312012 2011NoteRevenue $ 80,808 $ 69,659Mine Operating:Production costs 48,535 40,542Depreciation and depletion 15,681 11,40764,216 51,949Gross profit 16,592 17,710General and administrative 7,897 6,779Finance expense 13 1,450 3,051Finance and other income 14 (1,495) (1,623)Write-down of exploration property 7 - 851Gain on sale of exploration property 8 - (1,131)Loss (gain) on investments 199 (35)8,051 7,892Profit before income tax 8,541 9,818Deferred income tax expense 17 2,972 364Net profit $ 5,569 $ 9,454Net earnings per shareBasic and diluted 18Net earnings $ 0.03 $ 0.06Weighted average common shares outstanding for the year:Basic 172,933 156,062Diluted 173,232 158,410See accompanying notes to consolidated financial statements.Consolidated Statements of Comprehensive Income(In Thousands of Canadian Dollars)2012 2011NoteNet profit $ 5,569 $ 9,454Other comprehensive income (loss)17 172 (30)17 (786) (2,084)Other comprehensive income (loss) (614) (2,114)Total comprehensive income $ 4,955 $ 7,340See accompanying notes to consolidated financial statements.DECEMBER 31Loss (gain) on available-for-sale securities transferred to profit, net of taxUnrealized gain (loss) on available-for-sale securities, net of tax
  • Annual Report 2012 61 Consolidated Statements of Shareholders Equity(In Thousands of Canadian Dollars)DECEMBER 312012 2011Share CapitalBalance, beginning of year $ 180,531 $ 122,751Common shares issued 12,392 54,840Warrants exercised - 2,656Transfers from contributed surplus 266 284Balance, end of year $ 193,189 $ 180,531Contributed SurplusBalance, beginning of year $ 4,796 $ 3,089Stock-based compensation 2,280 1,991Transfers to share capital (266) (284)Tax impact of expired warrants (158) -Balance, end of year $ 6,652 $ 4,796Accumulated DeficitBalance, beginning of year $ (13,071) $ (22,525)Net profit 5,569 9,454Balance, end of year $ (7,502) $ (13,071)Accumulated Other Comprehensive Income (Loss)Balance, beginning of year $ 639 $ 2,753(614) (2,114)Balance, end of year $ 25 $ 639Shareholders equity, end of year $ 192,364 $ 172,895See accompanying notes to consolidated financial statements.Other comprehensive income (loss)
  • 62 TSX:CRJ | NYSE MKT: CGR Consolidated Statements of Cash Flows(In Thousands of Canadian Dollars)DECEMBER 312012 2011NoteCash flows from (used in) operating activitiesNet profit $ 5,569 $ 9,454Adjustments for non-cash items:Depreciation and depletion 15,681 11,407Finance expense 388 361Finance and other income (1,248) (1,109)Loss (gain) on investments 199 (35)Stock-based compensation 2,280 1,991Write-down of exploration property 7 - 851Gain on sale of exploration property 8 - (1,131)Deferred income tax expense 17 2,972 36425,841 22,153Net changes in non-cash operating working capital:Accounts receivable (2,131) 2Inventories (4,988) (3,748)Prepaid expenses and deposits (50) 269Accounts payable and accrued liabilities 1,796 958Cash provided by operating activities 20,468 19,634Cash flows from investing activities:Additions to mineral properties (62,527) (51,172)Restricted cash - 4,389Reclamation deposits - 40Decrease (increase) in investments 33,306 (32,972)Cash used in investing activities (29,221) (79,715)Cash flows from financing activities:371 56,464Debenture redemption - (87)Demand loans:Proceeds 7,224 -Repayments (2,783) (1,603)Obligations under finance lease:Proceeds - 4,077Repayments (2,119) (2,642)Cash from financing activities 2,693 56,209Decrease in cash and cash equivalents (6,060) (3,872)Cash and cash equivalents, beginning of year 2,529 6,401Cash and cash equivalents (bank indebtedness), end of year $ (3,531) $ 2,529Supplemental cash flow disclosure:Interest paid $ 1,514 $ 1,321See accompanying notes to consolidated financial statements.Proceeds from issue of common shares and warrants, net of issue costs
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 571. Corporate Information:Claude Resources Inc. (“Claude” or the “Company”) is a company domiciled in Canada. The address of the Company’sregistered office is at 1500, 410 – 22ndStreet East, Saskatoon, Saskatchewan, S7K 5T6. Its principal office is located at200, 224 – 4thAvenue South, Saskatoon, Saskatchewan, S7K 5M5.Claude Resources Inc. is a gold producer whose shares are listed on both the Toronto Stock Exchange (TSX-CRJ) andthe NYSE MKT (NYSE MKT-CGR). The Company is also engaged in the exploration and development of goldmineral reserves and mineral resources. The Company’s entire asset base is located in Canada. Its revenue generatingasset is the 100 percent owned Seabee Gold Operation, located in northern Saskatchewan. Claude also owns 100percent of the Amisk Gold Project in northeastern Saskatchewan and 100 percent of the Madsen Property in the RedLake gold camp of northwestern Ontario.2. Basis of Preparation:STATEMENT OF COMPLIANCEThese consolidated financial statements have been prepared in accordance with International Financial ReportingStandards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).These consolidated financial statements were authorized for issue by the Company’s Board of Directors on March 27,2013.BASIS OF MEASUREMENTThese consolidated financial statements have been prepared on the historical cost basis except for derivative financialinstruments, available-for-sale financial assets and liabilities for cash-settled share-based payment arrangements, whichare measured at fair value.FUNCTIONAL CURRENCYThese consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency.All financial information presented in Canadian dollars has been rounded to the nearest thousand, except share data oras otherwise noted.GOING CONCERNThese consolidated financial statements have been prepared on the assumption that the Company will continue as agoing concern and realize its assets and discharge its liabilities in the normal course of business, which assumes theCompany will be able to meet the mandatory debenture repayment coming due on May 23, 2013 (Note 11). As atDecember 31, 2012, the Company has a working capital deficiency of $4.1 million. The working capital deficiencyresults primarily from the Company’s debentures amounting to $9.7 million (Note 11) that are classified as a currentliability as their contractual repayments terms are due in less than one year.As a part of the Company’s plan to refinance the outstanding debenture obligations, the Company, subsequent toDecember 31, 2012, executed a non-binding term sheet with Crown Capital Partners Inc. (“CCP”) for an additionallong-term debt facility of $25.0 million (Note 22). The Company is currently in final negotiations to close this newdebt facility which will provide liquidity for the repayment of the outstanding debentures as they come due on May 23,2013. There can be no assurance that the Company will be able to finalize and close the debt facility at the termsspecified in the non-binding term sheet, or at all. The uncertainty of closing the new debt facility to refinance theCompany’s working capital deficiency, attributable to the debenture repayment requirement in May 2013, results in amaterial uncertainty and therefore casts substantial doubt as to the Company’s ability to continue as a going concern. Ifthe Company is unable to finalize and close the debt facility, it would be required to obtain additional sources offinancing (debt or equity).The financial statements do not reflect adjustments that would be necessary if the going concern assumption were notappropriate. If the going concern basis was not appropriate for these financial statements, then adjustments would benecessary to the carrying value of assets and liabilities, the reported revenues and expenses, and the statement ofAnnual Report 2012 63
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 58financial position classifications used.USE OF JUDGMENTS AND ESTIMATESThe preparation of the Company’s consolidated financial statements in conformity with IFRS requires Management tomake judgments, estimates and assumptions that affect the application of accounting policies and the reported amountsof assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of theconsolidated financial statements. Significant judgments, estimates and assumptions are related to the useful lives andrecoverability of mineral properties and deferred income tax assets or liabilities, valuation of inventory, provisions fordecommissioning and reclamation and financial instruments.Although these estimates are based on Management’s best knowledge of the amount, events or actions, actual resultsultimately may differ from those estimates.Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates arerecognized in the period in which the estimates are revised and in any future periods affected.Critical Judgments in Applying Accounting PoliciesCritical judgments that the Company’s management has made in the process of applying the Company’s accountingpolicies, apart from those involving estimates, that have the most significant effect on the amounts recognized in theCompany’s consolidated financial statements are as follows:Production Start DateThe Company assesses the stage of each mine under construction to determine when a mine moves into commercialproduction. The criteria used to assess the start date of commercial production are based on the unique nature of eachmine construction project, such as the complexity of the geology and its location. The Company considers variousrelevant criteria to assess when the mine construction phase is substantially complete and the mine is ready for itsintended use. At this point, deferred costs are reclassified from “Mines under construction” to “Producing mines” and“Property, plant and equipment”. Some of the criteria will include, but are not limited, to the following:• Completion of a reasonable period of testing of the mine plant and equipment;• Ability to produce precious metal in saleable form;• Ability to sustain certain levels of ongoing production of precious metals; and• Production attaining a reasonable percentage of Mine Plan for a specified period of time.When a mine enters the production stage, the capitalization of certain construction costs ceases and costs are eitherregarded as inventory or operating expense, except for new capital costs which are capitalized. Depreciation anddepletion commences at this time.Exploration and Evaluation ExpendituresThe application of the Company’s accounting policy for exploration and evaluation expenditures requires judgment indetermining whether future economic benefits are likely either from future extraction or sale or where activities havenot reached a stage which permits a reasonable assessment of the existence of mineral reserves. The determination of amineral resource is itself an estimation process that involves varying degrees of uncertainty depending on sub-classification and these estimates directly impact the decision to continue the deferral of exploration and evaluationexpenditures. The accounting policy requires management to make certain estimates and assumptions about futureevents or circumstances, in particular whether an economically viable extraction operation can be established.Estimates and assumptions made may change if new information becomes available. If, after an expenditure iscapitalized, information becomes available suggesting that the recovery of this expenditure is unlikely, the amountcapitalized is written off in the statement of comprehensive income in the period when the new information becomesavailable.Business CombinationsDetermination of whether a set of assets acquired and liabilities assumed constitute a business may require theCompany to make certain judgments, taking into account all facts and circumstances. Upon acquisition of a set of assets64 TSX:CRJ | NYSE MKT: CGR
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 59and liabilities, the Company examines the criteria set forth in IFRS 3, Business Combinations (“IFRS 3”). If atransaction does not meet the definition of a business, as defined in IFRS 3, it is accounted for as an asset acquisition.Critical Estimates and Assumptions in Applying Accounting PoliciesSignificant assumptions about the future and other major sources of estimation uncertainty as at the end of the reportingperiod that have a significant risk of resulting in a material adjustment to the carrying amounts of the Company’s assetsand liabilities are as follows:ImpairmentAt the end of each reporting period, the Company assesses whether any indication of impairment exist. Where anindicator of impairment exists, an estimate of the recoverable amount is made. Determining the recoverable amountrequires the use of estimates and assumptions such as long-term commodity prices, discount rates, future capitalrequirements, exploration potential and operating performance. Changes in circumstances may affect these estimatesand the recoverable amount.Fair value for mineral properties is generally determined as the present value of estimated future cash flows arisingfrom the continued use of the assets, which includes estimates such as the cost of future expansion plans and eventualdisposal, using assumptions that an independent market participant would take into account. Cash flows are discountedto their present value using a post-tax discount rate that reflects current market assessments of the time value of moneyand the risks specific to the asset.Mine Operating CostsWhen determining mine operating costs recognized in the Consolidated Statements of Income, the Company makesestimates of quantities of ore within stockpiles and of quantities in-circuit and the recoverable gold in this material todetermine the average costs of finished goods sold during the period. Changes in these estimates can result in a changein mine operating costs of future periods and carrying amounts of inventories.Ore Reserve and Resource EstimatesOre reserves are estimates of the amount of ore that can be economically extracted from the Company’s miningproperties. Estimating the quantities and grades of the reserves and resources requires the size, shape and depth of theore bodies to be determined by analyzing geological data such as the logging and assaying of drill samples. This processmay require complex and difficult geological judgments and calculations to interpret the data. The estimation ofrecoverable reserves is based upon factors such as estimates of foreign exchange rates, commodity prices, future capitalrequirements and production costs along with geological assumptions and judgments made in estimating the size andgrade of the ore body.Because the economic assumptions used to estimate the gold mineral reserves and resources change from year to year,and because additional geological data is generated during the course of operations, estimates of the mineral reservesand resources may change from year to year. Changes in the reserve or resource estimates may impact upon thecarrying value of exploration and evaluation assets, mine properties, property, plant and equipment, decommissioningand reclamation, recognition of deferred tax balances and depreciation and amortization charges.At the end of each financial year, the Company updates its estimate of proven and probable gold mineral reserves andresources. Depreciation of the Company’s mining assets, included within the Mineral properties line item on theStatement of Financial Position, is prospectively adjusted, based on these changes. The Company also monitors theaccuracy of the estimate during the periods between annual updates for significant changes to economic assumptionsand geological data that could require an interim update to the estimate.TaxationEstimation of deferred taxes includes judgments based on expected performance of the Company. Various factors areconsidered to assess taxes, including past operating results, operational plans, expiration of tax losses and tax poolscarried forward and tax planning strategies.Annual Report 2012 65
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 60Decommissioning and ReclamationThe Company’s mining and exploration activities are subject to various environmental laws and regulations. TheCompany estimates environmental obligations based on the current legal and constructive requirements. The Companyprovides for the closure, reclamation and decommissioning of its operating and development sites based on theestimated future costs using information available at the reporting date. Provision is made, based on net present values,for decommissioning and land restoration costs as soon as the obligation arises.Additional Accounting Judgments, Estimates and AssumptionsIn addition to the above disclosure on estimates and judgments, the Company has disclosed additional informationrelating to significant estimates and judgments recognized in the consolidated financial statements throughout thefollowing notes:Note 7 Mineral PropertiesNote 8 InvestmentsNote 9 Decommissioning and ReclamationNote 10 Net Royalty ObligationNote 12 Share-based CompensationNote 17 Income TaxesNote 19 Financial Instruments3. Significant Accounting Policies:The accounting policies utilized by Management for the Company and its wholly owned subsidiaries have been appliedconsistently to all periods presented in these consolidated financial statements, unless otherwise indicated.CONSOLIDATION PRINCIPLESThe consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Theseconsolidated financial statements include the Company’s proportionate share of joint ventures. Intercompanytransactions have been eliminated on consolidation. The financial statements of the subsidiaries are prepared using thesame reporting dates as the Company.FOREIGN CURRENCY TRANSLATIONThe Company’s functional and presentation currency is the Canadian dollar. Transactions denominated in foreigncurrencies are translated into Canadian dollars at the rate of exchange prevailing at the date of the transaction. Monetaryassets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange ineffect at the date of the Statement of Financial Position. Non-monetary items are translated at the rate in effect at thedate of the transaction. Exchange gains and losses on these transactions are included in profit (loss).FINANCIAL INSTRUMENTSNon-derivative Financial AssetsThe Company initially recognizes loans and receivables and deposits on the date they originate. All other financialassets (including assets designated at fair value through profit or loss) are recognized initially on the trade date at whichthe Company becomes a party to the contractual provisions of the instrument.The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or ittransfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially allthe risks and rewards of ownership of the financial asset are transferred.Financial assets and liabilities are offset and a net asset amount is presented in the Statement of Financial Positionwhen, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis orto realize the asset and settle the liability simultaneously.The Company’s non-derivative financial assets include: held-to-maturity financial assets; loans and receivables; and66 TSX:CRJ | NYSE MKT: CGR
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 61available-for-sale financial assets.Held-to-maturity financial assetsIf the Company has the positive intent and ability to hold debt securities to maturity, then such financial assets areclassified as held-to-maturity. Held-to-maturity financial assets are recognized initially at fair value plus any directlyattributable transaction costs. Subsequent to initial recognition, held-to-maturity financial assets are measured atamortized cost using the effective interest method, less any impairment losses. Any sale or reclassification of a morethan insignificant amount of held-to-maturity investments not close to their maturity would result in the reclassificationof all held-to-maturity investments as available-for-sale, and prevent the Company from classifying investmentsecurities as held-to-maturity for the current and the following two fiscal years.The Company’s held-to-maturity financial assets are deposits for reclamation costs.Loans and receivablesLoans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market.Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initialrecognition, loans and receivables are measured at amortized cost using the effective interest method, less anyimpairment losses.The Company’s loans and receivables are comprised of: cash and cash equivalents; accounts receivable; and short-terminvestments.Cash and cash equivalents comprise cash balances and deposits with original maturities of three months or less. Bankoverdrafts, if utilized, are repayable on demand, form an integral part of the Company’s cash management and areincluded as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows. The Companyonly deposits cash surpluses with major banks of high quality credit standing. Cash on hand earns interest at floatingrates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and threemonths, depending on the immediate cash requirements of the Company, and earn interest at the respective short-termdeposit rates.Available-for-sale financial assetsAvailable-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale and arenot classified in any of the previous categories of financial assets. Available-for-sale financial assets are recognizedinitially at fair value plus any directly attributable transaction costs.Subsequent to initial recognition, these assets are measured at fair value and changes therein, other than impairmentlosses, are recognized in other comprehensive income and presented within equity. When an investment isderecognized through sale or has an impairment that is other than temporary, the cumulative gain or loss in othercomprehensive income is transferred to profit or loss.The Company’s investments in equity securities are classified as available-for-sale financial assets.Non-derivative Financial LiabilitiesThe Company initially recognizes debt securities issued and subordinated liabilities on the date that they originate. Allother financial liabilities (including liabilities designated at fair value through profit or loss) are recognized initially onthe trade date at which the Company becomes a party to the contractual provisions of the instrument.The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.The Company has the following non-derivative financial liabilities: demand loans; bank overdrafts in the form of a lineof credit; accounts payable and accrued liabilities; and the Company’s debenture.Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequentto initial recognition these financial liabilities are measured at amortized cost using the effective interest method.Annual Report 2012 67
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 62Share CapitalCommon sharesCommon shares are classified as equity. Incremental costs directly attributable to the issue of common shares arerecognized as a deduction from equity, net of any tax effects.Flow-through sharesFrom time to time, the Company may finance a portion of its exploration activities through the issue of flow-throughshares. The premium paid for flow through shares in excess of the market value of the shares without the flow-throughfeatures at the time of issue is credited to other liabilities and included in income at the time the qualifying expendituresare made.DebentureThe Company’s debenture was issued with common share purchase warrants. The debenture and common sharepurchase warrants are presented separately on the Company’s Statement of Financial Position. Transaction costsincurred with the completion of this debenture have been netted against the proceeds received. The liability portion ofthe debenture has been designated as an other financial liability and was initially recognized at fair value. Subsequentto initial recognition, the debenture is measured at amortized cost using the effective interest method. The commonshare purchase warrants were initially recognized at fair value and are not remeasured subsequent to initial recognition.Derivative and Other Financial InstrumentsDerivative financial instruments, which include foreign exchange and gold derivative contracts, are not designated as hedges.These instruments are recorded using the mark-to-market method of accounting whereby the instruments are recorded in theconsolidated Statement of Financial Position at their fair value as either an asset or liability with changes in fair valuerecognized in profit or loss. Transaction costs are expensed as incurred.Effective Interest Rate MethodThe Company utilizes the effective interest rate method when accounting for certain of its financial instruments. Theeffective interest rate method is a method of calculating the amortized cost of a financial asset or a financial liability (orgroup of financial assets or financial liabilities) and of allocating the interest income or interest expense over therelevant period. The effective interest rate is the rate that discounts estimated future cash payments or receipts throughthe expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of thefinancial asset or financial liability. When calculating the effective interest rate, the Company estimates cash flowsconsidering all contractual terms of the financial instrument.INVENTORIESInventories are comprised of broken ore, gold in-circuit and consumable materials and supplies. Broken ore representsmaterial that, at the time of extraction, the Company expects to process into a saleable form and sell at a profit. Ore isrecorded as an asset that is classified within inventory as material is extracted from underground mines. Ore containedin stockpiles is initially measured by estimating the number of tonnes added and removed from the stockpile, and thenconverted to estimated ounces of gold contained therein based on assay data and applying estimated metallurgicalrecovery rates (based on the expected processing method). As ore is processed, costs are removed based on recoverablequantities of gold and each stockpile’s average cost per unit.Ore is accumulated in stockpiles which are subsequently processed into gold dore in a saleable form under a mine planthat takes into consideration optimal scheduling of production of the Company’s reserves, present plant capacity and themarket price of gold. Gold contained in the milling circuit represents gold that the Company counts as production but isnot yet in a saleable form. Gold contained in the milling circuit and in stockpiled ore on surface is valued at the lowerof cost and net realizable value. Costs include labour, equipment costs and operating overhead.Material and supplies inventory is valued at the lower of cost and net realizable value. Any provision for obsolescenceis determined by reference to specific stock items identified as obsolete.68 TSX:CRJ | NYSE MKT: CGR
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 63MINERAL PROPERTIESThe Company holds various positions in mining interests, including exploration rights, mineral claims, mining leases,unpatented mining leases and options to acquire mining claims or leases. All of these positions are classified as mineralproperties for financial statement purposes.Recognition and MeasurementAll costs related to the acquisition, exploration and development of mineral properties and the development of millingassets are capitalized on a property by property basis. These costs include expenditure that is directly attributable to theacquisition of the asset, as well as development costs on producing properties incurred to develop future producingassets. Development costs on producing properties include only expenditures incurred to develop reserves or fordelineation of existing reserves. Interest on debt directly related to the acquisition and development of mineralproperties is capitalized until commencement of commercial production. Expenditures for maintenance and repairs arecharged to operations expenses as incurred. The cost of self-constructed assets includes the cost of materials and directlabour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costsof dismantling and removing the items and restoring the site on which they are located, and borrowing costs onqualifying assets. Items of property, plant and equipment are measured at cost less accumulated depreciation andaccumulated impairment losses.The decision to develop a mine property within a project area is based on an assessment of the commercial viability ofthe property and the availability of financing. Once the decision to proceed to development is made, development andother expenditures relating to the project area are reclassified and disclosed as part of mineral properties with theintention that these will be depreciated by charges against earnings from future mining operations. No depreciation ischarged against the property until commercial production commences. After a mine property has been brought intocommercial production, costs of additional work on that property are expensed as incurred, except for new developmentcosts which are capitalized.When material components of property, plant and equipment have different useful lives, they are accounted for asseparate items (major components) of property, plant and equipment and depreciated separately.Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceedsfrom disposal with the carrying amount of property, plant and equipment, and are recognized within other income inprofit or loss.Subsequent CostsThe cost of replacing a part of an item of property, plant and equipment is added to the carrying amount of the item if itis probable that the future economic benefits embodied within the part will flow to the Company, and its cost can bemeasured reliably. The carrying amount of the replaced part is removed. The costs of the day-to-day servicing ofproperty, plant and equipment are recognized in profit or loss as incurred.Depreciation and DepletionDepreciation (on those assets subject to depreciation) is calculated over the depreciable amount (which is the cost of anasset, less its residual value, if any) using either the straight-line method or the units of production method. Depletion iscalculated over the net book value using the units of production method. Land is shown at cost and not depreciated ordepleted.Upon commencement of commercial production, the cost of mine development, mine buildings, plant and equipmentdirectly used in production are amortized using the shorter of the unit of production method over estimated recoverableore reserves or the useful life of the asset. Estimated recoverable ore reserves include proven and probable mineralreserves.Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted ifappropriate.Annual Report 2012 69
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 64EXPLORATION AND EVALUATION EXPENDITURESExploration and evaluation expenditures are those expenditures incurred by the Company in connection with theexploration for and evaluation of mineral resources before the technical feasibility and commercial viability ofextracting a mineral resource are demonstrable.Pre-exploration expenditures are expensed as incurred.All direct costs related to the acquisition and exploration of resource property interests are capitalized by property.Exploration and evaluation assets include expenditures on acquisition of rights to explore, studies, exploratory drilling,trenching, sampling, and other direct costs related to exploration or evaluation of a project. General and administrativecosts are only included in the measurement of exploration and evaluation costs where they are related directly tooperational activities in a particular area of interest. Exploration and evaluation assets are initially measured at cost andclassified as tangible assets.An impairment review of exploration and evaluation assets is performed, either individually or at the cash-generatingunit (“CGU”) level, when there are indicators that the carrying amount of the assets may exceed their recoverableamounts. To the extent that this occurs, the excess is fully provided for, in the financial period in which this isdetermined. Exploration and evaluation assets are reassessed on a regular basis and these costs are carried forwardprovided that at least one of the conditions below is met:• such costs are expected to be recouped in full through successful development and exploration of the area ofinterest or alternatively, by its sale; or• exploration and evaluation activities in the area of interest have not yet reached a stage that permits areasonable assessment of the existence or otherwise of economically recoverable reserves, and active andsignificant operations in relation to the area are continuing, or planned for the future.Where a project is determined to be technically or commercially feasible and a decision has been made to proceed withdevelopment with respect to a particular area of interest, the relevant exploration and evaluation asset is tested forimpairment and the balance is reclassified as a development asset in mineral properties.LEASESLeases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified asfinance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its cost or thepresent value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for inaccordance with the accounting policy applicable to that asset. Other leases are operating leases and the leased assetsare not recognized in the Company’s statement of financial position.DECOMMISSIONING AND RECLAMATIONThe mining, extraction and processing activities of the Company normally give rise to legal and / or a constructiveobligation for site closure or environmental restoration. Closure and restoration can include property decommissioningand dismantling, removal or treatment of waste materials, as well as site and land restoration. The Company providesfor the closure, reclamation and decommissioning of its operating and development sites based on the estimated futurecosts using information available at the reporting date. Costs included in the provision comprise all closure andrestoration activity expected to occur gradually over the life of the operation and at the time of closure. Routineoperating costs that may impact the ultimate closure and restoration activities, such as waste material handlingconducted as a normal part of a mining or production process, are not included in the provision.The amount of the provision recognized is estimated based on the risk adjusted costs required to settle the presentobligation, discounted using a pre-tax risk-free discount rate consistent with the probability weighted expected cashflows.When the provision is initially recorded, a corresponding asset is recognized. At each reporting date the restoration andrehabilitation provisions are remeasured in line with changes in discount rates and timing or amounts of the costs to beincurred.70 TSX:CRJ | NYSE MKT: CGR
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 65Changes in the provision relating to mine rehabilitation and restoration obligations, which are not the result of thecurrent production of inventory, are added to or deducted from the related asset, other than the unwinding of thediscount which is recognized as a finance cost in the Statements of Income. Changes to the provision for reclamationand remediation obligations related to operating mines, which are not the result of current production of inventory, arerecorded with an offsetting change to the related asset. For properties where mining activities have ceased or are inreclamation, changes are charged directly to earnings.IMPAIRMENTFinancial AssetsA financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whetherthere is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a lossevent has occurred after the initial recognition of the asset and that the loss event will have a negative effect on theestimated future cash flows of that asset.Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency bya debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise,indications that a debtor or issuer will enter bankruptcy, or the disappearance of an active market for a security. Inaddition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost isobjective evidence of impairment.At the end of each reporting period, the Company assesses whether there is objective evidence that a financial asset orgroup of financial assets is impaired. With respect to available-for-sale securities, for which unrealized gains and lossesare generally recognized in Other Comprehensive income (“OCI”), a significant or prolonged decline in the fair valueof the investment below its cost may be evidence that the assets are impaired. If objective evidence of impairment wereto exist, the impaired amount (i.e. the unrealized loss) would be recognized in profit (loss); any subsequent reversalswould be recognized in OCI and would not flow back into profit (loss).Impairment losses on available-for-sale investment securities are recognized by transferring the cumulative loss that hasbeen recognized in other comprehensive income, and presented in unrealized gains/losses on available-for-sale financialassets in equity, to profit or loss. The cumulative loss that is removed from other comprehensive income and recognizedin profit or loss is the difference between the acquisition cost, net of any principal repayment and amortization, and thecurrent fair value, less any impairment loss previously recognized in profit or loss.If, in a subsequent period, the fair value of an impaired available-for-sale investment security increases and the increasecan be related objectively to an event occurring after the impairment loss was recognized in profit or loss, then theimpairment loss is reversed, with the amount of the reversal recognized in profit or loss. However, any subsequentrecovery in the fair value of an impaired available-for-sale equity security is recognized in other comprehensiveincome.Non-Financial AssetsThe carrying amounts of the Company’s non-financial assets, other than inventories, deferred tax assets, andexploration and evaluation assets, are reviewed at each reporting date to determine whether there is any indication ofimpairment. If any such indication exists, then the asset’s recoverable amount is estimated.The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell.Fair value less cost to sell is determined as the amount that would be obtained from the sale of the asset in an arm’slength transaction between knowledgeable and willing parties. Fair value for mineral assets is generally determined asthe present value of the estimated future cash flows expected to arise from the continued use of the asset, including anyexpansion prospects, and its eventual disposal, using assumptions that an independent market participant would takeinto account. These cash flows are discounted by an appropriate discount rate to arrive at a net present value of theasset.Value in use is determined as the present value of the estimated future cash flows expected to arise from the continueduse of the asset in its present form and its eventual disposal. Value in use is determined by applying assumptionsspecific to the Company’s continued use and cannot take into account future development. These assumptions areAnnual Report 2012 71
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 66different than those used in calculating fair value and consequently the value in use calculation is likely to give adifferent result (usually lower) than a fair value calculation. The estimated future cash flows are discounted to theirpresent value using a post-tax discount rate that reflects current market assessments of the time value of money and therisks specific to the asset.For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallestgroup of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of otherassets or groups of assets.An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount.Impairment losses are recognized in profit (loss). Impairment losses recognized in respect of CGUs are allocated first toreduce the carrying amount of goodwill, if any, allocated to the units, and then to reduce the carrying amounts of theother assets in the unit (group of units) on a pro rata basis.Impairment losses recognized in prior periods are assessed at each reporting date whenever events or changes incircumstances indicate that the impairment may have reversed. An impairment loss is reversed only to the extent thatthe asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciationor amortization, if no impairment loss had been recognized. A reversal of an impairment loss is recognized immediatelyin profit (loss).PROVISIONSA provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation thatcan be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle theobligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects currentmarket assessments of the time value of money and the risks specific to the liability. The unwinding of the discount isrecognized as finance cost.EMPLOYEE FUTURE BENEFITSShort-term Employee BenefitsShort-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related serviceis provided. A liability is recognized for the amount expected to be paid under short-term cash bonus plans if theCompany has a present legal or constructive obligation to pay this amount as a result of past service provided by theemployee and the obligation can be estimated reliably.Share-based PaymentsThe Company has two stock-based compensation plans which are described further in Note 12(a) and 12(b).Stock Option PlanThe Company accounts for all stock option awards using the fair-value method of accounting. Under this method, theCompany recognizes compensation expense for the stock options granted based on their grant date fair value, which isdetermined using the Black-Scholes option pricing model. The fair value of the option is expensed over the vestingperiod with a corresponding amount recorded as contributed surplus. Consideration received on the exercise of stockoptions is recorded as share capital and the related contributed surplus is transferred to share capital.Employee Share Purchase PlanUnder the Employee Share Purchase Plan (“ESPP”), compensation expense is recognized as the fair value of the sharesgranted under the plan and is recognized over the one year vesting period pursuant to the ESPP. Consideration receivedfrom the ESPP is recorded as share capital and amounts recorded in contributed surplus related to the fair value of theshares granted under the plan are transferred to share capital upon the issuance of shares. Shares issued pursuant to theESPP are valued using the Black-Scholes option pricing model using variables in effect at the grant date.72 TSX:CRJ | NYSE MKT: CGR
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 67Deferred Share Unit PlanThe Company’s Deferred Share Unit (“DSU”) Plan is a cash-settled plan. For cash-settled plans, the fair value of theamount payable to eligible individuals is recognized as an expense, with a corresponding increase in liabilities, over theperiod that the individuals unconditionally become entitled to payment. The liability is re-measured at each reportingdate and at the settlement date. Any changes in the fair value of the liability are recognized as employee benefitexpense in earnings.REVENUE RECOGNITIONRevenue from the sale of precious metals is recognized when the significant risks and rewards of ownership havepassed to the customer. This is when persuasive evidence of an arrangement exists, title and insurance risk passes to thecustomer, collection is reasonably assured and the price is reasonably determinable.LEASE PAYMENTSPayments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease.Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction ofthe outstanding liability. The finance expense is allocated to each period during the lease term so as to produce aconstant periodic rate of interest on the remaining balance of the liability.INCOME TAXESIncome tax expense is comprised of current and deferred taxes. Current tax and deferred tax are recognized in profit or lossexcept to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensiveincome.CurrentCurrent tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted orsubstantially enacted at the reporting date, and any adjustments to tax payable in respect of previous years.DeferredDeferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that areexpected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantivelyenacted by the reporting date.A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it isprobable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed ateach reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.Tax ExposuresIn determining the amount of current and deferred tax, the Company takes into account the impact of uncertain taxpositions and whether additional taxes and interest may be due. This assessment relies on estimates and assumptionsand may involve a series of judgments about future events. New information may become available that causes theCompany to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities willimpact tax expense in the period that such a determination is made.EARNINGS PER SHAREThe Company presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic per shareamounts are calculated using the weighted average number of shares outstanding during the period. Diluted per shareamounts are calculated based on the treasury-stock method, which assumes that any proceeds obtained on exercise ofoptions and warrants, along with any unrecognized stock-based compensation, would be used by the Company toAnnual Report 2012 73
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 68repurchase common shares at the average market price during the period. The weighted average number of sharesoutstanding is then adjusted by the net change.4. Accounting Standards:Future Changes in Accounting PoliciesFinancial InstrumentsIFRS 9, Financial Instruments (“IFRS 9”), was issued by the IASB on November 12, 2009 and will replace IAS 39,Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 uses a single approach to determine whethera financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach inIFRS 9 is based on how an entity manages its financial instruments in the context of its business model and thecontractual cash flow characteristics of the financial assets. The new standard also requires a single impairment methodto be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on orafter January 1, 2015. The Company is currently evaluating the impact of IFRS 9 on its financial statements.Consolidated Financial StatementsIn May 2011, the IASB issued IFRS 10, Consolidated Financial Statements. This new standard defines the principle ofcontrol and establishes control as the basis for determining which entities are included in consolidated financialstatements. The principle of control is based on three criteria: power over the investee; exposure to variable returnsfrom involvement in the investee; and the ability of the investor to use its power to affect the amount of its returns. Thestandard requires control of an investee to be reassessed when the facts and circumstances indicate that there have beenchanges to one or more of the criteria for determining control. This new standard supersedes the requirements relatingto consolidated financial statements in IAS 27, Consolidated and Separate Financial Statements (as amended in 2009)and SIC-12, Consolidation – Special Purpose Entities. IFRS 10 is effective for the Company beginning on January 1,2013, with early adoption permitted. The Company does not expect the adoption of this standard to have a materialimpact on its financial statements.Joint ArrangementsIFRS 11, Joint Arrangements, was issued by the IASB in May 2011 and is effective for annual periods beginning on orafter January 1, 2013 with early adoption permitted. Under IFRS 11, joint arrangements are classified as either jointoperations or joint ventures. Parties to a joint operation retain the rights and obligations to individual assets andliabilities of the operation, while parties to a joint venture have rights to the net assets of the venture. Any arrangementwhich is not structured through a separate entity or is structured through a separate entity but such separation isineffective such that the parties to the arrangement have rights to the assets and obligations for the liabilities will beclassified as a joint operation. Joint operations shall be accounted for in a manner consistent with jointly controlledassets and operations whereby the Company’s contractual share of the arrangement’s assets, liabilities, revenues andexpenses are included in the consolidated financial statements. Any arrangement structured through a separate vehiclethat does effectively result in separation between the Company and the arrangement shall be classified as a joint ventureand accounted for using the equity method of accounting. Under the existing IFRS standard, the Company has theoption to account for any interests it has in joint ventures using proportionate consolidation or equity accounting. TheCompany does not expect the adoption of this standard to have a material impact on its financial statements.Disclosure of Interests in Other EntitiesIn May 2011, the IASB issued IFRS 12, Disclosure of Interests in Other Entities. This new standard requires enhanceddisclosures about an entity’s interest in subsidiaries, joint arrangements, associates and unconsolidated structuredentities. IFRS 12 contains new disclosure requirements for interests the Company has in subsidiaries, jointarrangements, associates and unconsolidated structured entities. Required disclosures aim to provide readers of thefinancial statements with information to evaluate the nature of and risks associated with the Company’s interests inother entities and the effects of those interests on the Company’s financial statements. IFRS 12 is effective for theCompany beginning on January 1, 2013. It is expected that IFRS 12 will increase the current level of disclosure relatedto the Company’s interests in other entities upon adoption.74 TSX:CRJ | NYSE MKT: CGR
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 69Fair Value MeasurementIn May 2011, the IASB published IFRS 13, Fair Value Measurement, which is effective prospectively for annualperiods beginning on or after January 1, 2013. IFRS 13 replaces fair value measurement guidance contained inindividual IFRSs, providing a single source of fair value measurement guidance. The standard provides a framework formeasuring fair value and establishes new disclosure requirements to enable readers to assess the methods and inputsused to develop fair value measurements and for recurring valuations that are subject to measurement uncertainty, theeffect of those measurements on the financial statements. The Company intends to adopt IFRS 13 prospectively in itsfinancial statements for the annual period beginning on January 1, 2013. The Company does not expect the adoption ofthis standard to have a material impact on its financial statements.Presentation of Financial StatementsIn June 2011, the IASB issued an amendment to IAS 1, Presentation of Items of OCI: Amendments to IAS 1Presentation of Financial Statements. The amendments stipulate the presentation of net profit and OCI and also requirethe Company to group items within OCI based on whether the items may be subsequently reclassified to profit or loss.Amendments to IAS 1 are effective for annual periods beginning on or after July 1, 2012. The Company does notexpect the adoption of the amendments to this standard to have a material impact on its financial statements.Investments in Associates and Joint VenturesIn May 2011, the IASB issued amendments to IAS 28, Investments in Associates and Joint Ventures, which areeffective for annual periods beginning on or after January 1, 2013 with early adoption permitted. Amendments to IAS28 provide additional guidance applicable to accounting for interests in joint ventures or associates when a portion of aninterest is classified as held for sale or when the Company ceases to have joint control or significant influence over anassociate or joint venture. When joint control or significant influence over an associate or joint venture ceases, theCompany will no longer be required to re-measure the investment at that date. When a portion of an interest in a jointventure or associate is classified as held for sale, the portion not classified as held for sale shall be accounted for usingthe equity method of accounting until the sale is completed at which time the interest is reassessed for prospectiveaccounting treatment. The Company does not expect the amendments to IAS 28 to have a material impact on thefinancial statements.Offsetting Financial Assets and LiabilitiesIn December 2011, the IASB published Offsetting Financial Assets and Financial Liabilities and issued new disclosurerequirements in IFRS 7 Financial Instruments: Disclosures. The amendments to IAS 32 clarify that an entity currentlyhas a legally enforceable right to set-off if that right is not contingent on a future event, and enforceable both in thenormal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties. Theamendments to IAS 32 also clarify when a settlement mechanism provides for net settlement or gross settlement that isequivalent to net settlement. The amendments to IFRS 7 contain new disclosure requirements for financial assets andliabilities that are offset in the statement of financial position, or subject to master netting arrangements or similararrangements. The effective date for the amendments to IAS 32 is annual periods beginning on or after January 1,2014. The effective date for the amendments to IFRS 7 is annual periods beginning on or after January 1, 2013. Theseamendments are to be applied retrospectively. The Company does not expect the amendments to IAS 32 to have amaterial impact on the financial statements.5. Determination of Fair Values:A number of the Company’s accounting policies and disclosures require the determination of fair value, for bothfinancial and non-financial assets and liabilities. Fair values have been determined for measurement and or disclosurepurposes based on the methods described below. When applicable, further information about the assumptions made indetermining fair values is disclosed in the notes specific to that asset or liability.Investments in Equity Securities and Debt SecuritiesThe fair value of the Company’s available-for-sale financial assets is determined by reference to their quoted closingbid price at the reporting date.Annual Report 2012 75
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 70DerivativesThe fair value of the Company’s forward exchange contracts are estimated based on appropriate price modelingcommonly used by market participants. Such modeling uses discounted cash flow analysis with observable marketinputs including future interest rates, implied volatilities and the credit risk of the Company or the counterparties asappropriate, with resulting valuations periodically validated through third-party or counterparty quotes.Share-based payment transactionsThe fair value of issuances under the Company’s employee share purchase plan, and stock option plan are measuredusing the Black-Scholes option pricing model. Measurement inputs include share price on measurement date, exerciseprice of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expecteddue to publicly available information), weighted average expected life of the instruments (based on historicalexperience and general option holder behavior) and the risk-free interest rate (based on government bonds).6. Inventories:Details of the Company’s inventories are as follows:DEC 31 DEC 312012 2011Gold in-circuit (1) (2)$ 3,616 $ 3,128Stockpiled ore (1) (2)1,191 265Materials and supplies (3)14,371 9,973Inventories $ 19,178 $ 13,366(1)For the year ended December 31, 2012, depreciation and depletion of $1.6 million is included in the abovenoted balances (December 31, 2011 - $0.7 million).(2)There was no write-down or reversal of write-down of gold inventory for the year ended December 31, 2012.For the year ended December 31, 2011, the Company wrote-down $0.5 million of gold inventory.(3)There was no write-down or reversal of write-down of materials and supplies inventory for the year endedDecember 31, 2012. For the year ended December 31, 2011, the Company wrote-down $0.2 million ofmaterials and supplies inventory.7. Mineral Properties:Details of the Company’s property, plant and equipment included in mineral properties are as follows:CostProperty Explorationacquisition Buildings, Andand mine plant and evaluationsdevelopment equipment assets TotalBalance at January 1, 2011 $ 120,847 $ 104,302 $ 67,456 $ 292,605Additions 25,548 16,767 13,593 55,908Transfers between groups 15,757 - (15,757) -Balance at December 31, 2011 $ 162,152 $ 121,069 $ 65,292 $ 348,513Balance at January 1, 2012 $ 162,152 $ 121,069 $ 65,292 $ 348,513Additions 21,607 20,192 32,514 74,313Balance at December 31, 2012 $ 183,759 $ 141,261 $ 97,806 $ 422,82676 TSX:CRJ | NYSE MKT: CGR
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 71Depreciation and impairment lossesBalance at January 1, 2011 $ 98,034 $ 81,597 $ 6,495 $ 186,126Depreciation 5,482 6,260 - 11,742Impairment - - 851 851Balance at December 31, 2011 $ 103,516 $ 87,857 $ 7,346 $ 198,719Balance at January 1, 2012 $ 103,516 $ 87,857 $ 7,346 $ 198,719Depreciation 7,554 8,951 - 16,505Balance at December 31, 2012 $ 111,070 $ 96,808 $ 7,346 $ 215,224Carrying amountsAt December 31, 2011 $ 58,636 $ 33,212 $ 57,946 $ 149,794At December 31, 2012 $ 72,689 $ 44,453 $ 90,460 $ 207,602Exploration propertiesAmounts reflected for exploration properties not in commercial production represent costs incurred to date, net ofimpairments, and are not intended to reflect present or future values. The recoverability of these costs is dependent uponthe discovery of economically recoverable ore reserves and the ability to obtain necessary financing for thedevelopment of future profitable production from the properties or realization of sufficient proceeds from thedisposition of the properties.At December 31, 2012, the Company reviewed its exploration and evaluation assets individually for indicators ofimpairment. Management believes that the Company’s exploration and evaluation assets have not yet reached a stagethat permits a reasonable assessment of the economically recoverable reserves. In addition, exploration activities inrelation to these assets are continuing or planned for the future. As such, no indicators that the carrying amount of theseassets may exceed their recoverable amount were noted.During 2011, the Company transferred exploration and evaluations assets related to the Santoy 8 to mine developmentcosts upon the property achieving technical feasibility and economic viability. In accordance with IFRS, the Companytested these costs for impairment upon transfer to mine development and determined that no impairment charge wasrequired. Fair value less costs to sell was used to assess impairment and was determined using a discounted cash flowapproach that incorporated marketplace participant assumptions. The cash flows were discounted over an 8 year periodat a post-tax rate of 11.3 percent.Impairment lossDuring the year ended December 31, 2012, the Company tested its CGUs for indicators of impairment and determinedthat the fair value less cost to sell of the Company’s CGUs (the Seabee Gold Mine and the Santoy Mine Complex) weregreater than the carrying value; as such, an impairment charge was not required. Fair value less cost to sell wasdetermined using a discounted cash flow approach that incorporated marketplace participant assumptions.The cash flows for the Seabee Mine were discounted over a nine year period at a post-tax rate of 9.25 percent. The cashflows for the Santoy Mine Complex were discounted over a 13 year period at a post-tax rate of 9.25 percent. Whiletesting the Seabee Gold Mine for impairment, the Company reviewed and concluded that a reversal of the January 1,2010 impairment charge of $13.1 million was not warranted because indicators of reversal were not present.Leased machineryThe Company leases production equipment under a number of finance lease agreements. Some leases provide theCompany with the option to purchase the equipment at a beneficial price. Some leases are for specialized equipmentand in these leases the Company can cancel the leases at its option, but is responsible for reimbursing the lessor for anylosses incurred. The leased equipment secures lease obligations (see Note 11). At December 31, 2012 the carryingamount of assets under finance leases included in buildings, plant and equipment was $5.1 million (December 31, 2011:$7.9 million).Annual Report 2012 77
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 72SecurityThe Company’s demand loans (Note 11) were utilized for the purchases of specialized equipment. The equipment purchasedsecures the obligations under these demand loans. At December 31, 2012 the carrying amount of assets utilized as securityunder demand loans included in buildings, plant and equipment was $8.9 million (December 31, 2011: $nil).The Company’s debenture (Note 11) is secured by a general security agreement covering all of the Companys assets, exceptthose subordinated to bank debt.Capitalized interestDebenture interest costs of $0.5 million for the year ended December 31, 2012 (December 31, 2011: $0.5 million)relating to the Madsen project have been capitalized in accordance with the Company’s accounting policy.Mine Operating Costs by FunctionDEC 31 DEC 312012 2011Production costs $ 48,535 $ 40,542Depreciation and depletion 15,681 11,407Write-down of exploration property - 851(Gain) on sale of exploration property - (1,131)$ 64,216 $ 51,6698. Investments:DEC 31 DEC 312012 2011Available-for-sale securities, beginning of year $ 2,854 $ 4,328Disposition of available-for-sale securities (1,565) (197)Acquisition of available-for-sale securities (1)- 1,131Write-down of available-for-sale securities (993) (74)Unrealized gain (loss) on available-for-sale securities 82 (2,334)Available-for-sale securities, end of year $ 378 $ 2,854(1)The acquisition in 2011 related to shares in a public company received as settlement for Claude’s dispositionof a mineral property interest.At December 31, 2012, the Company reviewed its portfolio of available-for-sale securities in order to assess whetherthere was objective evidence of impairment. Factors considered in the Company’s assessment included the length oftime and extent which to fair value was below cost and current conditions specific to the investment. Utilizing thesefactors, the Company determined that certain of its available-for-sale securities had objective evidence of impairmentand were written down.By holding these available-for-sale securities, the Company is exposed to various risk factors including market pricerisk and liquidity risk (Note 19).9. Decommissioning and Reclamation:The Company’s decommissioning and reclamation costs consists of reclamation and closure costs. Mineral propertyobligations were determined using discount rates ranging from 1.73 to 2.11 percent. Expected undiscounted paymentsof future obligations are $10.3 million over the next 6 to 15 years. An accretion expense component of $0.2 million hasbeen charged during the year ended December 31, 2012, augmented by revisions made to the decommissioning andreclamation costs, resulting in an increase in the overall carrying amount of the provision. Changes to the provisionduring the year ended December 31, 2012 are as follows:78 TSX:CRJ | NYSE MKT: CGR
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 73DEC 31 DEC 312012 2011Decommissioning and reclamation provision, beginning of year $ 9,713 $ 4,810Accretion 175 166Revisions due to change in estimates and discount rate (725) 4,737Decommissioning and reclamation provision, end of year $ 9,163 $ 9,713As required by regulatory authorities, the Company has provided letters of credit as security for reclamation related tothe Madsen and Seabee properties in the amounts of $0.7 million (December 31, 2011 - $0.7 million) and $1.5 million(December 31, 2011 - $1.5 million), respectively. As security for these letters of credit, the Company has providedinvestment certificates in the amount of $2.2 million (December 31, 2011 - $2.2 million).During 2012 (and subsequent to December 31, 2012), the Company has been updating its decommissioning andreclamation plans for the Madsen and Seabee properties. It is expected that additional security (approximately $6.5million) will need to be provided to the applicable regulatory authorities. However, the timing of providing thissecurity has not yet been determined.10. Net Royalty Obligation:(a) Royalty AgreementsDuring each of 2004, 2005, 2006 and 2007, the Company entered into separate Royalty Agreements (“Agreements”)whereby it sold a basic royalty on a portion of the gold production at its Seabee Gold Operation. The Companyreceived cash consideration consisting of royalty income, indemnity fee income and interest income.Under the terms of the Agreements, the Company is required to make royalty payments at fixed amounts per ounce ofgold produced; these amounts vary over the term of the respective Agreements. A portion of the cash received at theinception of the respective agreements was placed with a financial institution; in return, the Company received arestricted promissory note. Interest earned from the restricted promissory notes and a portion of the principal must beused to fund the expected basic royalty payments during the first ten years of each agreement. Over the life of theroyalty agreements, interest earned and principal from the restricted promissory notes will be sufficient to fund theexpected basic royalty payments.The Company has the legal right of offset and the intention to settle on a net basis. As such, the Company haspresented these transactions on a net basis on the Statements of Financial Position.Note2004Agreement2005Agreement2006Agreement2007Agreement TotalRestricted PromissoryNotesPrincipal Balance (1)(b) 6,863 14,508 36,684 26,055 84,110Interest receivable (1)412 761 2,245 1,595 5,013Interest Rate 6 percent 6 percent 7 percent 7 percentMaturity DEC 10,2014FEB 15,2015FEB 15,2016FEB 15,2017Royalty PaymentsRoyalty Rate per ounceof gold produced (2)$13.88 to$24.53$24.87 to$112.45$65.51 to$198.95$37.60 to$147.05Royalty payable(current) (1)(b) 321 682 2,233 1,575 4,811Royalty obligationpayable (long-term) (1)(b) 7,043 14,791 36,745 26,194 84,773Net Profit Interest (c) - - - - -Annual Report 2012 79
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 74Note2004Agreement2005Agreement2006Agreement2007Agreement TotalApplicable years 2010-2014 2011-2015 2012-2016 2013-2017Percent 2.50, 3.00 or4.001.00, 2.00 or3.003.75, 4.00 or4.253.50, 3.70 or3.90Price of gold thresholds $800, $900or $1,200$875,$1,075 or$1,275$975,$1,175 or$1,375$1,250,$1,500 or$1,675(1)At December 31, 2012.(2)Over the remaining life of the respective agreements.(b) Net Royalty ObligationThe following schedule outlines the different components of the transaction that are presented net on the Company’sconsolidated Statements of Financial Position:DEC 31 DEC 312012 2011Current portionAssetsInterest receivable on Restricted promissory notes $ 5,013 $ 4,953LiabilitiesCurrent portion of deferred revenue 1,038 996Interest payable on royalty obligations 4,811 4,811$ 5,849 $ 5,807Net royalty obligation (current) (836) (854)Long-term portionAssetsRestricted promissory notes $ 84,110 $ 84,037LiabilitiesDeferred revenue 2,542 3,586Royalty obligation 84,773 84,886$ 87,315 $ 88,472Net royalty obligation (long-term) (3,205) (4,435)Net royalty obligation $ (4,041) $ (5,289)The interest income and the indemnity fees received by the Company are being amortized into income over theprepayment period and the life of the respective agreements. The interest income and the indemnity fees are nettedagainst interest expense and are reflected in “Financing expense” on the consolidated statement of income.(c) NPI PaymentIn addition to the royalty, the Company granted a net profit interest (“NPI”) of varying percentages, payable only ifgold prices exceed a pre-determined threshold. Prior to any NPI payment, the Company is entitled to first recover theNPI expenditures (including capital expenditures), working capital, operating losses, interest charges and assetretirement obligations relating to the production of ore at the Seabee Operation. These expenditures are calculated on acumulative basis from the commencement of the individual agreements. At December 31, 2012, the cumulative carry80 TSX:CRJ | NYSE MKT: CGR
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 75forward amounts remained in a deficiency position under each of the agreements and no payments are expected during2013 or 2014.(d) Call and PutUnder certain circumstances, a 100 percent owned subsidiary of Claude will have the right to purchase (“Call”) theequity of the holder of the royalties or right to receive the royalties at an amount no greater than the fair market valuethereof at the time of the Call. The Call price will be paid from the balance owing to the Company under thepromissory notes. Under certain circumstances, the purchaser of the royalties will have the right to sell (“Put”) theirinterest in the royalty to the Company at an amount no greater than the fair market value thereof at the time of the Put.However, such right is subject to the subsidiary of Claude’s pre-emptive right to exercise the Call in advance of any Putbeing exercised and completed.11. Loans and Borrowings:This note provides information about the contractual terms of the Company’s interest-bearing loans and borrowings, which aremeasured at amortized cost. For more information about the Company’s exposure to interest rate and liquidity risk, see Note19.DEC 31 DEC 312012 2011Current liabilitiesDemand loans (a) $ 5,337 $ 896Current portion of finance lease liabilities (b) 1,495 2,119Debenture (c) 9,665 -$ 16,497 $ 3,015Non-current liabilitiesFinance lease liabilities (b) $ 291 $ 1,786Debenture (c) - 9,452$ 291 $ 11,238(a) Demand LoansTerms and conditions of the Company’s outstanding demand loans are as follows:DEC 31 DEC 312012 2011Demand loan, repaid during 2012 $ - $ 896Demand loans, repayable in consecutive monthlyblended payments of $214,893 including interestat prime plus 1.50 percent, due between Januaryand April 20155,337 -$ 5,337 $ 896The demand loans are secured by a general security agreement covering all assets of the Company. At December 31,2012 the carrying amount of assets under demand loans included in buildings, plant and equipment was $8.9 million.(b) Finance Lease LiabilitiesObligations under finance leases bear interest between 5.4 percent and 8.0 percent per annum, are due from 2013 to2014 and are secured by the leased equipment. The estimated principal repayments on the leases are as follows: 2012 -$1,495; and 2013 - $291.Annual Report 2012 81
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 76Present Value of Interest Future Value ofMinimum Lease Minimum LeasePayments PaymentsDEC 31 DEC 31 DEC 312012 2012 2012Less than one year $ 1,495 $ 56 $ 1,551Between one and five years 291 2 293$ 1,786 $ 58 $ 1,844Present Value of Interest Future Value ofMinimum Lease Minimum LeasePayments PaymentsDEC 31 DEC 31 DEC 312011 2011 2011Less than one year $ 2,119 $ 154 $ 2,273Between one and five years 1,786 58 1,844$ 3,905 $ 212 $ 4,117The Company’s finance leases are secured by a general security agreement. At December 31, 2012 the carrying amountof assets under finance leases included in buildings, plant and equipment was $5.1 million (December 31, 2011: $7.9million).(c) DebentureThe debenture bears a 12 percent annual interest rate, is due May 23, 2013 and requires monthly interest only payments. Uponentering into the debenture indenture agreement, debenture holders received warrants in the amount of 10 percent of thedebenture purchase (Note 12). Each warrant entitles the holder to acquire one common share of the Company at an exerciseprice of $1.60 per common share until May 23, 2013. The value of the warrants associated with the debenture on the date ofissuance was $0.6 million.During 2011, the Company repaid $0.1 million of the outstanding debentures, representing principal plus unpaid interestthereon up to the repayment date. A total of $9.8 million in face value of debentures remain outstanding at December 31,2012.The balance of the debentures outstanding is amortized using the effective interest rate method at an effective rate of 14.7percent over the remaining term of the debentures.DEC 31 DEC 312012 2011Debenture payable, beginning of year $ 9,452 $ 9,344Amortized cost of debenture redemption - (87)Amortization of debt issue costs 213 195Debenture payable, end of period $ 9,665 $ 9,452Debenture payable, current portion $ 9,665 $ -Debenture payable, long-term portion $ - $ 9,452As at December 31, 2012, the Company’s outstanding debentures are due in less than one year. As such, this balancehas been classified as a current liability.The debentures are secured by a general security agreement covering all of the Companys assets, except those subordinated tobank debt.82 TSX:CRJ | NYSE MKT: CGR
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 77(d) Line of CreditThe Company has a $5.0 million operating line of credit which bears interest at prime plus 1.125 percent; the prime rateat December 31, 2012 was 3 percent. These funds are available for general corporate purposes.(e) OtherSubsequent to December 31, 2012, the Company expanded its current debt facilities with CWB to the following (Note22):• $10.0 million operating line of credit (previous amount: $5.0 million);• $10.0 million finance lease line (previous amount: $7.0 million); and• $5.0 million revolving loan (new).In addition to the above, the Company also executed a non-binding term sheet with Crown Capital Partner’s Inc. for anadditional debt facility of $25.0 million (Note 22).12. Share Capital:AUTHORIZEDThe authorized share capital of the Company consists of an unlimited number of common shares and two classes ofunlimited preferred shares issuable in series.The first preferred shares are issuable in series and rank ahead of the second preferred shares and the common shares inrespect of dividend payment, dissolution or any other distribution of assets. The other rights, privileges, restrictions andconditions attached to each series of the first preferred shares are fixed by the Board of Directors at the time of creationof such series.The second preferred shares are issuable in series and rank ahead of the common shares in respect of dividend payment,dissolution or any other distribution of assets. The other rights, privileges, restrictions and conditions attached to eachseries of the second preferred shares are fixed by the Board of Directors at the time of creation of such series.The common shares of the Company are entitled to vote at all meetings of the shareholders and, upon dissolution or anyother distribution of assets, to receive such assets of the Company as are distributable to the holders of the commonshares.DEC 31 DEC 31Shares 2012 Shares 2011Common shares:Outstanding, beginning of year 164,630,231 $ 176,994 138,913,329 $ 118,279ESPP (a) 338,676 546 235,614 324Exercise of stock options (b) 75,402 92 648,667 642Equity issue (d) 8,701,255 12,008 - -Equity issue (e) - - 23,000,000 57,500Broker warrant exercise (f) - - 139,321 162Warrant exercise (f) - - 1,577,000 2,271Warrant exercise (f) - - 116,300 223Issue costs, net of income taxes - - - (2,407)Outstanding, end of year 173,745,564 189,640 164,630,231 176,994Annual Report 2012 83
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 78Warrants and other equity:Warrants (d) 12 -Common share purchase warrants (f) 2,700 2,700Tax adjusted cumulative issue costs (228) (228)Common share purchase warrants (f) 552 552Debenture purchase warrants (f) 513 513173,745,564 $ 193,189 164,630,231 $ 180,531The Company has the following equity-settled plans:(a) Employee Share Purchase PlanThe ESPP was established to encourage employees to purchase Company common shares. Under the plan, eligible employeesmay contribute up to five percent of their basic annual salary and the Company shall contribute common shares in an amountequal to 50 percent of the employee’s contribution. Shares of the Company are issued to employees based on a weighted averagemarket price over a specific period. During 2012, the Company issued 338,676 common shares (2011 – 235,614) pursuantto this plan. The maximum number of common shares of the Company available for issue under this ESPP is five percent ofthe Company’s common shares outstanding.The weighted average fair value of ESPP options granted during 2012 was $0.62 (2011 - $0.90) and was estimatedusing the Black-Scholes option pricing model with assumptions of a 1.00 year weighted average expected option life, a16 percent expected forfeiture rate (2011 – 15 percent), 72 percent volatility (2011 – 53 percent) and an interest rate of0.98 percent (2011 – 1.3 percent). The expected volatility used in the Black-Scholes option pricing model is based onthe historical volatility of the Company’s shares over the weighted average expected option life.During 2012, compensation expense recognized in respect of the ESPP was $0.6 million (2011 - $0.3 million). Thiscompensation expense has been included in General and administrative expense in the Consolidated Statements of Income.(b) Stock Option PlanThe Company has established a stock option plan under which options may be granted to directors, officers and keyemployees. The maximum number of common shares available for option under the stock option plan is nine percent of theCompany’s common shares outstanding. Options granted have an exercise price of the Company’s prior day’s closing pricequoted on the TSX for the common shares Claude. All options are settled by physical delivery of shares. Vesting periods ofoptions granted under the Company’s stock option plan vary on a grant by grant basis, at the discretion of the Company’sBoard of Directors. Grants to Employees have a term to expiry of 7 to 10 years and typically have a vesting term of 3 to 5years. Grants to Directors have a term to expiry of 7 to 10 years and vest immediately.Options outstanding under this plan at December 31, 2012 and December 31, 2011 and their weighted average exerciseprices are as follows:Weighted WeightedDEC 31 Average DEC 31 Average2012 Exercise 2011 ExerciseOptions Price Options PriceBeginning of period 5,484,250 $ 1.57 3,916,737 $ 1.15Options granted 1,896,290 1.04 2,478,768 2.06Options exercised (75,402) 0.78 (648,667) 0.75Options forfeited (316,611) 1.82 (241,876) 1.86Options expired (40,000) 1.51 (20,712) 1.04End of period 6,948,527 $ 1.43 5,484,250 $ 1.57The weighted average share price at the date of exercise for share options exercised during 2012 was $1.02 (December31, 2011: $1.84).For director and employee options outstanding at December 31, 2012, the range of exercise prices, the weightedaverage exercise price and the weighted average remaining contractual life are as follows:84 TSX:CRJ | NYSE MKT: CGR
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 79Options Outstanding Options ExercisableOption Price Per Share QuantityWeightedAverageRemaining LifeWeightedAverageExercisePrice QuantityWeightedAverageRemaining LifeWeightedAverageExercisePrice$0.50 - $1.00 1,329,845 6.24 $0.72 846,512 6.03 $0.76$1.01 - $1.50 2,633,731 5.86 1.20 2,199,898 5.79 1.19$1.51 - $2.00 2,432,000 7.06 1.86 1,512,000 6.20 1.80$2.01 - $2.38 552,951 7.80 2.30 338,903 7.53 2.266,948,527 6.51 $1.43 4,897,313 6.08 $1.38The foregoing options have expiry dates ranging from June 30, 2013 to December 8, 2021.The weighted average fair value of stock options granted during 2012 was $0.65 (2011 - $1.37) and was estimatedusing the Black-Scholes option pricing model with assumptions of a 5.57 year (2011 – 7.11 year) weighted averageexpected option life, a two to four percent expected forfeiture rate (2011 – two percent), 65 percent to 76 percentvolatility (2011 – 68 percent to 75 percent) and interest rates ranging from 1.1 percent to 1.8 percent (2011 – 1.3 percentto 3.1 percent).For the year ended December 31, 2012, the compensation expense recognized in respect of stock options was $1.6million (2011 - $1.7 million). This compensation expense has been included in General and administrative expenses inthe Consolidated Statements of Income.The expected volatility used in the Black-Scholes option pricing model is based on the historical volatility of theCompany’s shares over the weighted average expected option life.The Company has the following cash-settled plan:(c) Deferred Share Unit PlanThe Company offers a DSU plan to non-employee Directors. A DSU is a notional unit that reflects the market value ofa single common share of Claude. For the year ended December 31, 2012, 50 percent of each Director’s annual retainerwas paid in DSUs. Each DSU fully vests upon award and are redeemable for cash upon a director leaving theCompany’s Board of Directors. The redemption amount will be based upon the weighted average of the closing pricesof the common shares of Claude on the TSX for the last 20 trading days prior to the redemption date multiplied by thenumber of DSUs held by the Director.At December 31, 2012, total DSUs held by participating Directors was 283,791 (December 31, 2011 – nil).Compensation expense recognized in respect of DSUs during 2012 was $0.2 million (2011 - $nil). This compensationexpense has been included in General and administrative expenses in the Consolidated Statements of Income.Equity Issues:(d) AcquisitionDuring 2012, the Company issued 8,701,255 common shares pursuant to a Plan of Arrangement whereby Claudeacquired all of the outstanding common shares of St. Eugene Mining Corporation Limited that it did not already own(Note 22). Pursuant to this transaction, the Company also granted a total of 853,594 common share purchase warrantsto replace St. Eugene common share purchase warrants outstanding at the time of the transaction.(e) Short form ProspectusDuring 2011, the Company completed a short form prospectus offering. The Offering consisted of the issuance of 20,000,000common shares of the Company, on a bought deal basis, at a price of $2.50 per share, as well as the issuance of 3,000,000shares of the Company, at a price of $2.50 per share, to the Underwriters pursuant to the over-allotment option, for aggregateAnnual Report 2012 85
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 80gross proceeds of $57,500,000.Other:(f) Schedule of Warrants OutstandingEach common share purchase warrant entitles the holder to acquire one common share of the Company at pricesdetermined at the time of issue. The range of exercise prices and dates of expiration of the common share purchasewarrants outstanding are as follows:Number NumberExercise Outstanding at Outstanding atPrice Expiry Date DEC 31, 2011 Granted Expired DEC 31, 2012$ 1.60 May 22, 2013 1,693,200 - - 1,693,200$ 0.90 November 16, 2012 1,023,000 - 1,023,000 -$ 1.77 April 7, 2012 - 319,545 319,545 -$ 1.77 April 12, 2012 - 10,257 10,257 -$ 3.17 March 31, 2012 - 79,980 79,980 -$ 4.44 March 31, 2012 - 443,812 443,812 -2,716,200 853,594 1,876,594 1,693,200The warrants granted during 2012 relate to outstanding warrants assumed as part of the St. Eugene acquisitioncompleted in the first quarter. Note 22 The weighted average fair value of warrants granted during 2012 was $0.02 andwas estimated using the Black-Scholes option pricing model with assumptions of a 0.2 year weighted average expectedoption life, and an interest rates of 0.9 percent.The range of exercise prices and dates of expiration of the common share purchase warrants outstanding at December31, 2011 were as follows:Number NumberExercise Outstanding at Outstanding atPrice Expiry Date DEC 31, 2010 Exercised Expired DEC 31, 2011$ 1.60 May 22, 2013 1,809,500 116,300 - 1,693,200$ 0.83 April 9, 2011 139,321 139,321 - -$ 0.90 November 16, 2012 2,600,000 1,577,000 - 1,023,000$ 1.75 December 30, 2011 6,000,000 - 6,000,000 -10,548,821 1,832,621 6,000,000 2,716,20013. Finance Expense:DEC 31 DEC 312012 2011Interest expense on loans and borrowings $ 1,514 $ 1,321Interest capitalized to mineral properties (536) (542)Derivative loss 85 1,911Debenture amortization 212 195Accretion expense 175 166$ 1,450 $ 3,051Finance expense paid for the year ended December 31, 2012 was $1.6 million (December 31, 2011 - $3.2 million).86 TSX:CRJ | NYSE MKT: CGR
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 8114. Finance and Other Income:DEC 31 DEC 312012 2011Net royalty income $ (1,248) $ (1,109)Other income (138) (200)Interest income (109) (314)$ (1,495) $ (1,623)Finance and other income received during the year ended December 31, 2012 was $0.2 million (December 31, 2011 -$0.5 million).15. Personnel Expenses:DEC 31 DEC 312012 2011Wages and salaries $ 38,951 $ 32,201Canadian Pension Plan (CPP) and EI remittances 1,473 1,249$ 40,424 $ 33,45016. Related Party Transactions:Key Management PersonnelCompensation of key management personnel of the Company:DEC 31 DEC 312012 2011Cash compensation – Salaries, short-term incentives and otherBenefits$ 1,810 $ 1,819Long term incentives, including share-based payments 1,324 517Total compensation paid to key management personnel $ 3,134 $ 2,336The Company’s Executive Leadership Team (consisting of the Chief Executive Officer, Chief Operating Officer, ChiefFinancial Officer and Vice President Operations) are considered to be Key Management Personnel. In addition,members of the Company’s Board of Directors are included in this definition, as defined by IAS 24, Related PartyDisclosures.17. Income Taxes:(a) Income tax expenseDEC 31 DEC 31Income tax expense 2012 2011Deferred income tax expense:Origination and reversal of temporary differences $ 2,725 $ 4,378Write-down of mineral properties - (230)Change in unrecognized deferred tax assets 247 (3,784)Deferred income tax expense $ 2,972 $ 364(b) Income tax recognized directly in Other comprehensive income (loss)Other comprehensive income included on the consolidated statements of comprehensive income is presented net ofAnnual Report 2012 87
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 82income taxes. The following income tax amounts are included in each component of other comprehensive income(loss):For the year ended December 31, 2011:Income taxBefore tax expense Net of taxOther comprehensive income (loss)Gain on available for sale securities transferred to profit (35) 5 (30)Unrealized loss on available for sale securities (2,409) 325 (2,084)(2,444) 330 (2,114)For the year ended December 31, 2012:Income taxBefore tax(recovery)expense Net of taxOther comprehensive income (loss)Loss on available for sale securities transferred to profit 199 (27) 172Unrealized gain on available for sale securities (909) 123 (786)(710) 96 (614)(c) Effective tax rate reconciliationThe provision for income tax, both current and deferred, differs from the amount calculated by applying the combinedexpected federal and provincial income tax rate to profit before income tax. The reasons for these differences are asfollows:DEC 31 DEC 312012 2011Profit before income taxes $ 8,541 $ 9,818Federal and Provincial statutory income tax rate 27.0% 28.5%Expected tax expense 2,306 2,798Permanent differences 358 571Effect of change in effective tax rates - (168)Other (27) -Decrease in tax assets related to royalty payable 88 947Decrease (increase) in recognized deferred tax assets 247 (3,784)Income tax expense $ 2,972 $ 364The expected statutory tax rate has changed due to the federal income tax rate decreasing from 16.5 percent to 15.0percent from 2011 to 2012.88 TSX:CRJ | NYSE MKT: CGR
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 83(d) Significant components of recognized and unrecognized Deferred tax assets and liabilitiesThe significant components of deferred income tax assets/liabilities are as follows:Recognized inRecognized Recognized otherJAN 1 in directly comprehensive DEC 312011 Net profit to equity Income 2011Deferred income tax assets (liabilities)Share issue costs 564 (461) 929 - 1,032Decommissioning and reclamation 1,299 1,324 - - 2,623Net royalty obligation 3,918 (1,024) - - 2,894Investments (323) 10 - 330 17Mineral properties (1,615) (3,960) - - (5,575)Other 44 (37) - - 7Total Deferred income tax assets (liabilities) 3,887 (4,148) 929 330 998Recognized (unrecognized) deferred taxassets(3,887) 3,784 103 - -- (364) 1,032 330 998Recognized inAcquisition of Recognized Recognized otherJAN 1 St. Eugene in directly comprehensive DEC 312012 Mining Net profit to equity Income 2012Deferred income tax assets (liabilities)Share issue costs 1,032 - (344) - - 688Decommissioning and reclamation 2,623 - (148) - - 2,475Net royalty obligation 2,894 - (389) - - 2,505Investments 17 - 134 - 96 247Mineral properties (5,575) - (2,240) - - (7,815)Loss carry forwards - 939 63 - - 1,002Other 7 199 (158) - 48Total Deferred income tax assets (liabilities) 998 939 (2,725) (158) 96 (850)Recognized (unrecognized) deferred taxassets- - (247) - - (247)998 939 (2,972) (158) 96 (1,097)(e) Unrecognized Income Tax CreditsThe Company has $4.0 million (2011 - $2.2 million) of unused income tax credits that can be applied against futuretaxes payable. No deferred tax asset or income tax credit receivable has been recognized as it is not probable that futuretaxable profits will be available to utilize the credits. The income tax credit will expire, if unused, as follows:20122026 $ 612027 5392028 3142029 2302030 2732031 7002032 1,843$ 3,960Annual Report 2012 89
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 8418. Earnings Per Share:Basic earnings per share:DEC 31 DEC 312012 2011Basic earnings per share:Net profit attributable to common Shareholders $ 5,569 $ 9,454Weighted average number of common Shares outstanding 172,933 156,062Basic net earnings per share $ 0.03 $ 0.06Diluted earnings per share:DEC 31 DEC 312012 2011Diluted earnings per share:Net earnings attributable to common Shareholders $ 5,569 $ 9,454Weighted average number of common Shares outstanding 172,933 156,062Dilutive effect of stock options 299 1,385Dilutive effect of warrants - 963Weighted average number of common Shares outstanding, assuming dilution 173,232 158,410Diluted net earnings per share $ 0.03 $ 0.06Excluded from the computation of diluted earnings per share at December 31, 2012 were:i. options outstanding on 5,653,682 common shares with an average exercise price greater than the averagemarket price of the Company’s common shares; andii. 1,693,200 warrants with an exercise price greater than the average market price of the Company’s commonshares.Excluded from the computation of diluted earnings per share at December 31, 2011 were options outstanding on648,561 common shares with an average exercise price greater than the average market price of the Company’scommon shares.19. Financial Instruments:The Company is exposed in varying degrees to a variety of financial instrument related risks by virtue of its activities.The overall financial risk management program focuses on preservation of capital and protecting current and futureCompany assets and cash flows by reducing exposure to risks posed by the uncertainties and volatilities of financialmarkets.The Company’s Board of Directors has responsibility to ensure that an adequate financial risk management policy isestablished and to approve the policy.The Company’s Audit Committee oversees Management’s compliance with the Company’s financial risk managementpolicy, approves financial risk management programs, and receives and reviews reports on management compliancewith the policy.The types of risk exposures and the way in which such exposures are managed are as follows:Credit Risk – The Company’s credit risk is primarily attributable to its liquid financial assets including cash and cashequivalents, receivables, and commodity and currency instruments. The Company limits exposure to credit risk onliquid financial assets through maintaining its cash and cash equivalents and reclamation deposits with high-creditquality financial institutions. Sales of precious metals are to entities considered to be credit worthy, as evaluatedthrough the Company’s risk management program, which includes an evaluation of new and existing customers andquarterly monitoring.90 TSX:CRJ | NYSE MKT: CGR
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 85Liquidity Risk – The Company ensures that there is sufficient capital in order to meet short term business requirements,after taking into account cash flows from operations and the Company’s holdings of cash and cash equivalents. TheCompany believes operating cash flows will be sufficient to fund the continued exploration at Madsen and Amisk andongoing capital improvements at the Seabee properties for the next twelve months. The Company’s cash is invested inbusiness accounts with quality financial institutions and is available on demand.Payments/Commitments due by periodTotalLess than1 year2-3Years4-5YearsMore than5 yearsContractual ObligationDemand loans 5,337 2,387 2,950 - -Interest on demand loans 276 191 85 - -Debenture 9,751 9,751 - - -Debenture interest 458 458 - - -Capital lease obligations 1,786 1,495 291 - -Interest on capital leases 58 56 2 - -Office lease 197 123 74 - -17,863 14,461 3,402 - -During 2012 (and subsequent to December 31, 2012), the Company has been updating its decommissioning andreclamation plans for the Madsen and Seabee properties. It is expected that additional security (approximately $6.5million) will need to be provided to the applicable regulatory authorities. However, the timing of this security has notyet been determined.As noted above, near-term funding requirements pursuant to the redemption of its outstanding debentures (due on May23, 2013), have placed the Company in a working capital deficiency. In order to address this working capitaldeficiency, the Company, subsequent to December 31, 2012, increased its current debt facilities with CWB to thefollowing (Note 22):• $10.0 million operating line of credit (previous amount: $5.0 million);• $10.0 million finance lease line (previous amount: $7.0 million); and• $5.0 million revolving loan (new).In addition to the above, the Company has executed a non-binding term sheet with CCP for an additional long-term debtfacility of $25.0 million (Note 22). As of the date of these Financial Statements, the Company is in negotiations toclose the CCP debt facility. Management believes that repayment of the outstanding debentures will occur as requiredon May 23, 2013. If for any reason the Company is unable to close the CCP debt facility, it could have an impact onthe Company`s ability to continue as a going concern and realize assets at their recognized values and to extinguishliabilities in the normal course of business at the amounts stated in the consolidated financial statements.Market Risk – Market risk is the potential for loss from adverse changes in the market value of financial instruments.The level of market risk that the Company is exposed to varies depending on the composition of its derivativeinstrument portfolio, as well as current and expected market conditions. The significant market risk exposures to whichthe Company is exposed are Foreign exchange risk, Commodity price and Interest rate risk. These are discussed furtherbelow:Foreign exchange risk – The results of the Company’s operations are subject to currency risks. The Company’srevenues from the production and sale of gold are denominated in U.S. dollars. However, the Company’s operatingexpenses are primarily incurred in Canadian dollars and its liabilities are primarily denominated in Canadian dollars.The Company is not exposed to material foreign exchange risk on its financial instruments.Interest rate risk – In respect to the Company’s financial assets, the interest rate risk mainly arises from the interest rateimpact on our cash and cash equivalents, reclamation deposits and debt. In respect to financial liabilities, one of theCompany’s demand loans carries a floating interest rate with the balance of Company debt at fixed interest rates. Whenpossible, the Company will fix its interest costs to avoid variations in cash flows. Due to the greater proportion of fixedAnnual Report 2012 91
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 86rate debt, a one percent change in interest rates would not materially impact earnings or cash flows.Commodity price risk – The value of the Company’s mineral resources is related to the price of gold and the outlookfor this mineral. Gold and precious metal prices historically have fluctuated widely and are affected by numerousfactors outside of the Company’s control, including, but not limited to, industrial and retail demand, central banklending, forward sales by producers and speculators, levels of worldwide production, short-term changes in supply anddemand because of speculative hedging activities and certain other factors related specifically to gold. The profitabilityof the Company’s operations is highly correlated to the market price of gold. If the gold price declines below the costof production at the Company’s operations, for a prolonged period of time, it may not be economically feasible tocontinue production. The Company is not exposed to material commodity price risk on its financial instruments.For a $10 US$ movement in gold price per ounce, earnings and cash flow will have a corresponding movement of CDN$0.5 million, or $0.00 per share.Fair Value - The Company has various financial instruments comprised of cash and cash equivalents, receivables, shortand long-term investments, restricted promissory notes, reclamation deposits, demand loans, accounts payable andaccrued liabilities, long-term debt, and royalty obligations.For disclosure purposes, all financial instruments measured at fair value are categorized into one of three hierarchylevels, described below. Each level is based on the transparency of the inputs used to measure the fair values of assetsand liabilities:Level 1 – Values based on unadjusted quoted prices in active markets that are accessible at the measurement datefor identical assets or liabilities.Level 2 – Values based on quoted prices in markets that are not active or model inputs that are observable eitherdirectly or indirectly for substantially the full term of the asset or liability.Level 3 – Values based on prices or valuation techniques that require inputs that are both unobservable andsignificant to the overall fair value measurement.The fair values of financial assets and liabilities, together with the carrying amounts shown in the Statement ofFinancial Position, are as follows:DEC 31 DEC 312012 2011CarryingValueEstimatedFair ValueCarryingValueEstimatedFair ValueLoans and receivablesCash and cash equivalents - - $2,529 $2,529Short-term investments (1)- - 33,168 33,168Accounts receivable (3)$4,845 $4,845 2,714 2,714Available-for-sale financial assetsInvestments (1)378 378 2,854 2,854Held-to-maturityDeposits for reclamation costs 2,237 2,237 2,237 2,237Other financial liabilitiesBank indebtedness 3,531 3,531 - -Demand loans 5,337 5,337 896 896Accounts payable 7,533 7,533 5,737 5,737Net royalty obligations 4,041 4,041 5,289 5,289Debenture (1)9,665 9,751 9,452 9,751(1)Based on quoted market prices – Level 1(2)Based on models with observable inputs – Level 2(3)At December 31, 2012, there were no receivables that were past due or considered impaired.92 TSX:CRJ | NYSE MKT: CGR
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 8720. Capital Management:The Company’s objective when managing its capital is to safeguard its ability to continue as a going concern so that itcan provide adequate returns to shareholders and benefits to other stakeholders. The Company defines capital that itmanages as the aggregate of its equity attributable to owners of the Company, which is comprised of issued capital,contributed surplus, accumulated deficit and accumulated other comprehensive income (loss).The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions andthe risk characteristics of the underlying assets and the Company’s working capital requirements. In order to maintainor adjust the capital structure, the Company (upon approval from its Board of Directors, as required) may issue newshares through private placements, sell assets or incur debt. The Board of Directors reviews and approves any materialtransaction out of the ordinary course of business, including proposals on acquisitions, major investments, as well asannual capital and operating budgets. The Company believes that this approach, given the relative size of theCompany, is reasonable. There were no changes in the Company’s approach to capital management during the yearended December 31, 2012. The Company is not subject to externally imposed capital requirements.The Company utilizes a combination of short-term and long-term debt and equity to finance its operations andexploration.DEC 31 DEC 31Interest Maturity 2012 2011Demand loan Repaid during 2012 $ - $ 896Demand loans Prime + 1.50% Jan –Apr/20155,337 -Debenture 12.00% May/2013 9,665 9,452Total debt $ 15,002 $ 10,348Shareholders’ equity 192,364 172,895Debt to equity 7.80% 5.99 %The Company is bound by and has met all covenants, if any, on these credit facilities.Subsequent to December 31, 2012, the Company expanded its current debt facilities with its existing bank to $25.0million and has executed a non-binding term sheet with Crown Capital Partners Inc. (“CCP”) for an additional long-term debt facility of $25.0 million (Note 22). The new debt facilities will facilitate the retirement of the Company’soutstanding debentures (which mature in May 2013) and allow for the necessary expansion capital at the Seabee GoldOperation to support the updated Life of Mine Plan.21. Acquisition:On February 1, 2012, the Company closed the transaction whereby Claude acquired all of the outstanding shares of St.Eugene Mining Corporation Limited (TSXV: SEM) ("St. Eugene") that it did not already own. The transaction wasaccomplished pursuant to the terms of a court approved plan of arrangement completed under the BusinessCorporations Act (British Columbia) (the “Arrangement”). Under the Arrangement, Claude acquired all of theoutstanding common shares of St. Eugene in exchange for the issuance of 8,701,255 common shares of Claude.As part of the Arrangement, Claude also exchanged all outstanding warrants of St. Eugene for warrants of Claude andreduced its existing net smelter return royalty on the Tartan Lake Project from a sliding scale to two percent.On closing, Claude owns 100 percent of the Amisk Gold Project. The transaction has been accounted for as an assetacquisition as St. Eugene did not meet the definition of a business, as defined in IFRS 3, Business Combinations.The purchase price of the transaction, which was $14.9 million, has been recorded as an increase to mineral propertiesand share capital. The preliminary purchase price allocation was calculated as follows:Annual Report 2012 93
  • Claude Resources Inc.Notes to the Consolidated Financial StatementsFor the Years ended December 31, 2012 and 2011Expressed in Thousands of Canadian Dollars, except share data or as otherwise notedPage 88Cash and cash equivalents $ 486Mineral property interest 15,198Accounts payable and accrued liabilities (828)$ 14,85622. Subsequent Events:(a) Term LoanSubsequent to December 31, 2012, the Company has executed a non-binding term sheet for a five-year $25.0 millionterm loan (the “Loan”) with CCP. Interest on the Loan is fixed at 10 percent, compounds monthly and is payablemonthly. Principal payments will begin 12 months from closing and will be payable monthly. A portion of the Loanwill be utilized to retire the Company’s outstanding debentures due to mature in May 2013 with the remainder beingavailable for working capital purposes.The maturity date of the Loan will be 60 months from closing. The Loan will be subordinate to all of the Company’sother short-term and long-term loans and borrowings.The table below represents currently scheduled repayment and maturity of the Loan over the next five years.Period Monthly Amount Annual AmountMonths 1 – 12 NIL NILMonths 13 – 59 $300,000 $3,600,000Due at Maturity $10,900,000After 12 months following the closing of this arrangement, the Company has the right to prepay the term loan subject toa prepayment fee (calculated on the amount being prepaid) of:Months Following Closing Prepayment FeeMonths 13 – 24 2%Months 25 – 36 1%Months 37 – 60 0%In conjunction with the closing of this arrangement, the Company will grant 5,750,000 common share purchasewarrants priced at $0.70 per common share purchase warrant. These common share purchase warrants can beexercisable by the holder, in whole or in part, at any time from closing until five years following closing.(b) Revolving Credit FacilitySubsequent to December 31, 2012, the Company completed an arrangement for a new $5.0 million revolving creditfacility due on December 31, 2013. Upon mutual agreement, the facility can be extended for an additional year. Thisrevolving credit facility bears interest at prime plus 1.75 percent; the prime rate at March 27, 2013 was 3 percent.These funds are available for general corporate purposes.(c) Line of CreditSubsequent to December 31, 2012, the Company completed an arrangement for a new $10.0 million line of credit,replacing its old $5.0 million line of credit. The line of credit bears interest at prime plus 1.125 percent; the prime rateat March 27, 2013 was 3 percent. These funds are available for general corporate purposes.(d) Finance Lease LineSubsequent to December 31, 2012, the Company completed an arrangement for a new $10.0 million facility, replacingits old $7.0 million facility. The line of credit bears interest at prime plus 1.50 percent; the prime rate at March 27,2013 was 3 percent. These funds are available for general corporate purposes.94 TSX:CRJ | NYSE MKT: CGR
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  • Annual Report 2011 103 96 TSX:CRJ | NYSE MKT: CGR
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