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ASSET RETIREMENT OBLIGATION:

6 Months Ended

Jun. 30, 2019

NOTE 6 — ASSET RETIREMENT OBLIGATION:

Peruvian operations:

The Company maintains an asset retirement obligation for its mining properties in Peru, as required by the Peruvian Mine Closure Law. In accordance with the requirements of this law the Company’s closure plans were approved by the Peruvian Ministry of Energy and Mines (“MINEM”). As part of the closure plans, the Company is required to provide annual guarantees over the estimated life of the mines, based on a present value approach, and to furnish the funds for the asset retirement obligation. This law requires a review of closing plans every five years. Currently and for the near-term future, the Company has pledged the value of its Lima office complex and a warehouse in Lima as support for this obligation. The accepted values of these facilities, for this purpose, are of $45.3 million. Through June 2019, the Company has provided guarantees of $37.8 million. The closure cost recognized for this liability includes the cost, as outlined in its closure plans, of dismantling the Toquepala and Cuajone concentrators, the Ilo smelter and refinery, and the shops and auxiliary facilities at the three units. In March 2016, MINEM approved the Mining Closure Plan for the Toquepala expansion project. The closure plan for the Tia Maria project was approved in February 2017 and the construction permit was received on July 8, 2019. However, the has not recorded a retirement obligation for the Tia

Maria project because the work on the project is still on hold. The Company believes that under these circumstances the recording of a retirement obligation is not appropriate. In accordance with requirements of Peruvian law, the Company in December 2017 and February 2018, submitted to MINEM revised closure plans for the Cuajone mine and the Ilo facilities respectively. The revised closure plan for the Ilo facility was approved in January 2019 and after comments received from MINEM, the Company submitted a new revised closure plan for the Cuajone mine which at June 30, 2019 is pending approval. As result of these new estimates, in the second quarter of 2019, the Company has increased the asset retirement obligation by $28.1 million.

Mexican operations:

The Company has recognized an estimated asset retirement obligation for its mining properties in Mexico as part of its environmental commitment. Even though there is currently no enacted law, statute, ordinance, written or oral contract requiring the Company to carry out mine closure and environmental remediation activities, the Company believes that a constructive obligation presently exists based on the remediation requirements caused by the closure of any facility. The overall cost recognized for mining closure in Mexico includes the estimated costs of dismantling concentrators, smelter and refinery plants, shops and other facilities. During 2018, the Company made a change in the estimate for the asset retirement obligation in its Mexican operations, mainly due to a change in the discount rate used to determine such obligation. The effect of this change was a reduction in the asset retirement obligation of $10.4 million, which was recorded in the second quarter of 2018.

The following table summarizes the asset retirement obligation activity for the six months ended June 30, 2019 and 2018 (in millions):


	2019		2018
Balance as of January 1,	$	217.7	$	222.5
Changes in estimates		25.2		(15.6)
Closure payments		(0.4)		—
Accretion expense		6.2		6.2
Balance as of June 30,	$	248.7	$	213.1