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Management of Financial Risk | 12 Months Ended
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Dec. 31, 2019
Management of Financial Risk [abstract] |
Management of Financial Risk | 31. Management of Financial Risk The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis. The Company is exposed to certain financial risks, including credit risk, liquidity risk, currency risk, metal price risk, and interest rate risk. (a) Credit Risk Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. All our trade accounts receivables from concentrate sales are held with large international metals trading companies. The Company’s cash and cash equivalents and short-term investments are held through large financial institutions. These investments mature at various dates within one year. The Company’s maximum exposure to credit risk as at December 31, 2019 and 2018 is as follows:
|  | December 31, |  | December 31,
|  | 2019 |  | 2018
Cash and cash equivalents |  | $ | 83,404 |  | $ | 90,503
Short term investments |  |  | - |  |  | 72,824
Derivative assets |  |  | - |  |  | 2,646
Accounts receivable and other assets |  |  | 47,707 |  |  | 32,769
Income tax receivable |  |  | 2,553 |  |  | 136
Non-current receivables |  |  | 38,389 |  |  | 15,241
|  | $ | 172,053 |  | $ | 214,119
The carrying amount of financial assets recorded in the financial statements represents the Company’s maximum exposure to credit risk. We limit our exposure to counterparty credit risk on cash and term deposits by only dealing with financial institutions with high credit ratings and through our investment policy of purchasing only instruments with a high credit rating. Almost all of our concentrate are sold to large well-known concentrate buyers. (b) Liquidity Risk Liquidity risk is the risk that we will not be able to meet our financial obligations as they come due. We manage our liquidity risk by continually monitoring forecasted and actual cash flows. We have in place a planning and budgeting process to help determine the funds required to support our normal operating requirements and our development plans. We aim to maintain sufficient liquidity to meet our short term business requirements, taking into account our anticipated cash flows from operations, our holdings of cash and cash equivalents, and our committed and anticipated liabilities. The following are the remaining contractual maturities of financial liabilities at the reporting date. The tables include cash flows associated with principal payments.
|  | Expected payments due by year as at December 31, 2019
|  | Less than |  |  |  |  |  | After |  |
|  | 1 year |  | 1 - 3 years |  | 4 - 5 years |  | 5 years |  | Total
Trade and other payables |  | $ | 65,286 |  | $ | - |  | $ | - |  | $ | - |  | $ | 65,286
Debt |  |  | - |  |  | 110,000 |  |  | 46,000 |  |  | - |  |  | 156,000
Income taxes payable |  |  | 12,400 |  |  | - |  |  | - |  |  | - |  |  | 12,400
Lease obligations |  |  | 9,313 |  |  | 9,424 |  |  | 4,097 |  |  | 14,958 |  |  | 37,792
Other liabilities |  |  | - |  |  | 499 |  |  | - |  |  | - |  |  | 499
Capital commitments, Lindero 1 |  |  | 24,467 |  |  | - |  |  | - |  |  | - |  |  | 24,467
Closure and reclamation provisions |  |  | 2,699 |  |  | 7,565 |  |  | 1,846 |  |  | 21,255 |  |  | 33,365
|  | $ | 114,165 |  | $ | 127,488 |  | $ | 51,943 |  | $ | 36,213 |  | $ | 329,809
1) Net of $10.9 million of deposits on equipment and advances to contractors.
|  | Expected payments due by year as at December 31, 2018
|  | Less than |  |  |  |  |  |  |  | After |  |  |
|  | 1 year |  | 1 - 3 years |  | 4 - 5 years |  | 5 years |  | Total
Trade and other payables |  | $ | 48,510 |  | $ | - |  | $ | - |  | $ | - |  | $ | 48,510
Debt |  |  | - |  |  | - |  |  | 70,000 |  |  | - |  |  | 70,000
Derivative liabilities |  |  | 224 |  |  | - |  |  | - |  |  | - |  |  | 224
Income tax payable |  |  | 8,358 |  |  | - |  |  | - |  |  | - |  |  | 8,358
Equipment loan |  |  | 4,328 |  |  | 5,371 |  |  | - |  |  | - |  |  | 9,699
Other liabilities |  |  | - |  |  | 1,166 |  |  | - |  |  | - |  |  | 1,166
Operating leases |  |  | 1,055 |  |  | 1,248 |  |  | 250 |  |  | - |  |  | 2,553
Capital commitments, Lindero |  |  | 111,940 |  |  | - |  |  | - |  |  | - |  |  | 111,940
Provisions |  |  | 878 |  |  | 6,738 |  |  | 4,029 |  |  | 6,262 |  |  | 17,907
|  | $ | 175,293 |  | $ | 14,523 |  | $ | 74,279 |  | $ | 6,262 |  | $ | 270,357
Operating leases includes leases for office premises, computer equipment and other equipment used in the normal course of business. (c) Currency risk The functional and reporting currency for all entities within the consolidated group is the US dollar. We are exposed to fluctuations in foreign exchange rates as a portion of our expenses are incurred in Canadian dollars, Peruvian soles, Argentinean peso and Mexican peso. A significant change in the foreign exchange rates between the United States dollar relative to the other currencies could have a material effect on the Company’s profit or loss, financial position, or cash flows. We have not hedged our exposure to foreign currency fluctuations. As at December 31, 2019 and 2018, the Company was exposed to currency risk through the following assets and liabilities denominated in foreign currencies:
|  | December 31, 2019
|  | Canadian Dollars |  | Peruvian Soles |  | Mexican Pesos |  | Argentinian Pesos
Cash and cash equivalents |  | 626 |  | 2,293 |  | 13,103 |  | 11,762
Accounts receivable and other assets |  | 310 |  | 1,827 |  | 3,972 |  | 117,539
Income tax receivable |  | - |  | 8,451 |  | - |  | -
Investments in associates |  | 1,373 |  | - |  | - |  | -
VAT - long term receivable |  | - |  | - |  | 10,715 |  | 2,039,929
Trade and other payables |  | (8,549) |  | (19,385) |  | (214,679) |  | (1,454,444)
Due to related parties |  | (18) |  | - |  | - |  | -
Provisions, current |  | - |  | - |  | (3,942) |  | -
Income tax payable |  | - |  | - |  | (161,900) |  | -
Other liabilities |  | - |  | - |  | (4,217) |  | -
Provisions |  | - |  | - |  | (87,459) |  | -
Total foreign currency exposure |  | (6,258) |  | (6,814) |  | (444,407) |  | 714,786
US$ equivalent of foreign currency exposure |  | (4,818) |  | (2,054) |  | (23,582) |  | 11,815
|  | December 31, 2018
|  | Canadian Dollars |  | Peruvian Soles |  | Mexican Pesos |  | Argentinian Pesos
Cash and cash equivalents |  | 376 |  | 941 |  | 37,039 |  | 6,967
Accounts receivable and other assets |  | 279 |  | 3,660 |  | 11,836 |  | 37,129
Income tax receivable |  | - |  | 459 |  | - |  | -
Investments in associates |  | 5,244 |  | - |  | - |  | -
VAT - long term receivable |  | - |  | - |  | - |  | 560,873
Trade and other payables |  | (8,478) |  | (18,492) |  | (218,833) |  | (125,159)
Due to related parties |  | (23) |  | - |  | - |  | -
Provisions, current |  | - |  | - |  | (2,991) |  | -
Income tax payable |  | - |  | (4,591) |  | (59,810) |  | -
Other liabilities |  | - |  | - |  | (2,296) |  | -
Provisions |  | - |  | - |  | (66,977) |  | -
Total foreign currency exposure |  | (2,602) |  | (18,023) |  | (302,032) |  | 479,810
US$ equivalent of foreign currency exposure |  | (2,010) |  | (5,458) |  | (16,055) |  | 11,646
Sensitivity as to change in foreign currency exchange rates on our foreign currency exposure as at December 31, 2019 is provided below:
|  |  |  | Effect on foreign
|  |  |  | denominated
Currency (Expressed in $000's) |  | Change |  | items
Mexican Peso |  | +/- 10% |  | $ | 2,144
Peruvian Soles |  | +/- 10% |  | $ | 187
Argentinian Peso |  | +/- 10% |  | $ | 1,029
Canadian Dollar |  | +/- 10% |  | $ | 438
Due to the volatility of the exchange rate for Argentine Peso, the Company is applying additional measures in cash management to minimize potential losses arising from the conversion of funds. As discussed in note 31 (f), with the capital controls in effect when the Company commences production at the Lindero Project, the Company will be required to convert the equivalent value into Argentine Peso from the export sale of all gold doré from the Lindero Project. (d) Metal Price Risk We are exposed to metal price risk with respect to our sales of silver, gold, zinc, and lead concentrates. A 10% change in metal prices from the prices used at December 31, 2019 would result in the following change to sales and accounts receivable for sales which are still based on provisional prices as at December 31, 2019. As a matter of policy, we do not hedge our silver production.
Metal (Expressed in $000,s) |  | Change |  | Effect on Sales
Silver |  | +/- 10% |  | $ | 3,424
Gold |  | +/- 10% |  | $ | 1,767
Lead |  | +/- 10% |  | $ | 216
Zinc |  | +/- 10% |  | $ | 281
(e) Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Currently, the Company’s interest rate exposure mainly relates to interest earned on its cash, cash equivalent, and short-term investment balances, interest paid on its LIBOR-based debt, and the mark-to-market value of derivative instruments which depend on interest rates. The Company has entered into an interest rate swap for the $40,000 non-revolving credit facility to mitigate the interest rate risk on its debt. (f) Capital Management The Company’s objective when managing its capital is to maintain its ability to continue as a going concern while at the same time maximizing the growth of its business and providing returns to its shareholders. The Company manages its capital structure and makes adjustments based on changes to its economic environment and the risk characteristics of the Company’s assets. Effective December 23, 2019, changes to Argentina’s tax laws proposed by the new Argentine Government were implemented. The changes ratified and extended legislation which was to expire on December 31, 2019 and allow the Argentine Central Bank to regulate funds coming into and flowing out of Argentina in order to maintain stability and support the economic recovery of the country. These capital controls are in effect until December 31, 2025 and have the effect of: requiring exporters to convert the equivalent value of foreign currency received from the export into Argentine Pesos; requiring the prior consent of the Argentine Central Bank to the payment of cash dividends and distributions of currency out of Argentina; requiring Argentine companies to convert foreign currency loans received from abroad into Argentine Pesos; and restricting the sale of Argentine Pesos for foreign currency. The Company’s capital requirement is effectively managed based on the Company having a thorough reporting, planning and forecasting process to help identify the funds required to ensure the Company is able to meet its operating and growth objectives. The Company’s capital structure consists of equity comprising of share capital, reserves and retained earnings as well as debt facilities, equipment financing obligations less cash, cash equivalents and short-term investments.
|  | December 31, |  | December 31,
|  | 2019 |  | 2018
Equity |  | $ | 635,426 |  | $ | 602,804
Debt |  |  | 146,535 |  |  | 69,302
Lease obligations |  |  | 23,879 |  |  | 8,766
Less: Cash, cash equivalents and short-term investments |  |  | (83,404) |  |  | (163,327)
|  | $ | 722,436 |  | $ | 517,545
As discussed above, the Company operates in Argentina where the new Argentine government has ratified and extended legislation to December 31, 2025 to allow the Argentine Central Bank to regulate funds coming into and flowing out of Argentina. Other than the restrictions related to these capital controls and complying with the debt covenants under the credit facilities, the Company is not subject to any externally imposed capital requirements. As at December 31, 2019 and 2018, the Company was in compliance with its debt covenants.

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