NOTE 7 MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS

At December 31, 2012, the Company holds mineral interests in Nevada, mineral rights in Argentina and mineral concession rights in Mexico, including the El Gallo complex. The Magistral Mine is a former producing gold mine located within the El Gallo complex which has been held on a care and maintenance basis since 2005. In August 2011, the Company announced that it would put this mine back into production as Phase 1 of mining operations at the El Gallo complex, and the Company had its first gold pour during September 2012. For accounting purposes, the Company has achieved commercial production in September 2012. For the year ended December 31, 2012, a total of 6,863 oz of gold and 4,492 oz of silver were produced at El Gallo. For operational purposes, commercial production was effective as of January 1, 2013.

During the fourth quarter of 2012, the Company performed an impairment test of its mineral property interests. The Company engaged a third party valuator to determine the fair value of all of its properties. For properties in Nevada and Argentina the valuator used the market approach to estimate the fair value of the properties by using the observed market value per square mile in the region. Based on this approach, except for one of the properties in Nevada, it was determined that the carrying values of these mineral property interests did not exceed their fair value and as a result there was no impairment recorded on those properties. In November 2012, the Company entered into an exploration earn-in and joint venture option agreement ("option agreement") with a third party for one of its properties in Nevada whereby they have the option to earn a 51% interest in the property once they incur cumulative project related expenditures of $2.4 million on or before October 2015. This mineral property interest in question was acquired in 2007 and had a carrying value of $18.2 million. Based on the work of the third party valuator, the Company determined that the implied value of the option agreement was $4.2 million and therefore the value of this property was reduced to $4.2 million, resulting in an impairment of $14.0 million. For the Company's 49% interest in MSC, the valuator used the discounted cash flow approach and determined that the carrying value did not exceed its fair value and as a result it is not impaired as at December 31, 2012.

During 2012, the Company also performed a strategic review of its property holdings in Nevada and as a result, allowed all the claims from three of the properties to lapse. These mineral property interests in question were acquired in 2007 and had a carrying value of $2.9 million, resulting in an impairment of $2.9 million. In addition, the Company wrote off $1.3 million of mineral proeprty interests in Mexico.

For the year ended December 31, 2012, the Company reported an impairment loss of $18.5 million, of which $18.3 million was related to mineral property interests discussed above. The corresponding deferred income tax for these properties was $5.9 million, which was recorded as a reduction to deferred income tax liability and a recovery of deferred income taxes on the statement of operations and comprehensive loss.

During 2012, the Company increased its mineral property interests by $521.6 million, of which $539.1 million was due to the acquisition of Minera Andes as discussed in Note 3 above and partially offset by an impairment of $18.3 million, to $767.1 million as at December 31, 2012 from $245.5 million at the end of 2011. The values for all of the mineral properties held by the Company as at December 31, 2012 are noted below.

Name of Property/Complex	State/Province	Country	Carrying Value

Los Azules Copper Project	San Juan	Argentina	$	431,190
Other San Juan Exploration Properties	San Juan	Argentina	$	7,818
Telken Tenements	Santa Cruz	Argentina	$	40,234
Este Tenements	Santa Cruz	Argentina	$	8,121
Piramides Tenements	Santa Cruz	Argentina	$	14,815
Tobias Tenements	Santa Cruz	Argentina	$	17,719
Cerro Mojon Tenements	Santa Cruz	Argentina	$	1,971
La Merced Tenements	Santa Cruz	Argentina	$	1,891
Cabeza de Vaca Tenements	Santa Cruz	Argentina	$	877
El Trumai Tenements	Santa Cruz	Argentina	$	1,534
Martes 13 Tenements	Santa Cruz	Argentina	$	3,568
Celestina Tenements	Santa Cruz	Argentina	$	1,753
Other Santa Cruz Exploration Properties	Santa Cruz	Argentina	$	7,601
Tonkin Complex	Nevada	United States	$	51,989
Gold Bar Complex	Nevada	United States	$	77,012
Limo Complex	Nevada	United States	$	50,098
North Battle Mountain Complex	Nevada	United States	$	4,148
East Battle Mountain Complex	Nevada	United States	$	4,060
West Battle Mountain Complex	Nevada	United States	$	8,854
Other United States Properties	Nevada	United States	$	19,107
El Gallo Complex	Sinaloa	Mexico	$	8,126
Other Mexico Exploration Properties	Sinaloa	Mexico	$	4,581

Total			$	767,067

During 2012, 2011 and 2010, the Company has incurred expenses of $47.2 million, $43.0 million and $19.2 million, respectively, in total exploration and related expenditure costs.

The Company is responsible for reclamation of certain past and future disturbances at its properties. The two most significant properties subject to these obligations are the historic Tonkin property in Nevada and the Magistral Mine portion of the El Gallo Complex in Mexico. The current undiscounted estimate of the reclamation costs for existing disturbances on the Tonkin property to the degree required by the U.S. Bureau of Land Management ("BLM") and the Nevada Department of Environmental Protection ("NDEP") is $3.8 million. The cost of undiscounted projected reclamation of El Gallo Phase 1 is currently estimated at $4.6 million.

For mineral properties in the United States, the Company maintains required reclamation bonding with various governmental agencies, and as of December 31, 2012 and 2011, had cash bonding in place of $5.2 million. Under Mexican regulations, surety bonding of projected reclamation costs is not required. The Company submitted a mine closure plan to the NDEP and BLM for the Tonkin property during the fourth quarter of 2010. Based on the Company's estimate, the change in its bonding requirements was insignificant. As of December 31, 2012, the closure plan has already been approved by the NDEP but is still currently under review by the BLM. It is possible that reclamation plan cost estimates and bonding requirements may increase as a result of its review. The Company, however, is unable to meaningfully estimate possible increases at this time. Reclamation expenditures covering all United States properties during 2012 and 2011 remained consistent at approximately $0.1 million.

The Company's asset retirement obligations for years ended December 31, 2012 and 2011 are as follows (in thousands):

	2012			2011

Asset retirement obligation liability—opening balance	$	6,253		$	6,153
Settlements		(47	)		(82	)
Accretion of liability		447			524
Adjustment reflecting updated estimates		(294	)		(342	)

Asset retirement obligation liability—ending balance	$	6,359		$	6,253

Assumptions used to compute the asset retirement obligations for the year ended December 31, 2012 for the Tonkin property included a credit adjusted risk free rate and inflation rate of 8.7% (2011, 2010—8.7%) and 3.0% (2011—3.0%, 2010—2.0%) respectively.

Assumptions used to compute the asset retirement obligations for the year ended December 31, 2012 for the Magistral Mine included a credit adjusted risk free rate and inflation rate of 6.4% (2011—6.4%, 2010—8.7%) and 3.8% (2011—3.8%, 2010—3.3%) respectively.

It is anticipated that the capitalized asset retirement costs will be charged to expense based on the units of production method commencing with gold and silver production at the Company's properties, if any. As previously discussed, the Magistral Mine began production in September 2012. Since the total production in 2012 was insignificant, no amortization was recorded during 2012. There was no amortization recorded during 2011 or 2010 related to the capitalized asset retirement cost since the properties were not in operation. Reclamation expenditures are expected to be incurred between 2013 and 2040. As at December 31, 2012, the current portion of the asset retirement obligation was $0.1 million (December 31, 2011—$0.5 million).