NOTE 4 MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS

At March 31, 2013, the Company holds mineral rights in Argentina, mineral concession rights in Mexico, including the El Gallo Complex, and mineral interests in Nevada, The El Gallo Phase 1 mine recommenced gold and silver production in September 2012. For accounting purposes, the Company achieved commercial production in September 2012. For the year ended December 31, 2012, a total of 6,949 gold equivalent ounces were produced at El Gallo. For operational purposes, commercial production was effective as of January 1, 2013. During the first quarter of 2013, a total of 6,781 gold equivalent ounces were produced at El Gallo.

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 El Gallo Phase 1 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 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 at March 31, 2013, the closure plan has already been approved by the NDEP but is still 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. The costs of undiscounted projected reclamation of El Gallo Phase 1 are currently estimated at $4.6 million.

For mineral properties in the United States, the Company maintains required reclamation bonding with various governmental agencies, and at March 31, 2013 and December 31, 2012, had cash bonding in place of $5.2 million. Under Mexican regulations, surety bonding of projected reclamation costs is not required.

Changes in the Company’s asset retirement obligations for the three months ended March 31, 2013 and year ended December 31, 2012 are as follows (in thousands):

	Three Months Ended		Year Ended
	March 31, 2013		December 31, 2012
Asset retirement obligation liability - opening balance	$	6,359	$	6,253
Settlements	—		(47		)
Accretion of liability	113		447
Adjustment reflecting updated estimates	—		(294		)
Asset retirement obligation liability - ending balance	$	6,472	$	6,359

Reclamation expenditures are expected to be incurred between 2013 and 2040. As at March 31, 2013, the current portion of the asset retirement obligation was $1.3 million (December 31, 2012 - $0.1 million).

If proven and probable reserves exist at the Company’s properties, and upon commencement of production, the relevant capitalized asset retirement costs and mineral property interests will be charged to expense based on the units of production method. As previously discussed, Phase 1 of the El Gallo Complex began production in September 2012. However, since Phase 1 of the El Gallo Complex does not contain mineralized material that satisfy the definition of proven and probable reserves under the SEC Industry Guide 7, the amortization of the capitalized asset retirement costs and mineral property interests will be charged to expense based on the straight line method over the estimated useful life of the mine. For the three months ended March 31, 2013, the Company recorded $0.7 million of amortization expense related to Phase 1 of the El Gallo Complex, which was reported in production cost applicable to sales on the unaudited statement of operations and comprehensive loss.