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MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS | 9 Months Ended
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Sep. 30, 2013
MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS |
MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS | NOTE 5 MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS Mineral Property Interests At September 30, 2013, the Company held mineral rights in Argentina, mineral concession rights in Mexico, including the El Gallo Complex, and mineral interests in Nevada. The El Gallo 1 mine recommenced gold and silver production in September 2012. For accounting purposes, the mine achieved commercial production in September 2012. For operational purposes, commercial production was effective as of January 1, 2013. For the year ended December 31, 2012, a total of 6,949 gold equivalent ounces were produced at El Gallo. For the three and nine months ended September 30, 2013, a total of 8,027 and 23,370 gold equivalent ounces were produced at El Gallo, respectively. In May 2013, the Company entered into a sale agreement for certain mining claims in the Limo Complex, Nevada, for a sale price of $0.8 million. The claims had a carrying value of $7.2 million. As the carrying value exceeded the proceeds from the sales agreement, the Company recorded a loss on disposal of $6.4 million, along with a resulting reduction in deferred tax liability and recovery of deferred income taxes of $2.5 million. This resulted in a net loss on disposal of $3.9 million which is included in the net loss for the nine months ended September 30, 2013. The Limo Complex is part of the “Nevada” segment, as shown in Note 11. During the second quarter of 2013, the Province of Santa Cruz, Argentina, passed amendments to the Provincial Tax Code and Provincial Tax Law, which imposes a new tax on mining real estate property in the Province. The tax will amount to 1% of the value of the economically viable reserves of mining projects, less certain deductions. Based on this development, along with a significant decline in gold and silver market prices during the year and continued inflationary pressures resulting in a depressed market for exploration companies in Argentina, the Company concluded that there were indicators that the carrying value of the mineral property interests in the Santa Cruz Province may not be recoverable. The Company engaged a third party valuator to test the recoverability and determine the fair value of these properties. The valuator used a market approach to estimate the fair value of the properties by using the observed market value per acre in the region. As a result, the Company recorded an impairment of $27.7 million in the second quarter of 2013, along with a resulting reduction in deferred tax liability and recovery of future income taxes of $2.3 million, for a net impairment charge of $25.4 million for the nine months ended September 30, 2013. The Santa Cruz Province mineral property interests are part of the “Argentina” segment, as shown in Note 11. During the third quarter of 2013, the Company rationalized its mineral property interests in Nevada in order to focus its exploration program on more prospective areas. As a result, the Company allowed certain claims from one of its Nevada properties in the West Battle Mountain Complex to lapse. These mineral property interests in question were acquired in 2007 and had a carrying value of $6.3 million, which was written off during the third quarter of 2013, along with a resulting reduction in deferred tax liability and recovery of future income taxes of $2.2 million. This resulted in a net write-off for the Company of $4.1 million which is included in the net income (loss) for the three and nine months ended September 30, 2013. The West Battle Mountain Complex is part of the “Nevada” segment, as shown in Note 11. Based on the above, impairment charges were recorded on the following mineral property interests for the three and nine months ended September 30, 2013:
|  |  |  | Three Months Ended |  | Nine Months Ended |
|  |  |  | September 30, |  | September 30, |
Name of Property/Complex |  | Segment |  | 2013 |  | 2012 |  | 2013 |  | 2012 |
Telken Tenements |  | Argentina |  | $ | — |  | $ | — |  | $ | 13,792 |  | $ | — |
Este Tenements |  | Argentina |  | — |  | — |  | 2,784 |  | — |
Piramides Tenements |  | Argentina |  | — |  | — |  | 5,079 |  | — |
Tobias Tenements |  | Argentina |  | — |  | — |  | 6,074 |  | — |
West Battle Mountain Complex |  | Nevada |  | 6,287 |  | — |  | 6,287 |  | — |
Other United States Properties |  | Nevada |  | — |  | 2,902 |  | — |  | 2,902 |
Property, plant and equipment |  | Argentina |  | — |  | — |  | — |  | 179 |
Total impairment |  |  |  | $ | 6,287 |  | $ | 2,902 |  | $ | 34,016 |  | $ | 3,081 |
In October 2013, the Company and Hochschild entered into a vend-in agreement with MSC pursuant to which the Company and Hochschild agreed to contribute to MSC the mining rights of certain of Santa Cruz exploration properties. Refer to Note 6, Investment in Minera Santa Cruz S.A. (“MSC”) — San José Mine, for details. Asset Retirement Obligation 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 1 mine in Mexico. Reclamation expenditures are expected to be incurred between 2013 and 2040. Changes in the Company’s asset retirement obligations for the nine months ended September 30, 2013 and year ended December 31, 2012 are as follows (in thousands):
|  | Nine Months Ended |  | Year Ended |
|  | September 30, 2013 |  | December 31, 2012 |
Asset retirement obligation liability - opening balance |  | $ | 6,359 |  | $ | 6,253 |
Settlements |  | (56 | ) | (47 | )
Accretion of liability |  | 342 |  | 447 |
Adjustment reflecting updated estimates |  | (29 | ) | (294 | )
Asset retirement obligation liability - ending balance |  | $ | 6,616 |  | $ | 6,359 |
As at September 30, 2013, the current portion of the asset retirement obligation was $1.4 million (December 31, 2012 - $0.1 million). The current undiscounted estimate of the reclamation costs for existing disturbances on the Tonkin property as 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 September 30, 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. For mineral properties in the United States, the Company maintains required reclamation bonding with various governmental agencies, and at September 30, 2013 and December 31, 2012, had cash bonding in place of $5.2 million. The costs of undiscounted projected reclamation of El Gallo 1 are currently estimated at $4.6 million. Under Mexican regulations, surety bonding of projected reclamation costs is not required. When proven and probable reserves exist at the Company’s properties, the relevant capitalized asset retirement costs and mineral property interests are to be charged to expense based on the units of production method and upon commencement of production. As previously discussed, El Gallo 1 began production in September 2012. However, since El Gallo 1 does not contain mineralized material that satisfies 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 are charged to expense based on the straight-line method over the estimated useful life of the mine. For the three and nine months ended September 30, 2013, the Company recorded $0.3 million and $1.2 million of amortization expense related to El Gallo 1, respectively, which was reported in production cost applicable to sales on the unaudited statement of operations and comprehensive income (loss).

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- Definition Description of the mineral property interests and the asset retirement obligations associated with long-lived assets. Mineral property interests are carried at acquisition cost, net of write-offs and impairments. An asset retirement obligation is a legal obligation associated with the disposal or retirement from service of a tangible long-lived asset that results from the acquisition, construction or development, or the normal operations of a long-lived asset, except for certain obligations of lessees. This element may be used for all the disclosures related to asset retirement obligations. + References No definition available. + Details
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