NOTE 6 MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS

Mineral Property Interests

At December 31, 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 production in September 2012. For operational purposes, production was effective as of January 1, 2013. For the year ended December 31, 2013, a total of 31,129 gold equivalent ounces was produced at El Gallo 1.

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. The loss of $6.4 million is included in Loss on Sale of Assets, in the Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2013. The Limo Complex is part of the "Nevada" segment, as shown below and in Note 16, Operating Segment Reporting.

During the second quarter of 2013, the Company recorded an impairment charge of $27.7 million relating to its exploration properties in the Province of Santa Cruz. The impairment was primarily due to an unexpected significant decline in gold and silver market prices, continued inflationary pressures and the new tax on mining reserves in the Province, resulting in a depressed market for exploration properties in Argentina. The Company engaged a third party valuator to determine the fair value of these mineral property interests by using the observed market value per acre in the region. The carrying value of these properties exceeded their estimated fair value, resulting in an impairment charge of $27.7 million, 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 year ended December 31, 2013. The impairment charge of $27.7 million is included in Impairment of Mineral Property Interests and Property and Equipment in the Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 203. The Santa Cruz Province mineral property interests are part of the "Argentina" segment, as shown below and in Note 16, Operating Segment Reporting.

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 deferred 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 year ended December 31, 2013. The write off of $6.3 million is included in Impairment of Mineral Property Interests and Property and Equipment in the Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 203. The West Battle Mountain Complex is part of the "Nevada" segment, as shown below and in Note 16, Operating Segment Reporting.

During the fourth quarter of 2013, 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. The valuator used the market approach to estimate the fair value of the properties by using the observed market value per acre in the region. Based on this approach, it was determined that the carrying values of the mineral property interests in the Limo Complex and Other United States Properties exceeded their fair value and as a result the Company recorded an impairment charge of $28.9 million, along with a resulting reduction in deferred tax liability and recovery of deferred income taxes of $10.1 million, for a net impairment of $18.8 million for the year ended December 31, 2013. The impairment charge of $28.9 million is included in Impairment of Mineral Property Interests and Property and Equipment in the Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2013. The Limo Complex and Other United States Properties are part of the "Nevada" segment, as shown below and in Note 16, Operating Segment Reporting.

Further, 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 Santa Cruz exploration properties, including the Telken, Este, Piramides and the Tobias tenements. The Company's carrying value of these properties of $53.2 million, as well as the related deferred tax liability of $17.3 million, was transferred to the Company's investment in MSC, with no gain or loss recognized upon transfer. The carrying value of $53.2 million was net of the impairment recorded in second quarter of 2013, discussed above. Refer to Note 7, Investment in Minera Santa Cruz S.A. ("MSC")—San José Mine, for further details on the vend-in agreement.

Impairments recorded in the year ended December 31, 2012 related to the Company's North Battle Mountain properties of $14.0 million. In November 2012, the Company entered into an exploration earn-in and joint venture option agreement ("Option Agreement") with a third party 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. The North Battle Mountain properties were acquired in 2007 and had a carrying value of $18.2 million. Based on the work of the third party valuator that the Company engaged to determine the fair value of all of the Company's properties as part of the Company's annual impairment test, the Company determined that the implied value of the Option Agreement was reduced to $4.2 million, resulting in an impairment of $14.0 million. 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. The impairment charge of $14.0 million was recorded in Impairment of Mineral Property Interests and Property and Equipment in the Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2012. The North Battle Mountain Complex is part of the "Nevada" segment, as shown below and in Note 16, Operating Segment Reporting.

Further, in 2012, the Company performed a strategic review of its property holdings in Nevada and as a result, allowed certain claims from its Other United States Properties to lapse. These mineral property interests in question were acquired in 2007 and had a carrying value of $2.9 million. As such, the Company recorded an impairment charge of $2.9 million in Impairment of Mineral Property Interests and Property and Equipment in the Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2012. The properties were part of the "Nevada" segment, as shown below and in Note 16, Operating Segment Reporting. The Company wrote off the carrying value of $1.3 million related to lapsing of certain mineral concessions in the El Gallo 2 area. The properties were part of the "Mexico" segment, as shown below and in Note 16, Operating Segment Reporting.

During the years ended December 31, 2013, 2012 and 2011, the Company incurred $24.8 million, $47.2 million, and $43.0 million, respectively, in exploration expenses and related expenditure costs which are included in the Statement of Operations and Comprehensive Income (Loss) in each of the years presented.

For the year ended December 31, 2013, the Company recorded $1.5 million of amortization expense related to El Gallo 1, which is included in Production Costs Applicable to Sales in the Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2013. This included $1.0 million in amortization expense related to its mineral properties in Mexico for the year ended December 31, 2013.

Based on the above, impairment charges were recorded on the following mineral property interests for the years ended December 31, 2013, 2012, and 2011:

Name of Property/Complex	Segment	2013		2012		2011

		(in thousands)
Telken Tenements	Argentina	$	13,792	$	—	$	—
Este Tenements	Argentina		2,784		—		—
Piramides Tenements	Argentina		5,079		—		—
Tobias Tenements	Argentina		6,074		—		—
North Battle Mountain Complex	Nevada		—		14,044		—
West Battle Mountain Complex	Nevada		6,287		—		—
Limo Complex	Nevada		19,450		—
Other United States Properties	Nevada		9,497		2,902		—
El Gallo 2 Properties	Mexico		—		1,343		—
Property, plant and equipment	Argentina		—		179		—


Total impairment		$	62,963	$	18,468	$	—

The carrying values for all of the mineral properties held by the Company as at December 31, 2013 and 2012 are noted below:

Name of Property/Complex	State/Province	Country	2013		2012

			(in thousands)
Los Azules Copper Project	San Juan	Argentina	$	431,190	$	431,190
Other San Juan Exploration Properties	San Juan	Argentina		7,818		7,818
Telken Tenements⁽¹⁾	Santa Cruz	Argentina		—		40,234
Este Tenements⁽¹⁾	Santa Cruz	Argentina		—		8,121
Piramides Tenements⁽¹⁾	Santa Cruz	Argentina		—		14,815
Tobias Tenements⁽¹⁾	Santa Cruz	Argentina		—		17,719
Cerro Mojon Tenements	Santa Cruz	Argentina		1,971		1,971
La Merced Tenements	Santa Cruz	Argentina		1,891		1,891
Cabeza de Vaca Tenements	Santa Cruz	Argentina		877		877
El Trumai Tenements	Santa Cruz	Argentina		1,534		1,534
Martes 13 Tenements	Santa Cruz	Argentina		3,568		3,568
Celestina Tenements	Santa Cruz	Argentina		1,753		1,753
Other Santa Cruz Exploration Properties	Santa Cruz	Argentina		7,601		7,601
Tonkin Complex	Nevada	United States		51,946		51,989
Gold Bar Complex	Nevada	United States		77,012		77,012
Limo Complex	Nevada	United States		23,438		50,098
North Battle Mountain Complex	Nevada	United States		4,148		4,148
East Battle Mountain Complex	Nevada	United States		4,060		4,060
West Battle Mountain Complex	Nevada	United States		2,567		8,854
Other United States Properties	Nevada	United States		9,610		19,107
El Gallo 1 Mine	Sinaloa	Mexico		8,502		8,126
El Gallo 2 Properties	Sinaloa	Mexico		3,482		4,581


Total Mineral Property Interests			$	642,968	$	767,067

(1): As at December 31, 2013, these tenements were transferred to MSC as part of the vend-in agreement described above and in Note 7, Investment in Minera Santa Cruz S.A. ("MSC")—San José Mine, and were therefore not included in the Company's mineral property interests as at December 31, 2013.

Asset Retirement Obligations

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.

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 $2.8 million. Assumptions used to compute the asset retirement obligations for the year ended December 31, 2013 for the Tonkin property included a credit adjusted risk free rate and inflation rate of 8.7% (2012, 2011—8.7%) and 3.0% (2012, 2011—3.0%), respectively. Expenses are expected to be incurred between the years 2014 and 2040. 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 December 31, 2013, the closure plan has already been approved by the NDEP but is still under review by the BLM pursuant to the National Environmental Policy Act. A request for additional information was received from the BLM in the last quarter of 2013. A response to the request for additional information is being prepared for submittal. It is possible that reclamation plan cost estimates and bonding requirements may increase as a result of this 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 December 31, 2013, had cash bonding in place of $5.2 million (2012—$5.2 million).

The current undiscounted estimate of the reclamation costs for existing disturbances at the El Gallo 1 mine is currently $4.6 million. Assumptions used to compute the asset retirement obligations for the year ended December 31, 2013 for the Magistral Mine included a credit adjusted risk free rate and inflation rate of 6.4% (2012, 2011—6.4%) and 3.8% (2012, 2011—3.8%), respectively. Expenses are expected to be incurred between the years 2014 and 2018. Under Mexican regulations, surety bonding of projected reclamation costs is not required.

The Company's asset retirement obligations for years ended December 31, 2013 and 2012 are as follows:

	2013			2012

	(in thousands)
Asset retirement obligation liability—opening balance	$	6,359		$	6,253
Settlements		(60	)		(47	)
Accretion of liability		461			447
Adjustment reflecting updated estimates		487			(294	)


Asset retirement obligation liability—ending balance	$	7,247		$	6,359

As at December 31, 2013, the current portion of the asset retirement obligation was $1.4 million (December 31, 2012—$0.1 million).

If 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 year ended December 31, 2013, the Company recorded $1.5 million of amortization expense related to El Gallo 1, which is included in Production Costs Applicable to Sales in the Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2013. This included $0.5 million in amortization expense related to its asset retirement costs in Mexico for the year ended December 31, 2013.