NOTE 3 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”) was $2.8 million as of March 31, 2014. 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. As at March 31, 2014, 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 March 31, 2014, had cash bonding in place of $5.2 million (December 31, 2013 - $5.2 million).

The current undiscounted estimate of the reclamation costs for existing disturbances at the El Gallo 1 mine was $4.6 million as of March 31, 2014. Expenses are expected to be incurred between the years 2014 and 2018. Under Mexican regulations, surety bonding of projected reclamation costs is not required.

A reconciliation of the Company’s asset retirement obligations for the three months ended March 31, 2014 and for the year ended December 31, 2013 are as follows:

	Three Months Ended		Year Ended
	March 31, 2014		December 31, 2013
	(in thousands)
Asset retirement obligation liability, beginning balance	$	7,247	$	6,359
Settlements	—		(60		)
Accretion of liability	101		461
Adjustment reflecting updated estimates	—		487
Asset retirement obligation liability, ending balance	$	7,348	$	7,247

As at March 31, 2014, the current portion of the asset retirement obligation was $1.5 million (December 31, 2013 - $1.4 million).

The definition of proven and probable reserves is set forth in the SEC Industry Guide 7. If proven and probable reserves exist at the Company’s properties, the relevant capitalized mineral property interests and asset retirement costs are to be charged to expense based on the units of production method and upon commencement of production. Since the Company has not completed feasibility or other studies sufficient to characterize the mineralized material at El Gallo 1 as proven or probable reserves, the amortization of the capitalized mineral property interests and asset retirement costs are charged to expense based on the straight-line method over the estimated useful life of the mine. For the three months ended March 31, 2014, the Company recorded $0.3 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 three months ended March 31, 2014, of which $0.1 million related to the amortization of capitalized asset retirement costs.