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MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS | 12 Months Ended
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Dec. 31, 2014
MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS |
MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS | NOTE 6 MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS Mineral Property Interests The Company conducts a review of potential triggering events for all its mineral projects on a quarterly basis. When events or changes in circumstances indicate that the related carrying amounts may not be recoverable, the Company carries out a review and evaluation of its long-lived assets in accordance with its accounting policy. In the year ended December 31, 2014, such triggering events were identified with respect to the Company's Los Azules, Nevada and Argentina properties. For Los Azules, a triggering event identified in relation to an acquisition in the second quarter of 2014 of a copper project located in Argentina, which the Company believed shared similarities with the Los Azules project due to its scale, location, and stage of development. Based on the announcement day value of the similar project, the estimated market value per pound of copper equivalent mineralized material from this transaction was below the carrying value per pound of estimated copper equivalent mineralized material of Los Azules, indicating a potential significant decrease in the market price of Los Azules, and therefore a requirement to test Los Azules for recoverability. In performing a recoverability test, the Company used the observed market value per pound of copper equivalent mineralized material based on this contemporaneous and other comparable transactions to estimate the fair value of Los Azules ("In-Situ Multiple"). The carrying value of the property exceeded its estimated fair value, resulting in an impairment charge of $120.4 million, along with a resulting deferred income tax recovery of $22.5 million, being recorded in the Statement of Operations and Comprehensive Loss for the second quarter of 2014. Refer to Note 17, Fair Value Accounting, for further detail on the valuation of Los Azules. Subsequently, a further decline in the observed market value of comparable transactions was noted in the fourth quarter of 2014. The Company used a similar methodology as that used in the second quarter of 2014, however, applied an additional discount of 35% to the In-Situ Multiple, to reflect the decline in the observed market value of comparable transactions from June 2014 (date of the last impairment test) to December 31, 2014. The additional impairment charge recorded in the fourth quarter of 2014 was of $107.9 million, with a deferred income tax recovery of $19.3 million. The total impairment charge for the year ended December 31, 2014 was of $228.3 million. For the Nevada and Argentina properties, the triggering events were that the Company noted a decline in the observed market value of comparable transactions, which indicated a potential significant decrease in the market price of these properties, and the strategic review by the Company of its exploration program, pursuant to which the Company has made the decision to focus primarily on core assets, namely the Los Azules, Gold Bar, Tonkin and North Battle Mountain properties. In performing the recoverability test for these properties, the Company used the observed market value per acre and per ounce of gold equivalent mineralized material of comparable transactions to estimate the fair value of each property. The carrying value of each of the properties exceeded their estimated fair value. The total impairment charge for Nevada and Argentina properties amounted to $98.4 million and $27.0 million, respectively, along with a resulting deferred income tax recovery of $31.6 million and $3.2 million, respectively, being recorded in the Statement of Operations and Comprehensive Loss for the year ended December 31, 2014. Impairments recorded in the year ended December 31, 2013 related to the Company's exploration properties in Santa Cruz, Argentina, and Nevada, respectively. The impairment charge of $27.7 million, along with a deferred income tax recovery of $2.3 million, recorded in the second quarter of 2013 related to the Santa Cruz properties and were primarily due to an unexpected significant decline in gold and silver market prices, continued inflationary pressures and a new tax on mining reserves in the Province, resulting in a depressed market for exploration properties in Argentina. Relating to the Company's Nevada properties, an impairment charge of $6.3 million, along with a deferred income tax recovery of $2.2 million, was recorded in the third quarter of 2013 as a result of the Company selling or allowing certain claims to lapse. Finally, in the fourth quarter of 2013, an additional impairment charge of $28.9 million, along with a deferred tax recovery of $10.1 million, was recorded in relation to certain mineral property interests in Nevada, as part of the Company's annual impairment test for the year ended December 31, 2013. The Company used the market approach to estimate the fair value of the impaired properties by using the observed market value per square mile based on comparable transactions in North America. Refer to Note 17, Fair Value Accounting, for further details. 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 it has the option to earn a 51% interest in the property once it incurs 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. 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, along with a deferred income tax recovery of $4.9 million. The Company used the market approach to estimate the fair value of the properties by using the observed market value per square mile based on comparable transactions in South America. 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 Loss for the year ended December 31, 2012. 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. Based on the above, impairment charges were recorded on the following mineral property interests for the years ended December 31, 2014, 2013, and 2012:
Name of Property/Complex |  | Segment |  | 2014 |  | 2013 |  | 2012 |
|  |  |  | (in thousands) |  |  |
Los Azules Project |  | Argentina |  | $ | 228,301 |  | $ | — |  | $ | — |
Other San Juan Properties |  | Argentina |  |  | 7,817 |  |  | — |  |  | — |
Telken Tenements(1) |  | Argentina |  |  | — |  |  | 13,792 |  |  | — |
Este Tenements(1) |  | Argentina |  |  | — |  |  | 2,784 |  |  | — |
Piramides Tenements(1) |  | Argentina |  |  | — |  |  | 5,079 |  |  | — |
Tobias Tenements(1) |  | Argentina |  |  | — |  |  | 6,074 |  |  | — |
Cerro Mojon Tenements |  | Argentina |  |  | 1,971 |  |  | — |  |  | — |
La Merced Tenements |  | Argentina |  |  | 1,891 |  |  | — |  |  | — |
Cabeza de Vaca Tenements |  | Argentina |  |  | 877 |  |  | — |  |  | — |
El Trumai Tenements |  | Argentina |  |  | 1,534 |  |  | — |  |  | — |
Martes 13 Tenements |  | Argentina |  |  | 3,568 |  |  | — |  |  | — |
Celestina Tenements |  | Argentina |  |  | 1,753 |  |  | — |  |  | — |
Other Santa Cruz Exploration Properties |  | Argentina |  |  | 7,601 |  |  | — |  |  | — |
Tonkin Complex |  | Nevada |  |  | 31,391 |  |  | — |  |  | — |
Gold Bar Complex |  | Nevada |  |  | 25,435 |  |  | — |  |  | — |
Limo Complex |  | Nevada |  |  | 23,438 |  |  | 19,450 |  |  | — |
North Battle Mountain Complex |  | Nevada |  |  | 1,921 |  |  | — |  |  | 14,044 |
East Battle Mountain Complex |  | Nevada |  |  | 4,060 |  |  | — |  |  | — |
West Battle Mountain Complex |  | Nevada |  |  | 2,567 |  |  | 6,287 |  |  | — |
Other United States Properties |  | Nevada |  |  | 9,611 |  |  | 9,497 |  |  | 2,902 |
El Gallo 2 Properties |  | Mexico |  |  | — |  |  | — |  |  | 1,343 |
Property, plant and equipment |  | Argentina |  |  | — |  |  | — |  |  | 179 |
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Total impairments |  |  |  | $ | 353,736 |  | $ | 62,963 |  | $ | 18,468 |
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(1) | In the fourth quarter of 2013, these tenements were transferred to MSC as part of the vend-in agreement described 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, 2014 and 2013.
The carrying values for all of the mineral properties held by the Company as at December 31, 2014 and 2013 are noted below:
Name of Property/Complex |  | State/Province |  | Country |  | 2014 |  | 2013 |
|  |  |  |  |  | (in thousands) |
Los Azules Copper Project |  | San Juan |  | Argentina |  | $ | 202,889 |  | $ | 431,190 |
Other San Juan Exploration Properties |  | San Juan |  | Argentina |  |  | — |  |  | 7,818 |
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 |  |  | 20,423 |  |  | 51,946 |
Gold Bar Complex |  | Nevada |  | United States |  |  | 51,577 |  |  | 77,012 |
Limo Complex |  | Nevada |  | United States |  |  | — |  |  | 23,438 |
North Battle Mountain Complex |  | Nevada |  | United States |  |  | 2,227 |  |  | 4,148 |
East Battle Mountain Complex |  | Nevada |  | United States |  |  | — |  |  | 4,060 |
West Battle Mountain Complex |  | Nevada |  | United States |  |  | — |  |  | 2,567 |
Other United States Properties |  | Nevada |  | United States |  |  | — |  |  | 9,610 |
El Gallo 1 Mine |  | Sinaloa |  | Mexico |  |  | 7,214 |  |  | 8,502 |
El Gallo 2 Properties |  | Sinaloa |  | Mexico |  |  | 3,482 |  |  | 3,482 |
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Total Mineral Property Interests |  |  |  |  |  | $ | 287,812 |  | $ | 642,968 |
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During the years ended December 31, 2014, 2013 and 2012, the Company incurred $11.3 million, $24.8 million, and $47.2 million, respectively, in exploration expenses and related expenditure costs which are included in the Statement of Operations and Comprehensive Loss in each of the years presented. For the year ended December 31, 2014, the Company recorded $1.3 million (2013—$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 Loss for the year ended December 31, 2014. This included $0.8 million (2013—$1.0 million) in amortization expense related to its mineral properties in Mexico for the year ended December 31, 2014. 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 $2.6 million. Assumptions used to compute the asset retirement obligations for the year ended December 31, 2014 for the Tonkin property included a credit adjusted risk free rate and inflation rate of 8.7% (2013, 2012—8.7%) and 3.0% (2013, 2012—3.0%), respectively. Expenses are expected to be incurred between the years 2015 and 2040. The Company submitted a mine closure plan to the NDEP and BLM for the Tonkin property during the fourth quarter of 2010. The closure plan was approved by the NDEP in March 2012 but is still under review by the BLM pursuant to the National Environmental Policy Act. 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. During the third quarter of 2014, the Company replaced its cash bonding of $4.8 million with surety bonds of the same amounts, as discussed in Note 13, Contingencies. 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, 2014 for the El Gallo 1 mine included a credit adjusted risk free rate and inflation rate of 6.4% (2013, 2012—6.4%) and 4.1% (2013, 2012—3.8%), respectively. Expenses are expected to be incurred between the years 2015 and 2019. Under Mexican regulations, surety bonding of projected reclamation costs is not required. The Company's asset retirement obligations for years ended December 31, 2014 and 2013 are as follows:
|  | 2014 |  | 2013 |
|  | (in thousands) |
Asset retirement obligation liability, beginning balance |  | $ | 7,247 |  | $ | 6,359 |
Settlements |  |  | (52 | ) |  | (60 | )
Accretion of liability |  |  | 407 |  |  | 461 |
Adjustment reflecting updated estimates |  |  | (131 | ) |  | 487 |
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Asset retirement obligation liability, ending balance |  | $ | 7,471 |  | $ | 7,247 |
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As at December 31, 2014, the current portion of the asset retirement obligation was $2.4 million (December 31, 2012—$1.4 million). The definition of proven and probable reserves is set forth in 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 under the SEC definition, 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 year ended December 31, 2014, the Company recorded $1.3 million (2013—$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 Loss for the year ended December 31, 2014, of which $0.5 million (2013—$0.5 million) related to the amortization of capitalized asset retirement costs.

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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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