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MINERAL PROPERTY INTEREST AND ASSET RETIREMENT OBLIGATIONS | 9 Months Ended
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Sep. 30, 2016
MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS |
MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS | NOTE 4 MINERAL PROPERTY INTEREST AND ASSET RETIREMENT OBLIGATIONS Mineral Property Interests On April 19, 2016, the Company completed the acquisition of the sliding scale net smelter return royalty (the “Royalty”) on the El Gallo 1 Mine and El Gallo 2 project, previously requiring payment of 3.5% of gross revenue less allowable deductions, eventually reducing to 1%. The purchase price consisted of a $5.3 million payment at closing and a deferred payment of $1.0 million on June 30, 2018, conditional that the El Gallo 1 Mine and El Gallo 2 project are in operation at that time. The total cost of the Royalty was accounted for as an addition to mineral property interests. The cost was allocated to El Gallo 1 Mine and El Gallo 2 project based on the relative fair value of the future royalty payments for each project. The allocation resulted in approximately $5.1 million allocated to the El Gallo 1 Mine and $1.2 million allocated to the El Gallo 2 project. The $1.0 million conditional deferred payment has been included under non-current other liabilities as of September 30, 2016. The Royalty ceased accruing at the end of March 2016. The Company conducts a review of potential triggering events for evaluation of 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 for impairment, in accordance with its accounting policy. During the nine months ended September 30, 2016, the Company did not identify events or changes in circumstances affecting the carrying values of its long-lived assets. During the nine months ended September 30, 2015, the Company performed a strategic review of its mineral property interests in Nevada. A decision was made to allow certain non-essential claims and portions of claims, included within the Gold Bar Complex and Tonkin Complex, to lapse on the September 1, 2015 renewal date and therefore reduce property holding costs that otherwise would have been incurred in the third quarter of 2015. This resulted in a pre-tax impairment charge of $20.8 million for the Gold Bar project and $8.9 million for the Tonkin Project, and an income tax recovery of $10.4 million recognized in the Consolidated Statement of Operations and Comprehensive Income (Loss) for the nine months ended September 30, 2015. 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 Tonkin property in Nevada and the El Gallo 1 Mine in Mexico. A reconciliation of the Company’s asset retirement obligations for the nine months ended September 30, 2016 and for the year ended December 31, 2015 are as follows:
|  | Nine months ended September 30, 2016 |  | Year ended December 31, 2015 |
Asset retirement obligation liability, beginning balance |  | $ | 7,784 |  | $ | 7,471 |
Settlements |  |  | (41) |  |  | — |
Accretion of liability |  |  | 382 |  |  | 429 |
Adjustment reflecting updated estimates |  |  | — |  |  | (116) |
Asset retirement obligation liability, ending balance |  | $ | 8,125 |  | $ | 7,784 |
As at September 30, 2016, the current portion of the asset retirement obligation was $0.2 million (December 31, 2015 - $0.2 million). Amortization of Mineral Property Interests and Asset Retirement Costs The definition of proven and probable reserves is set forth in the SEC Industry Guide 7. If proven and probable reserves exist at any of the Company’s properties, the relevant capitalized mineral property interests and asset retirement costs for that property are charged to expense based on the units of production method upon commencement of production. Since the Company has not completed feasibility or other studies sufficient to characterize the mineralized material at the El Gallo 1 Mine as proven or probable reserves, the amortization of the capitalized mineral property interests and asset retirement costs are charged to the Consolidated Statement of Operations and Comprehensive Income (Loss) based on the most appropriate amortization method, which includes the straight-line or units of production methods over the estimated useful life of the mine. For the three and nine months ended September 30, 2016, the Company recorded $0.7 million and $1.8 million, respectively (September 30, 2015, $0.3 million and $1.0 million, respectively), of amortization expense related to the El Gallo 1 Mine, which is included in Production Costs Applicable to Sales in the Consolidated Statement of Operations and Comprehensive Income (Loss), of which $0.1 million and $0.4 million, respectively, related to the amortization of capitalized asset retirement costs (September 30, 2015 - $0.1 million and $0.3 million, respectively).

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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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