The accompanying notes are an integral part of these financials statements.

 

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1. Company information

Minera Santa Cruz S.A. (the “Company” or “MSC”) was incorporated in 2001. The Company is a limited company incorporated and domiciled in Sargento Cabral 124, Comodoro Rivadavia, Chubut, Argentina.

 

The Company’s principal business is the mining, processing and sale of silver and gold.  Information on the parent is presented in Note 24.

 

For management purposes, the Company is organized into one business unit; therefore, there is only one reporting segment according to IFRS 8, ‘Operating Segments’.

 

The financial statements of Minera Santa Cruz S.A. for the years ended 31 December 2017, 2016 and 2015 were authorized for issue in accordance with a resolution of the directors on 14 May 2018.

 

2. Basis of preparation and significant accounting policies

2.A Basis of preparation

2.A.1 Overview

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

 

The basis of preparation and accounting policies used in preparing the financial statements as of 31 December 2017, 2016 and 2015 and for the years then ended are set out below. The financial statements have been prepared on a historical cost basis, except for derivative financial instruments which have been measured at fair value.

 

The financial statements are presented in US dollars and all values are rounded to the nearest thousand (US$ thousand), except where otherwise indicated.

 

2.A.2 Foreign currencies

The Company’s financial information is presented in US dollars, which is the Company’s functional currency. The functional currency for the Company is determined by the currency of the primary economic environment in which it operates.

 

Transactions denominated in currencies other than the functional currency of the entity are initially recorded in the functional currency using the exchange rate prevailing at the date of the transaction.

 

Monetary assets and liabilities denominated in foreign currencies are remeasured at the exchange rate prevailing at the statement of financial position date. Exchange gains and losses on settlement of foreign currency transactions which are translated at the rate prevailing at the date of the transactions, or on the translation of monetary assets and liabilities which are translated at period-end exchange rates, are recorded in the income statement.

 

Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost are translated to the functional currency at the foreign exchange rate prevailing at the date of the transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

 

2.B Significant accounting judgments, estimates and assumptions

The preparation of the Company´s financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.  The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur.  Significant areas of estimation uncertainty and critical judgments made by management in preparing the financial statements include:

 

Significant estimates:

 

 

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Estimates are required to be made by management as to the useful lives of assets. For depreciation calculated under the units-of-production method, estimated recoverable reserves and resources are used in determining the depreciation and/or amortization of mine-specific assets. This results in a depreciation/amortization charge proportional to the depletion of the anticipated remaining life of-mine production. Each item’s life, which is assessed annually, has regard to both its physical life limitations and to present assessments of economically recoverable reserves of the mine property at which the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves. Changes are accounted for prospectively.

 

 

There are numerous uncertainties inherent in estimating ore reserves. Assumptions that are valid at the time of estimation
may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may result in a significant change in reserves.

 

 

The company assesses, at each reporting date, whether there is an indication that an asset (or CGU) may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the company estimates the asset’s or CGU’s recoverable amount. The recoverable amount is the higher of an asset’s or CGU’s FVLCD and its value in use.

 

The assessment of asset carrying values requires the use of estimates and assumptions such as long-term commodity prices, discount rates, future capital requirements, exploration potential and operating performance. Changes in these assumptions will affect the recoverable amount of the property, plant and equipment and evaluation and exploration assets and intangibles assets.

 

 

The Company assesses its mine closure cost provision annually. Significant estimates and assumptions are made in determining the provision for mine closure cost as there are numerous factors that will affect the ultimate liability payable. These factors include estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases, mine life and changes in discount rates. Those uncertainties may result in future actual expenditures differing from the amounts currently provided. The provision at the balance sheet date represents management’s best estimate of the present value of the future closure costs required. Changes to estimated future costs are recognized in the balance sheet by adjusting the mine closure cost liability and the related asset originally recognized.

 

Judgements:

 

 

The determination of functional currency requires management judgement, particularly where there may be several currencies in which transactions are undertaken and which impact the economic environment in which the entity operates.

 

 

Judgement is required in determining whether deferred tax assets are recognized on the balance sheet. Deferred tax is provided using the balance sheet method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax assets, including those arising from unutilized tax losses require management to assess the likelihood that the Company will generate taxable earnings in future periods, in order to utilize recognized deferred tax assets. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded at the balance sheet date could be impacted.

 

 

Judgement is required in determining when the future economic benefit of a project can reasonably be regarded as assured, at which point evaluation and exploration expenses are capitalized. This includes the assessment of whether there is sufficient evidence of the probability of the existence of economically recoverable minerals to justify the commencement of capitalization of costs; the timing of the end of the exploration phase and the start of the development phase and the commencement of the production phase. For this purpose, the future economic benefit of the project can reasonably be regarded as assured when the Board authorizes management to conduct a feasibility study, mine-site exploration is being conducted to convert resources to reserves or mine-site exploration is being conducted to confirm resources, all of which are based on supporting geological information.

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2.C Changes in accounting policies and disclosures

The accounting policies adopted in the preparation of the financial statements are consistent with those applied in the preparation of the financial statement for the year ended 31 December 2016.

The Company has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

Although certain amendments to effective standards applied for the first time in 2017, they do not have a significant impact in the annual financial statements of the Company and, hence, have not been disclosed.

 

2.D Standards, interpretations and amendments to existing standards that are not yet effective

Certain new standards, amendments and interpretations to existing standards have been published and are mandatory for the accounting periods beginning on or after 1 January 2017 or later periods but which MSC has not previously adopted. Those that are applicable to MSC are as follows:

 

 

IFRS 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.

 

Based on the assessment performed, the group expect the new guidance to have the following impacts on the classification and measurement of its financial instruments:

 

 

 

The IASB has issued a new standard for the recognition of revenue arising from contracts with customers. The new revenue standard will supersede all current revenue recognition requirements under IFRS.

 

The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The Company has evaluated recognition and measurement of revenue based on the five-step model in IFRS 15 and has not identified significant financial impacts, hence no adjustments will be recorded derived from the adoption of IFRS 15 other than certain reclassifications as explained below.

 

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The Company will adopt the new standard from 1 January 2018 applying the simplified transition method and modified retrospective approach. Certain disclosures will change as a result of the requirements of IFRS 15.

 

The key issues identified, and the Company’s views and perspective are set below. These are based on the Company’s current interpretation of IFRS 15 and may be subject to changes as interpretations evolve more generally. Furthermore, the Company is considering and will continue to monitor any further development.

 

 

 

IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17.The Company is analysing the adoption of this new standard and expected not to have a significant impact on the Company´s financial position or performance.

 

IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17.

 

IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs.

 

In 2017, the Company begun the process of assessing the impact of the leases standard. In 2018, the Company plans to continue to assess the potential effect of IFRS 16 on its financial statements.

 

The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration. Entities may apply the amendments on a fully retrospective basis.

 

Alternatively, an entity may apply the Interpretation prospectively to all assets, expenses and income in its scope that are initially recognized on or after:

 

(i) The beginning of the reporting period in which the entity first applies the interpretation

Or

(ii) The beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the interpretation.

 

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The Interpretation is effective for annual periods beginning on or after 1 January 2018. Early application of interpretation is permitted and must be disclosed. However, since the Company’s current practice is in line with the Interpretation, the Company does not expect any effect on its financial statements.

 

 

IFRIC 23 clarifies the accounting for uncertainties in income taxes. This interpretation is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. The Company will adopt. The Interpretation specifically addresses the following:

 

 

The interpretation is effective for annual reporting periods beginning on or after 1 January 2019, but certain transition reliefs are available. The Company will apply interpretation from its effective date, however we do not expect significant impacts on the financial statements on the implementation as the Company’s current treatment is in line with the requirements of the interpretation.

 

The Company is analysing the effect of the standards and plans to adopt the new standards on the required effective date.

 

2.E Summary of significant accounting policies

a) Revenue recognition

The Company is involved in the production and sale of gold and silver from doré and concentrate containing both gold and silver. Concentrate and doré bars are sold directly to customers.

 

Revenue is recognized to the extent that it is probable that economic benefits will flow to the Company and the revenue can be reliably measured.

 

Revenue associated with the sale of gold and silver doré and concentrate is recognized in the income statement when all significant risks and rewards of ownership are transferred to the customer, generally at the point when title has passed to the customer. Revenue excludes any applicable sales taxes.

 

Revenue is subject to adjustment based on customer inspection. Revenue is initially recognized on a provisional basis using the Company’s best estimate of contained gold and silver. Any subsequent adjustments to the initial estimate of metal content are recorded in revenue once they have been determined.

 

In addition, certain sales are ‘provisionally priced’ where the selling price is subject to final adjustment at the end of a period, normally ranging from 15 to 90 days after the start of the delivery process to the customer, based on the market price at the relevant quotation point stipulated in the contract. Revenue is initially recognized when the conditions set out above have been met, using market prices at that date. The price exposure is considered to be an embedded derivative and hence separated from the sales contract at each reporting date. The provisionally priced metal is revalued based on the forward selling price for the quotation period stipulated in the contract until the quotation period ends. The selling price of gold and silver can be measured reliably as these metals are actively traded on international exchanges. The revaluation of provisionally priced contracts is recorded as an adjustment to ‘revenue’.

 

b) Income tax

Income tax for the year comprises current and deferred tax. Income tax is recognized in the income statement except to the extent that it relates to items charged or credited directly to equity, in which case it is recognized in equity.

 

Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years.

   

Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled based on the tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date.

 

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A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

 

On December 29, 2017, the Argentine National Executive (“PEN”) promulgated ant put into effect through Decree 1112/2017a tax reform enacted in the National Congress through Law No. 27,430 (the “Tax Reform”). Among other issues, this reform establishes a gradual reduction of the applicable rate for the calculation of income tax, being 35%, 30% and 25% for fiscal periods beginning on January 1, 2017, January 2018 and January 2019 and January, 2020 onwards, respectively.

 

Since these regulations were published in the Official Gazette and are in full force, for the calculation of deferred assets and liabilities, the Company made an estimate of the reversal of the deferred items and the tax rates expected to be of application in the period in which the asset is realized or the liability is cancelled.

 

c) Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost comprises its purchase price and directly attributable costs of acquisition or construction required to bring the asset to the condition necessary for the asset to be capable of operating in the manner intended by management. Economical and physical conditions of assets have not changed substantially over this period.

 

The cost less residual value of each item of property, plant and equipment is depreciated over its useful life. Each item’s
estimated useful life has been assessed with regard to both its own physical life limitations and the present assessment of economically recoverable reserves and resources of the mine property at which the item is located. Estimates of remaining useful lives are made on a regular basis for all mine buildings, machinery and equipment, with annual reassessments for major items. Depreciation is charged to cost of production on a units of production (“UOP”) basis for mine buildings and installations and plant and equipment used in the mining production process, or charged directly to the income statement over the estimated useful life of the individual asset on a straight-line basis when not related to the mining production process. Changes in estimates, which mainly affect units of production calculations, are accounted for prospectively. Depreciation commences when assets are available for use. Land is not depreciated.  

 

An asset’s carrying amount is written-down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

 

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within other income/expenses, in the income statement.

 

The expected useful lives under the straight-line method are as follows:

 

		Years
Buildings		3 to 33
Plant and equipment		5 to 10
Vehicles		5

 

Borrowing costs directly attributable to the acquisition or construction of an asset that necessarily takes a substantial period of time to be ready for its intended use are capitalized as part of the cost of the asset. All other borrowing costs are expensed where incurred.

 

The Company capitalizes borrowing costs for those assets where construction commenced on or after 1 January 2009 and continues to expense borrowing costs related to construction projects that commenced prior to 1 January 2009. For borrowings associated with a specific asset, the actual rate on that borrowing is used. Otherwise, a weighted average cost of borrowing is used. The Company capitalizes the borrowing costs related to qualifying assets considering that the substantial period of time to be ready is six or more months.

 

Mining properties and development costs

Purchased mining properties are recognized as assets at their cost of acquisition. Costs associated with developments of mining properties are capitalized.

 

Mine development costs are, upon commencement of commercial production, depreciated using the UOP method based on the estimated economically recoverable reserves and resources to which they relate.

 

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When a mine construction project moves into the production stage, the capitalization of certain mine construction costs ceases and costs are either regarded as part of the cost of inventory or expensed, except for costs which qualify for capitalization relating to mining asset additions or improvements, underground mine development or mineable reserve development.

 

Construction in progress and capital advances

Assets in the course of construction are capitalized as a separate component of property, plant and equipment. On completion, the cost of construction is transferred to the appropriate category. Construction in progress is not depreciated.

 

Subsequent expenditure

Expenditure incurred to replace a component of an item of property, plant and equipment is capitalized separately with the carrying amount of the component being written-off. Other subsequent expenditure is capitalized if future economic benefits will arise from the expenditure. All other expenditure including repairs and maintenance expenditures are recognized in the income statement as incurred.

 

d) Evaluation and exploration assets

Evaluation and exploration expenses are capitalized when the future economic benefit of the project can reasonably be regarded as assured.

 

Exploration and evaluation costs are capitalized as assets from the date that the Board authorizes management to conduct a feasibility study.

 

Expenditure is transferred to mine development costs once the work completed to date supports the future development of the property and such development receives appropriate approval.

Identification of resources – Costs incurred in converting inferred resources to indicated and measured resources (of which reserves are a component) are capitalized as incurred. Costs incurred in identifying inferred resources are expensed as incurred.

 

e) Determination of ore reserves and resources

The Company estimates its ore reserves and mineral resources based on information compiled by internal competent persons. Reports to support these estimates are prepared each year. It is the Company’s policy to have the report audited by a Qualified Person.

 

Reserves and resources are used in the UOP calculation for depreciation as well as the determination of the timing of mine closure cost and impairment analysis.

 

f) Intangible assets

Right to use energy of transmission line

Transmission line costs represent the investment made by the Company during the period of its use. This is an asset with a finite useful life equal to that of the mine to which it relates and that is amortized applying the UOP method for the mine.

 

Other intangible assets

Other intangible assets are primarily computer software, which are capitalized at cost and are amortized on a straight-line basis over their useful life of three years.

 

g) Impairment of non-financial assets

The carrying amounts of property, plant and equipment and evaluation and exploration assets are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. If there are indicators of impairment, an exercise is undertaken to determine whether the carrying values are in excess of their recoverable amount. Such review is undertaken on an asset by asset basis, except where such assets do not generate cash flows independent of other assets, and then the review is undertaken at the cash-generating unit level.

 

The assessment requires the use of estimates and assumptions such as long-term commodity prices, discount rates, future capital requirements, exploration potential and operating performance. Changes in these assumptions will affect the recoverable amount of the property, plant and equipment.

 

If the carrying amount of an asset or its cash-generating unit exceeds the recoverable amount, a provision is recorded to reflect the asset at the lower amount. Impairment losses are recognized in the income statement.

 

Calculation of recoverable amount

The recoverable amount of assets is the greater of their value in use and fair value less costs to sell. Fair value is based on an estimate of the amount that the Company may obtain in a sale transaction on an arm’s length basis. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the

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time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. The Company’s cash-generating unit is the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The Company considers the mine site as a generating unit.

 

Reversal of impairment

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

 

h) Inventories

Inventories are valued at the lower of cost or net realizable value. Cost is determined using the weighted average method. The cost of work in progress and finished goods (ore inventories) is based on the cost of production.

 

For this purpose, the costs of production include:

 

Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

 

i) Financial instruments

Financial assets and liabilities are recognized when the Company becomes party to the contracts that give rise to them and are classified as loans or borrowings, receivables, payables or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial assets and liabilities at initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end. When financial assets and liabilities are recognized initially, they are measured at fair value, being the transaction price plus, in the case of financial assets not at fair value through profit or loss and borrowings, directly attributable transaction costs. The Company considers whether a contract contains an embedded derivative when the entity first becomes a party to it. The embedded derivatives are separated from the host contract if it is not measured at fair value through profit or loss and when the economic characteristics and risks are not closely related to those of the host contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. All regular way purchases and sales of financial assets are recognized on the trade date, being the date that the Company commits to purchase or sell the asset. Regular way transactions require delivery and receipt of assets within the timeframe generally established by regulation or convention in the marketplace.  The subsequent measurement of financial assets depends on their classification, as follows:

 

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, do not qualify as trading assets and have not been designated as either fair value through profit and loss or available-for-sale. Such assets are carried at amortized cost using the effective interest method if the time value of money is significant. Gains and losses are recognized in the income statement when the loans and receivables are derecognized or impaired, as well as through the amortization process.

 

Impairment of financial assets

The Company assesses at each statement of financial position date whether a financial asset or group of financial assets is impaired.

 

Loans and borrowings

Borrowings are recognized initially at fair value. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method.

 

Gains and losses are recognized in the income statement when the liabilities are derecognized as well as through the amortization process.

 

Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the statement of financial position date.

 

Derecognition of financial instruments

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:

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When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, a new asset is recognized to the extent of the Company’s continuing involvement in the asset.

 

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

 

A financial liability is generally derecognized when the contract that gives rise to it is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, such that the difference in the respective carrying amounts together with any costs or fees incurred are recognized in profit or loss.

 

j) Offsetting of financial instruments

Financial assets and financial liabilities are offset with the net amount reported in the statement of financial position only if there is a current enforceable legal right to offset the recognized amounts and intent to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

 

k) Fair value measurement

The Company measures financial instruments classified as FVTPL, at fair value at each balance sheet date. Also, fair values of financial instruments measured at amortized cost.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

 

 

The principal or the most advantageous market must be accessible by the Company.

 

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

 

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

 

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

 

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

 

 

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

 

The Company determines the policies and procedures for both recurring fair value measurement and for non-recurring measurement.

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At each reporting date, the Company analyses the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Company’s accounting policies. For this analysis, the Company verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents.

 

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

 

l) Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

 

Finance leases, which transfer to the Company substantially all the risks and rewards incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and the reduction of the lease liability to achieve a constant periodic rate of interest on the remaining balance of the liability. Finance charges are reflected in the income statement. The depreciation policy for leased assets is consistent with that for similar assets owned.

 

A lease is classified as an operating lease if it does not transfer substantially all of the risks and rewards incidental to ownership. Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the lease term.

 

m) Provisions

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

 

Mine closure costs

Provisions for mine closure costs are made in respect of the estimated future costs of closure and restoration and for environmental rehabilitation costs (which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas) in the accounting period when the related environmental disturbance occurs. The provision is discounted and the unwinding of the discount is included in finance costs. At the time of establishing the provision, a corresponding asset is capitalized and is depreciated over future production from the mine to which it relates. The provision is reviewed on an annual basis for changes in cost estimates, discount rates and operating lives.

 

Workers’ profit sharing and other employee benefits

The Company has no pension or retirement benefit plans.

 

Other

Other provisions are accounted for when the Company has a legal or constructive obligation for which it is probable there will be an outflow of resources for which the amount can be reliably estimated.

 

n) Share-based payments

Cash-settled transactions

The fair value of cash-settled share plans is recognized as a liability over the vesting period of the awards. Movements in that liability between accounting dates are recognized as an expense. The fair value of the awards is taken to be the market value of the shares at the date of award adjusted by a factor for anticipated relative Total Shareholder Return (“TSR”) performance. Fair values are subsequently remeasured at each accounting date to reflect the number of awards expected to vest based on the current and anticipated TSR performance.

 

Uncertainties in estimating the award include potential changes in the TSR, the number of participants in the plan, and levels of interest rates.

 

o) Finance income and costs

Finance income and costs include interest expense on borrowings, the accumulation of interest on provisions, interest income on funds invested and gains and losses from the change in fair value of derivative instruments.

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Interest income is recognized as it accrues, taking into account the effective yield on the asset.

 

p) Dividend distribution

Dividend distribution to the Company’s shareholders is recognized as a liability in the Company’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

 

q) Cash and cash equivalents

Cash and cash equivalents are carried in the statement of financial position at cost. For the purposes of the statement of financial position, cash and cash equivalents include cash on hand and deposits held with banks that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. Liquidity funds are classified as cash equivalents if the amount of cash that will be received is known at the time of the initial investment and the risk of changes in value is considered insignificant.

 

3. Revenue

		Year ended 31 December
		2017 US$000		2016 US$000		2015 US$000
Gold (from doré bars)		61,281		57,937		51,088
Silver (from doré bars)		53,102		56,898		48,239
Gold (from concentrate)		63,294		64,488		47,005
Silver (from concentrate)		49,416		56,637		39,765
Total		227,093		235,960		186,097

 

Included within revenue is a gain of US$1,272 relating to provisional pricing adjustments representing the change in the fair value of embedded derivatives (2016: loss of US$73, 2015: gain of US$361) arising on sales of concentrates and doré (refer to note 2.E(a) and footnote 1 of note 16).

 

4. Cost of sales

		Year ended 31 December
		2017 US$000		2016 US$000		2015 US$000
Depreciation and amortization		47,224		51,287		43,111
Personnel expenses		55,902		46,672		49,689
Mining royalty (note 27)		5,792		5,747		4,762
Supplies		33,484		31,430		29,749
Third-party services		28,614		24,095		27,937
Others		3,674		2,338		2,963
Change in products in process and finished goods		2,566		6,781		(5,132)
Total		177,256		168,350		153,079

 

5. Administrative expenses

		Year ended 31 December
		2017 US$000		2016 US$000		2015 US$000
Personnel expenses		4,421		4,059		2,913
Professional fees		607		560		630
Social and community welfare expenses (1)		323		327		433
Travel expenses		240		257		206
Communications		78		74		92
Indirect taxes		1,719		1,653		1,564
Depreciation and amortization		68		55		58
Supplies		76		45		14
Other		1,538		1,508		1,553
Total		9,070		8,538		7,463

(1) Represents amounts expended by the Company on social and community welfare activities surrounding its mining units.

 

 

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6. Exploration expenses

		Year ended 31 December
		2017 US$000		2016 US$000		2015 US$000
Mine site exploration (1 )
Third-party services		1,947		970		639
Personnel expenses		976		572		578
Others		868		298		180
Total		3,791		1,840		1,397

(1) Mine-site exploration is performed with the purpose of identifying potential minerals within an existing mine-site, with the goal of maintaining or extending the mine’s life.

 

7. Selling expenses

		Year ended 31 December
		2017 US$000		2016 US$000		2015 US$000
Transportation of doré, concentrate and maritime freight		3,687		5,793		3,750
Sales commissions		146		84		200
Warehouse services		1,385		1,568		1,474
Taxes		15		1,440		12,993
Other		1,444		1,467		1,291
Total		6,677		10,352		19,708

 

8. Personnel expenses

		Year ended 31 December
		2017 US$000		2016 US$000		2015 US$000
Salaries and wages		53,203		44,166		46,977
Other legal contributions		12,656		11,048		10,993
Statutory holiday payments		3,198		2,768		2,869
Long Term Incentive Plan		876		944		181
Termination benefits		1,463		1,391		1,999
Other		1,127		396		249
Total		72,523		60,713		63,268

Average number of employees for 2017, 2016 and 2015 were as follows:

		Year ended 31 December
		2017		2016		2015
Average number of employees		1,165		1,125		1,117
Total		1,165		1,125		1,117

 

 

9. Other income and expenses

		Year ended 31 December
		2017 US$000			2016 US$000		2015 US$000
Other income
Export refunds		1,613			17,327		2,743
Other		574			4,457		276
Total		2,187			21,784		3,019
Other expenses
VAT write-off		212			1,201		779
Taxes		-			-		441
Supplies obsolescence		542			405		76
Corporate Social Responsibility		3,063			3,146		-
Other		903			2,581		1,371
Total		4,720			7,333		2,667

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10. Finance income and costs

		Year ended 31 December
		2017 US$000			2016 US$000		2015 US$000
Finance income
Interest on deposits and liquidity funds		290			63		46
Unwinding of discount rate		1,481			-		-
Other		47			1,050		125
Total		1,818			1,113		171
Finance costs
Interest on bank loans (note 19)		128			782		2,353
Interest expense		1,393			17		1,177
Unwinding of discount rate		107			1,449		443
Loss from changes in the fair value of financial assets		(3)			10		9
Other		681			296		100
Total		2,306			2,554		4,082

 

 

11. Property, plant and equipment

		Mining properties and development costs US$000		Land and buildings US$000		Plant and equipment US$000		Vehicles US$000		Mine closure asset US$000		Construction in progress and capital advances US$000		Total US$000
Year ended 31 December 2017
Cost
At 1 January 2017		318,082		143,703		93,968		4,161		21,181		6,190		587,285
Additions		22,906		-		4,213		29		-		7,629		34,777
Change in discount rate		-		-		-		-		319		-		319
Disposals		-		(150)		(854)		(172)		-		-		(1,176)
Change in mine closure estimate		-		-		-		-		(54)		-		(54)
Transfers and other movements		-		6,685		715		422		-		(7,822)		-
Transfers from evaluation and exploration assets		1,891		-		-		-		-		-		1,891
At 31 December 2017		342,879		150,238		98,042		4,440		21,446		5,997		623,042
Accumulated depreciation and impairment (2)
At 1 January 2017		268,143		72,188		58,044		2,978		9,399		42		410,794
Depreciation for the year (1)		30,433		10,338		5,865		256		1,467		(20)		48,339
Disposals		-		(97)		(720)		(155)		-		-		(972)
Transfers from evaluation and exploration assets		164		-		-		-		-		-		164
At 31 December 2017		298,740		82,429		63,189		3,079		10,866		22		458,325
Net book amount at 31 December 2017		44,139		67,809		34,853		1,361		10,580		5,975		164,717