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

 

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 23.

 

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 2018, 2017 and 2016 were authorized for issue in accordance with a resolution of the directors on 19 June 2019.

 

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 2018,  2017 and 2016 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 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. Estimates and assumptions are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 

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:

 

 

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 cash-generating unit (‘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 fair value less costs of disposal (‘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.

 

 

 

 

 

The application of the Company´s accounting policy for E&E expenditure requires judgement to determine whether future economic benefits are likely from either future exploitation or sale, or whether activities have not reached a stage that permits a reasonable assessment of the existence of reserves.

 

In addition to applying judgement to determine whether future economic benefits are likely to arise from the Company E&E assets of reserves, the Company has to apply a number of estimates and assumptions. The determination of a resource is itself and estimation process that involves varying degrees of uncertainty depending on how the resources are classified (i.e., measured, indicated or inferred). The estimates directly impact when the Company defers E&E expenditure.

 

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 2017.  Amendments to standards and interpretations which came into force during the year did not have a significant impact on the Group's financial statements and are as follows:

 

The IASB issued a new standard for the recognition of revenue arising from contracts with customers. The new revenue standard supersedes 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 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 were recorded derived from the adoption of IFRS 15 other than certain reclassifications as explained below.

The Company adopted the new standard from 1 January 2018 applying the simplified transition method and full retrospective approach. Certain disclosures changed as a result of the requirements of IFRS 15.

The key issues identified, and the Company’s views and perspective are set below.

 

 

 

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.

The main impacts of the new guidance on the classification and measurement of its financial instruments are as follows:

 

The Company also assessed other changes introduced by IFRS 9 that have no impacts in the financial statements as explained below:

 

 

The amendments are related to the classification and measurement of share-based payment transactions and it does not require to restate prior periods. The adoption of these amendments does not have a significant impact on the Company´s financial position or performance.

 

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 2019 or later periods but which the Company has not previously adopted. Those that are applicable to the Company are as follows:

 

 

   IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance  of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17.  

 

  The standard includes two recognition exemptions for lessees: leases of ‘low-value’ assets (e.g., personal computers); and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

 

  Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

 

  Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.

   

    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. The Company plans to adopt IFRS 16 using the modified retrospective approach, which means it will apply the standard from  1 January 2019, the cumulative impact of adoption will be recognised as at 1 January 2019 and comparatives will not be restated. The Company will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying asset is of low-value. The Company has leases of certain office equipment (i.e., personal computers, printing and photocopying machines) that are considered of low-value.

 

  The Company has concluded its implementation project, focusing on a review of contracts, aggregation of data to support the evaluation of the accounting impacts of applying the new standard and assessment of the need for changes to systems and processes and concluded that no significant impact is expected.

 

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 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.

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. (See 2.C.1 above).

 

Doré Sale

For gold and silver Doré, there are sales under Deliver at Place (DAP) and Carriage and Insurance Paid To  (CIP) Incoterms. Revenue is recognized at a point in time when control passes to the customer.

 

Concentrate Sale

For gold and silver Concentrate, there are sales under Cost, Insurance and Freight (CIF) or Carriage and Insurance Paid To  (CIP) Incoterms. Revenue is recognized at a point in time when the control passes to the customer.

 

The concentrate sale allow for price adjustments based on the market price at the end of the relevant quarter period stipulated in the contract. These are referred to as provisional pricing arrangements and are such that the selling price for concentrate is based on prevailing spot prices on a specified future date after shipment to the customer.

For these provisional pricing arrangements are measured at fair value through profit or loss from initial recognition and until the date of settlement.

 

Freight/shipping services

A proportion of certain Company´s sales are sold under CIP or CIF Incoterms, whereby the Company is responsible for providing freight/shipping services. The Company, therefore, has separate performance obligations for freight/shipping services which are provided solely to facilitate sale of the commodities it produces.

Other incoterm commonly used by the Company is DAP, where the only performance obligations are the provision of the product at the point where control passes.

 

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.

 

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 and 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 30% and 25% for fiscal periods beginning on 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 depreciated book 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 end of mine life
Plant and equipment		4 to end of mine life
Vehicles		5

 

Borrowing costs directly attributable to the acquisition or construction of an asset that 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 when 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.

 

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 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 CGU to which the asset belongs. The Company’s CGU 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 CGU.

 

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

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

 

-   Initial recognition and measurement

 

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, directly attributable transaction costs.

 

Financial assets

 

- Subsequent measurement

- Financial assets at fair value through profit or loss

The Company considers whether a contract contains an embedded derivative when the entity first becomes a party to it. The embedded derivatives are no longer separated from the host and therefore the revaluation of provisionally priced contracts is disclosed within the receivable of the host contract in “trade and other receivables”. 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.

- Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is primarily derecognised (i.e., removed from the Company’s consolidated statement of financial position) when:

• The rights to receive cash flows from the asset have expired, or

• The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the

transferred asset to the extent of its continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

- 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.

 

Financial liabilities

 

- Subsequent measurement

The measurement of financial liabilities depends on their classification, as described below:

- Loans and borrowings

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

Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss.

- Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When 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 the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of 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.

 

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.

 

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) 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 

The Company makes full provision for the future cost of rehabilitating mine site and related production facilities on a discounted basis at the time of developing the mine and installing and using those facilities.

 

The rehabilitation provision represents the present value of rehabilitation costs relating to mine site, which are expected to be incurred up to 2026, which is when the producing mine properties are expected to cease operation. This provision has been created based on the Company´s internal estimates. Assumptions based on the current economic environment have been made, which management believes are a reasonable basis of upon which to estimate the future liability. This estimate is reviewed regularly to take into account any material changes to the assumptions. However, actual rehabilitation cost will ultimately depend upon future market prices for the necessary rehabilitation works required that will reflect market conditions at the relevant time. Furthermore, the timing of rehabilitation is likely to depend on when the mine ceases to produce at economically viable rates. This, in turn, will depend upon future gold and silver prices, which are inherently uncertain.

 

The discount rate used in the calculation of the provision as at 31 December 2018 equaled 0.6% (2017: 0.35%). 

 

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.

 

m) 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.

 

n) Finance income and costs

Finance income and costs mainly include interest expense on borrowings, the accumulation of interest on provisions, interest income on funds invested.

 

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

o) 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.

 

p) 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
		2018 US$000		2017  US$000		2016  US$000
Doré bars
Gold		57,033		60,540		56,525
Silver		44,704		52,459		55,511
Freight/shipping services		1,333		1,384		2,799
Concentrate
Gold		59,085		62,001		62,894
Silver		40,926		48,406		55,237
Freight/shipping services		2,284		2,303		2,994
Total		205,365		227,093		235,960

 

All revenue from doré bars and concentrate is recognized at a point in time when control transfers and revenue from freight is recognized over time as services are provided. (refer to note 2.C)

 

Included within revenue is a gain of US$1,543 relating to provisional pricing adjustments  (2017:  gain of US$1,272, 2016: loss of US$73)  arising on sales of concentrates and doré (refer to note 2.C).

 

4. Cost of sales

		Year ended 31 December
		2018 US$000		2017  US$000		2016 US$000
Depreciation and amortization		50,993		47,224		51,287
Personnel expenses		49,605		55,902		46,672
Mining royalty (note 26)		5,296		5,792		5,747
Supplies		33,112		33,484		31,430
Third-party services		28,630		32,301		29,888
Others		2,660		3,674		2,338
Change in products in process and finished goods		6,782		2,566		6,781
Total		177,078		180,943		174,143

 

5. Administrative expenses

		Year ended 31 December
		2018 US$000		2017  US$000		2016 US$000
Personnel expenses		3,469		4,421		4,059
Professional fees		556		607		560
Social and community welfare expenses (1)		184		323		327
Travel expenses		259		240		257
Communications		60		78		74
Indirect taxes		985		1,719		1,653
Depreciation and amortization		61		68		55
Supplies		85		76		45
Other		1,561		1,538		1,508
Total		7,220		9,070		8,538

 

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

 

6. Exploration expenses

		Year ended 31 December
		2018 US$000		2017  US$000		2016 US$000
Mine site exploration (1 )
Third-party services		3,654		1,947		970
Personnel expenses		792		976		572
Others		570		868		298
Total		5,016		3,791		1,840

 

(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
		2018 US$000		2017  US$000		2016 US$000
Sales commissions		224		146		84
Warehouse services		1,237		1,385		1,568
Taxes		5,147		15		1,440
Other		1,389		1,444		1,467
Total		7,997		2,990		4,559

 

8. Personnel expenses

		Year ended 31 December
		2018 US$000		2017  US$000		2016 US$000
Salaries and wages		45,637		53,203		44,166
Other legal contributions		11,061		12,656		11,048
Statutory holiday payments		2,952		3,198		2,768
Long Term Incentive Plan		412		876		944
Termination benefits		1,739		1,463		1,391
Other		714		1,127		396
Total		62,515		72,523		60,713

Average number of employees for 2018, 2017 and 2016 were as follows:

		Year ended 31 December
		2018		2017		2016
Average number of employees		1,212		1,165		1,125
Total		1,212		1,165		1,125

 

9. Other income and expenses

		Year ended 31 December
		2018 US$000			2017  US$000		2016 US$000
Other income
Export refunds		1,287			1,613		17,327
Other		603			574		4,457
Total		1,890			2,187		21,784
Other expenses
VAT write-off		55			212		1,201
Customers write-off (1)		4,472			-		-
Supplies obsolescence		283			542		405
Corporate Social Responsibility		2,382			3,063		3,146
Other		894			903		2,581
Total		8,086			4,720		7,333

 

(1) Corresponds to Republic Metal Corporation, one of our former customers, which is under the USC Chapter 11 process since November, 2018.

 

10. Finance income and costs

		Year ended 31 December
		2018 US$000			2017  US$000		2016 US$000
Finance income
Interest on deposits and liquidity funds		389			290		63
Unwinding of discount rate		-			1,481		-
Other		1,382			47		1,050
Total		1,771			1,818		1,113
Finance costs
Interest on bank loans (note 18)		241			128		782
Interest expense		40			1,393		17
Unwinding ARO		121			107		1,449
Loss from changes in the fair value of financial assets		3			(3)		10
Unwinding of discount rate		1,664			-		-
Other		543			681		296
Total		2,612			2,306		2,554

 

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 2018
Cost
Balance at 1 January 2018		342,879		150,238		98,042		4,440		21,446		5,997		623,042
Additions		21,626		-		7,279		-		-		14,702		43,607
Change in discount rate		-		-		-		-		(480)		-		(480)
Disposals		-		-		(480)		(296)		-		(21)		(797)
Transfers and other movements		-		9,347		7,134		396		-		(16,880)		(3)
Transfers from evaluation and exploration assets		2,523		-		-		-		-		-		2,523
Balance at 31 December 2018		367,028		159,585		111,975		4,540		20,966		3,798		667,892
Accumulated depreciation and impairment (2)
Balance at 1 January 2018		298,740		82,429		63,189		3,079		10,866		22		458,325
Depreciation for the year (1)		33,777		11,362		5,298		422		1,476		-		52,335
Disposals		-		-		(293)		(270)		-		-		(563)
Transfers from evaluation and exploration assets		200		-		-			-	-		-		200
Balance at 31 December 2018		332,717		93,791		68,194		3,231		12,342		22		510,297
Net book amount at 31 December 2018		34,311		65,794		43,781		1,309		8,624		3,776		157,595