AMERICAS GOLD AND SILVER CORPORATION AMERICAS GOLD AND SILVER CORPORATION
Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(In thousands of U.S. dollars, unless otherwise stated)
Americas Gold and Silver Corporation | |
(In thousands of U.S. dollars, unless otherwise stated) | |
December 31, 2020 and 2019 | |
CONTENTS | |
Page | |
Management's Responsibility for Financial Reporting | 2 |
Independent Auditor's Report | 3 |
Consolidated Statements of Financial Position | 4 |
Consolidated Statements of Loss and Comprehensive Loss | 5 |
Consolidated Statements of Changes in Equity | 6 |
Consolidated Statements of Cash Flows | 7 |
Notes to the Consolidated Financial Statements | 8 - 35 |
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements have been prepared by management and are in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board as outlined in Part I of the Chartered Professional Accountants Canada Handbook. Other information contained in this document has also been prepared by management and is consistent with the data contained in the consolidated financial statements. A system of internal control has been developed and is maintained by management to provide reasonable assurance that assets are safeguarded and financial information is accurate and reliable.
The Board of Directors approves the financial statements and ensures that management discharges its financial reporting responsibilities. The Board's review is accomplished principally through the audit committee, which is composed of non-executive directors. The audit committee meets periodically with management and the auditors to review financial reporting and control matters.
The consolidated financial statements have been audited by PricewaterhouseCoopers LLP and their report outlines the scope of their examination and gives their opinion on the consolidated financial statements.
(Signed) Darren Blasutti
President & Chief Executive Officer
(Signed) Warren Varga Chief Financial OfficerToronto, Ontario, Canada March 22, 2021
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Americas Gold and Silver Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Americas Gold and Silver Corporation and its subsidiaries (together, the Company) as of December 31, 2020 and 2019, and the related consolidated statements of loss and comprehensive loss, changes in equity and cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and its financial performance and its cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
March 22, 2021
We have served as the Company's auditor since 2015.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215
"PwC" refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Consolidated statements of financial position
(In thousands of U.S. dollars)
December 31,December 31,As at Assets
Current assets
Cash and cash equivalents
Trade and other receivables (Note 7) Inventories (Note 8)
Prepaid expenses
Derivative instruments (Note 26)Non-current assets Restricted cash Inventories (Note 8)
Property, plant and equipment (Note 9) Deferred tax assets (Note 24)
Total assets
Liabilities
Current liabilities Trade and other payables
Deferred revenue (Note 10)
Derivative instruments (Note 11)
Loan payable (Note 13)
Glencore pre-payment facility (Note 14)
Government loan (Note 15)
Non-current liabilities Other long-term liabilities
Deferred revenue (Note 10)
Convertible debenture (Note 11)
Promissory note (Note 12)
Government loan (Note 15)
Post-employment benefit obligations (Note 16)
Decommissioning provision (Note 17)
Deferred tax liabilities (Note 24)
Total liabilities
Equity
Share capital (Note 18) Equity reserve
Foreign currency translation reserve Deficit
Attributable to shareholders of the Company Non-controlling interests (Note 20)
Total equity
Total liabilities and equity
$
20,076 34,925
4,082 4,007
1,339 259,319 -$
$
39,044 34,780
4,619 5,645
19,350 22,978
9,953 9,935
13,398 10,137
8,279 7,765
350,707 284,673
42,378 38,061
6,842 6,695
(230,253)
169,674 126,291
11,488 12,722
Contingencies (Note 29), Subsequent events (Note 30)
APPROVED BY THE BOARD
(Signed) Brad Kipp Director
2020
2019
4,705 $ 19,998
5,102 5,269
8,069 2,200 -
284,816
21,131
3,972
4,568
5,564
2,862
947
5,000 3,552
459 103,654
(Signed) Gordon Pridham Director
7,159 1,914 585
1,339 190,389 343
$
231,003
$
22,709
2,029
4,440 -
5,602 -
- -750 91,990
(203,138)
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated statements of loss and comprehensive loss For the years ended December 31, 2020 and 2019
(In thousands of U.S. dollars, except share and per share amounts)
2020
2019
Revenue (Note 21)
$
27,883
$
58,410
Cost of sales (Note 22)
Depletion and amortization (Note 9) Care and maintenance costs
Corporate general and administrative (Note 23) Transaction costs (Note 6)
Exploration costs
Accretion on decommissioning provision Interest and financing expense
Foreign exchange gain (loss)
Gain on disposal of assets (Note 9)
Gain (loss) on derivative instruments (Note 11 and 26) Gain on derivative warrant liability
Loss before income taxes
Income tax recovery (expense) (Note 24)
Net loss
Attributable to: Shareholders of the Company Non-controlling interests
Net loss
Other comprehensive loss
Items that will not be reclassified to net loss Actuarial loss on post-employment benefit obligations Deferred income taxes
Items that may be reclassified subsequently to net loss Foreign currency translation reserve
Other comprehensive loss Comprehensive loss
Attributable to: Shareholders of the Company Non-controlling interests Comprehensive loss
Loss per share attributable to shareholders of the Company Basic and diluted
Weighted average number of common shares outstanding
Basic and diluted (Note 19)
(31,239) (56,724)
(7,973) (13,338)
(5,947) (438)
(9,134) (9,711)
(23) (3,467)
(4,639) (2,552)
(166) (210)
(253) (1,790)
546 (51)
37 (160) -(31,068) (32,282)
1,002 (1,958)
$
(30,066)
$
(25,153) $ (32,653)
(4,913) (1,587)
$
(30,066)
$
(2,529)
(741)
147 (3,123)
$
(33,189)
$
(26,968) $ (33,550)
(6,221) (1,587)
$
(33,189)
(0.24)
103,941,184
- (2,457)
46
$ (34,240)
$ (34,240)
$ (1,792)
741 154 (897)
$ (35,137)
$ (35,137)
(0.46)
71,421,798
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated statements of changes in equity
For the years ended December 31, 2020 and 2019
(In thousands of U.S. dollars, except share amounts in thousands of units)
SharesCommonAmountShare capitalSharesPreferredAmountForeign currency Equity translation reserve reserve
AttributableNon-to shareholders controllingDeficit of the CompanyinterestsTotal equityBalance at January 1, 2020
Net loss for the year
Other comprehensive income (loss) for the year Contribution from non-controlling interests (Note 20) Acquisition of San Felipe property (Note 9) At-the-market offering (Note 18)
May bought deal public offering (Note 18) September bought deal public offering (Note 18) Warrants issued on financing transaction costs Conversion of preferred shares
Share-based payments
Exercise of options and deferred share units Balance at December 31, 2020
Balance at January 1, 2019
Net loss for the year
Other comprehensive income (loss) for the year Joint venture agreement (Note 20)
San Felipe property option transaction costs Acquisition of Pershing Gold Corporation (Note 6) Subscription agreement with Sandstorm Gold Ltd. (Note 18) Conversion of convertible loans payable
Warrants issued on acquisition transaction costs Warrants issued on financing transaction costs Reclassification of derivative warrant liability Non-brokered private placement (Note 18)
Shares and warrants issued on joint venture transaction costs Conversion of preferred shares
Share-based payments
Exercise of options, warrants, and deferred share units Balance at December 31, 2019
86,607
$ 284,512
104 $
161
$ 38,061 $
- - - 1,687 9,015 10,270 10,205 - 104 - 87 117,975 43,402
6,695 $ (203,138) $
- - - 4,350 14,276 19,130 28,040 - 161 - 238 $ 350,707 $ 212,943
- - - - - - - - (104)
- - - - - - - - (161)
- - - -
- - - - - - - 185 - 4,221
- -
(89)
$ $
- 147 - - - - - - - - -
(25,153) (1,962)
- -$ 42,378 $ $ 34,837 $
- - - 452 24,849 4,785 2,764 - - - 3,955 223 3,574 - 2,603 86,607
- - - 600
6,842 $ (230,253) $ 6,541 $ (170,125) $
- - - -
- - - - 5,714 - - - - - - - (5,553)
- - - -
38,604 3,678
- 154 - - - - - - - - - - - - -
(32,653) (1,051)
1
7,371
4,284 - - -
- - - - - - - (3,574)
- -
471
149
680
9,468
141
5,553 -
697
202 -
- - 104 $
- -
3,384
4,992
(1,804)
$ 284,512
161 $ 38,061 $
6,695 $ (203,138) $
The accompanying notes are an integral part of the consolidated financial statements.
126,291
$ 12,722
$ 139,013
(25,153) (1,815)
(4,913) (30,066)
(1,308) (3,123)
- - - - - - - - -
- 4,987 4,987
4,350 - 4,350
14,276 - 14,276
19,130 - 19,130
28,040 - 28,040
185 - 185
- 4,221 149
- - -
169,674
$ 11,488
84,196 $
-(32,653) (1,587)
- 4,221 149
$ 181,162
$ 84,196
(34,240)
(897)
-
(897)
691 - - - - - - - - - - - -691 14,309
15,000
600 - 600
44,319 - 44,319
7,371 - 7,371
4,284 - 4,284
471 - 471
149 - 149
680 - 680
9,609 - 9,609
899 - 899
- 3,384 3,188
- - -
- 3,384 3,188
126,291
$ 12,722
$ 139,013
Consolidated statements of cash flows
For the years ended December 31, 2020 and 2019 (In thousands of U.S. dollars)
2020
2019
Cash flow generated from (used in)
Operating activities
Net loss for the year
Adjustments for the following items:
Depletion and amortization Income tax expense (recovery) Accretion and decommissioning costs Share-based payments
$
(30,066)
$ (34,240)
7,973 13,338
(1,002) 1,958
166 210
4,221 3,721
Unrealized gain on non-current assets - (17)Provision on other long-term liabilities
1 50
Deferred costs on convertible loans - 745
Deferred costs on convertible debenture 18 62
Deferred revenue - 25,000
Non-cash transaction costs - 899
Cash received from alternative minimum tax credits - 344
Changes in bond on decommissioning costs
Net charges on post-employment benefit obligations Loss on derivative instruments
Gain on derivative warrant liability
Changes in non-cash working capital items: Trade and other receivables
Inventories
Prepaid expenses
Trade and other payables
Net cash generated from (used in) operating activities
Investing activities
Expenditures on property, plant and equipment Development costs on Relief Canyon Mine
(83) 485
732 170
713 3,982
- (46)
(17,327)
16,661
510 2,443
(910) (362)
(286) (58)
(908) (4,541)
(18,921)
14,143
(11,571) (11,554)
(58,929) (22,775)Cash received from joint venture agreement - 15,000
San Felipe property option payments - (2,250)
Investment in convertible loan receivable - (800)
Cash from acquisition of Pershing Gold Corporation - 241
Net cash used in investing activities
Financing activities
Repayments to Glencore pre-payment facility Lease payments
(70,500) (22,138)
(2,740) (5,508)
(3,353) (284)Financing from convertible debenture - 10,000
Share issuance from private placement - 9,609
Share issuance from subscription agreement - 7,371
At-the-market offering
May bought deal public offering September bought deal public offering Loan payable
Government loan Promissory note
Proceeds from exercise of options and warrants Contribution from non-controlling interests
Net cash generated from financing activities
Effect of foreign exchange rate changes on cash Increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year
Cash and cash equivalents consist of:
Cash
Term deposits
Interest paid during the year
73,973
19,315
28,040
14,276
3,800
5,000
4,499
4,987
149
- - - - - - 3,188 - 24,376
155 (15,293) 19,998
153 16,534 3,464
$
4,705
$
19,998
$
4,705 -$
19,998 -$
4,705
$
19,998
$
1,624
$
1,148
The accompanying notes are an integral part of the consolidated financial statements.
1. Corporate information
Americas Gold and Silver Corporation (the "Company") was incorporated under the Canada Business Corporations Act on May 12, 1998 and conducts mining exploration, development and production in the Americas. The address of the Company's registered office is 145 King Street West, Suite 2870, Toronto, Ontario, Canada, M5H 1J8. The Company's common shares are listed on the Toronto Stock Exchange under the symbol "USA" and on the New York Stock Exchange American under the symbol "USAS".
The consolidated financial statements of the Company for the year ended December 31, 2020 were approved and authorized for issue by the Board of Directors of the Company on March 22, 2021.
The Company has been closely monitoring developments in the COVID-19 outbreak declared as a global pandemic on March 11, 2020. Preventive measures to ensure the safety of the Company's workforce and local communities have been implemented and there have been no outbreaks of COVID-19 at any of the Company's operations to date. All of the Company's mining and corporate operations continue to operate with the exception of mining operations in Cosalá halted by an illegal blockade. The Company continues to manage and respond to COVID-19 to mitigate and minimize potential impacts of this global pandemic, in addition to other uncertainties, such as the price of commodities, gold recovery from the Relief Canyon Mine, and illegal blockade at the Cosalá Operations placed under care and maintenance.
2. Basis of presentation
The Company prepares its consolidated financial statements on a going concern basis in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and IFRS Interpretations Committee ("IFRIC") which the Canadian Accounting Standards Board has approved for incorporation into Part I of the Chartered Professional Accountants Canada Handbook. These consolidated financial statements have been prepared under the historical cost method, except for certain financial instruments measured at fair value. The Company has consistently applied the accounting policies used in preparation of these consolidated financial statements throughout all the periods presented. In preparing these financial statements, management has considered all available information about the future, which is at least, but not limited to, twelve months from year-end. Significant accounting judgments and estimates used by management in the preparation of these consolidated financial statements are presented in Note 4.
3. Summary of significant accounting policies
The significant accounting policies used in the preparation of these consolidated financial statements are as follows:
a. Consolidation
These consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company (its subsidiaries, including special purpose entities). Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Where the Company's interest in a subsidiary is less than 100%, the Company recognizes non-controlling interests. All intercompany transactions and balances, income and expenses have been eliminated.
The Company applies the acquisition method to account for business combinations. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Company elects on an acquisition-by-acquisition basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognized amount of identifiable net assets. Acquisition-related costs are expensed as incurred. Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is negative, a bargain purchase gain is recognized immediately in profit or loss.
Special Purpose Entities ("SPE's") as defined by the IASB in SIC 12 Consolidation-Special Purpose Entities are entities which are created to accomplish a narrow and well-defined objective (e.g. to provide services to the operating entity). SPE's are subject to consolidation when there is an indication that the other entity controls the SPE. The Company has determined that it controls certain SPE's relating to service companies at its Mexican operations (4246136 Canada Inc., Servicios Especializados en Minas S.A. de C.V., Triturados Mineros del Noroeste S.A. de C.V. and Servicios Generales en Mineria S.A. de C.V.) and the accounts of those SPE's are consolidated with those of the Company.
b. Segment reporting
An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company's other components. Determination of operating segments are based on the reports reviewed by the chief operating decision makers that are used to make strategic decisions about resources to be allocated to the segment and performance assessment, and for which discrete financial information is available. Unallocated items not directly attributable to a segment comprise mainly of corporate assets and head office expenses.
c. Presentation currency and functional currency
The Company's presentation currency is the U.S. dollar ("USD"). The functional currency of the Company's Canadian subsidiaries is the Canadian dollar ("CAD"), and the functional currency of its U.S. and Mexican subsidiaries and SPE's is the USD. The consolidated financial statements of the Company are translated into the presentation currency. Assets and liabilities have been translated using the exchange rate at period end, and income, expenses and cash flow items are translated using the rate that approximates the exchange rates at the dates of the transactions (the average rate for the period). All resulting exchange differences are recorded in the foreign currency translation reserve.
d. Foreign currency translations
Transactions in foreign currencies are translated into the entities' functional currency at the exchange rate at the date of the transactions. Monetary assets and liabilities of the Company's operations denominated in a currency other than the functional currency are translated at the rate in effect at the statement of financial position date, and non-monetary items at historic exchange rates at each transaction date. Revenue and expense items are translated at average exchange rates of the reporting period. Gains and losses on translation are charged to the statements of loss and comprehensive loss.
e. Revenue recognition
The Company applies the following five-step approach in recognizing revenue from contracts with customers:
Identify the enforceable contract with the customer
Identify the separate performance obligations in the contract from transferring the distinct good or service
Determine the transaction price for consideration of transferring the good or service
Allocate the transaction price to the separate performance obligations identified
Recognize revenue when each separate performance obligation is satisfied
The Company recognizes revenue through entering into concentrate sales contracts with customers with the performance obligation of delivering its concentrate production in exchange for consideration valued initially under provisional pricing arrangements. Revenue from sales is recorded at the time of delivery based on forward prices for the expected date of final settlement. The final sale prices are determined by quoted market prices in a period subsequent to the date of sale. In these circumstances.
Subsequent variations in metal prices are recognized as embedded derivative pricing adjustments at fair value from contracts with customers.
The Company recognizes deferred revenue from advanced consideration received for fixed and variable precious metals deliveries over a specified period. Deferred revenue is recognized into revenue as performance obligations to metals delivery are satisfied over the term of the delivery contract.
f. Defined benefit plans
The cost of defined benefit plans is determined using the projected unit credit method. The related pension liability recognized in the consolidated statement of financial position is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets.
Actuarial valuations for defined benefit plans are carried out annually. The discount rate applied in arriving at the present value of the pension liability represents the yield on high quality corporate bonds denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.
Actuarial gains and losses arise from the difference between the actual long-term rate of return on plan assets for a period and the expected long-term rate of return on plan assets for that period, or from changes in actuarial assumptions used to determine the accrued benefit obligation. Actuarial gains and losses arising in the year are recognized in full in the period in which they occur, in other comprehensive income and retained earnings without recycling to the consolidated statement of loss and comprehensive loss in subsequent periods.
Current service cost, the recognized element of any past service cost, interest expense arising on the pension liability and the expected return on plan assets are recognized in the same line items in the consolidated statement of loss and comprehensive loss as the related compensation cost.
The values attributed to plan liabilities are assessed in accordance with the advice of independent qualified actuaries. Service costs arising from plan amendments are recognized immediately.
g. Share-based payments
The Company's stock option plan allows its employees (including directors and officers) and non-employees to acquire shares of the Company. Accordingly, the fair value of the option is either charged to operations or capitalized to exploration or development expenditures, depending on the accounting for the optionee's other compensation, with a corresponding increase in equity reserve.
The costs of equity-settled transactions with employees are measured by reference to the fair value at the date on which they are granted using the Black-Scholes Option Pricing Model.
The costs of equity-settled transactions are recognized, together with a corresponding increase in equity reserve, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the "vesting date"). The cumulative expense recognized for equity-settled transactions at each reporting date up to the vesting date reflects the Company's best estimate of the number of equity instruments that will ultimately vest. The charge or credit for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and the corresponding amount is represented in equity reserve. No expense is recognized for awards that do not ultimately vest.
Where the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.
h. Income taxes
Income tax comprises of current and deferred tax. Income tax is recognized in the consolidated statement of loss and comprehensive loss except to the extent that it relates to items recognized directly in other comprehensive income (loss) or directly in equity, in which case the income tax is also recognized directly in other comprehensive income (loss) or equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company's subsidiaries operate and generate taxable profit. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognized in respect of temporary differences between the carrying amount of assets and liabilities in the consolidated statement of financial position and the corresponding tax bases used in the computation of taxable profit. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted at the consolidated statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses to the extent it is probable future taxable profits will be available against which they can be utilized.
The Company did not recognize any deferred income taxes relating to its investments in subsidiaries.
Deferred tax assets and liabilities are offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset.
i. Earnings/loss per share
Basic earnings/loss per share is calculated by dividing the net earnings/loss for the period attributable to equity owners of the Company by the weighted average number of common shares outstanding during the period.
Diluted earnings/loss per share is calculated by adjusting the weighted average number of common shares outstanding for dilutive instruments. The number of shares included with respect to options, warrants and similar instruments is computed using the treasury stock method. The treasury stock method, which assumes that outstanding stock options and warrants with an average exercise price below the market price of the underlying shares, are exercised and the assumed proceeds are used to repurchase common shares of the Company at the average market price of the common shares for the period. The Company's potentially dilutive common shares comprise stock options granted to employees, and warrants.
j. Comprehensive income (loss)
Comprehensive income (loss) is the change in the Company's net assets that results from transactions, events and circumstances from sources other than the Company's shareholders and includes items that would not normally be included in net earnings such as foreign currency gains or losses related to the Company's net investment in foreign operations and unrealized gains or losses on available-for-sale securities net of tax. The Company's comprehensive income (loss), components of other comprehensive income (loss) and cumulative translation adjustments are presented in the consolidated statements of comprehensive income (loss) and the consolidated statements of changes in equity.
k. Inventories
Concentrates, ore stockpile, and spare parts and supplies are valued at the lower of cost and estimated net realizable value. Cost for concentrates and ore stockpile includes all direct costs incurred in production including direct labour and materials, freight, depreciation and amortization and directly attributable overhead costs determined on a weighted average basis for the Mexican operations and first in, first out method for the U.S. operations. Cost for spare parts and supplies are determined using the first in, first out method. Net realizable value is calculated as the estimated price at the time of sale based on prevailing and future metal prices less estimated future production costs to convert inventories into saleable form.
Any write-downs of inventory to net realizable value are recorded as cost of sales. If there is a subsequent increase in the value of inventories, the previous write-downs to net realizable value are reversed to the extent that the related inventory has not been sold.
Ore stockpile represents ore that has been extracted from the mine and is available for further processing. Costs added to ore stockpile are valued based on current mining cost per tonne incurred up to the point of stockpiling the ore and are removed at the average cost per tonne. Ore stockpile is verified by periodic surveys.
Materials and supplies inventory are valued at the lower of cost and net realizable value, where cost is determined using the first-in-first-out method. Any provision for obsolescence is determined by reference to specific items of stock. A regular review is undertaken to determine the extent of any provision for obsolescence by comparing those items to their net realizable value. If carrying value exceeds net realizable value, a write-down is recognized.
l. Investments
An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
Investments in companies over which the Company exercises neither control nor significant influence and are designated as financial assets at fair value through other comprehensive income. Related unrealized gains (losses) are recognized in other comprehensive income (loss), unless the decrease in value is significant or prolonged, in which case the loss is recorded in the statements of loss and comprehensive loss.
m. Property, plant and equipment
(i) Producing mining interests
Producing mining interests are carried at cost less accumulated depletion and amortization and accumulated impairment losses. Following the completion of commissioning, the costs related to the mining interests are depleted and charged to operations on the unit of production method as a proportion of estimated recoverable mineral reserves.
Completion of the commissioning is deemed to have occurred when major mine and processing plant components are completed, operating results are being achieved consistently for a period of time and that there are indicators that these operational results, including mill capacity and recovery, will be sustainable in the future.
Construction in progress is not depreciated until the assets are ready for their intended use.
(ii) Non-producing mining interests
The Company follows the method of accounting for its non-producing mining interests whereby all costs, net of incidental revenues, relating to the acquisition and development are deferred and capitalized by property until the property to which they directly relate is placed into production, sold, discontinued or subject to a condition of impairment. Exploration expenses not related to placing the property into production are expensed as incurred.
In the event that a mining interest is placed into production, capitalization of costs ceases, the costs are transferred to producing mining interests and the mining interest is depleted on a unit of production basis. The recoverability of amounts is dependent upon the discovery of economically recoverable mineral reserves, the ability of the Company to finance the development of the properties, and on the future profitable production or proceeds from the disposition thereof.
(iii) Plant and equipment
Property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment losses.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate assets (major components) of property, plant and equipment.
The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within that part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. Repairs and maintenance are charged to the consolidated statement of loss and comprehensive loss during the period in which they are incurred.
Depreciation is recorded over the estimated useful life of the asset as follows:
• Mining interests - unit of production based upon estimated proven and probable reserves
• Plant and equipment - 3-30 years over straight line basis
• Corporate office equipment - 3-10 years over straight line basis
Residual values, method of amortization and useful lives of the assets are reviewed annually and adjusted if appropriate.
(iv) Impairment and reversal of impairment
The Company reviews and evaluates the carrying values of its tangible and intangible assets to determine whether there is an indication of impairment or reversal of impairment. For exploration and evaluation assets, indication includes but is not limited to expiration of the right to explore, substantive expenditure in the specific area is neither budgeted nor planned, and if the entity has decided to discontinue exploration activity in the specific area.
When the carrying value of assets exceeds the recoverable amount, the carrying value of the assets is reduced to the recoverable amount. The recoverable amount takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use of the asset. To achieve this, the recoverable amount is the higher of value in use (being the net present value of expected pre-tax future cash flows of the relevant asset) and fair value less costs to sell the asset.
If, after the Company has previously recognized an impairment loss, circumstances indicate that the recoverable amount of the impaired assets is greater than the carrying amount, the Company reverses the impairment loss by the amount the revised fair value exceeds its carrying amount, to a maximum of the previous impairment loss. In no case shall the revised carrying amount exceed the original carrying amount, after depreciation or amortization, that would have been determined if no impairment loss had been recognized.
n. Decommissioning provision
The Company recognizes contractual, statutory and legal obligations associated with retirement of mining properties when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, the decommissioning provision is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding decommissioning provision is added to the carrying amount of that asset and the cost is amortized as an expense over the economic life of the related asset. Following the initial recognition of the decommissioning provision, the periodic unwinding of the discount is recognized in the consolidated statement of loss and comprehensive loss and adjusted for changes to the amount or timing of the underlying cash flows to settle the obligation.
o. Financial instruments
The Company classifies and measures its financial instruments at fair value, with changes in fair value recognized in profit or loss as they arise. Unless restrictive criteria regarding the objective and contractual cash flows of the instrument are met then classification and measurement are at either amortized cost or fair value through other comprehensive income.
Cash and cash equivalents and trade and other receivables are classified and measured as financial assets at amortized cost. Embedded derivatives arising from subsequent adjustments in provisional sales revenue are classified and measured as financial instruments at fair value through profit or loss. Trade and other payables are classified and measured as financial liabilities at amortized cost. Loans receivable and payable are classified and measured as financial assets at fair value through profit or loss and as financial liabilities at fair value through profitor loss, respectively. Investment in equity instruments are classified and measured as financial assets at fair value through other comprehensive income.
Loans from the government are accounted for as a loan payable until forgiveness is reasonably assured and the loan is derecognized through the consolidated statement of loss and comprehensive loss.
p. Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset and amortized over the expected useful life of that asset. Other borrowing costs not directly attributable to a qualifying asset are expensed in the period incurred.
q. Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) that has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense.
r. Related party transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence, and related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related party transactions that are in the normal course of business and have commercial substance are measured at the exchange amount.
s. Restricted cash
Restricted cash includes cash that has been pledged for reclamation and closure activities which are not available for immediate disbursement.
4. Significant accounting judgments and estimates
The preparation of financial statements in conformity with IFRS requires management to make judgments and estimates that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The areas which require management to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited to:
(i) Reserves and resources
Proven and probable reserves are the economically mineable parts of the Company's measured and indicated mineral resources. The Company estimates its proven and probable reserves and measured and indicated and inferred mineral resources based on information compiled by appropriately qualified persons. The information relating to the geological data on the size, depth and shape of the ore bodies requires complex geological judgments to interpret the data. The estimation of future cash flows related to proven and probable reserves is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements and production costs along with geological assumptions and judgments made in estimating the size, grade and recovery of the ore bodies.
Changes in the proven and probable reserves or measured, indicated and inferred mineral resources estimates may impact the carrying value of mining properties and equipment, depletion and amortization, impairment assessments and the timing of decommissioning provisions.
(ii) Depletion and amortization
Mining properties are depleted using the unit-of-production method over a period not to exceed the estimated life of the ore body based on estimated recoverable reserves.
Property, plant and equipment are depreciated, net of residual value over their estimated useful life but do not exceed the related estimated life of the mine based on estimated recoverable mineral reserves.
The calculation of the units of production rate, and therefore the annual depletion and amortization expense, could be materially affected by changes in the underlying estimates. Changes in estimates can be the result of actual future production differing from current forecasts of future production and expansion of mineral reserves through exploration activities.
Significant judgment is involved in the determination of useful life and residual values for the computation of depletion and amortization. No assurance can be given that actual useful lives and residual values will not differ significantly from current assumptions.
(iii) Decommissioning provision
The Company assesses its decommissioning provision on an annual basis or when new material information becomes available. Mining and exploration activities are subject to various laws and regulations governing the protection of the environment. In general, these laws and regulations are continually changing and the Company has made, and intends to make in the future, expenditures to comply with such laws and regulations. Accounting for decommissioning provision requires management to make estimates of the time and future costs the Company will incur to complete the rehabilitation work required to comply with existing laws and regulations at each mining operation. Also, future changes to environmental laws and regulations could increase the extent of rehabilitation work required to be performed by the Company. Increases in future costs could materially impact the amounts charged to operations for decommissioning provision. The provision represents management's best estimate of the present value of the future decommissioning provision. The actual future expenditures may differ from the amounts currently provided.
(iv) Share-based payments
The amount expensed for share-based compensation is based on the application of a recognized option valuation formula, which is highly dependent on, among other things, the expected volatility of the Company's registered shares, estimated forfeitures, and the expected life of the options. The Company uses an expected volatility rate for its shares based on past stock trading data, adjusted for future expectations, and actual volatility may be significantly different.
The resulting value calculated is not necessarily the value that the holder of the option could receive in an arm's length transaction, given that there is no market for the options and they are not transferable. It is management's view that the value derived is highly subjective and dependent entirely upon the input assumptions made.
(v) Income taxes
Preparation of the consolidated financial statements requires an estimate of income taxes in each of the jurisdictions in which the Company operates. The process involves an estimate of the Company's current tax exposure and an assessment of temporary differences resulting from differing treatment of items, such as depletion and amortization, for tax and accounting purposes, and when they might reverse.
These differences result in deferred tax assets and liabilities that are included in the Company's consolidated statements of financial position.
An assessment is also made to determine the likelihood that the Company's future tax assets will be recovered from future taxable income. To the extent that recovery is not considered likely, the related tax benefits are not recognized.
Judgment is required to continually assess changing tax interpretations, regulations and legislation, to ensure liabilities are complete and to ensure assets, net of valuation allowances, are realizable. The impact of different interpretations and applications could be material.
(vi) Assessment of impairment and reversal of impairment indicators
The Company applies judgment in assessing whether indicators of impairment or reversal of impairment exist for a cash generating unit which would require impairment testing. Internal and external sources such as changes in use of an asset, capital and production forecasts, commodity prices, quantities of reserves and resources, and changes in market, economic, and legal environment are used by management in determining whether there are any indicators.
(vii) Commercial production
The determination of timing on which a mining property enters into commercial production is a significant judgment since capitalization of development costs ceases and revenue recognition begins upon declaration of commercial production. As a mining property is constructed, development costs incurred are capitalized while pre-production costs and revenues are capitalized and accumulated into such development costs. Commercial production is declared once the mining property is available for its intended use on a commercial scale as defined by management. Revenue recognition, cost of sales, and depletion of the mining property begins when commercial production has been achieved, and are recognized into the consolidated statement of loss and comprehensive loss, subject to impact of amendments to IAS 16 (see Note 5).
(viii) Cash flows from production at Relief Canyon Mine and impact on operations
The Company had negative operating cash flows in 2020 while the Relief Canyon Mine was in development and a working capital deficit at year-end. Subsequent to year-end, the Company declared commercial production of the Relief Canyon Mine effective January 11, 2021 and completed a bought deal public offering for aggregate gross proceeds of approximately $26.7 million or $33.94 million CAD (see Note 30). With commercial production having been declared, the Company anticipates that it will begin to generate positive operating cash flows which will allow it to meet its financial obligations as they come due. The ability to achieve the expected sustaining production levels at Relief Canyon Mine, allowing the Company to generate sufficient operating cash flows, is a significant judgment in these financial statements with respect to the Company's liquidity and the $138.2 million carrying value of the Relief Canyon segment. Should the Company experience negative operating cash flows in future periods or experience significant changes to anticipated production, the Company may need to raise additional funds through the issuance of equity or debt securities.
5. Changes in accounting policies and recent accounting pronouncements
The following are future changes in accounting policies not yet effective as at December 31, 2020:
(i) Property, plant and equipment
Amendments to IAS 16 - Property, Plant and Equipment - Proceeds before Intended Use - The standard is amended to prohibit deducting from the cost of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, the Company recognizes the proceeds from selling such items, and the cost of producing those items, in profit or loss. The amendments to IAS 16 are effective for annual periods beginning on or after January 1, 2022, with early adoption permitted. The amendments apply retrospectively only to property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after the beginning of the earliest period presented in the financial statements in which the Company first applies the amendments. The Company is assessing the impact of the amendments on the consolidated financial statements and will not be adopting the amendments early.
6. Acquisition of Pershing Gold Corporation
On April 3, 2019, the Company obtained control and completed the acquisition of Pershing Gold Corporation ("Pershing Gold") via an agreement and plan of merger dated September 28, 2018. The merger was completed by the Company acquiring all the outstanding common and preferred shares of Pershing Gold through exchanging each outstanding Pershing Gold common share for 0.715 common shares of the Company and exchanging each outstanding Pershing Gold preferred share for 461.44 common or preferred shares of the Company. Outstanding Pershing Gold options and restricted share units were exchanged for the Company's common share considerations and outstanding Pershing Gold warrants became exercisable for the Company's common shares under the same exchange ratio.
The merger has been accounted for as a business combination with the Company identified as the acquirer for accounting purposes.
The consideration paid is calculated as follows:
Non-diluted Pershing Gold common shares outstanding, April 3, 2019 | 33,686,921 | |
Implicit share exchange ratio | 0.715 | |
The Company's common shares exchanged for Pershing Gold common shares | 24,085,928 | |
The Company's common share price, April 3, 2019 (USD) | 1.55 | |
Total common share consideration | $ | 37,418 |
Consideration on the exchange of Pershing Gold for the Company's equity instruments: | ||
Preferred shares exchanged for common shares | 383 | |
Preferred shares exchanged for preferred shares | 5,714 | |
Restricted share units exchanged for common shares | 803 | |
Warrants exchanged for warrants | 1 | |
Total equity consideration | 44,319 | |
Pre-existing convertible loan from the Company to Pershing Gold | 2,913 | |
Total consideration | $ | 47,232 |
The purchase price allocation is as follows: |
Cash and cash equivalents $ 241 Prepaid expenses 609 | ||
Restricted | cash | 3,787 |
Property, plant and equipment Trade and other payables 49,272 (5,454) | ||
Decommis Net assets | (1,223) | |
$ 47,232 |
The acquisition of Pershing Gold by the Company was completed on April 3, 2019. As of December 31, 2019, the determination of fair value of assets and liabilities acquired has been finalized.
7. Trade and other receivables
December 31, 2020 December 31, 2019 Trade receivables $ 2,761 $ 4,560 Value added taxes receivable Other receivables 1,916 636 425 73 |
$ 5,102 $ 5,269 |
8. Inventories
December 31,December 31, | ||
2020 2019 | ||
Concentrates $ 2,327 $ 1,292 Current ore stockpiles Spare parts and supplies 607 497 5,135 5,370 8,069 7,159 | ||
Long-term ore stockpiles | 1,339 | 1,339 |
$ 9,408 | $ 8,498 |
The amount of inventories recognized as an expense was $31.2 million during the year ended December 31, 2020 (2019: $56.7 million). During the year ended December 31, 2020, the concentrates and ore stockpiles, and spare parts and supplies write-down to net realizable value included in cost of sales was $0.3 million (2019: $1.2 million) and $0.2 million (2019: nil), respectively.
9. Property, plant and equipment
Corporate
Mining Non-producinginterestspropertiesPlant and equipmentRight-of-use lease assetsoffice equipmentTotalCost
Balance at January 1, 2019
$
Acquisition of Pershing Gold Asset additions
113,428 -$
-
$
54,542 $
34,335
14,927
7,600
11,236
Change in decommissioning provision Reclassification
93 -
2,510
19,936 -
9,263
(343)
Balance at December 31, 2019
121,121
57,344
89,062
Asset additions
7,238
51,007
Change in decommissioning provision Balance at December 31, 2020
370
(10)
15,969 -
- $ - 7,358 - 343 7,701 2,211 -
95 $ 168,065
10 49,272
17 46,147
- 2,603
-
9,263
122 275,350
118 76,543
-
360
$
128,729 $
108,341 $
105,031
$
9,912 $
240 $
352,253
Accumulated depreciation and depletion
Balance at January 1, 2019
$
Depreciation/depletion for the year Balance at December 31, 2019
Depreciation/depletion for the year Balance at December 31, 2020
41,610 $ 8,605 50,215 4,145
- $ - - -
29,964 $ 4,415 34,379 3,510
- 305 305 291
$
49 $ 71,623
13 13,338
62 84,961
27 7,973
$
54,360
$
-$
37,889
$
596 $
89
$
92,934
Carrying value at December 31, 2019 at December 31, 2020
$ $
70,906
$
57,344
$
54,683
$
7,396 $
60 $
190,389
74,369 $
108,341
$
67,142
$
9,316
$
151 $
259,319
As at January 1, 2019, the Company recognized $0.9 million of right-of-use assets from leases upon adoption of IFRS 16 using the modified retrospective approach, where $0.1 million were from the Cosalá Operations, $0.3 million were from the Galena Complex, and $0.5 million were from Corporate and Other. The associated lease liabilities were classified into trade and other payables and other long-term liabilities in the consolidated statement of financial position.
On March 2, 2017, the Company entered into an option acquisition agreement with Impulsora Minera Santacruz S.A. de C.V., a wholly-owned subsidiary of Santacruz Silver Mining Ltd. ("Santacruz"), to acquire an existing option with Minera Hochschild Mexico S.A. de C.V. ("Hochschild") for the right to acquire a 100% interest of the San Felipe property located in Sonora, Mexico. As at December 31, 2018, the property purchase option was reclassified as an asset held-for-sale as its carrying amount will be recovered principally through sale. A write-down of $3.7 million was recorded for the year ended December 31, 2018 to measure the asset held-for-sale at the lower of its carrying amount of $10.6 million and fair value less estimated costs to sell of $6.9 million. The Company made three of the remaining eight contractual quarterly option payments of $0.75 million to Hochschild during the year ended December 31, 2019. As at December 31, 2019, the property purchase option was reclassified to property, plant andequipment as its carrying amount of $9.3 million will be recovered principally through continuing use. On October 8, 2020, the Company settled its remaining contractual option payments with Hochschild through issuance of the Company's common shares to acquire the 100% interest of the San Felipe property (see Note 18). As at December 31, 2020, the carrying amount of the San Felipe property was $13.0 million included in non-producing properties.
Non-current assets are tested for impairment or impairment reversals when events or changes in circumstances suggest that the carrying amount may not be recoverable. Impairment indicators were identified during the year ended December 31, 2020 from timing of commercial production of Relief Canyon Mine and illegal blockade of Cosalá Operations. The Company assessed the recoverability of the carrying amount of these cash-generating units and no impairment was identified. No impairment or impairment reversal indicators were identified for the year ended December 31, 2020 for the Company's other cash-generating units, including non-producing properties.
The Company recognized a gain of $0.1 million during the year ended December 31, 2020 related to proceeds received through the sale of plant and equipment.
The amount of borrowing costs capitalized as property, plant and equipment was $4.2 million during the year ended December 31, 2020 (2019: $0.9 million).
The carrying amount of property and equipment from the Relief Canyon Mine is approximately $42.9 million as at December 31, 2020.
10. Deferred revenue
On April 3, 2019, the Company entered into a $25 million precious metals delivery and purchase agreement (the "Purchase Agreement") with Sandstorm Gold Ltd. ("Sandstorm") for the construction and development of the Relief Canyon Mine. The Purchase Agreement consists of a combination of fixed and variable deliveries from the Relief Canyon Mine. The Purchase Agreement has a repurchase option for the Company exercisable at any time to reduce the variable deliveries to Sandstorm from 4% to 2% by delivering 4,000 ounces of gold plus additional ounces of gold compounded annually at 10%. On initial recognition and as at December 31, 2020, the fair value of the repurchase option was nil.
The Company recorded the advances received on precious metals delivery, net of transaction costs, as deferred revenue and will recognize the amounts in revenue as performance obligations to metals delivery are satisfied over the term of the metals delivery and purchase agreements. The advances received on precious metals delivery is expected to reduce to nil through deliveries of the Company's own production to Sandstorm. The Company determined the amortization of deferred revenue on a per unit basis to be equal to the expected total deliveries of gold ounces over the term of the precious metals delivery and purchase agreements.
Interest expense of $1.8 million was capitalized as borrowing costs to property, plant and equipment for the year ended December 31, 2020 (2019: $0.5 million) in connection with the accretion of a significant financing component determined from the advances received on precious metals delivery.
The following are components of deferred revenue as at December 31, 2020:
Advances received | $ | 25,000 |
Recognition of revenue | (2,750) | |
Deferred revenue | 22,250 | |
Deferred transaction costs | (409) | |
Accretion on significant financing component | 1,481 | |
Net deferred revenue | 23,322 | |
Less: current portion | (3,972) | |
Non-current portion | $ | 19,350 |
11. Convertible debenture |
On April 3, 2019, the Company issued a $10 million convertible debenture (the "Convertible Debenture") to Sandstorm due April 3, 2023 with interest payable at 6% per annum and repayable at the Company's option prior tomaturity. The funds available under the Convertible Debenture included the principal amount of the $3 million unsecured, promissory note previously issued to Sandstorm by the Company.
The Convertible Debenture may be converted into common shares of the Company at Sandstorm's option at a conversion price of $2.14 and may be prepaid at the Company's option at any time prior to the maturity date. The Company recorded a net derivative liability of nil on initial recognition based on the estimated fair value of the conversion and prepayment option and recognized a loss of $0.2 million in the consolidated statements of loss and comprehensive loss for the year ended December 31, 2020 (2019: loss of $4.4 million) as a result of the change in the estimated fair value of the conversion and prepayment option.
Interest expense of $0.6 million was capitalized as borrowing costs to property, plant and equipment for the year ended December 31, 2020 (2019: $0.4 million) in connection with the Convertible Debenture.
The initial fair value of the principal portion of the Convertible Debenture was determined using a market interest rate for an equivalent non-convertible instrument at the issue date. The principal portion is subsequently recognized on an amortized cost basis until extinguished on conversion or maturity. The remainder of the proceeds are allocated to the conversion option.
12. Promissory note
On December 15, 2020, the Company issued a $5 million promissory note (the "Promissory Note") to Sandstorm due June 15, 2022 with interest payable at 7% per annum and repayable at the Company's option prior to maturity. Interest expense of $0.1 million was capitalized as borrowing costs to property, plant and equipment for the year ended December 31, 2020 in connection with the Promissory Note.
13. Loan payable
On January 16, 2020, the Company entered into a $5 million precious metals delivery and purchase agreement with Macquarie Bank Ltd. ("Macquarie") for working capital purposes at the Relief Canyon Mine to be settled through monthly fixed deliveries of gold production ounces commencing July 31, 2020.
On July 31, 2020, the Company amended the $5 million precious metals delivery and purchase agreement with Macquarie to a secured loan payable settled through monthly fixed cash payments totaling $7.2 million payable over a 6-month period commencing October 2020, among other terms (the "Loan Payable"). The Company also entered into gold collar options over the same period as the fixed cash payments and recorded a net derivative asset of nil on initial recognition and as at December 31, 2020 based on the estimated fair value of the gold collar options.
Financing expense of $1.7 million was capitalized as borrowing costs to property, plant and equipment for the year ended December 31, 2020 in connection with the Loan Payable.
14. Glencore pre-payment facility
On January 29, 2017, the Company entered into a pre-payment facility for $15.0 million with Metagri S.A. de C.V., a subsidiary of Glencore PLC ("Glencore"), to fund a portion of the development costs for the San Rafael project within the Cosalá district of Sinaloa, Mexico (the "Pre-Payment Facility"). The Pre-Payment Facility was drawn in full on March 30, 2017, an initial term of four years at an interest of U.S. LIBOR rate plus 5% per annum, and is secured by a promissory note in the amount of up to $15.0 million issued by the Company, a corporate guarantee in favour of Glencore, and limited asset level security on the San Rafael project. The Company has also entered into four-year offtake agreements with Glencore for the zinc and lead concentrates produced from the San Rafael Mine where Glencore will pay for the concentrates at the prevailing market prices for silver, zinc and lead, less customary treatment, refining and penalty charges. Repayment of principal on the Pre-Payment Facility began in January 2018 as an additional tonnage charge on shipments of concentrate where $3.9 million and $5.5 million were paid during the years ended December 31, 2018 and 2019, respectively. The Company paid $2.7 million during the year ended December 31, 2020.
15. Government loan
On May 11, 2020, the Company received approximately $4.5 million in loan through the Paycheck Protection Program from the U.S. CARES Act (the "Government Loan") to assist with payroll and other expenses at the Galena Complex during the COVID-19 pandemic. The Government Loan has a term of two years at an interest rate of 1% per annum and may be forgiven if proceeds are used for payroll and other specifically defined expenses and employee and compensation levels are maintained. The Government Loan will be recognized as a reduction of related payroll and other expenses incurred once forgiveness is reasonably assured.
16. Post-employment benefit obligations
The Company maintains two non-contributory defined benefit pension plans covering substantially all employees at its U.S. operating subsidiary, U.S. Silver - Idaho, Inc. One plan covers salaried employees and one plan covers hourly employees. Benefits for the salaried plan are based on salary and years of service. Hourly plan benefits are based on negotiated benefits and years of service. The Company's funding policy is to contribute annually the minimum amount prescribed, as specified by applicable regulations. The expected average service life of the active plan participants as at December 31, 2020 is approximately 9 years.
The amounts recognized in the consolidated statements financial position are as follows:
Present value of funded obligations Fair value of plan assets
Deficit of funded plans
December 31, | December 31, |
2020 | 2019 |
34,024 | 29,519 |
20,626 | 19,382 |
$
13,398
$
10,137
The movements in the defined benefit obligations are as follows:
December 31, 2020
December 31, 2019
Obligations, beginning of year Current service costs
$
29,519 $ 25,068
753 579
Interest costs Benefits paid Actuarial loss Obligations, end of year
949 1,048
(1,111) (1,043)
3,914 3,867
$
34,024
$
29,519
The movements in the fair value of plan assets are as follows:
December 31, 2020
December 31, 2019
Assets, beginning of year Return on assets Actuarial gain Employer contributions Benefits paid
$
19,382 $ 16,894
625 714
1,385 2,074
345 743
(1,111)
Assets, end of year
$
20,626
$
(1,043) 19,382
The amounts recognized in the consolidated statements of loss and comprehensive loss are as follows:
December 31, 2020
December 31, 2019
Current service costs, interest costs, and
return on assets included in cost of sales | ||
The principal actuarial assumptions are as follows: | ||
December 31, | December 31, | |
2020 | 2019 | |
Discount rate (expense) | 3.25% | 4.25% |
Discount rate (year end disclosures) | 2.50% | 3.25% |
Future salary increases (salaried plan only) | 5.00% | 5.00% |
A 1% decrease in discount rate would have resulted in approximately $6.1 million increase in the defined benefit obligation from $34.0 million to $40.1 million as at December 31, 2020 (2019: $4.9 million increase in the defined benefit obligation from $29.5 million to $34.4 million). A 1% increase in future salary increases would have resulted in approximately $0.1 million increase in the defined benefit obligation from $34.0 million to $34.1 million as at December 31, 2020 (2019: $0.1 million increase in the defined benefit obligation from $29.5 million to $29.6 million).
Plan assets are fully comprised of pooled or mutual funds. The expected return on plan assets at 3.2% (2019: 4.2%) is determined by considering the expected returns available on the assets underlying the current investment policy. Expected yield on fixed interest investments is based on gross redemption yields as at the end of the reporting period. Expected returns on equity investments reflect long-term real rates of return in the market.
Expected contributions to pension benefit plans for the year ended December 31, 2021 are approximately $2.2 million, inclusive of contributions for fiscal 2020 of $1.0 million. For the year ended December 31, 2020, the actuarial losses charged to other comprehensive loss are $2.5 million (2019: actuarial losses of $1.8 million).
17. Decommissioning provision
The decommissioning provision consists of land rehabilitation, demolition of buildings and mine facilities, and related costs. Although the ultimate amount of the decommissioning provision is uncertain, the fair value of these obligations is based on information currently available, including closure plans and the Company's interpretation of current regulatory requirements.
Fair value is determined based on the net present value of future cash expenditures upon reclamation and closure. Reclamation and closure costs are capitalized into property, plant and equipment depending on the nature of the asset related to the obligation and amortized over the life of the related asset.
The decommissioning provision relates to reclamation and closure costs of the Company's Cosalá Operations, Galena Complex, and Relief Canyon Mine. The decommissioning provision is estimated at an undiscounted amount of $10.0 million over a period of 5 to 13 years, and discounted using a risk-free rate varying from 0.4% to 7.0%.
December 31, 2020
December 31, 2019
Provisions, beginning of year Acquisition of Pershing Gold
$
7,765
$ 3,791
- 1,223
Decommissioning costs and change in estimates Accretion on decommissioning provision Provisions, end of year
348 2,541
166 210
$
8,279
$
7,765
18. Share capital
On April 3, 2019, the Company entered into a subscription agreement with Sandstorm to issue $10 million CAD of the Company's common shares based on the 5-day volume weighted average price at approximately $2.09 CAD per share, resulting in the issuance of 4,784,689 of the Company's common shares.
On July 26, 2019, the Company closed a non-brokered private placement with Mr. Eric Sprott for gross proceeds of $10 million through issuance of 3,955,454 of the Company's common shares priced at approximately $3.30 CAD per share. As part of the non-brokered private placement, $0.4 million in transaction costs was incurred and 118,664 warrants were issued to the Company's advisor where each warrant is exercisable for one common share at an exercise price of $3.37 CAD for a period of three years starting July 25, 2019.
On April 16, 2020, the Company closed an at-the-market offering agreement (the "February 2020 ATM Agreement") for gross proceeds of $15.0 million through issuance of 9,014,953 common shares. As part of the February 2020 ATM Agreement, approximately $0.7 million in transaction costs were incurred and offset against share capital.
On May 13, 2020, the Company completed a bought deal public offering of 10,269,500 common shares at a price of $2.80 CAD per common share for aggregate gross proceeds of approximately $20.4 million or $28.75 million CAD, which included the exercise by the underwriters, in full, of the over-allotment option granted by the Company to the underwriters. As part of the bought deal public offering, approximately $1.3 million in transaction costs were incurred and offset against share capital, and 1,000,000 warrants for approximately $0.2 million were issued to the Company's advisor and offset against share capital where each warrant is exercisable for one common share at an exercise price of $3.50 CAD for a period of two years starting July 9, 2020.
On September 4, 2020, the Company completed a bought deal public offering of 10,204,510 common shares at a price of $3.86 CAD per common share for aggregate gross proceeds of approximately $29.8 million or $39.39 million CAD, which included the partial exercise by the underwriters of the over-allotment option granted by the Company to the underwriters. As part of the bought deal public offering, approximately $1.7 million in transaction costs were incurred and offset against share capital.
On July 9, 2020, the Company completed the outstanding option acquisition agreement to acquire a 100% interest of the San Felipe property with Hochschild where the Company agreed to issue to Hochschild 1,687,401 of the Company's common shares with a value equal to the outstanding payment of $3.75 million plus VAT using the 5-day volume-weighted average price on the Toronto Stock Exchange as of the date of the parties' agreement, subject to adjustment in certain circumstances. On October 8, 2020, the Company issued the 1,687,401 common shares to Hochschild.
a. Authorized
Authorized share capital consists of an unlimited number of common and preferred shares.
December 31, 2020
December 31, 2019
Issued
117,975,579 (2019: 86,607,305) common shares | $ | 350,707 | $ | 284,512 |
Nil (2019: 103,824) preferred shares | - | 161 | ||
$ | 350,707 | $ | 284,673 |
Each non-voting preferred share is convertible, at the holder's option, without payment of any additional consideration by the holder thereof, initially on a one-to-one basis into common shares, subject to adjustment, and in accordance with the terms of the non-voting preferred shares.
b. Stock option plan
The number of shares reserved for issuance under the Company's stock option plan is limited to 10% of the number of common shares which are issued and outstanding on the date of a particular grant of options. Under the plan, the Board of Directors determines the term of a stock option to a maximum of 10 years, the period of time during which the options may vest and become exercisable as well as the option exercise price which shall not be less than the closing price of the Company's share on the Toronto Stock Exchange on the date immediately preceding the date of grant. The Compensation Committee determines and makes recommendations to the Board of Directors as to the recipients of, and nature and size of, share-based compensation awards in compliance with applicable securities law, stock exchange and other regulatory requirements.
A summary of changes in the Company's outstanding stock options is presented below:
December 31, December 31, | ||
2020 | 2019 | |
Number (thousands) Balance, beginning of year Granted 8,021 $ 3,710 Weighted average exercise price CAD 3.29 3.85 Number (thousands) Weighted average exercise price CAD 3,160 $ 3.77 5,915 2.86 | ||
Exercised (73) | 2.60 | (1,014) 2.33 |
Expired | (999) | 3.75 (40) 2.39 |
Balance, end of year 10,659 | $ 3.45 | 8,021 $ 3.29 |
The following table summarizes information on stock options outstanding and exercisable as at December 31, 2020:
Exercise priceWeighted average remaining contractual life OutstandingWeighted average exercise price ExercisableWeighted average exercise price | |||
CAD $2.00 to $3.00 $3.01 to $4.00 $4.01 to $5.00 $5.01 to $6.00 (years) (thousands) 1.26 3.32 0.19 0.07 3,172 $ 6,092 1,355 40 CAD 2.39 3.73 4.58 5.55 (thousands)CAD 2,052 $ 2.39 2,820 3.68 1,355 4.58 40 5.55 | |||
10,659 | $ 3.45 | 6,267 | $ 3.46 |
c. Share-based payments
The weighted average fair value at grant date of the Company's stock options granted during the year ended December 31, 2020 was $1.26 (2019: $0.98).
The Company used the Black-Scholes Option Pricing Model to estimate fair value using the following weighted-average assumptions:
Year ended December 31, 2020 Year ended December 31, 2019 Expected stock price volatility (1) Risk free interest rate Expected life Expected forfeiture rate Expected dividend yield 63% 59% 0.29% 1.55% 3 years 4 years 2.34% 2.66% 0% 0% Share-based payments included in cost of sales Share-based payments included in general and $ -$ - | |
administrative expenses | 3,799 3,314 |
Total share-based payments $ 3,799 $ 3,314 |
(1) Expected volatility has been based on historical volatility of the Company's publicly traded shares.
d. Warrants
The warrants that are issued and outstanding as at December 31, 2020 are as follows:
Number of | Exercise | Issuance | Expiry |
warrants | price (CAD) | date | date |
1,447,426 | 4.68 | Jun 2016 | Jun 9, 2021 |
799,065 | 4.68 | Jul 2016 | Jun 14, 2021 |
1,074,999 | 3.12 | Oct 2018 | Oct 1, 2023 |
15,889 | 11.32 | Apr 2019 | May 6, 2022 |
389,771 | 2.40 | May 2019 | May 13, 2022 |
1,241,200 | 2.40 | May 2019 | May 29, 2022 |
118,664 | 3.37 | Jul 2019 | Jul 25, 2022 |
177,506 | 4.45 | Oct 2019 | Oct 30, 2022 |
1,000,000 | 3.50 | Jul 2020 | Jul 9, 2022 |
6,264,520 |
e. Restricted Share Units:
The Company has a Restricted Share Unit Plan under which eligible directors, officers and key employees of the Company are entitled to receive awards of restricted share units. Each restricted share unit is equivalent in value to the fair market value of a common share of the Company on the date of grant with the value of each cash settled award charged to compensation expense over the period of vesting. At each reporting date, the compensation expense and associated liability (which is included in trade and other long-term liabilities in the consolidated statement of financial position) are adjusted to reflect changes in market value. As at December 31, 2020, 276,762 (2019: 89,196) restricted share units are outstanding at an aggregate value of $0.9 million (2019: $0.3 million).
f. Deferred Share Units:
The Company has a Deferred Share Unit Plan under which eligible directors of the Company receive awards of deferred share units on a quarterly basis as payment for 20% of their director fees earned. Deferred share units are settled in either cash or common shares at the Company's discretion when the director leaves the Company's Board of Directors. The Company recognizes a cost in director fees and a corresponding increase in equity reserve upon issuance of deferred share units. As at December 31, 2020, 519,803 (2019: 323,333) deferred share units are issued and outstanding.
19. Weighted average basic and diluted number of common shares outstanding
Year ended December 31, 2020 Year ended December 31, 2019 | |
Basic weighted average number of shares | 103,941,184 71,421,798 |
Effect of dilutive stock options and warrants Diluted weighted average number of shares - 103,941,184 - 71,421,798 |
Diluted weighted average number of common shares for the year ended December 31, 2020 excludes nil anti-dilutive preferred shares (2019: 103,824), 10,658,957 anti-dilutive stock options (2019: 8,020,790) and 6,264,520 anti-dilutive warrants (2019: 5,264,520).
20. Non-controlling interests
The Company entered into a joint venture agreement with Mr. Eric Sprott effective October 1, 2019 for 40% non-controlling interest of the Company's Galena Complex with initial contribution of $15 million to fund capital improvements and operations. Mr. Eric Sprott committed to contributing additional funds to support the ongoing operations alongside the Company in proportion of their respective ownership up to $5 million for the first year of operations with the Company contributing any potential excess as necessary. After the first year, contributions revert to the proportional percentage of ownership interests to fund capital projects and operations.
The Company recognized non-controlling interests of $14.3 million equal to the proportionate non-controlling interests' carrying amount of the Galena Complex at initial recognition classified as a separate component of equity. Subsequent contributions and proportionate share changes in equity are recognized to the carrying amount of the non-controlling interests.
21. Revenue
The following is a disaggregation of revenue categorized by commodities sold:
Year ended December 31, 2020 Year ended December 31, 2019 Silver Provisional sales revenue Derivative pricing adjustments $ 19,212 370 $ 21,246 179 19,582 21,425 Zinc Provisional sales revenue Derivative pricing adjustments $ 3,078 $ 48,309 (1,094) (1,939) 1,984 46,370 Lead Provisional sales revenue Derivative pricing adjustments $ 16,142 $ 26,061 (400) (550) 15,742 25,511 Other by-products Provisional sales revenue Derivative pricing adjustments $ 15 $ 597 71 (238) 86 359 Total provisional sales revenue Total derivative pricing adjustments Gross revenue $ 38,447 $ 96,213 (1,053) (2,548) $ Treatment and selling costs 37,394 (9,511) $ 93,665 (35,255) |
$ 27,883 $ 58,410 |
Derivative pricing adjustments represent subsequent variations in revenue recognized as an embedded derivative from contracts with customers and are accounted for as financial instruments (see Note 26). Revenue from contracts with customers is recognized net of treatment and selling costs if payment of those amounts is enforced at the time of sale.
22. Cost of sales
Cost of sales is costs that directly relate to production at the mine operating segments and excludes depletion and amortization. The following are components of cost of sales:
Year ended December 31, 2020 Year ended December 31, 2019 Salaries and employee benefits Raw materials and consumables Utilities $ 19,941 $ 27,150 6,953 22,144 3,109 5,336 Other costs 2,146 2,456 | ||
Changes in inventories | (910) | (362) |
$ 31,239 | $ 56,724 |
23. Corporate general and administrative expenses
Corporate general and administrative expenses are costs incurred at corporate and other segments that do not directly relate to production. The following are components of corporate general and administrative expenses:
Year ended December 31, 2020 Year ended December 31, 2019 Salaries and employee benefits Directors' fees $ 2,456 $ 2,847 366 379 Share-based payments Professional fees Office and general 4,028 3,671 788 809 1,496 2,005 |
$ 9,134 $ 9,711 |
24. Income taxes
The components of income tax expense are as follows:
Year ended | Year ended |
December 31, | December 31, |
2020 | 2019 |
Current income tax expense | $ | 30 | $ | 1,659 |
Deferred income tax expense (recovery) | (1,032) | 299 | ||
Income tax expense (recovery) | $ | (1,002) | $ | 1,958 |
The Company's effective rate of income tax differs from the statutory rate of 26.5% as follows:
Year ended | Year ended |
December 31, | December 31, |
2020 | 2019 |
Tax recovery at statutory rates | $ | (8,233) | $ | (8,555) |
Mexican mining royalty | (587) | 128 | ||
Impact of foreign tax rates | (230) | (388) | ||
Non-deductible expenses | 2,610 | 2,741 | ||
Losses not recognized | 5,438 | 8,032 | ||
Income tax expense (recovery) | $ | (1,002) | $ | 1,958 |
The Company's net deferred tax asset relates to the U.S. alternative minimum tax credits available:
December 31, 2020
December 31, 2019
Alternative minimum tax credits | $ | - | $ | 343 |
Provisions and reserves | - | 2,101 | ||
Net operating losses | 6,792 | 4,230 | ||
Total deferred tax assets | 6,792 | 6,674 | ||
Property, plant and equipment | (6,792) | (6,331) | ||
Net deferred tax assets | $ | - | $ | 343 |
The Company's net deferred tax liability relates to the Mexican mining royalty and arises principally from the following:
December 31, 2020
December 31, 2019
Property, plant and equipment | $ | 850 | $ | 851 |
Other | - | 329 | ||
Total deferred tax liabilities | 850 | 1,180 | ||
Provisions and reserves | (391) | (430) | ||
Net deferred tax liabilities | $ | 459 | $ | 750 |
Deferred income taxes have not been recognized in respect of the following deductible temporary differences, as management does not consider their utilization to be probable for the foreseeable future:
December 31, 2020 December 31, 2019 | |
Property, plant and equipment Mexican tax losses (expiring in 2023 - 2030) Canadian tax losses (expiring in 2027 - 2040) U.S. tax losses (expiring in 2021 - 2038) U.S. tax losses (no expiry) Provisions and other Deferred Mexican mining royalty | $ 18,360 $ 19,288 37,897 25,599 23,999 19,051 31,956 31,956 21,953 20,779 49,959 29,207 459 750 |
$ 184,583 $ 146,630 |
25. Key management transactions
Remuneration to directors and key management who have the authority and responsibility for planning, directing and continuing the activities of the Company:
Year ended | Year ended |
December 31, | December 31, |
2020 | 2019 |
Salaries and benefits | 1,269 | 1,565 |
Directors' fees | 366 | 379 |
Share-based payments | 3,132 | 3,163 |
26. Financial risk management | ||
a. Financial risk factors |
The Company's risk exposures and the impact on its financial instruments are summarized below: (i) Credit Risk
$
$
Credit risk is the risk of loss associated with a counterparty's inability to fulfill its payment obligations. The Company's credit risk is primarily attributable to cash and cash equivalents and trade and other receivables. The credit risk on cash and cash equivalents is limited because the Company invests its cash in deposits with well-capitalized financial institutions with strong credit ratings in Canada and the United States. Under current concentrate offtake agreements, risk on trade receivables related to concentrate sales is managed by receiving payments for 85% to 100% of the estimated value of the concentrate within one month following the time of shipment.
As of December 31, 2020, the Company's exposure to credit risk with respect to trade receivables amounts to $2.8 million (2019: $4.6 million). The Company believes credit risk is not significant and no provision for expected credit losses was recorded as at December 31, 2020 and 2019.
(ii) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they arise. The Company's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. The Company's liquidity requirements are met through a variety of sources, including cash, cash generated from operations (including Relief Canyon Mine upon reaching commercial production), credit facilities and debt and equity capital markets. The Company's trade payables have contractual maturities of less than 30 days and are subject to normal trade terms.
The following table presents the contractual maturities of the Company's financial liabilities on an undiscounted basis:
December 31, 2020
Total
Less than 1 year 2-3 years
4-5 yearsOver 5 years
Trade and other payables Glencore pre-payment facility Convertible debenture
$
21,131 $
21,131 $
2,862
2,862
- $ -
10,000
-
10,000
Interest on convertible debenture Promissory note
1,353
5,000
600 -
753
5,000
Interest on promissory note Government loan
511
356
155
4,499
947
Loan payable
6,025
6,025
3,552 -
Projected pension contributions Decommissioning provision Other long-term liabilities
6,480
10,029
4,619
2,228 - -
2,120 -
4,068
- $ - - - - - - - 1,699 - 22
- - - - - - - - 433 10,029 529
$
72,509 $
34,149 $
25,648 $
1,721 $
10,991
Minimum lease payments in respect to lease liabilities are included in trade and other payables and other long-term liabilities as follows:
December 31, 2020
Total
Less than 1 year 2-3 years
4-5 yearsOver 5 years
Trade and other payables Other long-term liabilities
$
2,667 $ 3,710
2,667 $ -
- 3,688
$
- $ 22
- -$
6,377 $
2,667 $
3,688 $
22 $
-
The following table summarizes the continuity of the Company's total lease liabilities discounted using an incremental borrowing rate ranging from 5% to 12% applied during the year:
December 31, 2020 December 31, 2019 Lease liabilities, beginning of year IFRS 16 adoption $ 7,025 $ 270 - 527 Additions 1,962 6,478 Lease principal payments Lease interest payments Accretion on lease liabilities (2,594) (234) (759) (50) 743 34 | |
Lease liabilities, end of year | $ 6,377 $ 7,025 |
(iii) Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and price risk.
(1) Interest rate risk
The Company is subject to the interest rate risk of U.S. LIBOR rate plus 5% per annum from the existing Pre-Payment Facility. Interest rates of other financial instruments are fixed.
(2) Currency risk
As at December 31, 2020, the Company is exposed to foreign currency risk through financial assets and liabilities denominated in CAD and Mexican pesos ("MXP"):
Financial instruments that may impact the Company's net loss or other comprehensive loss due to currency fluctuations include CAD and MXP denominated assets and liabilities which are included in the following table:
As at December 31, 2020
CAD | MXP | ||
Cash and cash equivalents | 573 | $ | 103 |
Trade and other receivables | 36 | 2,297 | |
Trade and other payables | 2,513 | 5,816 |
$
As at December 31, 2020, the CAD/USD and MXP/USD exchange rates were 1.27 and 19.95 respectively. The sensitivity of the Company's net loss and comprehensive loss due to changes in the exchange rates for the year ended December 31, 2020 is included in the following table:
CAD/USD MXP/USD Exchange rate Exchange rate +/- 10% +/- 10%
Approximate impact on: Net loss
$
945 $ 697
Other comprehensive loss
(47) 32
The Company may, from time to time, employ derivative financial instruments to manage exposure to fluctuations in foreign currency exchange rates.
At December 31, 2020, the Company does not have any non-hedge foreign exchange forward contracts outstanding (2019: 26.0 million MXP at average exchange rate of 19.81 MXP/USD with unrealized gain of
$0.1 million recorded through profit and loss during the year ended December 31, 2019). The Company settled non-hedge foreign exchange forward contracts to buy approximately 26.0 million MXP and recorded a realized gain of nil through profit or loss during the year ended December 31, 2020 (2019: realized gain of $0.4 million).
(3) Price risk
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments in the market. As at December 31, 2020, the Company had certain amounts related to the sales of concentrates that have only been provisionally priced. A ±10% fluctuation in silver, zinc, lead, copper and gold prices would affect trade receivables by approximately $0.3 million (2019: $0.5 million).
At December 31, 2020, the Company does not have any non-hedge commodity forward contracts outstanding (2019: 1.6 million and 3.3 million pounds of zinc and lead, respectively, at average price of $1.20 and $0.95 per pound, respectively, with unrealized gain of $0.5 million recorded through profit or loss during the year ended December 31, 2019). The Company settled non-hedge commodity forward contracts for approximately 1.6 million and 3.3 million pounds of zinc and lead, respectively, and recorded a realized gain of nil through profit or loss during the year ended December 31, 2020 (2019: realized gain of $1.0 million).
Net amount of gain or loss on derivative instruments from non-hedge foreign exchange and commodity forward contracts recognized through profit or loss during the year ended December 31, 2020 was nil (2019: gain of $2.0 million). Total amount of gain or loss on derivative instruments including those recognized through profit or loss from the Company's Convertible Debenture during the year ended December 31, 2020 was loss of $0.2 million (2019: loss of $2.5 million).
b. Fair values
The fair value of cash, restricted cash, trade and other payables, and other long-term liabilities approximate their carrying amounts. The methods and assumptions used in estimating the fair value of other financial assets and liabilities are as follows:
Cash and cash equivalents: The fair value of cash equivalents is valued using quoted market prices in active markets. The Company's cash equivalents consist of money market accounts held at financial institutions which have original maturities of less than 90 days.
Trade and other receivables: The fair value of trade receivables from silver sales contracts that contain provisional pricing terms is determined using the appropriate quoted forward price from the exchange that is the principal active market for the particular metal. As such, there is an embedded derivative feature within trade receivables.
Convertible debenture, promissory note, and loan payable: The principal portion of the Convertible Debenture, Promissory Note, and Loan Payable are carried at amortized cost.
Embedded derivatives: Revenues from the sale of metals produced since the commencement of commercial production are based on provisional prices at the time of shipment. Variations between the price recorded at the time of sale and the actual final price received from the customer are caused by changes in market prices for metals sold and result in an embedded derivative in revenues and accounts receivable.
Derivatives: The Company uses derivative and non-derivative instruments to manage financial risks, including commodity, interest rate, and foreign exchange risks. The use of derivative contracts is governed by documented risk management policies and approved limits. The Company does not use derivatives for speculative purposes. The fair value of the Company's derivative instruments is based on quoted market prices for similar instruments and at market prices at the valuation date.
The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable market data or other means.
Level 3 inputs are unobservable (supported by little or no market activity).
December 31, December 31,2020 2019 Level 1 Cash and cash equivalents Restricted cash $ 4,705 $ 19,998 4,082 4,007 Level 2 Trade and other receivables 5,102 5,269 | |
Derivative instruments | 4,568 3,855 |
Loan payable 5,564 - Glencore pre-payment facility Convertible debenture Promissory note Government loan 2,862 5,602 9,953 9,935 5,000 4,499 - - |
27. Segmented and geographic information, and major customers a. Segmented information
The Company's operations comprise of four reporting segments engaged in acquisition, exploration, development and exploration of mineral resource properties in Mexico and the United States. Management has determined the operating segments based on the reports reviewed by the chief operating decision makers that are used to make strategic decisions.
b. Geographic information
All revenues from sales of concentrates for the year ended December 31, 2020 and 2019 were earned in Mexico and the United States. The following segmented information is presented as at and during years ended December 31, 2020 and 2019. The Cosalá Operations segment operates in Mexico while the Galena Complex and Relief Canyon segments operate in the United States.
As at December 31, 2019 | ||
Cosalá OperationsGalena ComplexRelief Canyon Corporate and OtherTotalCosalá OperationsGalena ComplexRelief Canyon Corporate and OtherTotal | ||
Cash and cash equivalents Trade and other receivables Inventories Prepaid expenses Derivative instruments Restricted cash Property, plant and equipment Deferred tax assets Total assets Trade and other payables Derivative instruments Loan payable Glencore pre-payment facility Other long-term liabilities Deferred revenue Convertible debenture Promissory note Government loan Post-employment benefit obligations Decommissioning provision Deferred tax liabilities Total liabilities | $ 133 $
2,297 2,769 6,346 3,062 428 - 832 -52 - - 650 -$ 3,263 $ 4,705 36 5,102 - 9,408 290 2,200 - - 137 53 3,892 - 4,082 58,029 - 53,701 -147,183 -406 259,319 - - | $ 2,903 $
3,852 1,374 6,361 2,137 615 - 524 - 145 55 56,094 - 47,672 343 770 - - 471 - 3,807 86,201 -$ 1,564 $ 19,998 43 5,269 - 8,498 304 1,914 585 585 - 4,007 422 - 190,389 343 |
$ 67,370 $ 61,674 $ 151,777 $ 3,995 $ 284,816 | $ 69,970 $ 66,866 $ 91,249 $ 2,918 $ 231,003 | |
$ 6,627 $ - - 2,862 - - - - - 2,130 459 5,096 $ - - - 529 - - 6,152 - - - 3,557 - - $ 3,256 $ 21,131 4,568 4,568 5,564 5,564 - 2,862 533 4,619 23,322 23,322 9,953 9,953 5,000 5,000 4,499 - - 4,499 13,398 - - 13,398 2,365 -3,784 - 8,279 - - 459 | $ 9,241 $ - -3,805 $ - -6,506 - -$ 3,157 $ 22,709 4,440 4,440 - -5,602 - - - 5,602 - - - - - - 1,854 750 566 - - - -4,495 - - - -584 5,645 25,007 25,007 9,935 9,935 - -- -10,137 - - 10,137 2,156 -3,755 - 7,765 - - 750 | |
$ 12,078 $ 25,887 $ 13,493 $ 52,196 $ 103,654 | $ 17,447 $ 16,664 $ 14,756 $ 43,123 $ 91,990 |
Year ended December 31, 2020 Year ended December 31, 2019
Cosalá OperationsGalena Relief Corporate Complex Canyon and OtherTotalCosalá Operations
Galena Relief Corporate Complex Canyon and OtherTotal
Revenue Cost of sales
$
1,424 $
(1,816)
Depletion and amortization Care and maintenance costs Corporate general and administrative Transaction costs
(2,224)
26,459 (29,423) (5,415)
$
- $ -
(194)
(5,501)
(446)
- -
Exploration costs
(379)
- - (3,697)
Accretion on decommissioning provision Interest and financing income (expense) Foreign exchange gain (loss)
(106)
(21)
(243)
Gain on disposal of assets Loss on derivative instruments Gain on derivative warrant liability Income (loss) before income taxes Income tax recovery (expense) Net loss for the year
189 - - -
(8,656)
- - 37 - - (12,506)
470
741
- - - (563) (39) 84 - - - - (712) -
- $ - (140) - (9,134)
27,883 $
39,620 $
18,790
$
- $
- $
58,410
(31,239)
(27,642)
(29,082) - - (56,724)
(7,973)
(9,448)
(3,599)
(164)
(127) (13,338)
(5,947)
(39)
(399)
(9,134)
(23)
(23)
- -
- -
- - -
- (438)
(9,711) (9,711)
(3,467) (3,467)
- - (94) 357 - (160) - (9,194) (209)
(4,639)
(1,132)
(166)
(148)
(253)
(625)
546
(289)
37
(160) -
- - -
(31,068)
297
(705) (40) 15 - - - - (15,020)
(715) - (2,552)
(22) - (210)
1,002
(1,277)
(681)
19 - - - - (882) -(1,199) (1,790)
238 (51)
- (2,457)
- (2,457)
46
46
(16,677) (32,282)
- (1,958)
$
(8,186) $
(11,765) $
(712) $
(9,403) $
(30,066) $
(980) $
(15,701) $
(882) $
(16,677) $ (34,240)
c. Major customers
The Company sold concentrates to one customer during the year ended December 31, 2020 (2019: one customer) accounting for 100% (2019: 100%) of revenues.
28. Capital management
Capital is defined as equity. The Company's objectives when managing its capital are to safeguard its ability to continue as a going concern and to maximize the value for its shareholders.
The Company's activities have been funded so far through debt and equity financing based on cash needs, and through operations. The Company typically sells its shares by way of private placement. There were no changes in these objectives, policies and processes used to manage capital during the year.
The Company manages its capital structure and determines its capital requirements in light of the changing economic conditions and the risk characteristics of its assets. To reach its objectives the Company may have to maintain or adjust its capital structure by issuing new share capital or new debt.
At this stage of its development, it is the policy of the Company to preserve cash to fund its operations and complete its capital projects and not to pay dividends. As of December 31, 2020, and 2019, the Company is not subject to any externally imposed capital requirements.
The following summarizes the Company's capital structure:
December 31, December 31,
2020
2019
Equity attributable to shareholders of the Company $
29. Contingencies
Due to the size, complexity and nature of the Company's operations, various legal and tax matters arise in the ordinary course of business. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated.
In November 2010, the Company received a reassessment from the Mexican tax authorities related to its Mexican subsidiary, Minera Cosalá, for the year ended December 31, 2007. The tax authorities disallowed the deduction of transactions with certain suppliers for an amount of approximately $9.9 million (MXP 196.8 million), of which $4.2 million (MXP 84.4 million) would be applied against available tax losses. The Company appealed this reassessment and the Mexican tax authorities subsequently reversed $4.7 million (MXP 94.6 million) of their original reassessment. The remaining $5.1 million (MXP 102.2 million) consists of $4.2 million (MXP 84.4 million) related to transactions with certain suppliers and $0.9 million (MXP 17.8 million) of value added taxes thereon. The Company appealed the remaining reassessment with the Mexican Tax Court in December 2011. The Company may be required to post a bond of approximately $0.9 million (MXP 17.8 million) to secure the value added tax portion of the reassessment. The deductions of $4.2 million (MXP 84.4 million), if denied, would be offset by available tax losses. The Company accrued $1.0 million (MXP 19.9 million) in the consolidated financial statements as at December 31, 2018 as a probable obligation for the disallowance of value added taxes related to the Mexican tax reassessment. As at December 31, 2020, the accrued liability of the probable obligation was $1.0 million (2019: $1.0 million).
30. Subsequent events
The Company declared commercial production of the Relief Canyon Mine effective January 11, 2021. Certain amounts included in non-producing properties will be reclassified to inventories, mining interests, and plant and equipment in the first quarter of 2021.
On January 29, 2021, the Company completed a bought deal public offering of 10,253,128 common shares at a price of $3.31 CAD per common share for aggregate gross proceeds of approximately $26.7 million or $33.94 million CAD, which included the partial exercise by the underwriters of the over-allotment option granted by the Company to the underwriters.
On February 1, 2021, Sandstorm converted $5 million of the principal amount of the Company's $10 million outstanding Convertible Debenture into an aggregate of 2,336,448 common shares at a conversion price of $2.14. On March 3, 2021, Sandstorm converted the remaining $5 million of the principal amount of the outstanding Convertible Debenture into an aggregate of 2,336,448 common shares at the same conversion price.
On March 2, 2021, the Company amended its remaining Loan Payable with Macquarie to be settled through monthly fixed cash payments totaling $2.9 million payable over a 6-month period commencing March 2021, among other terms.
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Americas Gold and Silver Corporation published this content on 22 March 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 22 March 2021 11:24:05 UTC.
