MAG SILVER CORP. Unaudited Condensed Interim Consolidated Financial Statements (expressed in thousands of US dollars) For the three months ended March 31, 2016 Dated: May 12, 2016 |
A copy of this report will be provided to any shareholder who requests it.
VANCOUVER OFFICE Suite 770 800 W. Pender Street Vancouver, BC V6C 2V6 | 604 630 1399 phone 866 630 1399 toll free 604 681-0894 fax | TSX: MAG NYSE MKT: MVG www.magsilver.com info@magsilver.com |
MAG SILVER CORP. | ||||||||||||
Condensed Interim Consolidated Statements of Financial Position (Unaudited) | ||||||||||||
(In thousands of US dollars, except shares) | ||||||||||||
Note | March 31, 2016 | December 31, 2015 | ||||||||||
ASSETS | ||||||||||||
CURRENT | ||||||||||||
Cash | $ | 142,028 | $ | 75,424 | ||||||||
Accounts receivable | 3 | 202 | 327 | |||||||||
Marketable securities | 4 | 1,605 | 279 | |||||||||
Prepaid expenses | 456 | 150 | ||||||||||
TOTAL CURRENT ASSETS | 144,291 | 76,180 | ||||||||||
EQUIPMENT | 5 | 45 | 38 | |||||||||
INVESTMENT IN ASSOCIATE | 6 | 34,235 | 31,240 | |||||||||
EXPLORATION AND EVALUATION ASSETS | 7 | 53,270 | 52,806 | |||||||||
TOTAL ASSETS | $ | 231,841 | $ | 160,264 | ||||||||
LIABILITIES | ||||||||||||
CURRENT | ||||||||||||
Trade and other payables | $ | 795 | $ | 957 | ||||||||
COMMITMENTS | 7,14 | |||||||||||
DEFERRED INCOME TAXES | 15 | 5,102 | 5,165 | |||||||||
TOTAL LIABILITIES | 5,897 | 6,122 |
MAG SILVER CORP. | ||||||||||||
Condensed Interim Consolidated Statements of Loss and Comprehensive Loss (Unaudited) | ||||||||||||
(In thousands of US dollars, except share and per share amounts) | ||||||||||||
For the three months ended | ||||||||||||
March 31 | ||||||||||||
Note | 2016 | 2015 | ||||||||||
EXPENSES | ||||||||||||
Accounting and audit | $ | 83 | $ | 86 | ||||||||
Amortization | 5 | 4 | 4 | |||||||||
Filing and transfer agent fees | 163 | 153 | ||||||||||
Foreign exchange (gain) loss | (269 | ) | 1,094 | |||||||||
General office expenses | 138 | 131 | ||||||||||
Legal | 57 | 38 | ||||||||||
Property investigation costs | 41 | 101 | ||||||||||
Management compensation and consulting fees | 427 | 405 | ||||||||||
Share based payment expense | 8b,c,d | 579 | 321 | |||||||||
Shareholder relations | 123 | 145 | ||||||||||
Travel | 84 | 75 | ||||||||||
1,430 | 2,553 | |||||||||||
INTEREST INCOME | 113 | 92 | ||||||||||
IMPAIRMENT OF INVESTMENT | ||||||||||||
IN AVAILABLE-FOR-SALE SECURITIES | 4 | - | (75 | ) | ||||||||
EQUITY PICK UP FROM ASSOCIATE | 6 | (43 | ) | - | ||||||||
LOSS FOR THE PERIOD BEFORE INCOME TAX | $ | ( 1,360 | ) | $ | ( 2,536 | ) | ||||||
DEFERRED INCOME TAX RECOVERY | 15 | 63 | - | |||||||||
LOSS FOR THE PERIOD | $ | ( 1,297 | ) | $ | ( 2,536 | ) | ||||||
OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||
UNREALIZED GAIN (LOSS) ON | ||||||||||||
MARKETABLE SECURITIES, NET OF TAXES | 4 | 1,326 | (74 | ) | ||||||||
1,326 | (74 | ) | ||||||||||
TOTAL COMPREHENSIVE INCOME (LOSS) | $ | 29 | $ | ( 2,610 | ) | |||||||
BASIC AND DILUTED | ||||||||||||
LOSS PER SHARE | $ | (0.02 | ) | $ | (0.04 | ) | ||||||
WEIGHTED AVERAGE NUMBER | ||||||||||||
OF SHARES OUTSTANDING - BASIC AND DILUTED | 72,772,656 | 69,039,998 |
MAG SILVER CORP. | ||||||||||||
Condensed Interim Consolidated Statements of Cash Flows (Unaudited) | ||||||||||||
(In thousands of US dollars, unless otherwise stated) | ||||||||||||
For the three months ended | ||||||||||||
March 31 | ||||||||||||
Note | 2016 | 2015 | ||||||||||
OPERATING ACTIVITIES | ||||||||||||
Loss for the period | $ | (1,297 | ) | $ | (2,536 | ) | ||||||
Items not involving cash: | ||||||||||||
Amortization | 5 | 4 | 4 | |||||||||
Deferred income tax recovery | 15 | (63 | ) | - | ||||||||
Equity pick up from Associate | 6 | 43 | - | |||||||||
Impairment of investment in available-for-sale securities | 4 | - | 75 | |||||||||
Share based payment expense | 8b,c, | d | 579 | 321 | ||||||||
Unrealized foreign exchange loss (gain) | (281 | ) | 1,090 | |||||||||
Changes in operating assets and liabilities | ||||||||||||
Accounts receivable | 126 | 287 | ||||||||||
Prepaid expenses | (306 | ) | (190 | ) | ||||||||
Trade and other payables | 33 | 3 | ||||||||||
Net cash used in operating activities | (1,162 | ) | (946 | ) | ||||||||
INVESTING ACTIVITIES | ||||||||||||
Investment in associate | 6 | (3,034 | ) | (2,191 | ) | |||||||
Exploration and evaluation expenditures | 7 | (663 | ) | (437 | ) | |||||||
Expenditures under Option to acquire Mineral interest | 7 | - | (109 | ) | ||||||||
Purchase of equipment | 5 | (11 | ) | - | ||||||||
Net cash used in investing activities | (3,708 | ) | (2,737 | ) | ||||||||
FINANCING ACTIVITIES | ||||||||||||
Issuance of common shares upon exercise of stock options | 8 | 495 | 1,441 | |||||||||
Issuance of common shares, net of share issue costs | 8 | 70,699 | - | |||||||||
Net cash from financing activities | 71,194 | 1,441 | ||||||||||
EFFECTS OF EXCHANGE RATE CHANGES ON CASH | 280 | (770 | ) | |||||||||
INCREASE (DECREASE) IN CASH | 66,604 | (3,012 | ) | |||||||||
CASH, BEGINNING OF PERIOD | 75,424 | 86,280 | ||||||||||
CASH, END OF PERIOD | $ | 142,028 | $ | 83,268 |
See accompanying notes to the condensed interim consolidated financial statements.
5
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
1. NATURE OF OPERATIONS
MAG Silver Corp. (the "Company" or "MAG") was incorporated on April 21, 1999 under the Company Act of the Province of British Columbia and its shares were listed on the TSX Venture Exchange on April 21, 2000 and subsequently moved to a TSX listing on October 5, 2007.
The Company is an exploration and development company working on mineral properties in Mexico that it has either staked or acquired by way of option agreement. The Company has not yet determined whether these mineral properties contain any economically recoverable ore reserves. The Company defers all acquisition, exploration and development costs related to the properties on which it is conducting exploration. The recoverability of these amounts is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the development of the interests, and future profitable production, or alternatively, upon the Company's ability to dispose of its interests on a profitable basis.
Although the Company has taken steps to verify title to the properties on which it is conducting exploration and in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company's title. Property title may be subject to unregistered prior agreements and non-compliance with regulatory requirements.
Address of registered offices of the Company:
2600 – 595 Burrard Street
Vancouver, British Columbia,
Canada V7X 1L3
Head office and principal place of business:
770 – 800 West Pender Street
Vancouver, British Columbia,
Canada V6C 2V6
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance
These condensed interim consolidated financial statements ("Interim Financial Statements) are prepared under International Accounting Standards 34 Interim Financial Reporting ("IAS 34"), in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). They do not include all of the information required for full annual IFRS financial statements and therefore should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2015.
The accounting policies set out below have been applied consistently by the Company and its subsidiaries to all periods presented herein.
These Interim Financial Statements have been prepared on a historical cost basis except for the revaluation of certain financial instruments, which are stated at their fair value.
6
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
These Interim Financial Statements were authorized for issuance by the Board of Directors of the Company on May 10, 2016.
(a) Basis of consolidation
These Interim Financial Statements include the accounts of the Company and its controlled subsidiaries. Control exists when the Company has power over the investee, is exposed or has rights to variable returns from its involvement with the investee, and has the ability to use its power over the investee to affect the amount of the investor's returns. Subsidiaries are included in the consolidated financial results of the Company from the effective date that control is obtained up to the effective date of disposal or loss of control. The principal wholly-owned subsidiaries as at March 31, 2016 are Minera Los Lagartos, S.A. de C.V., Minera Pozo Seco S.A. de C.V., and Minera Sierra Vieja S.A. de C.V. All intercompany balances, transactions, revenues and expenses have been eliminated upon consolidation.
These Interim Financial Statements also include the Company's 44% interest in the Juanicipio Joint Venture (Note 6), an associate (Note 2(b)) accounted for using the equity method.
Where necessary, adjustments have been made to the financial statements of the Company's subsidiaries and associates prior to consolidation, to conform the significant accounting policies used in their preparation to those used by the Company.
(b) Investments in Associates
The Company conducts a portion of its business through an equity interest in associates. An associate is an entity over which the Company has significant influence, and is neither a subsidiary nor a joint arrangement. The Company has significant influence when it has the power to participate in the financial and operating policy decisions of the associate but does not have control or joint control over those policies.
The Company accounts for its investments in associates using the equity method. Under the equity method, the Company's investment in an associate is initially recognized at cost and subsequently increased or decreased to recognize the Company's share of earnings and losses of the associate and for impairment losses after the initial recognition date. The Company's share of earnings and losses of associates are recognized in profit or loss during the period. Distributions received from an associate are accounted for as a reduction in the carrying amount of the Company's investment.
Impairment
At the end of each reporting period, the Company assesses whether there is any evidence that an investment in associate is impaired. The Company has performed an assessment for impairment indicators of its investment in associate as of March 31, 2016 and noted no impairment indicators. This assessment is generally made with reference to the timing of exploration work, work programs proposed, exploration results achieved, and an assessment of the likely results to be achieved from performance of further exploration by the associate. When there is evidence that an investment in associate is impaired, the carrying amount of such investment is compared to its recoverable amount. If the recoverable amount of an investment in associate is less than its carrying amount, the carrying amount is reduced to its recoverable amount and an impairment loss, being the excess of carrying amount over the recoverable amount, is recognized in the period of impairment. When an impairment loss reverses in a subsequent period, the carrying amount of the investment in associate is increased to the revised estimate of recoverable amount to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had an impairment loss not been previously recognized. A reversal of an impairment loss is recognized in net earnings in the period the reversal occurs.
7
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
(c) Significant Estimates
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reported period. Significant estimates used in preparation of these financial statements include estimates of the net realizable value and any impairment of exploration and evaluation assets and of investment in associates, recoveries of receivable balances, provisions including closure and reclamation, share based payment expense, and income tax provisions. Actual results may differ from those estimated.
(d) Critical judgments
The Company reviews and assesses the carrying amount of exploration and evaluation assets, and its investment in associates for impairment when facts or circumstances suggest that the carrying amount is not recoverable. Assessing the recoverability of these amounts requires considerable professional technical judgement, and is made with reference to the timing of exploration work, work programs proposed, exploration results achieved by the Company and by others in the related area of interest, and an assessment of the likely results to be achieved from performance of further exploration (see Notes 2(b), 2(e) and 2(g)).
(e) Financial instruments
Measurement – initial recognition
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the financial instrument. All financial instruments are measured at fair value on initial recognition plus attributable transaction costs, except for financial assets and financial liabilities classified as fair value through profit and loss ("FVTPL"). The directly attributable transactions costs of financial assets and liabilities classified as FVTPL are expensed in the period in which they are incurred.
Classification and measurement – subsequent to initial recognition
The Company classifies financial instruments as either held-to-maturity, available-for-sale, FVTPL, loans and receivables, or other financial liabilities. Financial assets held to maturity, loans and receivables and other financial liabilities, are subsequently measured at amortized cost. Instruments classified as FVTPL are measured at fair value with changes in fair values recognized in profit or loss. Available-for-sale instruments are measured at fair value with mark-to-market gains and losses recognized in other comprehensive income ("OCI").
8
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
The Company has designated its cash as FVTPL, which is measured at fair value. Accounts receivable are classified as loans and receivables, which are measured at amortized cost. Trade and other payables are classified as other liabilities, which are measured at amortized cost.
Marketable securities such as warrants, that meet the definition of a derivative are classified as FVTPL and are measured at fair value with unrealized gains and losses recognized in the statement of comprehensive loss. All of the Company's other marketable securities have been designated as available-for-sale, and are reported at fair value. Other comprehensive income includes the gains and losses from available-for-sale securities which are not included in profit or loss until realized, and currency translation adjustments on its net investment in foreign operations.
Impairment
The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets are impaired. Financial assets are considered impaired if objective evidence indicates that a change in the market, economic or legal environment in which the Company invested has had a negative effect on the estimated future cash flows of that asset.
For available-for-sale financial assets, a significant or prolonged decline in fair value is evidence that the asset may be impaired. If such evidence exists, the cumulative loss that has been recognized in accumulated other comprehensive income (loss) is removed and recognized as an impairment of investment in the consolidated statement of loss. The Company evaluates whether a decline in value is significant or prolonged through analysis of the facts and circumstances of the financial assets, the market price of the actively traded securities, the severity of the loss, the financial position and near-term prospects of the investment, length of time the fair value has been below costs, evidence that the carrying amount is recoverable within a reasonable period of time, management's intent and ability to hold the financial assets for a period of time sufficient to allow for any anticipated recovery of fair value and management's market view and outlook. If the value of the previously impaired available-for-sale asset subsequently recovers, additional unrealized gains are recorded in other comprehensive income (loss) and the previously recognized impairment is not reversed.
For financial assets measured at amortized cost, an impairment loss recognized in consolidated statement of income (loss) is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Any reversal of impairment is recognized in consolidated statement of income (loss).
9
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
(f) Cash
Due to the low market interest rates available on deposits and the need to maintain resources liquid for the Company's ongoing exploration activities, management maintains the Company's cash in liquid high interest savings accounts.
(g) Exploration and evaluation assets
The Company is in the exploration stage with respect to its activities and accordingly follows the practice of capitalizing all costs relating to the acquisition, exploration and evaluation of its mining rights and crediting all revenues received against the cost of the related interests. Option payments made by the Company are capitalized until the decision to exercise the option is made. If the option agreement is to exercise a purchase option in an underlying mineral property, the costs are capitalized and accounted for as an exploration and evaluation asset. At such time as commercial production commences, the capitalized costs will be depleted on a units-of-production method based on proven and probable reserves. If a mineable ore body is discovered, exploration and evaluation costs are reclassified to mining properties. If no mineable ore body is discovered, such costs are expensed in the period in which it is determined the property has no future economic value.
Exploration and evaluation expenditures include acquisition costs of rights to explore; topographical, geological, geochemical and geophysical studies; exploratory drilling; trenching and sampling; and activities involved in evaluating the technical feasibility and commercial viability of extracting mineral resources. This includes the costs incurred in determining the most appropriate mining/processing methods and developing feasibility studies.
Impairment
Management reviews the carrying amount of exploration and evaluation assets for impairment when facts or circumstances suggest that the carrying amount is not recoverable. The Company has performed an assessment for impairment indicators of each property as of March 31, 2016 and noted no impairment indicators. This review is generally made with reference to the timing of exploration work, work programs proposed, exploration results achieved by the Company and by others in the related area of interest, and an assessment of the likely results to be achieved from performance of further exploration. When the results of this review indicate that indicators of impairment exist, the Company estimates the recoverable amount of the deferred exploration costs and related mining rights by reference to the potential for success of further exploration activity and/or the likely proceeds to be received from sale or assignment of the rights. When the carrying amounts of exploration and evaluation assets are estimated to exceed their recoverable amounts, an impairment loss is recorded in the statement of loss. The cash-generating unit for assessing impairment is a geographic region and shall be no larger than the operating segment. If conditions that gave rise to the impairment no longer exist, a reversal of impairment may be recognized in a subsequent period, with the carrying amount of the exploration and evaluation asset increased to the revised estimate of recoverable amount to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had an impairment loss not been previously recognized. A reversal of an impairment loss is recognized in profit or loss in the period the reversal occurs.
10
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
(h) Equipment
Equipment is recorded at cost less accumulated amortization and impairment losses if any, and is amortized at the following annual rates:
Computer equipment | 30% declining balance | |
Field equipment | 30% declining balance | |
Leasehold improvements | straight line over lease term |
When parts of an item of equipment have different useful lives, they are accounted for as separate items (major components) of equipment, and depreciated over their respective useful lives.
(i) Income taxes
Deferred income taxes relate to the expected future tax consequences of unused tax losses and unused tax credits and differences between the carrying amount of statement of financial position items and their corresponding tax values. Deferred tax assets, if any, are recognized only to the extent that, in the opinion of management, it is probable that sufficient future taxable profit will be available to recover the asset. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of substantive enactment.
(j) Provisions
Provisions are liabilities that are uncertain in timing or amount. The Company records a provision when and only when:
(i) The Company has a present obligation (legal or constructive) as a result of a past event;
(ii) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
(iii) A reliable estimate can be made of the amount of the obligation.
Constructive obligations are obligations that derive from the Company's actions where:
(i) By an established pattern of past practice, published policies or a sufficiently specific current statement, the Company has indicated to other parties that it will accept certain responsibilities; and
(ii) As a result, the Company has created a valid expectation on the part of those other parties that it will discharge those responsibilities.
Provisions are reviewed at the end of each reporting period and adjusted to reflect management's current best estimate of the expenditure required to settle the present obligation at the end of the reporting period. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed. Provisions are reduced by actual expenditures for which the provision was originally recognized. Where discounting has been used, the carrying amount of a provision increases in each period to reflect the passage of time. This increase (accretion expense) is included in profit or loss for the period.
11
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
Closure and reclamation
The Company records a provision for the present value of the estimated closure obligations, including reclamation costs, when the obligation (legal or constructive) is incurred, with a corresponding increase in the carrying value of the related assets. The carrying value is amortized over the life of the mining asset on a units-of-production basis commencing with initial commercialization of the asset. The liability is accreted to the actual liability on settlement through charges each period to profit or loss.
The provision for closure and reclamation is reviewed at the end of each reporting period for changes in estimates and circumstances. There was no provision recorded by the Company for closure and reclamation as at March 31, 2016 or December 31, 2015.
(k) | Functional currency and presentation currency |
The functional currency of the parent and the functional currency of its Mexican subsidiaries and investment in associate is the United States dollar ("US$").
Each entity within the Company determines its own functional currency, and the items included in the financial statements of each entity are measured using that functional currency. The functional currency determination involves certain judgments in evaluating the primary economic environment, and the Company reconsiders the functional currencies of each entity if there is a change in the underlying transactions, events and conditions which determine the primary economic environment.
The Company's reporting and presentation currency is the US$.
(l) Foreign currency transactions
Transactions incurred in currencies other than the Company's functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each statement of financial position date, monetary assets and liabilities are translated using the period end foreign exchange rate. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. Non-monetary assets and liabilities that are stated at fair value are translated using the rate on the date that the fair value was determined. All gains and losses on translation of these foreign currency transactions are included in profit or loss.
12
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
(m) Loss per common share
Basic loss per share is based on the weighted average number of common shares outstanding during the period.
Diluted loss per share is computed using the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of the incremental common shares upon the assumed exercise of stock options and warrants, and upon the assumed conversion of deferred share units and units issued under the Company's share unit plan, to the extent their inclusion is not anti-dilutive.
As at March 31, 2016, the Company had 3,797,230 (March 31, 2015: 4,080,690) common share equivalents consisting of common shares issuable upon the exercise of outstanding exercisable stock options, restricted and performance share units, and deferred share units. These common share equivalents were not included for the purpose of calculating diluted loss per share as their effect would be anti-dilutive.
(n) Share based payments
The fair value of share-based payment expense and other share-based payments are estimated as of the date of the grant and are recorded in profit and loss over their vesting periods except for grants to project consultants which are capitalized to the specific project. The fair value of stock options is estimated using the Black-Scholes-Merton option valuation model. The fair value of restricted, performance, and deferred share units, is based on the fair market value of a common share equivalent on the date of grant. Share based payment awards with graded vesting schedules are accounted for as separate grants with different vesting periods and fair values. Changes to the estimated number of awards that will eventually vest are accounted for prospectively.
(o) Changes in Accounting Standards
The Company has reviewed new accounting pronouncements that have been issued but are not yet effective at March 31, 2016. These include:
IFRS 9 Financial Instruments. In July 2014, the IASB issued the final version of IFRS 9 which replaced IAS 39 Financial Instruments: Recognition and Measurement. The new standard replaces the current classification and measurement criteria for financial assets and liabilities with only two classification categories: amortized cost and fair value. The standard is effective for annual periods beginning on or after of January 1, 2018, with early adoption permitted. The Company has not early adopted this standard and is currently evaluating the impact this standard may have on its consolidated financial statements.
IFRS 15 Revenue from Contracts with Customers. The final standard on revenue from contracts with customers was issued on May 8, 2014. In July 2015, the IASB determined that the revised effective date for IFRS 15 would be for annual reporting periods beginning on or after January 1, 2018, with earlier application permitted. Entities have the full option of using either a full retrospective or a modified retrospective approach to adopt the guidance. The Company's only source of revenue in the current and prior periods was interest income from high interest savings accounts but the Company is currently evaluating the impact this standard may have on its consolidated financial statements once revenue from contracts with customers is generated.
13
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
IFRS 16 Leases. In January 2016, the IASB published a new accounting standard, IFRS 16 – Leases (IFRS 16) which replaces IAS 17 – Leases and its associated interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term leases or leases of low value assets. Lessor accounting remains similar to current accounting practice. The standard is effective for annual periods beginning on or after January 1, 2019, with early application permitted for entities that apply IFRS 15. The Company has not early adopted this standard, and is currently evaluating the impact it is expected to have on its consolidated financial statements.
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
March 31, | December 31, | |||||||
2016 | 2015 | |||||||
Fair value, beginning of the period | $ | 279 | $ | 365 | ||||
Purchase of marketable securities | - | 28 | ||||||
Unrealized gain (loss) for the period | 1,326 | (22 | ) | |||||
Impairment for the period | - | (92 | ) | |||||
Fair value, end of the period | $ | 1,605 | $ | 279 |
Available-for-sale financial assets are assessed at each reporting date for objective evidence of a significant or prolonged decline in fair value, requiring impairment recognition. For the quarter ended March 31, 2016, after management's review and based on objective evidence, no impairment was recognized in the consolidated statement of loss (March 31, 2015: $75).
5. | EQUIPMENT |
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
The Company has recorded its investment in Minera Juanicipio using the equity basis of accounting. The cost of the investment includes the carrying value of the deferred exploration and mineral and surface rights costs incurred by the Company on the Juanicipio Property and contributed to Minera Juanicipio plus the required net cash investment to establish and maintain its 44% interest.
The Company's investment relating to its interest in the Juanicipio property and Minera Juanicipio is detailed as follows:
March 31, | December 31, | |||||||
2016 | 2015 | |||||||
Joint venture oversight expenditures incurred 100% by MAG | $ | 75 | $ | 212 | ||||
Cost recoveries | (104 | ) | - | |||||
Cash contributions to Minera Juanicipio (1) | 3,067 | 4,796 | ||||||
Total for the current period | 3,038 | 5,008 | ||||||
Equity pick up of current loss for the period (2) | (43 | ) | (1,366 | ) | ||||
Balance, beginning of the period | 31,240 | 27,598 | ||||||
Balance, end of the period | $ | 34,235 | $ | 31,240 |
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
March 31, | December 31, | |||||||
2016 | 2015 | |||||||
Cash and short term investments | $ | 2,716 | $ | 377 | ||||
IVA and other receivables | 4,922 | 4,442 | ||||||
Prepaids | 208 | 18 | ||||||
Total current assets | 7,846 | 4,837 | ||||||
Minerals, surface rights, exploration & development expenditures | 70,724 | 67,513 | ||||||
Total assets | $ | 78,570 | $ | 72,350 | ||||
Payables to Peñoles and other vendors | $ | 510 | $ | 1,262 | ||||
Total current liabilities | 510 | 1,262 | ||||||
Provision for reclamation and remediation costs | 365 | 360 | ||||||
Deferred income tax liability | 5,793 | 5,793 | ||||||
Total liabilities & equity | 6,668 | 7,415 | ||||||
Shareholders' equity | 71,902 | 64,935 | ||||||
Total liabilities & equity | $ | 78,570 | $ | 72,350 | ||||
March 31, | December 31, | |||||||
2016 | 2015 | |||||||
Deferred income tax expense | $ | - | $ | 2,403 | ||||
Exchange Loss | 97 | 702 | ||||||
Net loss | $ | 97 | $ | 3,105 | ||||
MAG's 44% equity pick up | $ | 43 | $ | 1,366 |
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
Three months ended March 31, 2016 | ||||||||||||
Cinco de | ||||||||||||
Mayo (a) | Guigui (b) | Total | ||||||||||
Exploration and evaluation assets | ||||||||||||
Camp and site costs | $ | 21 | $ | 3 | $ | 24 | ||||||
Legal, community and other consultation costs | 236 | - | 236 | |||||||||
Geological & geophysical | 2 | 9 | 11 | |||||||||
Land taxes and gov't fees | 142 | 37 | 179 | |||||||||
Travel, transport & shipping | 12 | 2 | 14 | |||||||||
Total for the period | 413 | 51 | 464 | |||||||||
Balance, January 1, 2016 | 48,859 | 3,947 | 52,806 | |||||||||
Balance, March 31, 2016 | $ | 49,272 | $ | 3,998 | $ | 53,270 |
Year ended December 31, 2015 | ||||||||||||
Cinco de | ||||||||||||
Mayo (a) | Guigui (b) | Total | ||||||||||
Exploration and evaluation assets | ||||||||||||
Acquisition costs of mineral & surface rights | $ | 123 | $ | 34 | $ | 157 | ||||||
Camp and site costs | 86 | 14 | 100 | |||||||||
Legal, community and other consultation costs | 921 | 23 | 944 | |||||||||
Drilling & drilling preparation | - | 365 | 365 | |||||||||
Geochemical & metallurgical | - | 35 | 35 | |||||||||
Geological & geophysical | 54 | 159 | 213 | |||||||||
Land taxes and gov't fees | 266 | 97 | 363 | |||||||||
Travel, transport & shipping | 81 | 67 | 148 | |||||||||
Total for the year | 1,531 | 794 | 2,325 | |||||||||
Balance January 1, 2015 | 47,328 | 3,153 | 50,481 | |||||||||
Balance, December 31, 2015 | $ | 48,859 | $ | 3,947 | $ | 52,806 |
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
During the year ended December 31, 2009, the Company also purchased 41 surface rights in the Cinco de Mayo area for $660 from local Ejido members, who along with the Federal Agrarian Authority ratified the purchase. The Company is awaiting formal title transfer of the surface rights, as certain members of the Ejido have since challenged the purchase and prevented the Company from obtaining the surface access permission required as part of a Federal Government exploration permit process. The Company believes this permit delay will be resolved and is working to permanently secure surface access with the Ejido.
To March 31, 2016, the Company has incurred $49,272 on exploration and evaluation costs on the property.
(b) | Guigui Property |
The Guigui project is a 100% interest in a 4,500-hectare property in the Santa Eulalia Mining District of Chihuahua, Mexico, and is subject to a royalty of 2.5% of the net smelter returns obtained from the property. The Company filed for and obtained an additional 3,800 hectare "Guiguito" concession in 2013, and the combined property now consists of roughly 8,300 hectares.
To March 31, 2016, the Company has incurred $3,998 on exploration and evaluation costs on the property.
There were no write downs in the current quarter ended March 31, 2016. During the year ended December 31, 2015, the Company wrote down the Salamandra option to acquire mineral interest totaling $4.3 million. A review of the past exploration results on the property failed to meet the Company's criteria for continued exploration, and the Company determined not to earn into the Salamandra property and allowed the option to expire.
8. SHARE CAPITAL
(a) Issued and outstanding
At March 31, 2016, there were 79,796,665 shares outstanding (December 31, 2015: 69,407,386).
On March 1, 2016, the Company closed a bought deal public offering of 8,905,000 common shares at $7.30 per share, for gross proceeds of $65,006. On March 4, 2016, the over-allotment option granted to the underwriters to purchase up to an additional 1,335,750 common shares was exercised in full for additional gross proceeds of $9,751 for total gross proceeds of $74,757. The Company paid a commission to the underwriters of $3,497 and legal and filing costs totaled an additional $561 resulting in net proceeds of $70,699.
During the quarter ended March 31, 2016, 71,000 stock options were exercised for cash proceeds of $495. An additional 435,000 stock options were exercised under a less dilutive cashless exercise provision of the plan, whereby 77,529 shares were issued in settlement of the stock options, and the remaining 357,471 options were cancelled.
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(1) During the quarter ended March 31, 2016, no stock options were granted (March 31, 2015: nil).
(2) During the quarter ended March 31, 2016, 506,000 stock options were exercised (March 31, 2015: 459,600), with a weighted average market share price at the time of exercise of C$12.39 per share (March 31, 2015: C$9.74).
Stock option grants are approved, in accordance with the terms of the Plan, by the Compensation Committee consisting of three independent members of the Board of Directors. At the time of a stock option grant the exercise price of each option is set, and in accordance with the Plan, cannot be lower than the market value of the common shares at the date of grant.
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MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
During the quarter ended March 31, 2016, the Company recorded share based payment expense of $228 (March 31, 2015: $210) relating to stock options vested to employees and consultants in the period.
The following table summarizes the Company's stock options outstanding and exercisable as at March 31, 2016:
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
(d) Deferred share units
On June 24, 2014, the Shareholders approved a Deferred Share Unit Plan (the "DSU Plan") for the benefit of the Company's non-executive directors. On June 22, 2015, the Shareholders approved an amendment to the DSU Plan to allow participation by employees. The DSU Plan provides for the issuance of common shares from treasury, in the form of Deferred Share Units ("DSUs"). Directors may also elect to receive all or a portion of their annual retainer and meeting fees in the form of DSUs, and employees may elect to receive all or a portion of their annual incentive in the form of DSUs. DSUs may be settled in cash or in common shares issued from treasury, as determined by the Board at the time of the grant. The maximum number of common shares that may be issuable under the DSU Plan is set at 0.75% of the number of issued and outstanding common shares on a non-diluted basis, provided that (i) the number of common shares issued or issuable under all share compensation arrangements (including under the Plan and the Share Unit Plan – see Notes 8(b) and 8(c), respectively) shall not exceed 8% of the issued and outstanding common shares on a non-diluted basis.
During the quarter ended March 31, 2016, no incentive DSUs (March 31, 2015: nil) were granted under the Company's DSU plan. However, 3,254 DSUs were granted to directors who elected to receive their retainer and meeting fees for the period in the form of DSUs (March 31, 2015: nil). The resulting cumulative DSU share-based payment expense of $46 (March 31, 2015: $48) was recognized in the period ended March 31, 2016. Under the DSU plan, no common shares are to be issued, or cash payments made to, or in respect of a participant in the DSU Plan prior to such eligible participant's termination date.
As at March 31, 2016, there are 303,795 DSUs issued and outstanding under the DSU Plan, all of which have vested except for 9,980.
As at March 31, 2016, there are 3,197,230 common shares issuable under the combined share compensation arrangements referred to above (the Plan, the Share Unit Plan and the DSU Plan) representing 4.01% of the issued and outstanding common shares on a non-diluted basis, and there are 3,186,503 share based awards available for grant under these combined share compensation arrangements.
9. CAPITAL RISK MANAGEMENT
The Company's objectives in managing its liquidity and capital are to safeguard the Company's ability to continue as a going concern and to provide financial capacity to meet its strategic objectives. The capital structure of the Company consists of its equity (comprising of share capital, equity reserve, accumulated other comprehensive income and deficit), net of cash.
Capital as defined above is summarized in the following table:
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MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
March 31, | December 31, | |||||||
2016 | 2015 | |||||||
Equity | $ | 225,944 | $ | 154,142 | ||||
Cash | (142,028 | ) | (75,424 | ) | ||||
$ | 83,916 | $ | 78,718 |
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
(i) Trade credit risk
The Company is in the exploration stage and has not yet commenced commercial production or sales. Therefore, the Company is not exposed to significant trade credit risk and overall the Company's credit risk has not changed significantly from the prior year.
(ii) Cash
In order to manage credit and liquidity risk the Company's policy is to invest only in highly rated investment grade instruments backed by Canadian commercial banks.
(iii) Mexican value added tax
As at March 31, 2016, the Company had a receivable of $126 from the Mexican government for value added tax (Note 3). Management expects the balance to be fully recoverable within the year.
The Company's maximum exposure to credit risk is the carrying value of its cash and accounts receivable, as follows:
March 31, | December 31, | |||||||
2016 | 2015 | |||||||
Cash | $ | 142,028 | $ | 75,424 | ||||
Accounts receivable (see Note 3) | 202 | 327 | ||||||
$ | 142,230 | $ | 75,751 |
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
March 31, 2016 (in 000's of US$ equivalent) | Mexican peso | Canadian dollar | ||||||
Cash | $ | 101 | $ | 6,118 | ||||
Accounts receivable | 126 | 76 | ||||||
Prepaid | 9 | - | ||||||
Marketable securities | - | 1,605 | ||||||
Accounts payable | (141 | ) | (392 | ) | ||||
Net assets exposure (US$ equivalent) | $ | 95 | $ | 7,407 |
March 31, 2015 (in 000's of US$ equivalent) | Mexican peso | Canadian dollar | ||||||
Cash | $ | 185 | $ | 8,239 | ||||
Accounts receivable | 251 | 46 | ||||||
Prepaid | 13 | - | ||||||
Marketable securities | - | 215 | ||||||
Option to acquire mineral interest | - | 3,582 | ||||||
Accounts payable | (231 | ) | (226 | ) | ||||
Net assets exposure (US$ equivalent) | $ | 218 | $ | 11,856 |
Mexican Peso relative to the US$
Although the majority of operating expenses in Mexico are both determined and denominated in US$, an appreciation in the Mexican Peso relative to the US$ will slightly increase the Company's cost of operations in Mexico related to those operating costs denominated and determined in Mexican pesos. Alternatively, a depreciation in the Mexican peso relative to the US$ will decrease the Company's cost of operations in Mexico related to those operating costs denominated and determined in Mexican pesos.
An appreciation/depreciation in the Mexican peso against the US$ will also result in a gain/loss to the extent that the Company holds net monetary assets in Pesos. Specifically, the Company's foreign currency exposure is comprised of peso denominated cash and value added taxes receivable, net of trade and other payables. The carrying amount of the Company's net peso denominated monetary assets at March 31, 2016 is 1,637 pesos (March 31, 2015: 3,326 pesos). A 10% appreciation in the peso against the US$ would result in gain at March 31, 2016 of $9 (March 31, 2015: $22), while a 10% depreciation in the peso relative to the US$ would result in an equivalent loss.
C$ relative to the US$
The Company is exposed to gains and losses from fluctuations in the C$ relative to the US$.
As general and administrative overheads in Canada are denominated in C$, an appreciation in the C$ relative to the US$ will increase the Company's overhead costs as reported in US$. Alternatively, a depreciation in the C$ relative to the US$ will decrease the Company's overhead costs as reported in US$.
25
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
An appreciation/depreciation in the C$ against the US$ will result in a gain/loss to the extent that MAG, the parent entity, holds net monetary assets in C$. The carrying amount of the Company's net Canadian denominated monetary assets at March 31, 2016 is C$9,619 (March 31, 2015: C$15,018). A 10% appreciation in the C$ against the US$ would result in gain at March 31, 2016 of $741 while a 10% depreciation in the C$ relative to the US$ would result in an equivalent loss.
(d) Interest rate risk
The Company's interest revenue earned on cash is exposed to interest rate risk. A decrease in interest rates would result in lower relative interest income and an increase in interest rates would result in higher relative interest income.
11. FINANCIAL INSTRUMENTS AND FAIR VALUE DISCLOSURES
The Company's financial instruments include cash, accounts receivable, marketable securities, and trade and other payables. The carrying values of cash, accounts receivable, and trade and other payables reported in the consolidated statement of financial position approximate their respective fair values due to the relatively short-term nature of these instruments.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value as described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2: Observable inputs other than quoted prices in Level 1 such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Unobservable inputs which are supported by little or no market activity.
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. The Company's financial assets and liabilities are categorized as follows:
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MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
Three months ended March 31, 2016 | ||||||||||||||||||||
FVTPL | Available for sale | Loans and receivables | Other liabilities | Total | ||||||||||||||||
Financial assets | ||||||||||||||||||||
Cash | $ | 142,028 | - | - | - | $ | 142,028 | |||||||||||||
Accounts receivables (Note 3) | - | - | 202 | - | 202 | |||||||||||||||
Marketable securities (Note 4) | - | 1,605 | - | - | 1,605 | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Trade and other payables | - | - | - | 795 | 795 | |||||||||||||||
Year ended December 31, 2015 | ||||||||||||||||||||
FVTPL | Available for sale | Loans and receivables | Other liabilities | Total | ||||||||||||||||
Financial assets | ||||||||||||||||||||
Cash | $ | 75,424 | - | - | - | $ | 75,424 | |||||||||||||
Accounts receivables (Note 3) | - | - | 327 | - | 327 | |||||||||||||||
Marketable securities (Note 4) | - | 279 | - | - | 279 | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Trade and other payables | - | - | - | 957 | 957 |
MAG SILVER CORP.
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2016
(Unaudited - expressed in thousands of US dollars unless otherwise stated)
Property | Exploration | |||||
Office Lease | Option Payments | Commitments | Total | |||
(Note 7) | (Note 7) | |||||
2016 | 86 | - | - | 86 | ||
2017 | 133 | - | - | 133 | ||
2018 | 136 | - | - | 136 | ||
2019 | 140 | - | - | 140 | ||
$ 495 | $ - | $ - | $ 495 |
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