MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORTING
The accompanying condensed consolidated interim financial statements of SilverCrest Mines Inc. (“the Company”) have been prepared by management in accordance with International Financial Reporting Standards (“IFRS”). Management acknowledges responsibility for the preparation and presentation of the condensed consolidated interim financial statements, including responsibility for significant accounting estimates and the choice of accounting principles and methods that are appropriate to the Company‘s circumstances. Management is responsible for establishing internal controls over financial reporting for the Company. Management has designed and implemented internal controls over financial reporting that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
The Audit Committee of the Board of Directors meets periodically with Management to review results of the condensed consolidated interim financial statements and related financial reporting matters prior to submitting the condensed consolidated interim financial statements to the Board of Directors for approval. The Audit Committee is appointed by the Board of Directors and all of its members are independent directors.
The condensed consolidated interim financial statements have been approved by the Board of Directors on the recommendation of the Audit Committee.
SILVERCREST MINES INC.
| Table of Contents | Page |
| | |
| Condensed Consolidated Statements of Financial Position | 3 |
| | |
| Condensed Consolidated Interim Statements of Operations and Comprehensive Earnings (Loss) | 4 |
| | |
| Condensed Consolidated Interim Statements of Cash Flows | 5 |
| | |
| Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity (Deficiency) | 6 |
| | |
| Notes to the Condensed Consolidated Interim Financial Statements | 7 – 21 |
SILVERCREST MINES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED PREPARED BY MANAGEMENT)
(Expressed in United States Dollars)
AS AT
| | | September 30, 2012 | | | December 31, 2011 | |
| |
| |
| ASSETS | | | | | | |
| |
| Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 36,087,165 | | | $ | 9,740,274 | |
| Designated cash (note 10) | | | 1,800,000 | | | | 1,450,000 | |
| Short term investments | | | - | | | | 14,749,500 | |
| Amounts receivable | | | 380,840 | | | | 541,104 | |
| Prepaid expenses | | | 431,268 | | | | 259,881 | |
| Inventory (note 5) | | | 11,697,258 | | | | 9,293,761 | |
| Total Current Assets | | | 50,396,531 | | | | 36,034,520 | |
| |
| Non-Current Assets | | | | | | | | |
| Value added taxes receivable | | | 5,456,900 | | | | 3,442,815 | |
| Property, plant and equipment (note 6) | | | 35,991,748 | | | | 32,848,898 | |
| Exploration and evaluation assets (note 7) | | | 9,399,928 | | | | 4,352,304 | |
| Total Non-Current Assets | | | 50,848,576 | | | | 40,644,017 | |
| |
| TOTAL ASSETS | | $ | 101,245,107 | | | $ | 76,678,537 | |
| |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | |
| |
| Current Liabilities | | | | | | | | |
| Accounts payable and accrued liabilities | | $ | 3,712,737 | | | $ | 2,669,887 | |
| Income taxes payable | | | 4,195,388 | | | | 985,000 | |
| Derivative instruments (note 10) | | | 14,066,201 | | | | 5,722,320 | |
| Deferred revenue (note 8) | | | 2,372,195 | | | | 2,565,084 | |
| Total Current Liabilities | | | 24,346,521 | | | | 11,942,291 | |
| |
| Non-Current Liabilities | | | | | | | | |
| Asset retirement obligations (note 9) | | | 3,033,939 | | | | 3,025,742 | |
| Deferred revenue (note 8) | | | 7,211,613 | | | | 8,999,539 | |
| Deferred tax liability (note 20) | | | 844,000 | | | | 364,000 | |
| Derivative instruments (note 10) | | | 10,757,971 | | | | 18,141,887 | |
| Total Non-Current Liabilities | | | 21,847,523 | | | | 30,531,168 | |
| |
| Total Liabilities | | | 46,194,044 | | | | 42,473,459 | |
| |
| Shareholders' Equity | | | | | | | | |
| Capital stock (note 11) | | | 67,625,358 | | | | 64,229,007 | |
| Reserves (note 11) | | | 4,794,284 | | | | 5,066,791 | |
| Accumulated comprehensive loss | | | (1,197,145 | ) | | | (2,059,568 | ) |
| Deficit | | | (16,171,434 | ) | | | (33,031,152 | ) |
| Total Shareholders' Equity | | | 55,051,063 | | | | 34,205,078 | |
| |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 101,245,107 | | | $ | 76,678,537 | |
| |
Nature of operations (note 1)
Commitments (note 18, 22)
Subsequent events (note 22)
Approved by the Board and authorized for issue on November 13, 2012.
| “J. Scott Drever” | Director | “Barney Magnusson” | Director |
The accompanying notes are an integral part of these condensed consolidated interim financial statements. |
SILVERCREST MINES INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS (LOSS)
(UNAUDITED PREPARED BY MANAGEMENT)
(Expressed in United States Dollars)
| For the three and nine months ended September 30 | | Three months ended | | | Nine months ended | |
| | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| |
| Revenues (note 12) | | $ | 16,694,752 | | | $ | 15,055,514 | | | $ | 52,276,353 | | | $ | 23,611,775 | |
| |
| Cost of sales (note 13) | | | (4,239,773 | ) | | | (3,652,887 | ) | | | (13,151,191 | ) | | | (5,762,688 | ) |
| |
| Depletion, depreciation and accretion | | | (1,466,356 | ) | | | (1,116,431 | ) | | | (4,446,494 | ) | | | (1,857,804 | ) |
| Mine operating earnings | | | 10,988,623 | | | | 10,286,196 | | | | 34,678,668 | | | | 15,991,283 | |
| |
| Income (expenses) | | | | | | | | | | | | | | | | |
| General and administrative expenses (note 14, 16) | | | (1,070,468 | ) | | | (915,056 | ) | | | (3,462,543 | ) | | | (2,387,884 | ) |
| Share-based compensation (note 11) | | | (104,734 | ) | | | (708,324 | ) | | | (652,099 | ) | | | (1,071,682 | ) |
| Foreign exchange (loss) gain | | | (292,762 | ) | | | 247,503 | | | | (339,686 | ) | | | (100,458 | ) |
| Interest income | | | 30,978 | | | | 73,233 | | | | 173,895 | | | | 123,192 | |
| Finance costs | | | - | | | | (261,429 | ) | | | - | | | | (554,851 | ) |
| Loss on derivative instruments (note 10) | | | (5,126,321 | ) | | | (6,501,599 | ) | | | (5,408,517 | ) | | | (12,406,640 | ) |
| | | | (6,563,307 | ) | | | (8,065,672 | ) | | | (9,688,950 | ) | | | (16,398,323 | ) |
| |
| Income (loss) before taxes | | | 4,425,316 | | | | 2,220,524 | | | | 24,989,718 | | | | (407,040 | ) |
| |
| Taxes | | | | | | | | | | | | | | | | |
| Current income tax expense | | | (2,973,000 | ) | | | - | | | | (7,650,000 | ) | | | - | |
| Deferred tax expense | | | (189,000 | ) | | | - | | | | (480,000 | ) | | | - | |
| Net income (loss) | | | 1,263,316 | | | | 2,220,524 | | | | 16,859,718 | | | | (407,040 | ) |
| |
| Other comprehensive earnings (loss) | | | | | | | | | | | | | | | | |
| Exchange gain (loss) in translation to US Dollars | | | 949,838 | | | | (2,138,668 | ) | | | 862,423 | | | | (1,542,586 | ) |
| |
| |
| Comprehensive earnings (loss) for the period | | $ | 2,213,154 | | | $ | 81,856 | | | $ | 17,722,141 | | | $ | (1,949,626 | ) |
| |
| Earnings (loss) per common share (note 15) | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.03 | | | $ | 0.00 | | | $ | 0.20 | | | $ | (0.03 | ) |
| Diluted | | $ | 0.02 | | | $ | 0.00 | | | $ | 0.19 | | | $ | (0.03 | ) |
| The accompanying notes are an integral part of these condensed consolidated interim financial statements. |
SILVERCREST MINES INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED PREPARED BY MANAGEMENT)
(Expressed in United States Dollars)
| For the nine months ended September 30 | | 2012 | | | 2011 | |
| | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
| Net income (loss) for the period | | $ | 16,859,718 | | | $ | (407,040 | ) |
| Items not affecting cash: | | | | | | | | |
| Depletion, depreciation and accretion | | | 4,446,494 | | | | 1,857,804 | |
| Interest income | | | (173,895 | ) | | | (123,192 | ) |
| Share -based compensation | | | 652,099 | | | | 1,071,682 | |
| Finance costs | | | - | | | | 554,851 | |
| Unrealized foreign exchange loss | | | 341,127 | | | | 211,787 | |
| Loss on derivatives (note 10) | | | 5,408,517 | | | | 12,406,640 | |
| Derivative revenue recorded (note 12) | | | (4,448,553 | ) | | | (6,689,123 | ) |
| Deferred revenue (note 8) | | | (1,980,815 | ) | | | (895,188 | ) |
| Current income tax expense | | | 7,650,000 | | | | - | |
| Deferred tax expense | | | 480,000 | | | | - | |
| Cash flows before changes in working capital items | | | 29,234,692 | | | | 7,988,221 | |
| Amounts receivable | | | (30,793 | ) | | | (244,498 | ) |
| Taxes receivable | | | (2,014,085 | ) | | | (1,286,837 | ) |
| Prepaid expenses | | | (178,883 | ) | | | (79,105 | ) |
| Inventory | | | (2,193,167 | ) | | | (2,745,469 | ) |
| Accounts payable and accrued liabilities | | | (484,810 | ) | | | 1,413,516 | |
| Cash flows before income taxes | | | 24,332,954 | | | | 5,045,828 | |
| Income taxes paid | | | (4,439,612 | ) | | | - | |
| Net cash provided by operating activities | | | 19,893,342 | | | | 5,045,828 | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
| Capital stock issued | | | - | | | | 30,924,000 | |
| Capital stock issuance costs | | | - | | | | (2,111,836 | ) |
| Warrants exercised | | | 2,330,647 | | | | - | |
| Stock options exercised | | | 141,098 | | | | 709,560 | |
| Long term debt - repayment | | | - | | | | (5,400,000 | ) |
| Interest paid | | | - | | | | (744,126 | ) |
| Net cash provided by financing activities | | | 2,471,745 | | | | 23,377,598 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | |
| Property, plant and equipment | | | (6,730,915 | ) | | | (6,070,238 | ) |
| Short term investments | | | 14,490,000 | | | | (15,316,500 | ) |
| Sales of silver and gold capitalized (note 6) | | | - | | | | 3,810,044 | |
| Exploration and evaluation | | | (4,567,240 | ) | | | (1,383,707 | ) |
| Interest received | | | 346,620 | | | | 44,242 | |
| Net cash provided by (used in) investing activities | | | 3,538,465 | | | | (18,916,159 | ) |
| | |
| Impact of exchange rate changes on cash and cash equivalents | | | 793,339 | | | | (858,604 | ) |
| | |
| Change in cash and cash equivalents, during period | | | 26,696,891 | | | | 8,648,663 | |
| CASH AND CASH EQUIVALENTS, beginning of period | | | 11,190,274 | | | | 9,034,623 | |
| CASH AND CASH EQUIVALENTS, end of period | | $ | 37,887,165 | | | $ | 17,683,286 | |
| Cash and cash equivalents is represented by: | | | | | | | | |
| Cash | | $ | 34,559,724 | | | $ | 8,051,186 | |
| Cash equivalents | | | 1,527,441 | | | | 8,182,100 | |
| Designated cash | | | 1,800,000 | | | | 1,450,000 | |
| | | $ | 37,887,165 | | | $ | 17,683,286 | |
| | |
Supplemental disclosure with respect to cash flows (note 17) | |
| The accompanying notes are an integral part of these condensed consolidated interim financial statements. |
SILVERCREST MINES INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY)
(UNAUDITED PREPARED BY MANAGEMENT)
(Expressed in United States Dollars)
| | | Capital Stock | | | Reserves | | | Accumulated | | | Deficit | | | Total | |
| | | Number | | | Amount | | | Share-Based | | | Comprehensive | | | | | | | |
| | | | | | | | | Payments | | | Loss | | | | | | | |
| Balance at January 1, 2011 | | | 66,877,929 | | | $ | 33,630,810 | | | $ | 3,665,997 | | | $ | (1,037,178 | ) | | $ | (42,487,571 | ) | | $ | (6,227,942 | ) |
| | |
| Stock options exercised | | | 925,000 | | | | 1,073,758 | | | | (364,198 | ) | | | - | | | | - | | | | 709,560 | |
| Issuance of capital stock | | | 18,750,000 | | | | 30,924,000 | | | | - | | | | | | | | | | | | 30,924,000 | |
| Share issuance costs | | | - | | | | (2,111,836 | ) | | | - | | | | - | | | | - | | | | (2,111,836 | ) |
| Share-based compensation | | | - | | | | - | | | | 1,071,682 | | | | - | | | | - | | | | 1,071,682 | |
| Fair value of agent warrants | | | - | | | | (401,550 | ) | | | 401,550 | | | | - | | | | - | | | | - | |
| Loss for the period | | | - | | | | - | | | | - | | | | - | | | | (407,040 | ) | | | (407,040 | ) |
| Currency translation adjustment | | | - | | | | - | | | | - | | | | (1,542,586 | ) | | | - | | | | (1,542,586 | ) |
| | |
| Balance at September 30, 2011 | | | 86,552,929 | | | | 63,115,182 | | | | 4,775,031 | | | | (2,579,764 | ) | | | (42,894,611 | ) | | | 22,415,838 | |
| | |
| Warrants exercised | | | 562,500 | | | | 1,085,475 | | | | (200,775 | ) | | | - | | | | - | | | | 884,700 | |
| Stock options exercised | | | 18,750 | | | | 28,350 | | | | (9,105 | ) | | | - | | | | - | | | | 19,245 | |
| Share-based compensation | | | - | | | | - | | | | 501,640 | | | | - | | | | - | | | | 501,640 | |
| Net earnings for the period | | | - | | | | - | | | | - | | | | - | | | | 9,863,459 | | | | 9,863,459 | |
| Currency translation adjustment | | | - | | | | - | | | | - | | | | 520,196 | | | | - | | | | 520,196 | |
| | |
| Balance at December 31, 2011 | | | 87,134,179 | | | | 64,229,007 | | | | 5,066,791 | | | | (2,059,568 | ) | | | (33,031,152 | ) | | | 34,205,078 | |
| | |
| Warrants exercised | | | 2,552,200 | | | | 3,203,325 | | | | (872,678 | ) | | | - | | | | - | | | | 2,330,647 | |
| Stock options exercised | | | 100,000 | | | | 193,026 | | | | (51,928 | ) | | | - | | | | - | | | | 141,098 | |
| Share-based compensation | | | - | | | | - | | | | 652,099 | | | | - | | | | - | | | | 652,099 | |
| Net earnings for the period | | | - | | | | - | | | | - | | | | - | | | | 16,859,718 | | | | 16,859,718 | |
| Currency translation adjustment | | | - | | | | - | | | | - | | | | 862,423 | | | | - | | | | 862,423 | |
| | |
| Balance at September 30, 2012 | | | 89,786,379 | | | $ | 67,625,358 | | | $ | 4,794,284 | | | $ | (1,197,145 | ) | | $ | (16,171,434 | ) | | $ | 55,051,063 | |
| The accompanying notes are an integral part of these condensed consolidated interim financial statements. |
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 TSX.V:SVL
1. NATURE OF OPERATIONS
SilverCrest Mines Inc. (“SilverCrest” or the “Company”) is incorporated under the jurisdiction of the Province of British Columbia, Canada pursuant to the British Columbia Business Corporations Act. The Company is engaged in mining at the Santa Elena Mine in Mexico and is involved in related activities including acquisition, exploration, development, extraction, processing and reclamation.
The head office and principal address of the Company is 570 Granville Street, Suite 501, Vancouver, BC, Canada, V6C 3P1. The address of the Company’s registered and records office is 19th Floor, 885 West Georgia Street, Vancouver, BC, Canada, V6C 3E8. SilverCrest is a public company which is listed on the TSX Venture Exchange (under the symbol SVL) and the NYSE MKT (under the symbol SVLC).
These condensed consolidated interim financial statements were authorized for issue by the board of directors of the Company on November 13, 2012.
2. BASIS OF PRESENTATION
Statement of Compliance
These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”). These condensed consolidated interim financial statements should be read in conjunction with SilverCrest’s most recently issued consolidated financial statements for the year ended December 31, 2011, which includes information necessary or useful to understanding the Company’s business and financial statement presentation. In particular, the Company’s significant accounting policies, use of judgments and estimates were presented in Note 2 of these consolidated financial statements, and have been consistently applied in the preparation of these condensed consolidated interim financial statements.
Basis of Preparation
These condensed consolidated interim financial statements have been prepared on a historical cost basis except for certain financial instruments which are measured at fair value.
These condensed consolidated interim financial statements include the accounts of SilverCrest and its wholly-owned subsidiaries NorCrest Silver Inc., and SVL Minerals Ltd. (both incorporated under the laws of Canada), and Nusantara de Mexico S.A. de C.V., Santa Elena Oro y Plata S.A. de C.V., Minera de Cerro Santo S.A. de C.V., Magellan Exploracion S.A. de C.V. and SilverCrest de Mexico S.A. de C.V. (all incorporated under the laws of Mexico). All intercompany balances, transactions, income and expenses, and profits or losses have been eliminated on consolidation.
SilverCrest consolidates subsidiaries where the Company has the ability to exercise control. Control is achieved when the Company has the power to govern the financial and operating policies of the entity. Control is normally achieved through ownership, directly or indirectly, of more than 50 percent of the voting power. Control can also be achieved through power over more than half of the voting rights by virtue of an agreement with other investors or through the exercise of de facto control.
| | | | | Place of | |
| Company | | Ownership% | | Incorporation | Principal Activity |
| NorCrest Silver Inc. | | | 100 | % | Canada | Holding Company |
| SVL Minerals Ltd. | | | 100 | % | Canada | Holding Company |
| Nusantara de Mexico S.A. de C.V. | | | 100 | % | Mexico | Santa Elena Mine and Mineral Development |
| Santa Elena Oro Y Plata S.A. de C.V. | | | 100 | % | Mexico | Service Company |
| Minera de Cerro Santo S.A. de C.V. | | | 100 | % | Mexico | Service Company |
| Magellan Exploracion S.A. de C.V. | | | 100 | % | Mexico | Service Company |
| SilverCrest de Mexico S.A. de C.V. | | | 100 | % | Mexico | Exploration and Evaluation |
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 TSX.V:SVL
3. NEW STANDARDS NOT YET ADOPTED
The International Accounting Standards Board (“IASB”) issued the following pronouncements that are effective for years beginning January 1, 2013, or later and may affect the Company’s future financial statements.
| · | IFRS 9, Financial Instruments |
| · | IFRS 10, Consolidated Financial Statements |
| · | IFRS 11, Joint Arrangements |
| · | IFRS 12, Disclosure of Interests in Other Entities |
| · | IFRS 13, Fair Value Measurement |
| · | IAS 32, Financial Instruments Presentation |
| · | IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine |
These new and revised accounting standards have not yet been adopted by SilverCrest, and the Company has not yet completed the process of assessing the impact that they will have on its financial statements, or whether to early adopt any of the new requirements.
4. MANAGEMENT OF CAPITAL
The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern in order to support normal operating requirements at the Santa Elena Mine, continue the exploration and evaluation of its mineral properties and support any expansionary plans.
The Company considers items in its shareholders’ equity as its capital.
The Company manages and adjusts its capital structure when changes to the risk characteristics of the underlying assets or changes in economic conditions occur. To maintain or adjust the capital structure, the Company may attempt to issue new equity, dispose of certain of its assets or issue debt.
In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets which are revised periodically based on the results of its operations at the Santa Elena Mine, exploration programs, availability of financing and industry conditions. Annual and materially updated budgets are approved by the Board of Directors. There are no external restrictions on management of capital except as disclosed in note 10.
The Company’s investment policy is to invest any excess cash in liquid short-term interest-bearing instruments. When utilized, these instruments are selected with regard to the expected timing of expenditures from continuing operations. The Company expects to have sufficient capital resources to meet its planned operational and expansion expenses, financing obligations, administrative overhead expenses and exploration plans for the next twelve months. Actual funding requirements may vary from those planned due to a number of factors, including the progress of operations at the Santa Elena Mine and other exploration and development activities. The Company believes it will be able to raise capital as required in the long term, but recognizes there will be risks involved that may be beyond its control.
5. INVENTORY
| | | September 30, 2012 | | | December 31, 2011 | |
| Silver and gold in process | | $ | 8,886,050 | | | $ | 7,074,079 | |
| Finished goods - dore bars | | | 1,797,377 | | | | 1,545,042 | |
| Supplies | | | 1,013,831 | | | | 674,640 | |
| | | $ | 11,697,258 | | | $ | 9,293,761 | |
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 TSX.V:SVL
6. PROPERTY, PLANT AND EQUIPMENT
| | | Santa Elena Mine | | | Santa Elena Mine | | | Corporate | | | Total | |
| | | Equipment | | | Mining Assets | | Expansion in Progress | | | Office | | | | |
| Cost | | | | | | | | | | | | | | | |
| Balance at January, 1, 2011 | | $ | 17,489,958 | | | $ | 20,516,911 | | | $ | - | | | $ | 29,395 | | | $ | 38,036,264 | |
| Additions | | | 1,450,589 | | | | 4,849,422 | | | | 2,025,614 | | | | 40,844 | | | | 8,366,469 | |
Sales of silver and gold (1) | | | - | | | | (4,856,037 | ) | | | - | | | | - | | | | (4,856,037 | ) |
Inventory adjustment (2) | | | - | | | | (3,710,287 | ) | | | - | | | | - | | | | (3,710,287 | ) |
| Balance at December 31, 2011 | | | 18,940,547 | | | | 16,800,009 | | | | 2,025,614 | | | | 70,239 | | | | 37,836,409 | |
| Additions | | | 1,357,242 | | | | 105,939 | | | | 6,290,907 | | | | 37,389 | | | | 7,791,477 | |
| Balance at September 30, 2012 | | $ | 20,297,789 | | | $ | 16,905,948 | | | $ | 8,316,521 | | | $ | 107,628 | | | $ | 45,627,886 | |
| |
| Accumulated depreciation and depletion | | | | | | | | | | | | | | | | | | | | |
| Balance at January, 1, 2011 | | $ | 674,716 | | | $ | - | | | $ | - | | | $ | 15,947 | | | $ | 690,663 | |
| Charge for the year | | | 2,301,393 | | | | 1,982,393 | | | | - | | | | 13,062 | | | | 4,296,848 | |
| Balance at December 31, 2011 | | | 2,976,109 | | | | 1,982,393 | | | | - | | | | 29,009 | | | | 4,987,511 | |
| Charge for the period | | | 1,863,926 | | | | 2,735,932 | | | | - | | | | 48,769 | | | | 4,648,627 | |
| Balance at September 30, 2012 | | $ | 4,840,035 | | | $ | 4,718,325 | | | $ | - | | | $ | 77,778 | | | $ | 9,636,138 | |
| |
| Carrying amounts | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2011 | | $ | 15,964,438 | | | $ | 14,817,616 | | | $ | 2,025,614 | | | $ | 41,230 | | | $ | 32,848,898 | |
| |
| At September 30, 2012 | | $ | 15,457,754 | | | $ | 12,187,623 | | | $ | 8,316,521 | | | $ | 29,850 | | | $ | 35,991,748 | |
| (1) | Sales of silver and gold consist of revenue recorded in the first quarter of 2011, before commencement of commercial production and include $3,810,044 in cash, $180,955 from amortization of deferred revenue and $865,038 from derivative revenue recorded. |
| (2) | During the quarter ended June 30, 2011, the Company made an adjustment of $3,710,287 to the Santa Elena Mine Assets carrying value, to reflect the opening inventory position as of July 1, 2011 relating to finished goods and silver and gold contained in process. |
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 TSX.V:SVL
7. EXPLORATION AND EVALUATION ASSETS
Title to mineral properties involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mineral properties. The Company has investigated title to all of its mineral properties and, to the best of its knowledge, title to all of its properties are in good standing except as otherwise disclosed. However, this should not be considered as a guarantee of title. The mineral properties may be subject to prior claims or agreements, or transfers and rights of ownership may be affected by undetected defects.
| 2012 | | MEXICO | | | 2012 | |
| | | Cruz de Mayo | | | La Joya | | | Total | |
| Balance at December 31, 2011 | | $ | 1,697,295 | | | $ | 2,655,009 | | | $ | 4,352,304 | |
| Additions | | | | | | | | | | | | |
| Acquisition and option payments | | $ | - | | | $ | 110,000 | | | $ | 110,000 | |
| Deferred exploration costs: | | | | | | | | | | | | |
| Depreciation | | | - | | | | 13,476 | | | | 13,476 | |
| Assays | | | 72,102 | | | | 337,744 | | | | 409,846 | |
| Drilling | | | 605,898 | | | | 2,295,352 | | | | 2,901,250 | |
| Exploration and general | | | 93,419 | | | | 768,763 | | | | 862,182 | |
| Professional fees | | | - | | | | 20,320 | | | | 20,320 | |
| Salaries | | | 99,178 | | | | 168,637 | | | | 267,815 | |
| Technical consulting and services | | | 126,500 | | | | 336,235 | | | | 462,735 | |
| Subtotal, 2012 additions | | | 997,097 | | | | 4,050,527 | | | | 5,047,624 | |
| | |
| Balance at September 30, 2012 | | $ | 2,694,392 | | | $ | 6,705,536 | | | $ | 9,399,928 | |
| | |
| | |
| 2011 | | MEXICO | | | | 2011 | |
| | | Cruz de Mayo | | | La Joya | | | Total | |
| Balance at January 1, 2011 | | $ | 1,257,944 | | | $ | 471,059 | | | $ | 1,729,003 | |
| Additions | | | | | | | | | | | | |
| Acquisition and option payments | | $ | 45,000 | | | $ | 160,000 | | | $ | 205,000 | |
| Deferred exploration costs: | | | | | | | | | | | | |
| Depreciation | | | - | | | | 7,858 | | | | 7,858 | |
| Assays | | | 5,097 | | | | 70,402 | | | | 75,499 | |
| Drilling | | | 97,321 | | | | 891,620 | | | | 988,941 | |
| Exploration and general | | | 220,785 | | | | 691,260 | | | | 912,045 | |
| Professional fees | | | - | | | | 5,528 | | | | 5,528 | |
| Salaries | | | 45,988 | | | | 43,257 | | | | 89,245 | |
| Technical consulting and services | | | 25,160 | | | | 314,025 | | | | 339,185 | |
| Subtotal, 2011 additions | | | 439,351 | | | | 2,183,950 | | | | 2,623,301 | |
| | |
| Balance at December 31, 2011 | | $ | 1,697,295 | | | $ | 2,655,009 | | | $ | 4,352,304 | |
Cruz de Mayo Project, Mexico
The Company purchased a 100% interest in certain mineral concessions, located in Sonora State, Mexico, in 2004, and on November 19, 2010, finalized an assignment agreement to acquire a 100% interest in the El Guereguito concession in the same state. The Company has the right to acquire the 100% interest in the El Guereguito concession by making the following staged option payments totaling $1,000,000.
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 TSX.V:SVL
7. EXPLORATION AND EVALUATION ASSETS (continued)
| | | El Guereguito | | |
| November 19, 2010 | | $ | 20,000 | | (paid) |
| May 19, 2011 | | | 20,000 | | (paid) |
| November 19, 2011 | | | 25,000 | | (paid) |
| November 19, 2012 | | | 50,000 | | |
| November 19, 2013 | | | 50,000 | | |
| | | | 165,000 | | |
| $50,000 on each anniversary date | | | 835,000 | | |
| TOTAL | | $ | 1,000,000 | | |
The Company has the right to make early payment with no additional consideration. There is a 2.5% NSR royalty which ceases on cumulative payments of $1,000,000.
La Joya Project, Mexico
During 2010, the Company entered into agreements to acquire a 100% interest in the La Joya Project located southeast of Durango City, Durango State, Mexico.
On June 21, 2010, the Company entered into the “La Joya West” agreement for purchase and sale. The Company has the right to acquire a 100% interest by making the following staged payments totaling $2,680,000 over a period of 3 years.
| | | La Joya West | | |
| June 21, 2010 | | $ | 20,000 | | (paid) |
| October 21, 2010 | | | 20,000 | | (paid) |
| April 21, 2011 | | | 60,000 | | (paid) |
| October 21, 2011 | | | 80,000 | | (paid) |
| June 21, 2013 | | | 2,500,000 | | |
| TOTAL | | $ | 2,680,000 | | |
The final $2,500,000 payment can be settled as follows: $1,250,000 in shares or by a combination of cash and shares at the Company’s discretion and $1,250,000 by a negotiated combination of cash and shares. The Company is required to incur $200,000 of exploration expenditures annually. There is a 2% NSR royalty from production of minerals.
On November 25, 2010, the Company entered into the “La Joya East” agreement for purchase and sale. The Company has the right to acquire a 100% interest by making the following staged payments totaling $1,500,000 over a period of 3 years.
| | | La Joya East | | |
| December 31, 2010 | | $ | 25,000 | | (paid) |
| June 30, 2011 | | | 20,000 | | (paid) |
| December 31, 2011 | | | 50,000 | | (paid) |
| June 30, 2012 | | | 60,000 | | (paid) |
| December 31, 2012 | | | 70,000 | | |
| June 30, 2013 | | | 100,000 | | |
| December 31, 2013 | | | 1,175,000 | | |
| TOTAL | | $ | 1,500,000 | | |
The final $1,175,000 payment can be settled in shares of the Company or by a combination of cash and shares at the Company’s discretion. Of the option payment, $750,000 shall be deemed to be advanced royalty payments made on account of the NSR. There is a 2% NSR royalty from production of minerals.
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 TSX.V:SVL
8. DEFERRED REVENUE
On May 14, 2009, the Company entered into a definitive Purchase Agreement with Sandstorm Gold Ltd. under which the Company’s wholly-owned Mexican subsidiary, Nusantara de Mexico S.A. de C.V., agreed to sell 20% of future gold production from the Santa Elena Project to Sandstorm in exchange for an Upfront Deposit of $12,000,000. The agreement also provides for ongoing per-ounce payments by Sandstorm equal to the lesser of $350 and the prevailing spot gold market price upon delivery of gold. The per ounce price of $350 is subject to an increase of 1% per annum commencing on the 3rd anniversary of the date the Santa Elena Project begins commercial production.
If the Company decides to develop an underground mine on the Santa Elena Project, Sandstorm has the right to purchase 20% of the gold from the underground mine at a per ounce price equal to the lesser of $450 and the prevailing spot gold market price, subject to an increase of 1% per annum beginning on the 3rd anniversary from the date the underground mine begins commercial production. In exchange, Sandstorm will pay 20% of the capital expenditures incurred, related to the gold stream, to determine the economic viability and to construct the underground mine and mill facilities.
During the nine months period ended September 30, 2012, the Company recorded revenue of $3,828,157 (2011 – $2,074,308 of which $344,252 was capitalized) related to the delivery of 5,278 gold ounces (2011 – 2,852) to Sandstorm, which consisted of $1,847,342 (2011 – $998,166) received in cash and $1,980,815 (2011 - $1,076,142) from amortization of deferred revenue.
Details of changes in the balance are as follows:
| | | Upfront Deposit | | | Sandstorm Shares | | | Total Deferred | |
| | | | | | | | | Revenue | |
| |
| As at December 31, 2010 | | $ | 11,942,689 | | | $ | 1,426,285 | | | $ | 13,368,974 | |
| Delivery of gold | | | (1,611,851 | ) | | | (192,500 | ) | | | (1,804,351 | ) |
| As at December 31, 2011 | | | 10,330,838 | | | | 1,233,785 | | | | 11,564,623 | |
| Less current portion | | | (2,291,425 | ) | | | (273,659 | ) | | | (2,565,084 | ) |
| Deferred revenue | | $ | 8,039,413 | | | $ | 960,126 | | | $ | 8,999,539 | |
| |
| As at December 31, 2011 | | $ | 10,330,838 | | | $ | 1,233,785 | | | $ | 11,564,623 | |
| Delivery of gold | | | (1,769,489 | ) | | | (211,326 | ) | | | (1,980,815 | ) |
| As at September 30, 2012 | | | 8,561,349 | | | | 1,022,459 | | | | 9,583,808 | |
| Less current portion | | | (2,119,114 | ) | | | (253,081 | ) | | | (2,372,195 | ) |
| Deferred revenue | | $ | 6,442,235 | | | $ | 769,378 | | | $ | 7,211,613 | |
9. ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations relate to the operation of the Santa Elena, Cruz de Mayo and La Joya Projects.
Details are as follows:
| | | September 30, 2012 | | | December 31, 2011 | |
| Balance, beginning of year | | $ | 3,025,742 | | | $ | 1,486,482 | |
| Change in obligations | | | - | | | | 1,442,916 | |
| Accretion expense | | | 8,197 | | | | 96,344 | |
| Balance, end of period | | $ | 3,033,939 | | | $ | 3,025,742 | |
The fair value of the estimated future expenditures as at September 30, 2012, has been estimated to be $3,033,939 (2011 - $3,025,742). In determining the fair value of the asset retirement obligation, the Company has assumed a long-term inflation rate of 4.7% (2011 – 4.4%), a discount rate of 6.11% (2011 – 6.3%) and projected mine life of 8 years.
In view of uncertainties concerning asset retirement obligations, the ultimate costs could be materially different from the amounts estimated. The estimate of future asset retirement obligations is subject to change based on amendments to applicable laws and legislation. Future changes in asset retirement obligations, if any, could have a significant impact.
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 TSX.V:SVL
10. DERIVATIVE INSTRUMENTS
Details are as follows:
| | | | | | | | | | | | Total Derivative | |
| | | | Hedging Facility | | | | European Gold | | | | Instrument | |
| | | | | | | | Call Option | | | | Liability | |
| | | | | | | | | | | | | |
| As at December 31, 2010 | | $ | 26,245,264 | | | $ | 2,223,579 | | | $ | 28,468,843 | |
| Delivery of gold | | | (13,081,984 | ) | | | - | | | | (13,081,984 | ) |
| Changes in mark-to-market value | | | 10,700,927 | | | | 797,030 | | | | 11,497,957 | |
| Cash settlement | | | - | | | | (3,020,609 | ) | | | (3,020,609 | ) |
| As at December 31, 2011 | | | 23,864,207 | | | | - | | | | 23,864,207 | |
| Less current portion | | | (5,722,320 | ) | | | - | | | | (5,722,320 | ) |
| Derivative instruments | | $ | 18,141,887 | | | $ | - | | | $ | 18,141,887 | |
| |
| As at December 31, 2011 | | $ | 23,864,207 | | | $ | - | | | $ | 23,864,207 | |
| Delivery of gold | | | (4,448,553 | ) | | | - | | | | (4,448,553 | ) |
| Changes in mark-to-market value | | | 5,408,518 | | | | - | | | | 5,408,518 | |
| As at September 30, 2012 | | | 24,824,172 | | | | - | | | | 24,824,172 | |
| Less current portion | | | (14,066,201 | ) | | | - | | | | (14,066,201 | ) |
| Derivative instruments | | $ | 10,757,971 | | | $ | - | | | $ | 10,757,971 | |
Macquarie Bank Limited (“MBL”) – Hedging Facility
On June 12, 2009, the Company implemented a gold price protection program (“Hedging Facility”) for the Santa Elena Mine which was a requirement under the Project Loan (retired during fiscal 2011). The Hedging Facility was comprised of 55,000 ounces of gold sold forward at $926.50 per ounce. As at September 30, 2012 the Hedging Facility delivery schedule was as follows:
| Metal | Maturity | | Hedging Facility | | | Settled | | | Deliverable | |
| | | | (Ounces) | | | (Ounces) | | | (Ounces) | |
| | |
| Gold | 2010 | | | 746 | | | | 746 | | | | - | |
| | 2011 | | | 17,628 | | | | 17,628 | | | | - | |
| | 2012 | | | 9,650 | | | | 7,626 | | | | 2,024 | |
| | 2013 | | | 17,700 | | | | - | | | | 17,700 | |
| | 2014 | | | 9,276 | | | | - | | | | 9,276 | |
| | | | | 55,000 | | | | 26,000 | | | | 29,000 | |
The Company does not hold this derivative instrument for trading purposes. The Company has determined that this program constitutes an effective economic hedge for the Santa Elena Mine; however, it does not meet the requirements for hedge accounting under IFRS. Financial derivative instruments, those which do not qualify for hedge accounting, are required under IFRS to be recorded at fair value (marked-to-market) at the financial position date, and the resulting gains or losses are to be included in the statement of operations.
As at September 30, 2012, the fair value of the Hedging Facility was calculated using the forward gold price of $1,783 (2011 - $1,599). A 10% appreciation (depreciation) in the market spot price of gold would result in approximately a $5,169,000 increase (decrease) in derivative instrument liability with a corresponding change in gain (loss) on derivative instruments.
| Derivatives impact on statement of operations | | Three months ended | | | Nine months ended | |
| | September 30, 2012 | | September 30, 2011 | | September 30, 2012 | | | September 30, 2011 | |
| Fair value marked-to-market change on derivatives | | $ | 5,126,321 | | | $ | 6,501,599 | | | $ | 5,408,517 | | | $ | 12,406,640 | |
| Derivative revenue recorded (note 12) | | | (630,666 | ) | | | (4,681,312 | ) | | | (4,448,553 | ) | | | (6,689,122 | ) |
| Net derviatives impact on statement of operations | | $ | 4,495,655 | | | $ | 1,820,287 | | | $ | 959,964 | | | $ | 5,717,518 | |
During the three months ended September 30, 2012, the Company recorded in the statement of operations an unrealized non-cash loss of $5,126,321 (2011 – $6,501,599) related to changes in the fair value of open derivative contracts. The Company recorded derivative revenue of $630,666 (2011 – $4,681,312) related to 916 (2011 – 6,102) gold ounces delivered into the Hedging Facility, resulting in a net non-cash loss on the statement of operations of $4,495,655 (2011 – $1,820,287).
During the nine months ended September 30, 2012, the Company recorded in the statement of operations an unrealized non-cash loss of $5,408,517 (2011 – $12,406,640) related to changes in the fair value of open derivative contracts. The Company recorded derivative revenue of $4,448,553 (2011 – $6,689,122) related to 6,484 (2011 – 11,408) gold ounces delivered into the Hedging Facility, resulting in a net non-cash loss on the statement of operations of $959,964 (2011 – $5,717,518).
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 TSX.V:SVL
10. DERIVATIVE INSTRUMENTS (continued)
MBL requires the Company to maintain certain minimum debt service reserves and ratios based upon the Life of Mine Plan. The Company is required to have available cash reserves of a minimum of their aggregate operating and capital costs to be expended at the Santa Elena Mine in the ensuing period of four weeks consistent with the Life of Mine Plan. As at September 30, 2012, the Company had reserved $1,800,000 (2011 - $1,450,000) related to this funding obligation.
11. CAPITAL STOCK AND RESERVES
Authorized Shares
The Company’s authorized capital stock consists of an unlimited number of common shares and an unlimited number of preferred shares without par value.
Stock options
The Company has a stock option plan under which it is authorized to grant stock options to executive officers and directors, employees and consultants, enabling them to acquire up to 10% of the issued and outstanding common stock of the Company. The exercise price of each option equals the market price of the Company's stock as calculated on the date of the grant. The options can be granted for a maximum term of 10 years, and certain options to employees and consultants vest over periods of time, determined by the board of directors. Options granted to investor relations consultants shall vest over a period of at least 1 year.
Stock option transactions and the number of stock options outstanding and exercisable are summarized as follows:
| | | | | | Weighted Average | |
| | | | | | Exercise Price - CAD$ | |
| As at December 31, 2010 | | | 4,900,000 | | | $ | 0.93 | |
| Issued | | | 2,415,000 | | | $ | 1.62 | |
| Exercised | | | (943,750 | ) | | $ | 0.72 | |
| Forfeited | | | (56,250 | ) | | $ | 1.50 | |
| As at December 31, 2011 | | | 6,315,000 | | | $ | 1.22 | |
| Exercised | | | (100,000 | ) | | $ | 1.39 | |
| Forfeited | | | (49,000 | ) | | $ | 1.60 | |
| Expired | | | (50,000 | ) | | $ | 1.20 | |
| As at September 30, 2012 | | | 6,116,000 | | | $ | 1.22 | |
| | | | | | | Options Outstanding | | | | Options Exercisable | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Exercise Price - | | Expiry Date | | | Number of | | | | Weighted Average | | | | Weighted Average | | | | Number of | | | | Weighted Average | |
| | CAD$ | | | | | Shares Issuable | | | | Remaining Life | | | | Exercise Price - | | | | Shares Issuable | | | | Exercise Price - | |
| | | | | | | on Exercise | | | | (Years) | | | | CAD$ | | | | on Exercise | | | | CAD$ | |
| $ | 1.39 | | January 7, 2013 | | | 100,000 | | | | 0.27 | | | $ | 1.39 | | | | 100,000 | | | $ | 1.39 | |
| $ | 1.27 | | March 28, 2013 | | | 850,000 | | | | 0.49 | | | $ | 1.27 | | | | 850,000 | | | $ | 1.27 | |
| $ | 1.03 | | July 14, 2013 | | | 850,000 | | | | 0.79 | | | $ | 1.03 | | | | 850,000 | | | $ | 1.03 | |
| $ | 1.60 | | November 7, 2013 | | | 240,000 | | | | 1.10 | | | $ | 1.60 | | | | 120,000 | | | $ | 1.60 | |
| $ | 0.45 | | January 8, 2014 | | | 100,000 | | | | 1.27 | | | $ | 0.45 | | | | 100,000 | | | $ | 0.45 | |
| $ | 0.50 | | July 22, 2014 | | | 750,000 | | | | 1.81 | | | $ | 0.50 | | | | 750,000 | | | $ | 0.50 | |
| $ | 0.80 | | October 21, 2014 | | | 100,000 | | | | 2.06 | | | $ | 0.80 | | | | 100,000 | | | $ | 0.80 | |
| $ | 1.05 | | September 10, 2015 | | | 1,050,000 | | | | 2.95 | | | $ | 1.05 | | | | 1,050,000 | | | $ | 1.05 | |
| $ | 1.94 | | February 15, 2016 | | | 175,000 | | | | 3.38 | | | $ | 1.94 | | | | 175,000 | | | $ | 1.94 | |
| $ | 1.17 | | June 17, 2016 | | | 200,000 | | | | 3.72 | | | $ | 1.17 | | | | 150,000 | | | $ | 1.17 | |
| $ | 1.65 | | August 2, 2016 | | | 1,450,000 | | | | 3.84 | | | $ | 1.65 | | | | 1,087,500 | | | $ | 1.65 | |
| $ | 1.60 | | November 7, 2016 | | | 251,000 | | | | 4.11 | | | $ | 1.60 | | | | 151,000 | | | $ | 1.60 | |
| | | | | | | 6,116,000 | | | | 2.30 | | | $ | 1.22 | | | | 5,483,500 | | | $ | 1.17 | |
Share-based compensation
During the nine months period ended September 30, 2012, there were no incentive stock options granted. During the period ended September 30, 2011, the Company granted 1,875,000 incentive stock options with a weighted average fair value per option granted of CAD$0.96 for total fair value of $1,839,794. The share-based compensation recognized during the nine months period ended September 30, 2012, under the fair value method, was $652,099 (2011 - $1,071,682).
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 TSX.V:SVL
11. CAPITAL STOCK AND RESERVES (continued)
The following weighted average assumptions were used for the Black-Scholes valuation of stock options.
| | | September 30, 2012 | | | September 30, 2011 | |
| Risk-free interest rate | | | - | | | | 1.93 | % |
| Expected dividend yield | | | - | | | | - | |
| Expected stock price volatility | | | - | | | | 70.7 | % |
| Expected option lives | | | - | | | 4.76 years | |
Warrants
Warrant transactions and the number of warrants outstanding are as follows:
| | | | | | Weighted Average | |
| | | | | | Exercise Price - CAD$ | |
| As at December 31, 2010 | | | 5,000,000 | | | | 0.90 | |
| Issued | | | 1,125,000 | | | | 1.60 | |
| Exercised | | | (562,500 | ) | | | 1.60 | |
| As at December 31, 2011 | | | 5,562,500 | | | | 0.97 | |
| Exercised | | | (2,552,200 | ) | | | 0.91 | |
| As at September 30, 2012 | | | 3,010,300 | | | | 1.02 | |
| Number of Warrants | Exercise Price - CAD$ | Expiry Date |
| 2,500,000 | $0.90 | November 12, 2012 |
| 510,300 | $1.60 | May 19, 2013 |
| 3,010,300 | | |
12. REVENUES
| | | Three months ended | | | Nine months ended | |
| | | September 30, 2012 | | | September 30, 2011 | | | September 30, 2012 | | | September 30, 2011 | |
Gold revenue - Hedging Facility (1) | | $ | 1,477,554 | | | $ | 10,330,928 | | | $ | 10,448,896 | | | $ | 18,119,169 | |
Gold revenue - Sandstorm (2) | | | 1,149,337 | | | | 1,106,351 | | | | 3,828,157 | | | | 2,074,308 | |
| Gold revenue - spot prices | | | 9,256,519 | | | | - | | | | 24,899,920 | | | | - | |
| Silver revenue | | | 4,811,342 | | | | 3,618,235 | | | | 13,099,380 | | | | 8,274,335 | |
| | | | 16,694,752 | | | | 15,055,514 | | | | 52,276,353 | | | | 28,467,812 | |
Capitalized to Santa Elena Mine (3) | | | - | | | | - | | | | - | | | | (4,856,037 | ) |
| | | $ | 16,694,752 | | | $ | 15,055,514 | | | $ | 52,276,353 | | | $ | 23,611,775 | |
Three months ended September 30, 2012
(1) The Company delivered 916 (2011 – 6,102) gold ounces into the Hedge Facility, at an average realized price of $925 (2011 - $926). Included in gold revenue is $630,666 (2011 - $4,681,312) which is the realized difference between market spot price as at the date of delivery and the hedge price of $926.50 per ounce applied to 916 (2011 – 6,102) gold ounces. The Company recorded the corresponding reduction in derivative instruments liability (note 10).
(2) The Company recorded $1,149,337 (2011 - $1,106,351) related to the delivery of 1,585 (2011 – 1,525) gold ounces to Sandstorm, which consists of $554,632 (2011 - $533,889) received in cash and $594,705 (2011 - $572,462) relating to amortization of deferred revenue (note 8).
Nine months ended September 30, 2012
(1) The Company delivered 6,484 (2011 – 11,408) gold ounces into the Hedge Facility, at an average realized price of $925 (2011 - $926). Included in gold revenue is $4,448,553 (2011 - $7,554,161, of which $865,038 was capitalized) which is the realized difference between market spot price as at the date of delivery and the hedge price of $926.50 per ounce applied to 6,484 (2011 – 11,408) gold ounces. The Company recorded the corresponding reduction in derivative instruments liability (note 10).
(2) The Company recorded $3,828,157 (2011 – $2,074,308 of which $344,252 was capitalized) related to the delivery of 5,278 (2011 – 2,852) gold ounces to Sandstorm, which consists of $1,847,342 (2011 - $998,166) received in cash and $1,980,815 (2011 - $1,076,142) relating to amortization of deferred revenue (note 8).
(3) Prior to commencement of commercial production, April 1, 2011, proceeds from the sale of silver and gold were capitalized to the Santa Elena Mine (note 6).
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 TSX.V:SVL
13. COST OF SALES
| | | Three months ended | | | Nine months ended | |
| | | September 30, 2012 | | | September 30, 2011 | | | September 30, 2012 | | | September 30, 2011 | |
| Mining | | $ | 2,165,203 | | | $ | 1,991,953 | | | $ | 7,401,045 | | | $ | 4,468,402 | |
| Crushing | | | 929,284 | | | | 1,035,014 | | | | 2,590,817 | | | | 2,627,392 | |
| Processing | | | 975,567 | | | | 854,279 | | | | 2,653,886 | | | | 2,093,742 | |
| General and administrative | | | 900,767 | | | | 741,251 | | | | 2,360,706 | | | | 2,056,817 | |
| | | | 4,970,821 | | | | 4,622,497 | | | | 15,006,454 | | | | 11,246,353 | |
Capitalized to Santa Elena Mine (1) | | | - | | | | - | | | | - | | | | (2,708,439 | ) |
| Inventory adjustment | | | (731,048 | ) | | | (969,610 | ) | | | (1,855,263 | ) | | | (2,775,226 | ) |
| | | $ | 4,239,773 | | | $ | 3,652,887 | | | $ | 13,151,191 | | | $ | 5,762,688 | |
(1) Prior to April 1, 2011, mine operating expenses were capitalized to the Santa Elena Mine (note 6).
14. GENERAL AND ADMINISTRATIVE
| | | Three months ended | | | Nine months ended | |
| | | September 30, 2012 | | | September 30, 2011 | | | September 30, 2012 | | | September 30, 2011 | |
| General exploration | | $ | 28,550 | | | $ | 21,622 | | | $ | 94,800 | | | $ | 93,878 | |
| Remuneration (note 16) | | | 379,081 | | | | 296,351 | | | | 1,127,791 | | | | 731,325 | |
| Professional fees (note 16) | | | 104,803 | | | | 66,379 | | | | 400,534 | | | | 345,308 | |
| Other corporate expenses | | | 456,978 | | | | 338,689 | | | | 1,426,406 | | | | 827,165 | |
| Mexico corporate expenses | | | 101,056 | | | | 192,015 | | | | 413,012 | | | | 390,208 | |
| | | $ | 1,070,468 | | | $ | 915,056 | | | $ | 3,462,543 | | | $ | 2,387,884 | |
15. EARNINGS (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per share:
| | Three months ended | | | Nine months ended | |
| | September 30, 2012 | | | September 30, 2011 | | | September 30, 2012 | | | September 30, 2011 | |
| Numerator | | | | | | | | | | | | |
| Comprehensive earnings (loss) for the period | | $ | 2,213,154 | | | $ | 81,856 | | | $ | 17,722,141 | | | $ | (1,949,626 | ) |
| | |
| Denominator | | | | | | | | | | | | | | | | |
| For basic - weighted average number of common shares outstanding | | | 89,737,466 | | | | 85,931,326 | | | | 89,111,270 | | | | 76,296,565 | |
| Effect of dilutive stock options and warrants | | | 4,502,453 | | | | 3,823,029 | | | | 4,502,453 | | | | - | |
| For diluted - adjusted weighted average number of common shares outstanding | | | 94,239,919 | | | | 89,754,355 | | | | 93,613,723 | | | | 76,296,565 | |
| | |
| Earnings (loss) per common share | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.03 | | | $ | 0.00 | | | $ | 0.20 | | | $ | (0.03 | ) |
| Diluted | | $ | 0.02 | | | $ | 0.00 | | | $ | 0.19 | | | $ | (0.03 | ) |
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 TSX.V:SVL
16. RELATED PARTY TRANSACTIONS
The Company has entered into the following transactions with related parties during the nine months ended September 30, 2012:
Legal Fees
Paid or accrued $140,237 (2011 - $102,516) for legal fees, which were included in professional fees and $Nil (2011 - $109,358) for share issuance costs to a law firm of which an officer of the Company is a partner.
Key Management Compensation
| | | 2012 | | | 2011 | |
| Salaries and short-term benefits | | $ | 593,717 | | | $ | 517,765 | |
| Directors' fees | | | 64,632 | | | | 48,580 | |
| Share-based payments | | | 394,537 | | | | 731,350 | |
| | | $ | 1,052,886 | | | $ | 1,297,695 | |
Other transactions
Paid $107,238 (2011 - $62,860) for technical and administrative services to close members of the families of individuals who are part of key management personnel.
17. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
Supplemental disclosure of significant non-cash transactions is provided in the table:
| | | 2012 | | | 2011 | |
| Non-cash investing and financing activities | | | | | | |
| Capitalized to property, plant and equipment | | | | | | |
| Accounts payable and accrued liabilities | | $ | 1,060,561 | | | $ | - | |
| Sales of gold | | $ | - | | | $ | 1,045,993 | |
| Finance charges | | $ | - | | | $ | 95,023 | |
| | |
| Capitalized to exploration and evaluation assets | | | | | | | | |
| Accounts payable and accrued liabilities | | $ | 903,121 | | | $ | 69,740 | |
18. COMMITMENTS
The Company has entered into a number of contractual commitments related to design and acquisition of plant and equipment for the Santa Elena Expansion Project. At September 30, 2012, these commitments totaled approximately $2,100,000 ($1,400,000 paid), all of which are expected to fall due over the next 12 months.
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 TSX.V:SVL
19. FINANCIAL INSTRUMENTS
The Company is exposed to various financial instrument risks and assesses the impact and likelihood of this exposure. These risks include liquidity risk, credit risk, foreign currency risk, interest rate risk and price risk. Where material, these risks are reviewed and monitored by the Board of Directors.
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives. The Company maintains adequate cash balances and credit facilities in order to meet short and long term business requirements, after taking into account cash flows from operations, and believes that these sources will be sufficient to cover the likely short and long term cash requirements. The Company’s cash is invested in business accounts with quality financial institutions and is available on demand for the Company’s programs, and is not invested in any asset backed commercial paper.
Credit risk is the risk of potential loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations. The Company’s credit risk is primarily attributable to its liquid financial assets including cash and cash equivalents and taxes receivable. The Company limits exposure to credit risk on liquid financial assets through maintaining its cash and cash equivalents and short term investments with high-credit quality financial institutions. Receivables are due primarily from government agencies in Canada and Mexico.
The Company operates in Canada, United States and Mexico, and is therefore exposed to foreign exchange risk arising from transactions denominated in a foreign currency. The operating results and the financial position of the Company are reported in United States dollars. The fluctuations of the operating currencies in relation to the United States dollar will, consequently, have an impact upon the reporting results of the Company, and may also affect the value of the Company’s assets and liabilities. The Company has not entered into any agreements or purchased any instruments to hedge possible currency risks at this time.
At September 30, 2012, the Company is exposed to foreign currency risk through the following financial assets and liabilities held in the following United States dollar equivalents:
| | | Canadian Dollar | | | US Dollar | | | Mexican Peso | | | | Total | |
| Cash and cash equivalents and designated cash | | $ | 1,633,732 | | | $ | 36,160,784 | | | $ | 92,649 | | | $ | 37,887,165 | |
| Amounts receivable | | | 253,106 | | | | 126,000 | | | | 1,734 | | | | 380,840 | |
| Taxes receivable | | | - | | | | - | | | | 5,456,900 | | | | 5,456,900 | |
| Total Assets | | | 1,886,838 | | | | 36,286,784 | | | | 5,551,283 | | | | 43,724,905 | |
| |
| Amounts payable and accrued liabilities | | | 760,597 | | | | 1,518,278 | | | | 1,433,862 | | | | 3,712,737 | |
| Taxes payable | | | - | | | | - | | | | 4,195,388 | | | | 4,195,388 | |
| Derivative instruments | | | - | | | | 24,824,172 | | | | - | | | | 24,824,172 | |
| Total Liabilities | | | 760,597 | | | | 26,342,450 | | | | 5,629,250 | | | | 32,732,297 | |
| |
| Net Assets | | $ | 1,126,241 | | | $ | 9,944,334 | | | $ | (77,967 | ) | | $ | 10,992,608 | |
Based on the above net exposures at September 30, 2012, a 10% appreciation (depreciation) of the United States dollar against the Canadian dollar and Mexican Peso, with all other variables held constant, would result in approximately a $105,000 decrease (increase) in the Company’s comprehensive earnings for the period.
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 TSX.V:SVL
19. FINANCIAL INSTRUMENTS (continued)
At December 31, 2011, the Company was exposed to foreign currency risk through the following financial assets and liabilities held in the following United States dollar equivalents:
| | | Canadian Dollar | | | US Dollar | | | Mexican Peso | | | Total | |
| Cash and cash equivalents and designated cash | | $ | 8,298,127 | | | $ | 2,849,156 | | | $ | 42,991 | | | $ | 11,190,274 | |
| Short term investments | | | 14,749,500 | | | | - | | | | - | | | | 14,749,500 | |
| Amounts receivable | | | 541,104 | | | | - | | | | - | | | | 541,104 | |
| Taxes receivable | | | - | | | | - | | | | 3,442,815 | | | | 3,442,815 | |
| Total Assets | | | 23,588,731 | | | | 2,849,156 | | | | 3,485,806 | | | | 29,923,693 | |
| |
| Amounts payable and accrued liabilities | | | 387,275 | | | | 1,785,234 | | | | 497,378 | | | | 2,669,887 | |
| Taxes payable | | | - | | | | - | | | | 985,000 | | | | 985,000 | |
| Derivative instruments | | | - | | | | 23,864,207 | | | | - | | | | 23,864,207 | |
| Total Liabilities | | | 387,275 | | | | 25,649,441 | | | | 1,482,378 | | | | 27,519,094 | |
| |
| Net Assets (Liabilities) | | $ | 23,201,456 | | | $ | (22,800,285 | ) | | $ | 2,003,428 | | | $ | 2,404,599 | |
d. Interest Rate Risk
The Company’s exposure to interest rate risk arises from the interest rate impact on its cash and cash equivalents and short term investments. The Company’s practice has been to invest cash at floating rates of interest, in cash equivalents and short term investments, in order to maintain liquidity, while achieving a satisfactory return for shareholders. There is minimal risk that the Company would recognize any loss as a result of a decrease in the fair value of any guaranteed bank investment certificates as they are held with large and stable financial institutions. At September 30, 2012, with all other variables unchanged, a 1 percentage point change in interest rates would not have a significant impact on the Company’s comprehensive earnings for the period.
e. Price Risk
The Company is exposed to price risk with respect to commodity and equity prices. Equity price risk is defined as the potential adverse impact on the Company’s earnings due to movements in individual equity prices or general movements in the level of the stock market. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The commodity price risk could affect the completion of future equity transactions such as equity offerings and the exercise
of stock options and warrants. The Company closely monitors commodity prices of precious metals, individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company. In order to mitigate the commodity price risk, the Company as a requirement under the Project Loan entered into a gold price protection program (note 10).
Financial instruments carrying value and fair value
The Company’s financial instruments consist of cash and cash equivalents, short term investments, amounts receivable, taxes receivable accounts payable and accrued liabilities and derivative instruments.
The fair values of amounts receivable and accounts payable and accrued liabilities approximate their carrying values due to the short term to maturities of these financial instruments.
Financial instruments that are measured subsequent to initial recognition at fair value are grouped into a hierarchy based on the degree to which the fair value is observable. Level 1 fair value measurements are derived from unadjusted, quoted prices in active markets for identical assets or liabilities. Level 2 fair value measurements are derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability directly or indirectly. Level 3 fair value measurements are derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.
The Company’s cash and cash equivalents and short term investments are classified as Level 1 financial instruments and derivative instruments are classified as Level 2 financial instruments.
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 TSX.V:SVL
20. INCOME TAXES
The composition of the Company’s deferred tax assets and liabilities are as follows:
| | | September 30, 2012 | | | December 31, 2011 | |
| Deferred Tax Assets (Liabilities) | | | | | | |
| Exploration and evaluation assets | | $ | 3,716,000 | | | $ | 3,628,000 | |
| Property, plant and equipment | | | (4,560,000 | ) | | | (3,992,000 | ) |
| Net defered tax liabilities | | $ | (844,000 | ) | | $ | (364,000 | ) |
21. SEGMENTED INFORMATION
The Company has three reportable segments, those being the mine operations at Santa Elena, Mexico; mine exploration and evaluation projects at La Joya and Cruz de Mayo, Mexico; and Corporate. The Corporate segment is responsible for the evaluation and acquisition of new mineral properties, management of cash and cash equivalents, regulatory reporting and general corporate activities conducted in Canada and Mexico.
Geographic segment details are as follows:
| September 30, 2012 | | Canada | | | Mexico | | | Total | |
| Revenue | | $ | - | | | $ | 52,276,353 | | | $ | 52,276,353 | |
| Property, plant and equipment | | | 29,850 | | | | 35,961,898 | | | | 35,991,748 | |
| Exploration and evaluation assets | | | - | | | | 9,399,928 | | | | 9,399,928 | |
| | |
| December 31, 2011 | | | | | | | | | | | | |
| Revenue | | $ | - | | | $ | 41,870,124 | | | $ | 41,870,124 | |
| Property, plant and equipment | | | 41,231 | | | | 32,807,667 | | | | 32,848,898 | |
| Exploration and evaluation assets | | | - | | | | 4,352,304 | | | | 4,352,304 | |
Segmented information is presented as follows:
| September 30, 2012 | | Santa Elena | | | Other Mexico | | | Corporate | | | Total | |
| | | | | | Projects | | | | | | | |
| Revenue | | $ | 52,276,353 | | | $ | - | | | $ | - | | | $ | 52,276,353 | |
| Cost of Sales | | | (13,151,191 | ) | | | - | | | | - | | | | (13,151,191 | ) |
| Depletion, depreciation and accretion | | | (4,397,725 | ) | | | - | | | | (48,769 | ) | | | (4,446,494 | ) |
| Mine operating earnings | | | 34,727,437 | | | | - | | | | (48,769 | ) | | | 34,678,668 | |
| Other income (expenses) | | | (5,821,530 | ) | | | - | | | | (3,867,420 | ) | | | (9,688,950 | ) |
| Net income (loss) before taxes for the period | | $ | 28,905,907 | | | $ | - | | | $ | (3,916,189 | ) | | $ | 24,989,718 | |
| | |
| Property, Plant and Equipment | | $ | 35,961,898 | | | $ | - | | | $ | 29,850 | | | $ | 35,991,748 | |
| Exploration and evaluation assets | | $ | - | | | $ | 9,399,928 | | | $ | - | | | $ | 9,399,928 | |
| | |
| September 30, 2011 | | Santa Elena | | | Other Mexico | | | Corporate | | | Total | |
| | | | | | | Projects | | | | | | | | | |
| Revenue | | $ | 23,611,775 | | | $ | - | | | $ | - | | | $ | 23,611,775 | |
| Cost of Sales | | | (5,762,688 | ) | | | - | | | | - | | | | (5,762,688 | ) |
| Depletion, depreciation and accretion | | | (1,850,539 | ) | | | - | | | | (7,265 | ) | | | (1,857,804 | ) |
| Mine operating earnings | | | 15,998,548 | | | | - | | | | (7,265 | ) | | | 15,991,283 | |
| Other income (expenses) | | | (12,796,848 | ) | | | - | | | | (3,601,475 | ) | | | (16,398,323 | ) |
| Net income (loss) for the period | | $ | 3,201,700 | | | $ | - | | | $ | (3,608,740 | ) | | $ | (407,040 | ) |
| | |
| Property, Plant and Equipment | | $ | 32,038,356 | | | $ | - | | | $ | 6,183 | | | $ | 32,044,539 | |
| Exploration and evaluation assets | | $ | - | | | $ | 3,182,449 | | | $ | - | | | $ | 3,182,449 | |
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in United States Dollars)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 and 2011 TSX.V:SVL
22. SUBSEQUENT EVENTS
The following events occurred subsequent to September 30, 2012:
| a) | On October 30, 2012, the Company completed a prospectus offering for total gross proceeds of CAD$34,500,000. The Company issued a total of 13,529,750 common shares of the Company at a price of CAD$2.55 per share. The offering was underwritten by Dundee Securities Ltd. and Canaccord Genuity Corp. and included ROTH Capital Partners, LLC (together, the “Underwriters”). The Underwriters received a cash commission equal to 5.5% of the gross proceeds of the offering. |
| b) | The Company paid out the remaining 29,000 ounces of gold on the Hedging Facility. The payout totaling $23,254,800 was financed from the offering, and reflects an effective settlement price of $1,728 per ounce of gold inclusive of all transaction costs. |
| c) | 2,500,000 warrants were exercised at CAD$0.90 per share for cash proceeds of $2,264,490 and 51,000 incentive stock options were exercised at CAD$1.60 per share for cash proceeds of $83,200. |
| d) | The Company has entered into contractual commitments related to design and acquisition of plant and equipment for the Santa Elena Expansion Project totaling approximately $3,400,000 ($525,000 paid). |
