Exhibit 99.11
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine month periods ended September 30, 2012 and August 31, 2011
(Unaudited – Expressed in thousands of United States dollars, except for per share and per ounce amounts)
| RIO ALTO MINING LIMITED |
| CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
| As at September 30, 2012 and December 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars) |
| Notes | September 30, | December 31, | ||||
| 2012 | 2011 | |||||
| Assets | ||||||
| Current | ||||||
Cash and cash equivalents | 5 | $ | 67,166 | $ | 25,907 | |
Accounts receivable | 6 | 1,606 | 1,158 | |||
Other financial assets | 7 | 762 | - | |||
Inventory | 8 | 14,669 | 14,907 | |||
Prepaid expenses | 443 | 1,099 | ||||
IGV receivable | 47,894 | 25,635 | ||||
| 132,540 | 68,706 | |||||
| Restricted cash | 9 | 3,760 | - | |||
| Deferred tax asset | 4,191 | 1,950 | ||||
| Plant and equipment, net | 10 | 105,871 | 62,082 | |||
| Mineral properties and development costs, net | 11 | 73,913 | 63,796 | |||
| Total Assets | $ | 320,275 | $ | 196,534 | ||
| Liabilities and equity | ||||||
| Current | ||||||
Accounts payable and accrued liabilities | 12 | $ | 45,959 | $ | 27,481 | |
Taxes payable | 13 | 37,044 | 990 | |||
Deferred revenue | 14 | - | 4,251 | |||
Derivative liability | 14 | 2,080 | 934 | |||
| 85,083 | 33,656 | |||||
| Long-term debt | 15 | 3,210 | 3,000 | |||
| Asset retirement obligation | 16 | 16,655 | 15,685 | |||
| Deferred revenue | 14 | 14,932 | 25,259 | |||
| Derivative liability | 14 | 2,172 | 3,625 | |||
| 122,052 | 81,225 | |||||
| Equity | ||||||
Share capital | 17 | 136,730 | 127,537 | |||
Share option and warrant reserve | 17 | 10,517 | 10,420 | |||
Translation reserve | 4,522 | 4,522 | ||||
Retained earnings (deficit) | 46,454 | (27,170 | ) | |||
| 198,223 | 115,309 | |||||
| Total Equity and Liabilities | $ | 320,275 | $ | 196,534 |
Subsequent events (Note 21)
See accompanying notes to the condensed interim consolidated financial statements
| RIO ALTO MINING LIMITED |
| CONSOLIDATED STATEMENTS OF NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| For the three and nine month periods ended September 30, 2012 and August 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars, except for per share amounts) |
| For the three months ended | For the nine months ended | ||||||||||||
| September | August | September | August | ||||||||||
| Notes | 30, 2012 | 31, 2011 | 30, 2012 | 31, 2011 | |||||||||
| Sales | 18 | $ | 60,924 | $ | - | $ | 234,307 | $ | - | ||||
| Cost of sales | (26,545 | ) | - | (82,736 | ) | - | |||||||
| Amortization | (4,704 | ) | - | (16,221 | ) | - | |||||||
| Gross profit | 29,675 | - | 135,350 | - | |||||||||
| General and administrative expenses | 19 | (2,191 | ) | (1,352 | ) | (6,540 | ) | (6,365 | ) | ||||
| Exploration and evaluation expense | (4,370 | ) | - | (5,701 | ) | (2 | ) | ||||||
| Operating earnings (loss) | 23,114 | (1,352 | ) | 123,109 | (6,367 | ) | |||||||
| Unrealized gain (loss) on derivative liability | 14 | (1,017 | ) | (8,508 | ) | 307 | (6,859 | ) | |||||
| Accretion of asset retirement obligation | 16 | (414 | ) | (377 | ) | (1,245 | ) | (377 | ) | ||||
| Foreign exchange loss | (372 | ) | (28 | ) | (280 | ) | (419 | ) | |||||
| Other gain (loss) | 155 | 2 | (23 | ) | (5 | ) | |||||||
| Income (loss) before income taxes | 21,466 | (10,263 | ) | 121,868 | (14,027 | ) | |||||||
| Provision for income taxes | (10,662 | ) | - | (48,244 | ) | (201 | ) | ||||||
| Income and comprehensive income (loss) | $ | 10,804 | $ | (10,263 | ) | $ | 73,624 | $ | (14,228 | ) | |||
| Basic earnings (loss) per share | $ | 0.06 | $ | (0.06 | ) | $ | 0.43 | $ | (0.09 | ) | |||
| Diluted earnings (loss) per share | $ | 0.06 | $ | (0.06 | ) | $ | 0.41 | $ | (0.09 | ) | |||
| Weighted average number of common shares outstanding - basic | 173,863,731 | 168,653,587 | 172,298,462 | 163,165,238 | |||||||||
| Weighted average number of common shares outstanding -diluted | 183,057,804 | 168,653,587 | 181,492,535 | 163,165,238 | |||||||||
See accompanying notes to the condensed interim consolidated financial statements
| RIO ALTO MINING LIMITED |
| INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the three and nine month periods ended September 30, 2012 and August 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars) |
| Three months ended | Nine months ended | ||||||||||||
| September 30, | August 30, | September 30, | August 30, | ||||||||||
| Notes | 2012 | 2011 | 2012 | 2011 | |||||||||
| OPERATING ACTIVITIES | |||||||||||||
| Net income (loss) for the period | $ | 10,804 | $ | (10,263 | ) | $ | 73,624 | $ | (14,228 | ) | |||
| Reclamation expenditures | (275 | ) | (275 | ) | - | ||||||||
| Items not affecting cash: | - | ||||||||||||
Amortization | 4,769 | 21 | 16,320 | 52 | |||||||||
Deferred revenue | (1,148 | ) | - | (14,578 | ) | - | |||||||
Share-based compensation | 1,401 | 239 | 3,764 | 3,217 | |||||||||
Deferred financing costs | - | - | - | 24 | |||||||||
Unrealized loss (gain) on derivative liability | 1,017 | 8,508 | (307 | ) | 6,859 | ||||||||
Accretion expense | 414 | 377 | 1,245 | 377 | |||||||||
Deferred income taxes | 136 | - | (2,241 | ) | 201 | ||||||||
| Changes in non-cash working capital items | 5 | 17,197 | (5,975 | ) | 31,534 | (9,493 | ) | ||||||
| Net cash provided by (used for) operating activities | 34,315 | (7,093 | ) | 109,086 | (12,991 | ) | |||||||
| FINANCING ACTIVITIES | |||||||||||||
| Proceeds from issuing share capital | - | 78 | - | 63,771 | |||||||||
| Proceeds from exercise of options and warrants | 17 | 1,497 | - | 5,526 | 4,729 | ||||||||
| Proceeds from gold prepayment | - | - | 19,500 | ||||||||||
| Share issue costs | - | - | - | (4,887 | ) | ||||||||
| Net cash provided by financing activities | 1,497 | 78 | 5,526 | 83,113 | |||||||||
| INVESTING ACTIVITIES | |||||||||||||
| Restricted cash | 9 | (3,760 | ) | - | (3,760 | ) | - | ||||||
| Purchase of property, plant and equipment | 10 | (28,202 | ) | (5,463 | ) | (53,905 | ) | (24,121 | ) | ||||
| Mineral property expenditures | 11 | (5,249 | ) | (4,615 | ) | (15,045 | ) | (5,859 | ) | ||||
| Investment in Duran Ventures | (762 | ) | - | (762 | ) | - | |||||||
| Investment in La Arena | - | - | - | (18,085 | ) | ||||||||
| Acquisition of La Arena | - | - | - | (48,847 | ) | ||||||||
| Proceeds from sales of equipment | 119 | - | 119 | - | |||||||||
| Cash acquired in pre-production sales | 8,140 | 8,140 | |||||||||||
| Cash acquired in La Arena acquisition | - | - | - | 5,534 | |||||||||
| Net cash provided by (used for) investing activities | (37,854 | ) | (1,938 | ) | (73,353 | ) | (83,238 | ) | |||||
| Increase (decrease) in cash and cash equivalents during the period | (2,042 | ) | (8,953 | ) | 41,259 | (13,116 | ) | ||||||
| Cash and cash equivalents, beginning of the period | 69,208 | 11,526 | 25,907 | 15,216 | |||||||||
| Effect of foreign exchange on cash and cash equivalents | - | - | - | 473 | |||||||||
| Cash and cash equivalents, end of the period | $ | 67,166 | $ | 2,573 | $ | 67,166 | $ | 2,573 | |||||
| Taxes payable (Note 13) | |||||||||||||
| Supplemental cash flow disclosures (Note 5) |
See accompanying notes to the condensed interim consolidated financial statements
| RIO ALTO MINING LIMITED |
| INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| (Unaudited - Expressed in thousands of United States dollars, except for per share amounts) |
| Share capital | |||||||||||||||||||
| Share | |||||||||||||||||||
| Option and | Retained | ||||||||||||||||||
| Subscription | Warrant | Translation | Earnings | ||||||||||||||||
| Note | Shares | Amount | receipts | Reserve | Reserve | (Deficit) | Total | ||||||||||||
| Balance, November 30, 2010 | 132,162,208 | $ | 62,146 | $ | 1,282 | $ | 3,519 | $ | 400 | $ | (22,658 | ) | $ | 44,689 | |||||
| Shares issued for private placements | 17 | 32,499,682 | 64,975 | - | - | - | - | 64,975 | |||||||||||
| Share issue costs related to private placements | 17 | - | (4,173 | ) | - | - | - | - | (4,173 | ) | |||||||||
| Fair value of broker warrants for private placement | 17 | - | (2,087 | ) | - | 2,087 | - | - | - | ||||||||||
| Subscription receipts on conversion of warrants | - | - | (1,282 | ) | - | - | - | (1,282 | ) | ||||||||||
| Shares issued on conversion of warrants | 3,633,192 | 4,602 | - | - | - | - | 4,602 | ||||||||||||
| Shares issued on exercise of options | 455,000 | 713 | - | (545 | ) | - | - | 168 | |||||||||||
| Share-based compensation | - | - | - | 3,217 | - | - | 3,217 | ||||||||||||
| Other comprehensive income | - | - | - | - | 4,122 | - | 4,122 | ||||||||||||
| Net loss | - | - | - | - | - | (14,228 | ) | (14,228 | ) | ||||||||||
| Balance, August 31, 2011 | 168,750,082 | $ | 126,176 | $ | - | $ | 8,278 | $ | 4,522 | $ | (36,886 | ) | $ | 102,090 | |||||
| Balance, December 31, 2011 | 169,746,352 | $ | 127,537 | $ | - | $ | 10,420 | $ | 4,522 | $ | (27,170 | ) | $ | 115,309 | |||||
| Shares issued on conversion of warrants | 17 | 2,720,610 | 4,563 | - | (1,669 | ) | - | - | 2,894 | ||||||||||
| Shares issued on exercise of options | 17 | 2,108,897 | 4,630 | - | (1,998 | ) | - | - | 2,632 | ||||||||||
| Share-based compensation | 17 | - | - | - | 3,764 | - | - | 3,764 | |||||||||||
| Net income | - | - | - | - | 73,624 | 73,624 | |||||||||||||
| Balance, September 30, 2012 | 174,575,859 | $ | 136,730 | $ | - | $ | 10,517 | $ | 4,522 | $ | 46,454 | $ | 198,223 | ||||||
See accompanying notes to the condensed interim consolidated financial statements
| RIO ALTO MINING LIMITED |
| NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| For the three and nine month periods ended September 30, 2012 and August 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars, except for per share and per ounce amounts) |
| 1. | NATURE OF OPERATIONS |
Rio Alto Mining Limited is the parent company of a consolidated group (“Rio Alto” or the "Company"). Rio Alto Mining Limited is incorporated under the laws of the Province of Alberta, with its registered office at Suite 1000 - 250 2nd Street S.W., Calgary, Alberta, T2P 0C1 and its head office at Suite 1950 - 400 Burrard Street, Vancouver, BC, V6C 3A6. On February 9, 2011 the Company completed the purchase of 100 per cent of La Arena S.A. (“La Arena”). Throughout the year ended May 31, 2011 La Arena was in the development stage. The La Arena Gold Oxide Mine commenced preproduction in May 2011 and achieved commercial production levels at the end of December 2011.
In November 2011, Rio Alto Mining Limited changed its financial and fiscal year end from May 31 to December 31. The change was made to allow it to align its year end with that of La Arena. The Company’s consolidated statements of financial position are as at September 30, 2012 and December 31, 2011 and the condensed interim consolidated statements of income and comprehensive income and statements of cash flows are for the three and nine month periods ended September 30, 2012 compared to the three and nine month periods ended August 31, 2011. The Company’s interim consolidated statements of changes in equity are for the nine month period ended September 30, 2012 compared to the nine month period ended August 31, 2011.
The condensed interim consolidated financial statements are presented in United States dollars (“USD”), which is the functional currency of the parent company. The functional currency of La Arena is also USD.
| 2. | BASIS OF PREPARATION |
These condensed interim consolidated financial statements are prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all of the information required for annual financial statements and should be read in conjunction with the consolidated financial statements for the seven-month financial year ended and as at December 31, 2011, which are available at www.sedar.com.
The accounting policies used for the preparation of these condensed interim consolidated financial statements are the same as those expected to be used to prepare the consolidated financial statements for the year ended December 31, 2012. Certain comparative figures in prior periods have been reclassified to conform to presentation adopted in the current period.
The Board of Directors approved these condensed interim consolidated financial statements on November 13, 2012.
| 3. | SIGNIFICANT ACCOUNTING POLICIES |
The accounting policies applied by the Company in these condensed interim consolidated financial statements are the same as those applied by the Company in its consolidated financial statements as at and for the financial year ended December 31, 2011, except for the following disclosure requirements adopted in the current financial period:
Financial instruments disclosure
The IASB issued amendments to IFRS 7 - Financial Instruments: Disclosures that expand the disclosure requirements in relation to transferred financial assets.
There was no significant impact on these condensed interim consolidated financial statements as a result of adopting these amendments.
| RIO ALTO MINING LIMITED |
| NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| For the three and nine month periods ended September 30, 2012 and August 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars, except for per share and per ounce amounts) |
| 4. | SIGNIFICANT JUDGEMENTS, ESTIMATES AND ASSUMPTIONS |
When preparing interim financial statements, management makes a number of judgements, estimates and assumptions in the recognition and measurement of assets, liabilities, income and expenses. Actual financial results may not equal the estimated results due to differences between estimated or anticipated events and actual events. The judgements, estimates and assumptions made in the preparation of these condensed interim consolidated financial statements were similar to those made in the preparation of the Company’s annual financial statements for the year ended December 31, 2011. The only significant exception is the estimate of the provision for income taxes, which is determined in these interim financial statements by using the estimated average annual effective income tax rates applied to the pre-tax income of the interim period.
| 5. | SUPPLEMENTAL CASH FLOW INFORMATION |
| a. | Cash and cash equivalents, expressed in USD, include cash in bank accounts and term deposits as follows: |
| September 30, 2012 | December 31, 2011 | |||||
| USD | $ | 61,790 | $ | 24,600 | ||
| Canadian dollars | 2,360 | 416 | ||||
| Peruvian Nuevo Sol | 3,016 | 891 | ||||
| $ | 67,166 | $ | 25,907 |
| b. | Changes in non-cash working capital include the following: |
| For the three months ended | For the nine months ended | |||||||||||
| September 30, 2012 | August 31, 2011 | September 30, 2012 | August 31, 2011 | |||||||||
| (Increase) decrease in accounts receivable | $ | 12,203 | $ | (281 | ) | $ | (448 | ) | $ | (698 | ) | |
| Decrease in promissory notes receivable | - | - | - | 43 | ||||||||
| (Increase) decrease in deferred financing costs | 210 | - | 210 | (24 | ) | |||||||
| Decrease in inventory | (2,097 | ) | (5,710 | ) | (1,158 | ) | (9,620 | ) | ||||
| Decrease in prepaid expenses | 142 | 110 | 656 | 4,976 | ||||||||
| Increase in IGV receivable | (9,457 | ) | (2,996 | ) | (22,258 | ) | (6,831 | ) | ||||
| Increase in accounts payable and accrued liabilities | 8,896 | 2,902 | 18,478 | 2,661 | ||||||||
| Increase in taxes payable | 7,300 | - | 36,054 | - | ||||||||
| $ | 17,197 | $ | (5,975 | ) | $ | 31,534 | $ | (9,493 | ) | |||
| c. | Non cash transactions included in the statements of cash flow include: | |
| i. | Included in inventory on September 30, 2012 was non cash cost amortization of $1,518. | |
| ii. | Included in plant and equipment on September 30, 2012 were non cash additions of $197. |
Refer to Note 13 for tax payments made during the nine month period ended September 30, 2012.
| RIO ALTO MINING LIMITED |
| NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| For the three and nine month periods ended September 30, 2012 and August 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars, except for per share and per ounce amounts) |
| 6. | ACCOUNTS RECEIVABLE |
Accounts receivable consist of the following:
| September 30, 2012 | December 31, 2011 | |||||
| Value-added tax receivable | $ | 78 | $ | 49 | ||
| Peru capital tax receivable | 1,001 | 516 | ||||
| Other receivables | 147 | 213 | ||||
| Receivable from a related party | 380 | 380 | ||||
| $ | 1,606 | $ | 1,158 |
| 7. | OTHER FINANCIAL ASSETS |
| September 30, 2012 | December 31, 2011 | |||||
| Investment in shares | $ | 712 | $ | - | ||
| Investment in warrants | 50 | - | ||||
| $ | 762 | $ | - |
The Company holds 5,000,000 units of Duran Ventures Inc. (“Duran”). The units consist of one common share of Duran and one half of a Series A Warrant and one half of a Series B Warrant (the “Duran Units”). The Duran Units are held for investment purposes, but may be sold in the near term and are accounted for at fair value. Any gains or losses arising from periodic fair value adjustments are reflected in the statement of profit and loss. A whole Series A Warrant may be converted into one common share upon payment of Cdn$0.25 at any time until the date that is the earlier of (i) the date that is eighteen months after September 28, 2012, and (ii) the date that is thirty days after the date notice is given to Rio Alto that the common shares have closed at or above Cdn$0.25 for a period of twenty consecutive trading days on the TSX Venture Exchange (the “TSXV”) so long as such period occurs twelve months after September 28, 2012. A whole Series B Warrant may be converted into one common share upon payment of Cdn$0.35 at any time until the date that is the earlier of (i) the date that is thirty months after September 28, 2012 and (ii) the date that is thirty days after notice is given to Rio Alto that the common shares have closed at or above Cdn$0.35 for a period of twenty consecutive trading days on the TSXV so long as such period occurs twenty four months after September 28, 2012.
Rio Alto may earn up to a 70% interest in Duran’s Minasnioc Gold-Silver Property and a 65% interest in Duran’s Ichuña Copper-Silver Property. In order to complete its earn-in option for the Minasnioc and Ichuña properties Rio Alto must exercise 100% of the warrants included in the Duran Units.
As at the date of the approval of these condensed interim consolidated financial statements, the letter of intent that the Company has entered into with Duran to complete the above described transaction is still in place.
| RIO ALTO MINING LIMITED |
| NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| For the three and nine month periods ended September 30, 2012 and August 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars, except for per share and per ounce amounts) |
| 8. | INVENTORY |
Inventory consists of the following:
| September 30, 2012 | December 31, 2011 | |||||
| Doré | $ | 7,093 | $ | 772 | ||
| Work-in-progress | 4,329 | 917 | ||||
| Ore on leach pad | 475 | 2,257 | ||||
| Ore in stockpile | - | 8,701 | ||||
| Supplies inventory | 2,772 | 2,260 | ||||
| $ | 14,669 | $ | 14,907 |
| 9. | RESTRICTED CASH |
Restricted cash consists of a $3,760 deposit made to secure a letter of credit in favour of the Ministry of Energy and Mines in Peru as a partial guarantee of its mine closure obligations (Note 16). The total amount of $3,760 consists of two deposits maturing in less than one year, which earn interest at 1.5% per annum. These funds will be reinvested upon maturity and kept on deposit until the mine closure.
| 10. | PLANT AND EQUIPMENT |
Plant and equipment consists of:
| Construction- in-Process | Heap leach pad and pond | Land | Mobile and field equipment | Plant and equipment | Other mine assets | Other assets | Total | |||||||||||||||
| Costs | ||||||||||||||||||||||
| December 31, 2011 | $ | 20,283 | $ | 29,899 | $ | 3,965 | $ | 2,690 | $ | 7,987 | $ | 2,559 | $ | 612 | $ | 67,995 | ||||||
| Additions | 28,683 | - | 13,916 | 1,425 | 7,395 | 3,001 | 266 | 54,686 | ||||||||||||||
| September 30, 2012 | $ | 48,966 | $ | 29,899 | $ | 17,881 | $ | 4,115 | $ | 15,382 | $ | 5,560 | $ | 878 | $ | 122,681 | ||||||
| Accumulated amortization | ||||||||||||||||||||||
| December 31, 2011 | $ | - | $ | (4,288 | ) | $ | - | $ | (159 | ) | $ | (1,198 | ) | $ | (155 | ) | $ | (113 | ) | $ | (5,913 | ) |
| Amortization for the period | (8,363 | ) | - | (180 | ) | (2,022 | ) | (229 | ) | (103 | ) | (10,897 | ) | |||||||||
| September 30, 2012 | $ | - | $ | (12,651 | ) | $ | - | $ | (339 | ) | $ | (3,220 | ) | $ | (384 | ) | $ | (216 | ) | $ | (16,810 | ) |
| Net book value | ||||||||||||||||||||||
| December 31, 2011 | $ | 20,283 | $ | 25,611 | $ | 3,965 | $ | 2,531 | $ | 6,789 | $ | 2,404 | $ | 499 | $ | 62,082 | ||||||
| September 30, 2012 | $ | 48,966 | $ | 17,248 | $ | 17,881 | $ | 3,776 | $ | 12,162 | $ | 5,176 | $ | 662 | $ | 105,871 |
Other mine assets consist of the cost of camp office and accommodation. Other assets consist of office equipment and leasehold improvements.
| RIO ALTO MINING LIMITED |
| NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| For the three and nine month periods ended September 30, 2012 and August 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars, except for per share and per ounce amounts) |
| 11. | MINERAL PROPERTIES AND DEVELOPMENT COSTS |
La Arena has two separate deposits, a gold oxide deposit (“Phase I”) and a copper/gold sulphide deposit (“Phase II”). The Company is mining the gold oxide deposit. A feasibility study on the economic viability of developing Phase II is underway.
Mineral property expenditures are:
| Nine months ended September 30, 2012 | Seven months ended December 31, 2011 | |||||||||||||||
| Costs | Phase I | Phase II | Total | Phase I | Phase II | Total | ||||||||||
| Opening | $ | 16,948 | $ | 47,895 | $ | 64,843 | $ | 34,519 | $ | 43,612 | $ | 78,131 | ||||
| Mineral property development costs | - | 15,045 | 15,045 | 29,493 | 4,283 | 33,776 | ||||||||||
| Capitalized depreciation | - | - | - | 4,658 | - | 4,658 | ||||||||||
| Pre-production revenue | - | - | - | (71,621 | ) | - | (71,621 | ) | ||||||||
| Preproduction cost | - | - | - | 19,899 | - | 19,899 | ||||||||||
| $ | 16,948 | $ | 62,940 | $ | 79,888 | $ | 16,948 | $ | 47,895 | $ | 64,843 | |||||
| Accumulated amortization | ||||||||||||||||
| Opening | $ | (1,047 | ) | $ | - | $ | (1,047 | ) | $ | - | $ | - | $ | - | ||
| Amortization for the period | (4,928 | ) | - | (4,928 | ) | (1,047 | ) | - | (1,047 | ) | ||||||
| (5,975 | ) | - | (5,975 | ) | (1,047 | ) | - | (1,047 | ) | |||||||
| Net book value | $ | 10,973 | $ | 62,940 | $ | 73,913 | $ | 15,901 | $ | 47,895 | $ | 63,796 | ||||
| 12. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
Accounts payable and accrued liabilities consist of the following:
| September 30, 2012 | December 31, 2011 | |||||
| Trade payables | $ | 33,063 | $ | 23,697 | ||
| Payroll and related benefits | 11,809 | 3,095 | ||||
| Other payables | 1,087 | 689 | ||||
| $ | 45,959 | $ | 27,481 |
None of the accounts payable and accrued liabilities are interest bearing. Substantially all of the trade payables relate to mining and development and construction activities. Payroll and related benefits consist of vacation payable and workers’ profit share payable. Trade payables are normally settled within 30 days. Workers’ profit share is being paid over a six month period ending March 31, 2013. Vacation payable is distributed when an employee requests, typically prior to a vacation leave.
| RIO ALTO MINING LIMITED |
| NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| For the three and nine month periods ended September 30, 2012 and August 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars, except for per share and per ounce amounts) |
| 13. | TAXES PAYABLE |
Taxes payable consist of the following:
| September 30, 2012 | December 31, 2011 | |||||
| Special mining tax | $ | 2,587 | $ | 0 | ||
| Royalty | 2,437 | 0 | ||||
| Income tax | 32,020 | 990 | ||||
| $ | 37,044 | $ | 990 |
Income taxes payable consists of the income tax obligation arising from taxes and a royalty imposed by Peruvian tax authorities, less tax instalments paid during the year and recognition of a increase in the deferred tax asset.
During the nine months ended September 30, 2012, the following tax payments were made:
| i. | Peruvian income tax instalments for 2012 of $5,651. | |
| ii. | Peruvian income tax for 2011 of $1,188. | |
| iii. | Special mining tax of $4,604. | |
| iv. | Royalties of $3,928. |
| 14. | DEFERRED REVENUE AND DERIVATIVE LIABILITY |
The Company received $50,000 under a Gold Prepayment Agreement (“Prepayment”) and simultaneously entered into a Gold Purchase Agreement (”Purchase Agreement”). The proceeds of the Prepayment were to partially fund development of the La Arena Gold Mine. There is an embedded derivative liability inherent in the Purchase Agreement, which represents the financing cost of the Prepayment. Drawdowns of the Prepayment were initially apportioned to derivative liability based on estimated fair value with the residual amount allocated to deferred revenue.
| a. | Deferred revenue is: |
| Deferred | ||||
| Revenue | ||||
| Opening, December 31, 2011 | $ | 29,510 | ||
| Deliveries to recognize deferred revenue | (14,578 | ) | ||
| Balance, September 30, 2012 | 14,932 | |||
| Less current portion | - | |||
| Long-term portion | $ | 14,932 |
Under the Prepayment the Company is committed to deliver a notional amount 1,941 ounces of gold each month until October 2014. Once the monthly deliveries total 61,312 notional ounces of gold, the Prepayment is settled. The actual monthly delivery of gold ounces may vary by 5 per cent from 1,941 ounces for every $100 dollar change in the gold price from a base price of $1,150 per ounce, subject to limits at $1,450 and $950 per ounce. At a price of $1,450 or more the monthly delivery would be 85 per cent of 1,941 ounces and
| RIO ALTO MINING LIMITED |
| NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| For the three and nine month periods ended September 30, 2012 and August 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars, except for per share and per ounce amounts) |
115 per cent of 1,941 ounces if the price of gold was $950 or less. The ounces of gold to be delivered are as follows:
| Remaining | |||
| Based on | commitment at | ||
| Gold price per ounce | $50,000 | September 30, | |
| drawdown | 2012 | ||
| $950 or lower | 70,509 | 29,013 | |
| $950 to $1,050 | 67,443 | 27,752 | |
| $1,050 to $1,150 | 64,378 | 26,490 | |
| $1,150 to $1,250 | 61,312 | 25,229 | |
| $1,250 to $1,350 | 58,246 | 23,968 | |
| $1,350 to $1,450 | 55,181 | 22,706 | |
| $1,450 or higher | 52,115 | 21,445 |
At September 30, 2012, the price of gold was $1,781 per ounce. At that price there would be 21,445 ounces to be delivered in the amount of 1,650 ounces each month from October 2013 and including October 2014.
The Company may prepay gold ounces remaining to be delivered under the Prepayment, in whole or in part, at any time without penalty in either ounces of gold or the equivalent in cash at the then prevailing gold price. During the nine months ended September 30, 2012, the Company delivered 20,467 ounces of gold to settle 24,079 ounces or 12 months of the notional delivery requirement.
| b. | Derivative liability consists of: |
| Derivative liability | ||||
| Opening, December 31, 2011 | $ | 4,559 | ||
| Change in fair market value of derivative liability | (307 | ) | ||
| Balance, September 30, 2012 | 4,252 | |||
| Less current portion | (2,080 | ) | ||
| Long-term portion | $ | 2,172 |
Under the Purchase Agreement the Company granted an option that allows the holder to purchase gold produced from two oxide pits up to an estimated amount of 634,000 ounces. At September 30, 2012 the remaining number of ounces available for purchase, net of estimated deferred revenue obligations, was approximately 409,000 ounces. The option holder may elect to pay one of either the London Gold Market AM Fixing Price or the Comex (1st Position) Settlement Price over predetermined periods of time. The option holder’s election represents an embedded derivative and is accounted for as a written call option. An option-pricing model that considers gold price volatility is used to estimate the fair value of the derivative liability. Changes in the fair value of the liability are reflected in profit or loss.
| RIO ALTO MINING LIMITED |
| NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| For the three and nine month periods ended September 30, 2012 and August 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars, except for per share and per ounce amounts) |
| 15. | LONG TERM DEBT |
The Company borrowed $3,000 in September 2011 that bears interest at 3-month LIBOR plus 6 per cent compounded annually (6.46% as at September 30, 2012). The debt matures in October 2014. As security for the Prepayment and the $3,000 loan, the Company granted a charge over its shares of La Arena and substantially all of the Company’s assets.
| 16. | ASSET RETIREMENT OBLIGATION |
Asset retirement obligation consists of:
| September 30, | December 31, | ||||||
| 2012 | 2011 | ||||||
| Opening balance | $ | 15,685 | $ | 14,800 | |||
| Accretion expense | 1,245 | 847 | |||||
| Reclamation spending | (275 | ) | |||||
| Foreign exchange | - | 38 | |||||
| $ | 16,655 | $ | 15,685 |
The Company’s current reclamation and closure plan for the La Arena Gold Mine was approved by the Ministry of Energy and Mines in Peru in February 2012. The estimated undiscounted closure obligation is $34,700, which when discounted results in the asset retirement obligation. Such obligation is increased by periodic accretion charges reflected within profit and loss. The Company posted a letter of credit in the amount of $3,760 (Note 9) in August 2012 as a partial guarantee of its closure obligations. Reclamation and closure activities include land and water rehabilitation, demolition of buildings and mine facilities, on-going care and maintenance and other costs. To date, $275 has been spent on reclamation activities. The majority of the closure activities will be carried out during the 2017 through 2019 period. Care and maintenance activities are expected to continue until 2024.
| 17. | EQUITY |
| a. | Share capital |
Authorized share capital consists of an unlimited number of common shares of which 174,575,859 were issued and outstanding at September 30, 2012 (December 31, 2011 – 169,746,352). The Company also has authorized an unlimited number of preferred shares of which none have been issued.
Common shares issued in the nine months ended September 30, 2012 upon the exercise of options and warrants are set out in (b) and (c) below.
| RIO ALTO MINING LIMITED |
| NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| For the three and nine month periods ended September 30, 2012 and August 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars, except for per share and per ounce amounts) |
During the nine months ended August 31, 2011 the Company issued common shares as follows:
| Shares | Price per | Cash | Non-cash | ||||||||||
| issued | share | transaction | transaction | ||||||||||
| Issue Date | (000’s) | C$/share | Proceeds | costs | costs (i) | ||||||||
| December 1, 2010 | 3,906 | $ | 1.68 | $ | 6,562 | $ | (459 | ) | $ | - | |||
| December 2, 2010 | 533 | $ | 1.68 | 896 | (31 | ) | - | ||||||
| January 20, 2011 | 28,060 | $ | 2.05 | 57,517 | (3,683 | ) | (2,087 | ) | |||||
| For the nine months ended | |||||||||||||
| August 31, 2011 | 32,499 | $ | 64,975 | $ | (4,173 | ) | $ | (2,087 | ) |
| i. | Non-cash transaction costs consisted of 1,683,600 broker warrants convertible into an equal number of common shares at C$2.05 per common share until January 20, 2013. The fair value of the broker warrants was recorded as share issue costs. |
| ||
| b. | Share-based payments |
The Company’s stock option plan authorizes the directors to grant options to executive officers, directors, employees and consultants enabling them to acquire from treasury up to that number of shares equal to 10 per cent of the issued and outstanding common shares of the Company.
The exercise price of options granted is determined by the directors, subject to regulatory approval, if required. Options may be granted for a maximum term of 10 years and vest as determined by the board of directors. The Black-Scholes Option Pricing Model is used to estimate the fair value of options granted. Vesting periods range from immediate vesting to vesting over a 3-year period.
Stock option transactions are summarized as follows:
| Number of Options | Weighted Average | ||||
| (000’s) | Exercise Price | ||||
| (C$/option) | |||||
| Outstanding, December 31, 2011 | 10,510 | 1.91 | |||
Granted | 800 | 4.88 | |||
Exercised | (2,109 | ) | 1.25 | ||
Cancelled | (344 | ) | 1.20 | ||
| Outstanding, September 30, 2012 | 8,857 | 2.36 | |||
| Options exercisable, September 30, 2012 | 5,315 | 1.32 |
Proceeds from the exercise of options were $1,242 and $2,632 during the three and nine-month periods ended September 30, 2012, respectively.
| RIO ALTO MINING LIMITED |
| NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| For the three and nine month periods ended September 30, 2012 and August 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars, except for per share and per ounce amounts) |
Stock options outstanding at September 30, 2012 were:
| Options outstanding | Options exercisable | |||||||||
| Weighted | Weighted | |||||||||
| average | Weighted | average | Weighted | |||||||
| exercise | average | exercise | average | |||||||
| Options | price | remaining life | Options | price | remaining life | |||||
| (000's) | (C$/option) | (months) | (000's) | (C$/option) | (months) | |||||
| $0.25 - $0.70 | 1,883 | $ | 0.34 | 23 | 1,883 | $ | 0.34 | 23 | ||
| $1.25 - $1.50 | 460 | $ | 1.50 | 36 | 460 | $ | 1.50 | 36 | ||
| $1.80 - $2.39 | 1,904 | $ | 1.99 | 39 | 1,904 | $ | 1.04 | 39 | ||
| $3.08 - $3.75 | 4,010 | $ | 3.15 | 50 | 918 | $ | 3.18 | 51 | ||
| $5.25 - $5.25 | 600 | $ | 5.25 | 60 | 150 | $ | 5.25 | 60 | ||
| 8,857 | $ | 2.36 | 42 | 5,315 | $ | 1.32 | 35 | |||
The fair value of options issued to executive officers, directors and employees is measured at the grant date. The fair value of options issued to non-employees, where the fair value of the goods or services is not determinable, is measured by way of reference to the equity instruments granted and measured at the date the goods or services are rendered. The assumptions used to estimate the fair value of options granted during the period were:
| Nine months | ||||
| September 30, | ||||
| 2012 | ||||
| Number of options | 800,000 | |||
| Fair value | $ | 1,563 | ||
| Weighted average: | ||||
| Exercise price (C$) | $ | 4.88 | ||
| Risk-free interest rate | 1.21% | |||
| Dividend yield | 0% | |||
| Expected life (years) | 3 | |||
| Volatility | 97% |
| c. | Warrants |
Warrant transactions are summarized as follows:
| Weighted Average | ||||||
| Number of Warrants | Conversion Price | |||||
| (000’s) | (C$/warrant) | |||||
| Outstanding, December 31, 2011 | 3,057 | $ | 1.19 | |||
Converted | (2,720 | ) | 1.09 | |||
| Outstanding, September 30, 2012 | 337 | $ | 2.05 |
| RIO ALTO MINING LIMITED |
| NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| For the three and nine month periods ended September 30, 2012 and August 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars, except for per share and per ounce amounts) |
Warrants outstanding at September 30, 2012 and December 31, 2011 were as follows:
| Warrants Outstanding (000’s) | |||||||||||||||
| Expiry Date | Conversion Price C$/warrant | December 31, 2011 | Converted | June 30, 2012 | Warrant reserve | ||||||||||
| January 20, 2013 | $ | 2.05 | 1,557 | (1,220 | ) | 337 | $ | 417 | |||||||
| June 25, 2012 | $ | 0.30 | 1,500 | (1,500 | ) | - | - | ||||||||
| $ | 1.19 | 3,057 | (2,720 | ) | 337 | $ | 417 | ||||||||
Proceeds from the conversion of warrants were $255 and $2,894 during the three and nine month periods ended September 30, 2012, respectively.
| 18. | REVENUE |
| For the three months ended | For the nine months ended | ||||||||
| September 30, 2012 | August 31, 2011 | September 30, 2012 | August 31, 2011 | ||||||
| Gold - cash sales | $ | 59,712 | $ | - | $ | 219,499 | $ | - | |
| Gold - deferred revenue | 1,148 | - | 14,578 | - | |||||
| Silver - cash sales | 64 | - | 230 | - | |||||
| $ | 60,924 | $ | - | $ | 234,307 | $ | - | ||
| 19. | GENERAL AND ADMINISTRATIVE EXPENSES |
| For the three months ended | For the nine months ended | ||||||||
| September 30, | August 31, | September 30, | August 31, | ||||||
| 2012 | 2011 | 2012 | 2011 | ||||||
| Share-based compensation (note 17(b)) | $ | 1,401 | $ | 239 | $ | 3,764 | $ | 3,217 | |
| Salaries | 345 | 588 | 1,279 | 1,439 | |||||
| Office and miscellaneous | 63 | 142 | 228 | 380 | |||||
| Travel | 37 | 61 | 193 | 281 | |||||
| Investor relations | 17 | 37 | 125 | 188 | |||||
| Professional fees | 171 | 180 | 378 | 544 | |||||
| Directors’ fees | 60 | 63 | 183 | 167 | |||||
| Regulatory and transfer agent fees | 32 | 21 | 291 | 97 | |||||
| Amortization | 65 | 21 | 99 | 52 | |||||
| $ | 2,191 | $ | 1,352 | $ | 6,540 | $ | 6,365 | ||
| RIO ALTO MINING LIMITED |
| NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| For the three and nine month periods ended September 30, 2012 and August 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars, except for per share and per ounce amounts) |
| 20. | SEGMENT REPORTING |
The Company has two operating segments in two geographic areas - mining, acquisition and development of mineral properties, in Latin America and the corporate office in Canada. The Company’s revenue is generated in Peru. Segmented disclosure and Company-wide information is as follows:
| As at September 30, 2012 | |||||||
| Canada | Peru | Total | |||||
| Mineral properties and development costs, net | $ | - | $ | 73,913 | $ | 73,913 | |
| Plant and equipment, net | 107 | 105,764 | 105,871 | ||||
| Other assets | 8,527 | 131,964 | 140,491 | ||||
| $ | 8,634 | $ | 311,641 | $ | 320,275 | ||
| As at ended December 31, 2011 | |||||||
| Canada | Peru | Total | |||||
| Mineral properties and development costs, net | $ | - | $ | 63,796 | $ | 63,796 | |
| Plant and equipment, net | 116 | 61,966 | 62,082 | ||||
| Other assets | 8,314 | 62,342 | 70,656 | ||||
| $ | 8,430 | $ | 188,104 | $ | 196,534 | ||
| Three months ended September 30, 2012 | |||||||||
| Corporate | Mine Operations | Total | |||||||
| Revenue | $ | - | $ | 60,924 | $ | 60,924 | |||
| Cost of sales | - | (26,545 | ) | (26,545 | ) | ||||
| Amortization | - | (4,704 | ) | (4,704 | ) | ||||
| General and administrative expenses | (2,191 | ) | - | (2,191 | ) | ||||
| Exploration and evaluation expense | (797 | ) | (3,573 | ) | (4,370 | ) | |||
| Unrealized loss on derivative liability | (1,017 | ) | - | (1,017 | ) | ||||
| Accretion of asset retirement obligation | - | (414 | ) | (414 | ) | ||||
| Foreign exchange gain (loss) | (76 | ) | (296 | ) | (372 | ) | |||
| Interest expense, net | (45 | ) | 200 | 155 | |||||
| Provision for income taxes | - | (10,662 | ) | (10,662 | ) | ||||
| Net income (loss) for the period | $ | (4,126 | ) | $ | 14,930 | $ | 10,804 | ||
| Three months ended August 31, 2011 | |||||||||
| Corporate | Mine Development | Total | |||||||
| General and administrative expenses | $ | (1,197 | ) | $ | (155 | ) | $ | (1,352 | ) |
| Unrealized loss on derivative liability | (8,508 | ) | - | (8,508 | ) | ||||
| Accretion of asset retirement obligation | - | (377 | ) | (377 | ) | ||||
| Foreign exchange gain (loss) | (17 | ) | (11 | ) | (28 | ) | |||
| Interest expense, net | 2 | - | 2 | ||||||
| Net income (loss) for the period | $ | (9,720 | ) | $ | (543 | ) | $ | (10,263 | ) |
| RIO ALTO MINING LIMITED |
| NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| For the three and nine month periods ended September 30, 2012 and August 31, 2011 |
| (Unaudited - Expressed in thousands of United States dollars, except for per share and per ounce amounts) |
| Nine months ended September 30, 2012 | |||||||||
| Corporate | Mine Operations | Total | |||||||
| Revenue | $ | - | $ | 234,307 | $ | 234,307 | |||
| Cost of sales | - | (82,736 | ) | (82,736 | ) | ||||
| Amortization | - | (16,221 | ) | (16,221 | ) | ||||
| General and administrative expenses | (6,540 | ) | - | (6,540 | ) | ||||
| Exploration and evaluation expense | (1,951 | ) | (3,750 | ) | (5,701 | ) | |||
| Unrealized gain on derivative liability | 307 | - | 307 | ||||||
| Accretion of asset retirement obligation | - | (1,245 | ) | (1,245 | ) | ||||
| Foreign exchange gain (loss) | (118 | ) | (162 | ) | (280 | ) | |||
| Interest expense, net | (226 | ) | 203 | (23 | ) | ||||
| Provision for income taxes | - | (48,244 | ) | (48,244 | ) | ||||
| Net income (loss) for the period | $ | (8,528 | ) | $ | 82,152 | $ | 73,624 | ||
| Nine months ended August 31, 2011 | |||||||||
| Corporate | Mine Development | Total | |||||||
| General and administrative expenses | (5,813 | ) | (552 | ) | (6,365 | ) | |||
| Exploration and evaluation expense | - | (2 | ) | (2 | ) | ||||
| Unrealized loss on derivative liability | (6,859 | ) | - | (6,859 | ) | ||||
| Accretion of asset retirement obligation | - | (377 | ) | (377 | ) | ||||
| Foreign exchange gain (loss) | (269 | ) | (150 | ) | (419 | ) | |||
| Interest expense, net | (5 | ) | - | (5 | ) | ||||
| Provision for income taxes | (148 | ) | (53 | ) | (201 | ) | |||
| Net income (loss) for the period | $ | (13,094 | ) | $ | (1,134 | ) | $ | (14,228 | ) |
| 21. | SUBSEQUENT EVENTS |
| a. | Subsequent to September 30, 2012 the Company received $421 on the issuance of 362,753 shares pursuant to the exercise of 362,753 options. |
| |
| b. | Subsequent to September 30, 2012 the Company incorporated a captive insurance company in Barbados. The purpose of the captive is to partially insure various risks at La Arena. |
|